How Bad Will It Get?

The London Telegraph's Ambrose Evans-Pritchard is a solid bear. He's been forecasting gloom and doom for years. Now he's writing about the possibility of a double-dip recession provoked by the current Euro crisis.

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

Leading indicators seem to be forecasting a US contraction by the end of the year. That means that the Fed will swing back to money printing. An analyst in Europe, Andrew Roberts, forecasts that the Fed will revert to the same policy as it followed during World War II when it printed enough money to keep US Treasury bonds yielding about 2 percent.

Well, of course we don't yet know what is going to happen. The markets clearly aren't sure. They are certainly calling for a very modest expansion from now on.

If there is a double-dip recession in the US we will know who to blame. President Obama and the Democrats. For trashing the credit markets with lunatic housing credit subsidies. For wasting a trillion dollars on stimulating state and local government union workers. For raising taxes in a recession. For burdening the economy with a huge new health care entitlement. For scaring consumers and businesses with lunatic green energy taxes.

It could all end up in a huge political realignment.

But will it be worth the cost? The millions of unemployed. The shattered lives.

What's the point of all this political power and subsidization and preening if it all leads to a massive meltdown as big government shows what a waste it all is?

Frankly, I'd rather have the the foolish President Obama continue in power and the utterly corrupt Democrats in Congress continue in power than subject the American people to another Great Depression.

The Limits of Stimulus

What is the point of Keynesianism and economic "stimulus?" Is it all just political gamesmanship--naive inflationism and politically-connected economists truckling to politicians who always need another justifiction to spend?

The Reason chaps are having their fun with the New York Times' Paul Krugman. Who is still calling for more "stimulus." Trillions, not billions. Even more stimulus after the trillions already thrown over the side. But the Europeans don't like it. As Tim Cavanaugh writes:

Europeans have lost their appetite for digging deeper holes of debt for the same reason Americans have: because they don't have a choice. As Margaret Thatcher predicted would happen, we have all run out of other people's money.

That is to say: Europeans are worried about sovereign default, meaning that the government can't borrow any more to fund stimulus. Why? Because just like a homeowner with an adjustable-rate mortgage, there comes a time when the interest payment becomes so high that you can't pay for policemen and firemen and teachers and health care and government pensions.

The financial markets are worried that Greekonomics, the inability to service government debt, is likely to spread.

I've decided that the point of stimulus is quite simple, despite all the clouds of rhetoric. It is to float the underwater debtors. Capitalism is simple. If the debtors are afloat, meaning that their assets exceed their liabilities, and the market is confident that they are afloat, then the world goes on. Creditors can trust that debtors will meet their interest payments.

But if debtors are underwater, then nobody knows when the debtors will default. That goes for governments, bankers, corporations, and homeowners. In that situation creditors are right to lose confidence in the underwater debtors.

Keynesianism is the economic doctrine that the government should print and borrow money in an economic crisis. The purpose is to float the debtors. And the government should spend money to push money towards the underwater debtors and thus enable them to meet their obligations and, hopefully, increase asset prices and thus refloat the underwater debtors.

The question is this. Once you have refloated the banks, as the US government did in the fall of 2008, is there a need for stimulus?

Well, I'd say that, once the banks are rescued, then it is time for triage, as practiced by J.P. Morgan in 1907.

Morgan and the richest men in the US sat in a room and decided which companies to lend money to. Hopeless case? No money. Likely to survive without a loan? No money. The only debtors Morgan lent money to were companies he thought he could save with a loan.

Notice the difference between then and now. The banks have been rescued. Thanks Hank Paulson. But you have to rescue the banks, otherwise "this sucker could go down," in the words of President Bush.

But auto companies? Who needs to rescue auto companies? Yeah. The criterion of Obama bailouts is politics. And the criterion of Obama stimulus is politics. The politically powerful get rescued and the rest go to the wall.

Not a good way to run a railroad.

OK. But what about lessons learned? The lesson is that we need a lot less leverage in the economy. The excessive leverage and debt is not the fault of greedy bankers. It is the fault of politicians. Politicians like easy money and excessive debt because voters and organized interests are always agitating for cheap money.

But excessive debt means that debtors can't afford a decline in asset prices, e.g., houses. When you shovel credit at the housing market with Fannie and Freddie, you push up housing prices with your 90 percent and zero-down loans. All it takes is a decline in home prices of ten percent and a ton of people are underwater.

What about overleveraged banks. There was an excuse for bank leverage in the old days. In the old days there wasn't an organized market in equities. Banking was the only efficient way to channel capital through the economy.

But today we have a market in just about everything. So a lot of today's leverage could be transformed into equity.

And equity is so much more civilized.

Debt is rigid. I lend you money and you pay me a fixed interest. Or else. Equity is flexible. I invest money in your enterprise and now we are partners. We share in the profits and we share in the losses.

McChrystal Jumps on Grenade

Given the reports about Gen. Stanley McChrystal's self-sacrificing personal regimen: four hours of sleep, one meal a day, rigorous exercise, it's hard to believe that he and his aides stumbled blindly into criticism of President Obama and his advisors. I mean: who would be dumb enough to talk to a free-lance writer writing for the liberal magazine Vanity Fair: someone with nothing to lose by breaking a confidence.

No. You have to believe that a man whose devotional exercises amount almost to mortification knew exactly what he was doing. The idea was to blow up the president's policy, knowing that the price of the explosion would be McChrystal's head on a platter.

So McChrystal took out a grenade, pulled the pin, and then jumped on it. It's the least he could do for the men serving under him.

In doing so, he puts the Obama administration between a rock and a hard place. Back in the 2000s Sen. Obama was part of the Democratic faction that accused the Bush administration of fighting the wrong war: in Iraq not Afghanistan. Obama ran for president on that platform. So President Obama found himself as president forced to go through the motions of caring about Afghanistan.

The plan was to do a surge, but not too much, and then start withdrawing troops by mid 2011, just about the time that the presidential campaign for 2012 would begin. Absent withdrawal from Afghanistan, Obama would risk an anti-war candidacy to challenge him from the left.

With his indiscretion, McChrystal has put the Obama Afghanistan strategy on the national radar, just where the Obamis don't want it.

If the Obamis fire McChrystal then they have to find another general to run the Afghan war and they have to do a deal with him, which might require more resources.

If the Obamis don't fire McChrystal then they show themselves as weak to the world.

But they also show themselves weak to their liberal base, and that is important to them.

One of the major liberal shibboleths is civilian control of the military. It's a big deal for liberals because they know that the military doesn't like them. At the back of their minds is the thought that the military might do a number on them, even a coup, so they have to show who's boss. You can imagine what liberals would think of a president that allowed a general to shoot off his mouth about the commander-in-chief.

This year, 2010, is going to be an annus horribilis for liberals, and I'd guess that 2011 and 2012 won't be much better. The reason is pretty simple. It is that liberals have gotten into power under a false flag. They don't believe in a strong defense, but they pretended that they did. They don't believe in God and guns and family, but they pretended that they did. They don't believe in the free market and people succeeding on their own, but have to pretend that they do. They don't believe in live and let live, but have to pretend that their national nannying is just for the children.

But when liberals actually get into power, then they haul down the false flag and hoist their real one, emblazoned with the motto: Big Government For Ever! Moderates--i.e., Americans not paying much attention to politics--are shocked. They upchuck at the next election.

The big question is: what comes after that? Bush or Reagan, or something new?

My vote is for a woman-centered, woman-led conservatism that changes the rigid administrative top-down welfare state into a social, convivial, cooperative, responsible society.

Be Careful What You Wish For

The New York Times quota-conservative David Brooks gets a lot of flak from conservatives. They think he is too bland, truckling to his liberal readers.

Sure, he serves up a bland conservative dish for the liberal readers at the Times. Writing, as he does, for liberals, he doesn't beat them upside the head. He seasons his conservative thoughts to make them bearable to sensitive liberal palates. It's called communication.

The advantage of building trust with your liberal readers is that, occasionally, you can slip a real scorcher on to the liberal dinner table. Like yesterday's "Faustus Makes a Deal."

(Yes. Very sophisticated. The Temptation of Faust.)

Says Mephistopheles to the liberal Dr. Faust: Whaddya want, pal?

Faust asks not just for a nice liberal president but the whole enchilada:

1. An economic crisis to discredit Wall Street and capitalism
   
   
2. The smartest Democrat in the land as president
   
   
3. A fabuloso $800 billion spending package
   
   
4. A dream health care package for a grateful nation
   
   
5. An environmental disaster to discredit Big Oil

Hey Faust, you got it!

Imagine that. Our liberal Faust got everything he wanted. But then everything went wrong! Hell is getting everything you ever wanted.

And, indeed, everything Dr. Faustus wished for came to pass. Yet he watched events unfold with growing horror. Not in 70 years had there been a sequence of events so perfectly designed to fortify liberalism. Yet the country wasn’t swinging to the left; it was swinging to the right!

Oh no! Not that!

You gotta hand it to David Brooks. Sometimes he hits them out of the park.

But, remembering that he's got to humor his liberal readers, he ends with a swipe at conservatives: Faust's soul, he sniggers, will spend all eternity trapped in Glenn Beck's microphone.

Yep. That's the same Glenn Beck that just propelled The Road to Serfdom to the top of the best-selling charts. Who could be buying it? Conservatives don't read books. At least not as far as anyone knows in liberal-dom.

Old Obama Had a Farm - OIIOHH Aye Oh

It's an old, old song, but Obama Is In Over His Head:

Old Obama had a farm,
OIIOHH aye oh.

And on that farm he had a Rahm,
OIIOHH aye oh.
With an F-word here and an F-word there,
Here an F there an F,
Everywhere an F-word,

Old Obama had a farm,
OIIOHH aye oh.

And on that farm he had a spill,
OIIOHH aye oh.
With a glop-glop here and a glop-glop there,
Here a glop there a glop,
Everywhere a glop-glop,

Old Obama had a farm,
OIIOHH aye oh.

And on that farm he had some debt,
OIIOHH aye oh.
With a Fannie here and a Freddie there,
Here a debt there a debt,
Everywhere a bailout,

Old Obama had a farm,
OIIOHH aye oh.

And on that farm he had an ass,
OIIOHH aye oh.
With an ass-kick here and an ass-kick there,
Here an ass there an ass,
Everywhere a ass-kick,

Old Obama had a farm,
OIIOHH aye oh.

You get the idea...

Scapegoating 101

It's telling that the iconic definition of evil conservatism, for our liberal friends, is the Communist witchhunting of Sen. Joe McCarthy (R-WI). And the cathartic moment for them is moment that Robert Welch the attorney stood up to Sen. McCarthy at the Army-McCarthy hearings.

Let us not assassinate this lad further, Senator. You have done enough. Have you no sense of decency sir, at long last? Have you left no sense of decency?

Yet the one thing that senior Democratic solons have excelled at since that day at the Army McCarthy hearings in 1954 is hauling scapegoats up before a congressional committee and utterly demolishing them.

As in many things, our liberal friends completely misunderstand the point of scapegoating.

The point of scapegoating is not for the king to haul up some miscreant, whether a tongue-tied BP CEO like Tony Hayward or some hapless virgin.

The point of scapegoating is for the king himself to take up the burden of guilt and failure and offer himself as a sacrifice to the gods, offering, as our Founders might say, his life, his fortune, and his sacred honor in order to save the village, the tribe, the nation from annihilation.

That is why the theme of sacrifice recurs throughout ancient mythology. One of the most famous sacrificed gods is the Egyptian god Osiris. That is why the sacrifice of the Crucifixion is the central article of faith in Christianity. This sacrifice is the greatest sacrifice imaginable: God sacrifices his Son.

Of course, powerful kings and tribal leaders have used their power, down the ages, to avoid doing the right thing. Take Abraham. Did he sacrifice himself? Oh no. He decided to sacrifice his son Isaac. Even that proved to high a price, so God thoughtfully told him he could sacrifice a goat instead.

President Bush is a man who understood that, after 9/11, he had to do the right thing. That is why the frat boy came, in due season, to acquire all the gravitas of a sacrificed king.

He knew, I think, that doing the right thing would probably mean political immolation for him. After all, he was a child of the Sixties and lived through the Vietnam War--not to mention the Cold War. He knew how quickly people tire of a long conflict.

So President Bush laid himself down on the altar of the nation, and allowed all the mistakes and failures and hardships of his time to be personalized in himself. He did that, giving himself up to humiliation and failure, so that the nation might live.

Our liberal friends do not understand this dynamic. They do not understand that a CEO and a $20 billion slush fund is not a sufficient sacrifice for a bungled oil-spill cleanup. They do not understand that, as the nation's intellectual and educated elite--and also by virtue of the elections of 2008, the nation's political elite--it is they that must take upon themselves the mistakes of the present era.

In fact, our liberal friends seem to have learned nothing from the example of history down the ages. They do not see themselves as just another powerful elite that has come to dominate and rule a people, just as tribal leaders, kings, and emperors did since time out of mind. They do not see themselves as normal, fallible rulers, clumsily manipulating the levers of political power no better than any of the perfumed aristocrats that came before them.

They do not understand that it is President Obama that must sacrifice himself as the scapegoat for the horrible mess in the Gulf. And maybe they never will.

But we are conservatives. Fallible and fallen as we are, we know a thing or two. And what we know is that President Obama must take the fall for this one.

And one way or another, he will.

The Party of No Canard

Our Democratic friends are really keen on the idea that the Republican Party is the Party of No. They think that this is a devastating critique of the party that is currently in opposition.

Earth to Democrats: that's what an opposition party does. Say "No!"

Even Democratic pollsters Doug Schoen and Pat Caddell in the Wall Street Journal piece can't resist the meme.

It may be a partisan cliché, but the GOP is increasingly seen as the "Party of No"...

Republicans must offer a clear set of core principles, if not a comprehensive set of bold new ideas. If they do not, their hopes for winning both houses of Congress come November—a goal that is well within reach—could be dashed.

This is rubbish. Republicans don't need to do anything but yell bloody murder right now. That's all they need to do to rally people uncomfortable with Obama and Pelosi.

Let's rewind a little and look at the recent past so we can see how the Party of No tactic works in practice.

From January 2001 to July 2008 the United States had a real Party of No. Its name was the Democratic Party, and the No strategy came right from the top.

• Democrats said No to Bush's "selection."
  
  
• Democrats said No to recession-fighting tax rate cuts.
  
  
• Democrats said No to school choice.
  
  
• Democrats said No to the war in Iraq.
  
  
• Democrats said No to Social Security reform.
  
  
• Democrats said No to Fannie Freddie reform.
  
  
• Democrats said No to a corrupt Congress.
  
  
• Democrats said No to corporate lobbyists.
  
  
• Democrats said No to ineffective disaster response.

Yeah. All that negativity really messed the Dems up when they tried to capture the Congress in 2006 and the White House in 2008.

Of course, strategically, the Party of No business has really screwed the Democrats. The American people didn't think they were voting for a left-liberal president and Congress in 2008. They didn't think they were voting for the Cornhusker Kickback. They thought they were voting for Change You Can Believe In.

So now the 80 percent of the American people that are not liberal are looking at a government that is completely out of touch with their hopes and fears.

And it looks more and more likely that they are going to do something about it in November.

But forget about mindless opposition. Let's talk about Core Principles. I just looked at the Amazon product page for Hayek's Road to Serfdom. As of Thursday, June 17, 2010, the the rank for this 66 year-old book is #2. Why? Because Glenn Beck featured the book on his TV show a week ago.

Imagine that. Conservative TV watchers that read books about core principles!

So how does your Party of No look now?