Bush Tax Cuts Lapsing – “Stick a Fork in US, WE ARE done!”

     Alan Greenspan, the former FED Chairman, now thinks that the Bush Tax cuts should be allowed to lapse1.  This is the same Chairperson who lobbied Congress to pass the tax cuts in 2001 and 2003.  This is the same Chairperson who artificially kept interest rates at lower than market dictated rates during his tenure.  He now is championing deficit reduction. But rather than criticizing the source of the deficit, this Administration’s and Congressional insane spending levels, highlights his elitist total disregard for the plight of the American worker and those who would like to go back to work.  It has been proven time and time again that TAX INCREASES DURING A RECESSION OR A RECOVER WILL ONLY DEEPEN THE RECESSION OR SLOW THE RECOVERY.   Greenspan knows this but is typical of today’s “relatively principled”, i.e. expediency rules, national leaders.  

     Greenspan is a typical revisionist who seeks to erase or rewrite their previous positions when they adopt politically expedient positions.  Where was Greenspan when Barney Frank and Chris Dodd where emasculating the regulators at Freddy and Fannie?  Where is Greenspan’s outrage at this administration refusal to adopt a budget that can be viewed by the taxpayers?  Does Greenspan even look at historical cause and effect?  The Kennedy, Reagan and Bush tax cuts INCREASED treasury revenues.  Every single income tax increase in history lowered treasury revenues. Recently, EVEN IN COMMUNIST COUNTRIES. 

     It may be time to take another look at Alexander Hamilton’s perverted dream, a Central Federal Bank with broad powers to regulate the US economy by eliminating State’s and the private sector’s role in this endeavor.  Hamilton believed in a strong Central Bank and was the leading champion of the concept throughout the development of the Constitution then later when he became the Secretary of the Treasury under Washington.  While he was never able to create a national bank approximating today’s Federal Reserve, he was able to convince enough in the government that the federal government had the constitution obligation to assume the State’s debts (from the war for independence) and thus was able to establish the Bank of the United States.  His ultimate goal for centralizing the control over the economy was culminated when the Fed was created in 1913.   The Fed was created to assuage the fears caused by the financial panic of 1907.  (Remember Rahm Emanuel’s “Never want to let a serious crisis go waste”)  The irony of the Panic of 1907 was that it was the private sector’s intervention, led by J.P. Morgan that averted a deepening of the crisis and actually restored confidence and liquidity in the banking system.  Seeing that an infusion of capital by the private sector “fixed” the Panic of 1907, our esteemed Congressmen thought that , “gee, if the private sector can fix a banking crisis, how much better could the government do it”?  INDEED!  Six years later the Fed was created and has controlled our Financial destiny ever since. 

     Without going into 200 years plus arguments regarding the plusses and minuses of a central bank or the Federal Reserve Bank, there are a few points that I think deserve review.

  1. We need to examine whether the FED should continue as an Independent Agency of the Federal Government (no control by the executive or legislative branches; be subject to the executive branch (Cabinet level Chairperson); be subject to oversight by the legislative branch; or none of the above. 
  2. Should the FED should be subject to full annual disclosure to the American public?  Should they be made to disclose not only the votes on changes in monetary policy but the goals for the changes; what are the success criteria for the changes; and what are the triggers for modifying the policy in the future?
  3. Should FED chairman serve no more than 8 years total which includes a cap of 16 years total within the Federal Reserve Bank system?  Does their Tenure add to their ability to make sound monetary decisions or do they become part of the problem?

     Alan Greenspan’s latest flip flop just reinforces the belief that the FED does not have all of the answers.  If the board of governors or the Chairman cannot stick to proven principles, then we need to look not only at the people involved, but the institution itself.  “Relative Economics”, ie find a policy to fit the situation, is like “Relative Morality”.  If something is not founded on principal, then it is unfounded and unreliable…

        Letting the Bush Tax Cuts lapse will insure a longer recovery if not a double dip recession.  The debt needs to be addressed.  How about we:

  1. Force the administration to adopt an annual budget
  2. Force the administration to publish the annual budget with monthly updates to a Federal set of Financial Statements that we can all review and see what the administration and Congress is up to.
  3. Eliminate “off book” expenditures.  Every dime spend goes against the federal budget, PERIOD!  If it is supplemental funding for a war, flood, natural disaster, etc., it is in the Financial Statement and goes against the budget.  Gee, just like the SEC forces the private sector to do.
  4. For the Administration and Congress to adhere to a Balance Budget policy.  If the administration/Congress goes over budget, they have to CUT something else out.
  5. Unfunded Liabilities, i.e. Social Security, Medicare, should be illegal with actual cash reserves required.
  6. Unfunded Mandates by the administration or Congress should be illegal.  Unfunded Mandates are when the Federal government passes a law or an executive order is issued that requires someone else to pay for the cost of the mandate.  This only pushes to liability out away for those who are responsible for creating the mandate.  Medicaid, Welfare, Federal Education mandates, etc. are all example of unfunded mandates.  The federal government tells the state, county, city or company what they have to do but do not reimburse those entities for the costs to implement or execute the program. 

     I am sure if the Administration created a Commission, made up solely of everyday people, they could solve this country’s debt problem.  After all, we have to do it in our own lives every day.  We don’t need the pontifications of spineless politicians, bureaucrats, or Fed Chairmen to tell us what should be done.

1 MoneyNews.Com, Dan Well, 7/16/2010, “Greenspan: Congess Should Let Bush’s Tax Cuts Lapse”

RD Pierini