China’s 2011 total trade surplus was $183B. The surplus with the USA was $270B; the US was 150% of China’s total surplus. China imports lots of “stuff.”  Crude oil is high on that list. Increased domestic consumption, plus additional imports for strategic storage, have pushed up imports to 6 million barrels per day in February. At that rate, the 2012 import bill for crude will be $250B, approximately equal to the US trade deficit with China.

The US/China trade deficit is creating USD surpluses for China’s largest crude suppliers, Saudi Arabia. Angola and Iran are the largest providers. These countries are not America’s friends, and they already have too many dollars. When Americans shop at Wal-Mart, they are actually sending dollars to Iran. In 2012, it will come to about $25B of “our” money that ends up with the Ayatollahs. Welcome to the global village.

As a result of the shrinking trade surplus and the need to import expensive crude, China does not have the investable dollars it once had. So it is no longer buying US Treasuries at the previous fast pace. At the same time, the US Treasury is issuing debt at the rate of $100B a month. If the Chinese aren’t buying debt, then it must be sold to other dollar holders.

Saudi Arabia may end up with more dollars in reserves as a result, but I don’t think it will buy long-term bonds with this money. The money will stay in short-term securities. The Saudis will look at the 0.5% they can get on their money for 3-years (or the 5-year at 1%) and just say “no”.

Let’s return to the Bloomberg story and the seven-fold increase in bank holdings of Treasury paper:

Commercial lenders purchased $78.2 billion of Treasuries and securities of agencies in January and February, compared with $62.6 billion in all of 2011, bringing their holdings to $1.78 trillion, Fed data show.

It is a financial “unnatural act” when an A- rated bank can extend credit to a AA+ borrower and still make money in the process. This reverse credit arbitrage is made possible by the banks willingness to “borrow short and lend long”. The banks are doing it today because they have unlimited quantities of liquidity available to them through the repo markets at near zero cost. They are playing the carry trade. In the process, they are loading up their balance sheets with low yielding assets, and they are taking risks of rising rates. There is a limit to this.

As of this morning, many of those US financials that own the $1.8T of bonds are not so happy. The strong stock market, better economy and rising inflation expectations have clobbered the bonds the past few days. Some may think that the ten-year at 2.20% is a “buy”. But all I see in this chart is the “air” under the current price.

Not surprisingly, inflation expectations have picked up:

The easy answer to this conundrum is that the Fed will just keep buying more bonds to keep rates artificially low. I say it can’t do that. If the Fed announced tomorrow that it was going to “TWIST” the market to keep the ten-year at 2%,  crude would rise $150 in a month. Bernanke understands that.

Absent a new move by the Fed to contain long-term interest rates, the ten-year looks like it is headed to 3%. The Chinese are not buying, the banks are full up with paper (and underwater), PIMCO et al are long duration up the wazoo, and any thought that retail interest in five-year bonds at 1% will save the day is just misguided (dumb money is not that dumb).

Bernanke must be delighted today. His strategy all along has been to inflate the S&P and let rising asset values stimulate economic growth. His unlimited supply of cheap money has worked. But it has stoked inflation and that is now being transmitted to the bond market.

I think something has to give, either stocks back off and the economy cools, or the ten-year is headed to 3%. Bernanke can’t have it both ways. He’s about to learn that lesson.

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The constraints placed upon government by our Founding Fathers via the Constitution led to the greatest explosion of freedom and prosperity ever witnessed in the history of civilization.

The man now occupying the Oval Office believes he has a better idea than did those freedom-loving patriots. This man sees unfairness and danger in liberty, and offers ‘hope and change’ through a massive federal government that controls commerce and constrains all personal liberty and self-determination.

Barack Obama pompously refers to himself as a constitutional scholar. More appropriately, he is a mortal enemy of the U.S. Constitution. He studies it as a military planner studies an adversary’s defensive positions in preparation for battle. Analyzing, examining and probing points of weaknesses to the constitutional fortress, he takes adversarial positions on every concept of a free republic. Attack, overwhelm, and overcome is the battle cry for the radical leftist from Chicago.

The condescending view with which Obama sees the Constitution and the American people is evident every time he opens his mouth. He becomes increasingly more brazen and arrogant and exhibits an unapologetic contempt for the laws of the nation and his oath of office to ‘preserve, protect, and defend the Constitution of the United States.’

Historically, when Obama wanders off without his handlers he is prone to spout off his real Marxists’ beliefs like the ‘spread the wealth’ comment to Joe the Plumber. Seven years before that, however, he unleashed his pent-up rage from his long-held vendetta against the Constitution, telling a Chicago public station in 2001, that ‘redistributive change is needed.’ This was before he employed handlers, acting coaches, and PR specialists to keep him muzzled when not standing in front of his Teleprompter.

Consider Obama’s opinions about the Constitution, and note the animosity:

• ‘The Supreme Court never ventured into the issues of redistribution of wealth.’
• ‘It didn’t break free from the essential constraints that were placed by the Founding Fathers in the Constitution.’
• ‘The Constitution is a charter of negative liberties. Says what the states can’t do to you. Says what the federal government can’t do to you, but doesn’t say what the federal government or state government must do on your behalf.’
• ‘The civil rights movement became so court-focused I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change. In some ways, we still suffer from that.’

He is a master of deceit and knows that free Americans and their institutions are his enemies, and that he must destroy their constitutional defenses before he can dictate his will. He knows Sun Tzu’s principle in ‘The Art of War,’ that ‘all warfare is based on deception.’ Obama is well equipped for the art of deception, claiming exemption from truth in the name of the ‘greater’ or ‘common good.’

The country is under siege. He and his administration spent the first three years in office prosecuting, judging, and sentencing America for its ‘sins’ against collectivism. He led a federal invasion into the states, and declared all-out war on the American people, business, lending institutions, religion, energy, capitalism, and every aspect of traditional society. When Congress denied his wishes, he simply created a law and dictated his will upon the country. He crowed that when Congress refuses to act according to his plans, he feels an ‘obligation as President to do what he can without them.’

Congress has long been complicit with chipping away at the peoples’ rights by overstepping their authority, while at the same time ceding much of its legitimate power to the Executive branch and the bureaucracy. This acquiescence of its constitutional mandates relegates the third branch of government to an insignificant position of buffoonery. They are consigned to entertaining and bowing to the whims of the King like a troupe of court jesters.

Obama wants Americans unified around a collective culture and everyone reduced to the lowest common denominator. In other words, he wants a once proud and independent nation on its knees, begging favors and alms from an all-powerful federal government.

Like most wannabe tyrants he uses military analogies when trying to rally the American people. He wants everyone to unify around his idealistic, collective culture, and follow his inexorable quest to change the country into a Marxist state. It’s another way of stifling dissent by suggesting that all ‘loyal’ Americans will march to the beat of his leftist drum against his ‘enemy.’

To achieve the progressives’ dream they must perform revolutionary surgery to remove the healthy tissue from the body politic of America and leave a blob of freedom destroying parasites and collectivists.

Barack Obama, the self-proclaimed ‘hope’ of the nation is an instrument of despair, a common despot, and a fraud. He is devoid of any love for our constitutional republic, and determined to still the beating heart of liberty.

The Constitution is the guardian of America and the country will surely die without its protection.

This charming pickup line is slurred by English musician, Luther Grovesnor, to an overeager groupie named Lixie in the notorious 1970 documentary, Groupies.

“Yes,” she admits over the din of an East Village nightclub. “But I’ve been on penicillin for three days, so it should be cleared up by now.”

This less than reassuring reply seems to satisfy the intoxicated musician and the two of them stumble out into the night for some mindless nookie at the Chelsea Hotel.

Oh, for the days when penicillin wiped away the sickly residue of sexual misadventure!

Alas, no more – those hedonistic hours were short-lived, although they groped along for another decade or so until AIDS came along and put safe sex into our vocabulary. None of this is foreseen by the denizens of Groupies who act like giddy schoolgirls, comparing notes on the physical attributes of their quarry – size, shape and stamina. We meet the infamous Plaster Casters who made plaster castes of the manly endowments of Jimi Hendrix and other rock stars. There’s Pamela Des Barres who has since made a cottage industry of her backstage exploits with the likes of Led Zeppelin and The Rolling Stones. Some of the girl’s pseudonyms are Patty Cakes, Goldie Glitter and Miss Harlow. A few viewers may find their girlish obsessions charming. Most, I suspect, will have a hard time distinguishing the narcissism of the pursuer from the pursued. One wonders what became of these ladies after the film. Did they go on to college, became soccer moms or meet a tragic end? Sadly, in the case of Andrea “Whips” Feldman, the answer is known. She jumped out the 14^th floor window of her parent’s Fifth Avenue apartment, clutching a Bible and crucifix while her horrified boyfriend – the poet, Jim Carroll – looked helplessly on.

It is tempting to put a movie like Groupies in a time capsule of the 1960’s and mark it as ”cautionary”. In fact, much of the footage feels like outtakes from an Andy Warhol movie, such as Chelsea Girls or Trash – nearly unwatchable in its layers of depravity but also perversely intriguing. And yet, the myth of the groupie persists in our own time for very different reasons.

There is a growing list of memoirs, documentaries and even a Hollywood valentine to groupies called Almost Famous by Cameron Crowe – a G-rated version of the backstage scene if there ever was one. They often appear on the syllabi of Gender Studies classes as tales of empowerment, but in truth they offer mixed-messages on the ever widening parameters of female sexuality since the 1960′s.

Part of the attraction of Groupies is how disarmingly upfront the young women are about their intentions. A rock star is targeted, seduced and then left without regret. In the short term, the women are filled with youthful pride at their conquests. In the long term, the transient nature of these encounters seems glib. Even 18^th Century courtesans were offered some measure of economic reward for their devotion – jewelry in exchange for companionship or an apartment in exchange for trysts. No such fringe benefits are forthcoming for these backstage bettys. These ladies pay the rent.

The men fare no better, acting like layabouts, killing time between gigs with underage girls and a stupefying amount of drugs. Their craven attitude is as perplexing as the girls who surround them. (The singer, Terry Reid, comes off best, gently rebuffing the drunken advances of a very needy teenage boy. Alvin Lee, the guitarist, is the worst, dumping on groupies even as one lies beside him in bed.) The rock ‘n’ roll circus they all inhabit is devoid of any inherent meaning and they fill it with idle chatter and idle pursuits – like atoms bouncing off one another with no unifying nucleus to hold them.

By contrast, the songwriter, Patti Smith, won the 2010 National Book Award for her memoir, Just Kids, about her devotion to the gay photographer, Robert Mapplethorpe. It covers the same era and milieu as Groupies. Ms. Smith, however, has the benefit of hindsight and her narrative is subsequently more thoughtful and thorough. Being in love with a gay artist has its own inbuilt tension and Ms. Smith renders it beautifully with all the attendant heartbreak and contradictions therein. She slavishly supports her artistic lover by waiting tables - all the while scribbling poetry on the side – poetry that will eventually be set to music and transform the role of women in rock ‘n’ roll forever.  Strangely, it is here that one finds a truly affecting love story – the misbegotten love of a diminutive woman for a very promiscuous gay man. Mapplethorpe’s sexual compulsions are legion, dwarfing the numbers of a comparable rock star. Yet, Ms. Smith endures his transgressions and weathers his wayward ways until – in a role reversal that mirrors A Star Is Born – her nascent career as a songwriter takes off while his career falters. She eventually leaves him to marry another man and moves away to raise a family – but her constancy never falters. She stays in touch with Mapplethorpe through letters and even manages to be at his beside when he dies of AIDS in 1989. All of this is conveyed through tender and sympathetic prose.

Left: The Patti Smith Memoir, Just Kids. "These photographs…testify that once upon a time we were innocent and beautiful and anyone we imagined we could be." -Patti Smith

Ms. Smith rises like a phoenix from the inferno of the 1960′s underground while the ladies in Groupies – for all their sexual panting – fade into memory.

I recommend you read Ms. Smith’s memoir to see how she navigated the straits of the sexual revolution with her soul intact. You cannot say the same for Groupies whose inhabitants are as crude as any streetwalker in a Bertolt Brecht play. Ms. Smith, a sensitive introvert, is a far more reliable guide.

I hasten to add that it is inappropriate to equate the ladies of Groupies with prostitutes, for no money changes hands. They’re in it for the thrill – no harm, no foul. But it is equally untrue to conclude that these women exhibit the “love ‘em and leave ‘em” swagger of their male heterosexual counterparts. A Gender Studies professor might lead you to make such a moral equivalence. On the contrary, the theatrical posturing of these women and the flamboyant behavior they display is unmistakably campy.

A gay friend once told me; “When straight girls try to imitate the sex lives of their gay, male friends – the results aren’t pretty.” He wasn’t being smug when he said this. He was merely pointing to the obvious – that women are not cut out for the same level of sexual adventure as he and his gay friends. This could be misconstrued as sexist or politically incorrect. But after watching Groupies and reading Just Kids, his incisive observation taught me more about the boundaries of female sexuality than any Gender Studies professor ever could.

WARNING: The following video of Groupies contains explicit sexual language. Viewer discretion is advised.

I remember watching his movies on television when I was a boy and liking them. I even saw his last picture, The Shootist, in the theater when I was ten or eleven. It’s a good, quiet western about an aging gunfighter on his last legs. Going to college, however, ruined Wayne for me. Many of my professors blamed Wayne for getting us into Vietnam because of his gung-ho war movies. They said he represented the worst of American Imperialism. For a time, I bought into this agitprop. But then a friend took me to see The Searchers at a retrospective cinema and, thankfully, my faith in Wayne was restored. He gives an intensely nuanced performance in a truly great film – one of many in his long career.

Anyway, in this brief excerpt, Wayne discusses several issues regarding liberal hostility toward him and conservatism. There is a delightful anecdote he gives about $20 and human nature. Listen for it around 2:35. Enjoy!

Despite the fact that unemployment remains above 8%, (A percentage of unemployment that the Obama administration claimed we would never reach if we only passed his stimulus bill back in 2009) and although the Obama Misery Index (Inflation + Unemployment) is at a higher level than under Jimmy Carter, and while virtually every “Green Jobs” boondoggle, like the Fisker Karma in which Barack Obama has invested taxpayer dollars, has collapsed, the President’s only remedy seems to be to give the American people “free” birth control.

It gives one pause to think that a President of the United States just wants  less Americans. With whom does he intend to replace us? Does he have a source of people with whom he would prefer to deal? Does he want people more attuned to his ideas?  It is certainly a puzzle.

One wonders why Barack Obama is even bothering to try to get himself reelected. As we have seen, he believes the American people to be unambitious, unimaginative, unwilling, soft and lazy. It is a surprise that he wishes to remain in this country, let alone run again for President. He considers us to be no more exceptional than Brits or Greeks. Considering the financial situation that Greece is suffering, that is quite a damning commentary on the  character of Americans.

It is well known that Barack Obama threatened to transform America. Well, he has had more than 3 years to do so and what has he wrought? America is more polarized than in any time in our history. Political dialogue is more vicious now than ever before. Most Americans despise Barack Obama’s signature program and want it repealed. An unbelievable 72% of the American people, including 56% of Democrats, believe that ObamaCare is unconstitutional. This type of transformation we do not need.

And we certainly did not need an assault on our religious freedom as a part of that very same unconstitutional health care “reform” act. This whole birth control issue came up out of the blue. George Stephanopoulos got it rolling for the White House in the Republican debate in New Hampshire on January 7th. At the time, everyone thought that George had taken leave of his senses, but there was obviously a method to his madness. In a seemingly well coordinated White House initiative, birth control suddenly become the topic du jour of every liberal media outlet.

It was great for the White House and their willing accomplices in the main stream media. Instead of questions about high gas prices, $5 trillion in new debt, and unemployment above 8% for 3 straight years, the airwaves and newspaper columns were filled with hard luck stories about the “dire” need for condoms and birth control pills that were being denied by Republicans.

It was a perfect plan and Republicans fell for it. Instead of taking on Obama and his assault on the 1st Amendment’s free exercise clause, Republicans were suckered into debating the minutia surrounding the President’s call for “free” birth control for all. Republicans are always falling into these traps. They resemble nothing more than Charlie Brown believing that Lucy will not pull the ball away again as he attempts to kick it. They just seem to never learn. Republicans are constantly stuck in the position of having to be the stuffy, old uncle who has to remind us that there is no such thing as a free lunch. Democrats never have that problem because they are forever giving us “free” things. Our mothers warned us about such people and their offers of free candy, but we never listen.

And that brings us back to Barack Obama and his obvious dislike for us. He just can’t seem to hide his disdain. He knows the American people want the Keystone XL pipeline built, so he cancels it. He dismisses the concerns of religious people with a transparent lie that insurance companies will be paying for birth control and not their church organizations. Obama tells AIPAC one thing in a speech to shore up the Jewish vote and than rescinds it in a press conference the next day. He really must think that we are all dunces and won’t notice his long record of contradictions.

The public is not stupid. They are not happy with Obama either. The latest Washington Post-ABC poll has the President’s “strongly disapprove” ratings at the highest level that they have ever been. His overall rating is underwater with 46% approving his performance while 50% disapprove. The numbers get even worse when the question is on the economy or gas prices.

All in all, it would seem that Americans are coming to dislike President Obama about as much as he dislikes them. He doesn’t approve of us and most of us do not approve him. All the more reason to end this dysfunctional relationship come November 2012.

The Congressional Budget Office (CBO) is obligated to review and “score” the financial consequences of any proposed legislation. It came out with a report on H.R. 4105. The title page of the Bill:

This legislation is about tariffs on China. The CBO concluded that the US Treasury will collect $160 billion over the next ten years if the law is passed. That may sound good to some; I see it as a disaster in the making. If H.R. 4105 passes, it will cost the country Trillions. The history books say that is so.

H.R. 4105 “Applies the duty provisions of the Tariff Act of 1930.” The 1930 legislation that H.R. 4105 is relying on has a different name in the history books. It is called the Smoot-Hawley legislation. It was the dumbest legislation that could have been passed. It insured that America would remain stuck in a depression for another four years.

Smoot-Hawley worked as intended. From 1930 to 1934 imports fell by 65%. But damn near every trading partner, including England and Canada, retaliated by putting up their own tariffs. The depression spun around the globe as a result.

This time around will be no different. China will retaliate. Too bad the guys in D.C. don’t read history books.

The Congressional Progressive Caucus (CPC) decided to try to get Edward DeMarco, the Acting Director of FHFA fired:

The CPC has a point. Edward DeMarco is preventing Fannie and Freddie (F/F) from intering into massive write-downs of mortgages. If it were not for DeMarco, Obama would have done this a year ago.

Fannie and Freddie are sitting on (at least) three million underwater mortgages. Assuming the average size is $250k,  and being under water by 30%, the cost of the write-downs would be $250 billion. That’s massive. But we spent $900b on the banks, the Iraq – Afghanistan wars have cost $1.5 Trillion, spending of Social Security will top $700B this year. The one time charge on ~60% of all underwater mortgages is not so big compared to those other numbers.

But where is the “fairness” in this proposal? The $250b is just more borrowed money. This plan passes the buck to the next generation when the debt comes due. What about the 40% who don’t have a mortgage with F/F? What about renters?  Have they no rights at all?

The CPC will fail. DeMarco is sticking around until December. But if Obama wins big, and the Senate turns a deeper Blue, then DeMarco will be sacked. A “more friendly” Director of the FHFA will be installed.

This is an emotive topic. I’m interested in your thoughts. So are the “watchers” in D.C.

These charts shows where the $24B of federal subsidies to energy projects went in 2011 and comparisons over the past 35 years:

With his focus on alternative energy,Obama has ramped this number up to levels not seen before.

This strategy is a payoff to environmentalists. Obama will tout his spending record this fall. This is a “positive” message; and will probably get him votes.

The flip side is that many of the alternative energy investments are connected to characters that are having swell parties to raise money for O. Think Solyndra.

When Obama does play the “I’m green” card, the Republican PACs will have a field day. The ads won’t stop. We might see the “ugliest” election in history.

Not surprisingly, both sides have dodged this issue. They say we need adjustments and refer to the “need” to extend the retirement age. They also agree that some adjustments in the Cost-Of-Living (COLA) should be considered. Extending the retirement and COLAs would be implemented over twenty years they claim. These are “kick the can” (far) down the road strategies. Those who are under 50 today would feel the consequences.

You can’t blame the politicians for wanting to duck this issue. There is a monster block of voters (primarily the Boomers) who would love to see a plan for SS that pushed things out by fifteen years. If SS became a real topic in the election, it could potentially throw the vote one way, or the other.

The fact is, the next president will be forced to make major changes at Social Security. Ironically, the Social Security Trust Fund might be responsible for tossing SS into the political debate.

An explanation:

Social Security actually consists of two pieces. Old-Age Insurance and Survivors Insurance (OASI) is one part; Disability Insurance (DI) is the other. What Mitt and O are talking about is the Old Age side of the story. This program is not yet falling off a cliff. However, the DI fund is. The question is, “How bad is DI?” 

An answer can be found in the 2011 Social Security report to Congress. Ten months ago it said that the DI fund would be exhausted in 2018. This very convenient forecast put the day of reckoning for DI two years outside of the next presidential cycle.

The Intermediate, or base case forecast for the DI Trust Fund:

The next question is, “What’s the SSTF going to say in May 2012 about the new termination date for DI?” The answer depends on whether the folks who write the report for SS have “spine”. If they do, they will say that the Base Case for the DI fund shows it will be exhausted in the fourth quarter of 2016. That would mean that DI benefits would have to be immediately and significantly cut across the board. Those cuts would happen on or about Election Day, 2016.

If the SSTF produces a forecast that puts the death of DI in the 2013-16 cycle, then it is fair game to force the 2012 candidates to put forward their plans for fixing it. The SSTF will probably produce that forecast. If it does, it opens a Pandora’s box on the very big issue of what to do with the (much, much larger) Old Age side of the equation.

My expectation is based on the following: Look again at the SSTF report above . The forecast was that the DI Trust Fund (DITF) fund would end 2017 with a balance of only $7b. This means that the actual “go broke” date was 1/6/2018. (How to Spin a Forecast lesson 101… Gain 6 days, gain a year….)

The first Q 2012 data for the DI funds shows a 7% YoY rise in benefits. This is largely a consequence of the 3.6% COLA increase. (Ben B. maintains this does not exist). The other 3.5% reflects the rising number of folks getting benefits. Tax revenues are behind “schedule” (blame the economy). Finally, interest income is going to be under “budget”. The amount of investable funds is rapidly declining, and interest income on the DITF’s remaining cash is falling with Bernanke’s endless ZIRP.

The 2012 number for the DITF will have to be reduced from last year’s estimates by about $5b. This has a multiplier effect, as the COLA re-base repeats itself with every year. The revision for 2012 will add up to more than $20b over the next four years. This minor adjustment will bring the termination date to June of 2017. It’s still not close enough to bring the issue onto the 2012 political table. But more adjustments are in order.

The SSTF is stuck with a downbeat economic forecast from the CBO. It can’t have a rosy forecast when its “buds” up the street are saying it isn’t so. Adjusting to the CBO’s dour outlook will knock another seven months off the life of DI.

There are two possible outcomes in the upcoming SSTF report on DI:

A) The DI fund will be exhausted in 2017.

This is the spineless approach as the details will show that the actual date of exhaustion is January of 2017.

B) The DI fund will be exhausted in the 4th quarter of 2016.

That would be “show time”.

By itself the DI problem is solvable. To understand what is going on, look at cash flow. The mumbo-jumbo about Trust Funds is just mumbo-jumbo. The cash flow numbers:

Unless there are changes to the program, the deficits at DI will continue to grow. The long-term, unfunded cost is 0.4 – 0.5% of GDP. That would put the cost of maintaining DI at about 10% of the military, and 5% of the cost for both Medicare and Old Age SS.

In the scheme of things, the problems at DI are small. Other problems are so large in comparison. But a “fix” at DI could add another half-trillion onto the debt/deficit in the decade after it goes broke. That’s not a small number at all.

If Obama is honest, he will acknowledge the problem and propose new taxes to fill the bucket. He will say that America is too rich a country to let disabled workers fall through a crack. He will get votes for that position.

Romney has a problem. He can’t propose higher taxes that would be earmarked to stabilize DI. He will say that DI has to be cut to the point that it becomes Pay-Go without new taxes. He will get votes for that position, but it will expose him to criticism. It will be argued that this is about the 1% versus disabled workers. Obama would have a field day with that position. “O” would be protecting the widows and orphans while Mitt would be keeping the rich, rich.

There must be a fix at DI in the next four years. The next president will guide that resolution through Congress. The “fix” will either socialize the system by diverting tax dollars to it, or the program will be starved. The solution will be a cookie-cutter preliminary version of the much bigger issue of the Retirement Fund. OASI will face a much larger wall in 2017 – 20. What will happen to DI in 2016 will pave the way for what happens to OASI in 2019.

One final chart. This looks at cash flow for DI, OASI and combined SS. We crossed the red-ink line on DI in 2005. OASI went into the red in 2010. Neither fund will ever be in the black again.

Notes:
Both candidates may try to point to fraud and abuse at DI as the problem. There is abuse, lots of it. But if it ended tomorrow, it would not move the needle. The required fix is much larger than the abuse.

Neither candidate wants SS to be an issue. If it becomes one, Obama has more to win and Romney more to lose.
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On his radio show, Rush Limbaugh called Miss Fluke “a slut” for insisting that others pay for her contraception. Miss Fluke sexual priorities may be selfish, but not sluttish. What she decides to do with her own time and her own body is her own business. She just shouldn’t expect taxpayers to pick up the tab. That’s what Limbaugh should have said. Instead, bigmouth that he is, he insulted the woman and thereby fell into a trap.

Sandra Fluke was a perfect decoy. At age 30, Miss Fluke is a skilled campus activist and a clever bird to boot. Her testimony was poised, measured and sympathetic - but ultimately beside the point. Whether or not she is having sex in a committed relationship or juggling competing lovers, the HHS mandate is not required to cover her contraceptive needs. As a student, she’s on her own. So instead of testifying before Congress, Miss Fluke should have gone to Wal-Mart where she can get contraceptive pills for as low as $9-a-month without a prescription. Or, better yet, insist that her partners use condoms which on college campuses are doled out for free.

(As for medical conditions treated by the Pill – such as cysts which Miss Fluke said a friend of hers had – her student insurance covers hormonal treatments. If it’s denied, she should call the insurance carrier and demand it. Most pharmacies will accept a note of “medical necessity” from a doctor so that the prescription is covered. In either case, the Pill would be used to treat a pre-existing condition, not contraception.)

So while the HHS mandate cannot redress the cost of Miss Fluke’s peccadilloes, there are ways around such dilemmas. As a former grad student, the best advice I can give her is “prioritize”. Make a budget. If all else fails, tell your paramour; “No glove, no love”.

That was all that need be said about Miss Fluke, until Mr. Limbaugh fouled the waters by calling her a derogatory name. He has since apologized after several advertisers pulled from his radio program. Quelle suprise! However, both his insult and subsequent apology have served to distract from the actual debate which does not involve contraception, but in fact concerns the violation of the separation of church and state found in Obamacare.

Much ink and vitriol has already been spilled on this issue. What I would like to point out is that both Miss Fluke’s testimony and Mr. Limbaugh’s remarks are classic examples of kitsch. What do I mean by kitsch? Kitsch is a sentimental, vulgar or ostentatious display. “The Real Housewives of New Jersey” on television is a good example. In the political arena, Miss Fluke’s insistence that taxpayers pay for her recreational sex life is kitsch. Mr. Limbaugh calling Miss Fluke a trollop on national radio is kitsch. Nancy Pelosi goading both of them on from her perch in Congress is the height of kitsch.

In other words, kitsch is political theater. It distracts us from the real issue (Obamacare) by engrossing us in cheap thrills (the sex lives of law students).

Kitsch is also the absence of substance which is precisely what Miss Fluke’s testimony was – a weightless argument in search of gravity – that is until Mr. Limbaugh came along and gave it weight. A nifty trick of the Left is to lift a woman’s skirt and then cry foul when a man whistles. This is the trap Mr. Limbaugh fell into with his wolf whistle at demure Miss Fluke – giving her otherwise self-serving testimony gravitas.

However, Miss Fluke is not quite the buttoned-down, pennywise law student she appears. Open her topcoat and a bird of a different feather emerges. According to her resume, Miss Fluke has a laundry list of political agitation going back to her Feminist, Gender & Sexuality degree at Cornell University all the way to her interning at the NOW Legal Defense Fund. (How she ended up at Georgetown is anyone’s guess. Unless the Jesuits caved and gave her a scholarship? Hmmm…)

You have to hand it to Mrs. Pelosi for trotting out Miss Fluke before Congress, allowing her to seduce a sympathetic media. Together, they managed to pivot the HHS mandate away from the violation of religious liberty to a war on women. Kudos to both ladies for turning that trick – with an assist from Mr. Limbaugh, of course.

Republicans are simply outmatched when it comes to wars of perception. They lack the necessary chutzpah to win. They cling to the earnest belief that truth will win out in the end. I share this conviction. But in the topsy-turvy world of political theater, kitsch reigns supreme. Featherweights like Miss Fluke can flounce around in a burlesque fan dance while conservatives look away and everyone else stares mesmerized. Republicans are continually dumbfounded by this bait and switch tactic. But liberals have mastered the art of sleight of hand, leaving conservatives chagrined.

So spin away with your feathered fans, Miss Fluke! Republicans are helpless to stop you!

Bernanke’s interpretation of Eccles’s actions is widely held by historians. It was FDR who first (conveniently) blamed the Fed. I think that Bernanke is also (conveniently) blaming Eccles. He is using history’s interpretation to support his position that monetary policy must be set on MAX for the next three years. He has said that he will not make the same mistake that poor old Eccles made.

Eccles was in a bind. His job at the Fed was to maintain relative stability of prices and the stock of money. In the years prior to 1937 money flowed into the USA from Europe. This “flight capital” fled to the USA in the form of gold shipments. The money came because the holders of wealth were anticipating a major war. With gold reserves rising, so did the supply of money. M1 increased 55%, and money in demand accounts rose 71% from 1933 to 1936. More troubling were rising inflationary pressures. In the first six-months of 1936, wages rose by 11%. Wages in the critical steel industry rose by 33%. These conditions would scare any reasonable Central Banker.

The Fed itself answered the historical question of whether the Fed’s actions in 1936-37 was responsible for the 1937-38 double dip. In a research paper, (PDF Link) St. Louis Fed researcher Charles Calomiris concluded:

“We find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier.”

Much of today’s monetary policy is based on the historical interpretation of the consequences of the Fed’s actions. If the Fed was not to blame for the 1937 crash, then who/what was? In her book, “The Forgotten Man”, Amity Shlaes provides some answers. She points to a critical speech by then Treasury Secretary Morgenthau on November 10, 1936:

“The war against the Depression had required deficit spending. But the emergency is ending, and the domestic problems we face today are essentially different from those which faced us four years ago. We want private business to expand. We believe that one of the most important ways of achieving these ends is to continue toward a balance in the federal budget.”

Morgenthau’s comments 75 years ago (and the following cut backs in federal spending that took place in 1937) remind me of where we sit today. After four-years of spending like mad to fight the recession/depression of 2008, the federal government has committed itself to dramatic cuts in spending starting in January of 2013. Coupled with those cuts are across the board tax increases for every individual who has income.

In the book, Shlaes points to other factors that contributed to the crash of ’37:

*The rapid rise of wages/raw materials in 36/37 led to a conclusion by many that corporations were going to face a profit squeeze. It was this threat that led to the 1937 stock market fall. We face a similar situation today. Rising commodity prices and global wages will impact consumers and company’s bottom line. (Think Apple and Foxconn)

*Social Security was collecting money from every paycheck by 1937. This reduced disposable income and contributed to the recession. This is not unlike what we face in 2013 when SS taxes are scheduled to rise by 2%.

*FDR wanted to balance the budget. He raised taxes in 1937; this was a big factor in the decline of the economy. We face the same scenario in 2013 when large increases in taxes are scheduled.

*In November of 1936 Nazi Germany signed the Anti-Comintern Act with Japan and Italy. While there were many like Neville Chamberlain, who ignored the evidence that a war was coming, the financial markets did not. This too, has similarities with 2012.

I think we are about to re-make many of the mistakes of 1936/37. The programmed spending cutbacks, couple with the many impending tax increases on 1/1/2013, will certainly cause a sharp contraction in economic activity.

Bernanke’s Fed has sworn that it won’t make the mistakes of 1936/37. But I’ve shown (and the Fed’s own research confirms) that Fed policy was not the cause of the ’37 crash. Bernanke is relying on a false interpretation of history to justify his monetary policy today.

We will face an economic slowdown due to lower federal spending, and at the same time, inflation will be rising as a result of the excessively loose monetary policy. Stagflation is in our future. Should this be the result, the historians will say that both the Fed and fiscal policy are to blame. In other words, we have not learned a thing from our past mistakes.

Political observers noted he was the most liberal member of the United States Senate, and many believed he was a radical left-wing zealot if not an ideological revolutionary. The terms socialist, progressive, and Marxist were generally thrown about to describe the eloquent, little-known Obama as his unlikely quest for the presidency unfolded.

After three years in office, it is evident to all but his most ardent supporters that the President of the United States is a strident Marxist. His forceful policies, actions, and thunderous attacks on freedom are straight from the writings of Karl Marx. The evils of Capitalism, state control of business, redistributive change to achieve social justice, and the diminishing of personal, economic and property rights are among the daily rants from Obama and his administration.

Marx believed in socialism, and that communism would eventually follow. He argued that social theorists and underprivileged people should topple capitalism and bring about socioeconomic change. This is the heralded ‘change we can believe in’ touted by Obama.

Quotes from Barack Obama's book, "Dreams of My Father: A Story of Race and Inheritance"

To realize these goals a good Marxist builds a totalitarian government using his strongest pillar, class warfare. Obama spends every waking moment in and out of the Oval Office infusing doses of collectivism and government dependency. Not a day passes by and not a speech airs that the President fails to spew his poisonous hatred toward the job-creating, successful, financially secure members of American society. These are the people Marx called the Bourgeoisie; Barack Obama simply uses his favorite pejorative, ‘the rich.’

The Founders intended that every American, working under the rules of our Republic, be free to pursue their own ideas of riches, unburdened from government interference, coercion, and intimidation. Obama believes that no such right exists.

The primary difference between liberalism, progressivism, socialism, Marxism, and communism, is the measure of force, treachery, evil, and time with which they inject their poison into the people. The philosophies are as one with a belief in massive federal control over the masses and restricted or nonexistent personal, economic, and property rights. Indeed, over the years many of the leftists found the need to glide flippantly between the labels depending upon their short or long-term goals. The natural progression is, however, as Marx predicted, toward communism, the most evil and tyrannical form of government.

How then, one might ask, did a radical leftist like Obama rise to the presidency of the most powerful country on earth without proper vetting and reporting by the media? After all, they should be free-roaming, impartial referees in the political arena.

The answer lies in the second most important pillar of tyrannical government, the control of information, with the ability to indoctrinate the populace. Fortunately, for Barack Obama and most unfortunately for the country, he had compliant and corrupt media kneeling at his feet, fawning over a man who sent a thrill up their leg.

It was love at first sight for the biased, mainstream, left-wing media. Barack Obama represented everything for which their palpitating hearts could beat, and wistful minds could envision. Here was a man with whom they held a kindred ideology, a man who spoke with dynamic energy, and was politically marketable to a disappointed and restless electorate. He also had the uncanny, chameleon-like ability of blending in with his surroundings and taking on the same appearance of the group or audience to whom he was playing. Thus, he could be all things to all people.

By the way, he was African-American.

It was so perfect. It would be simple to shield Obama the man from criticism by merely claiming his opponents were racists. Equally, they could ignore or mask his leftist ideas, extremist friends, allies, political writings, and an incomplete personal history using the same ploy. The media hoisted the radical community organizer from Chicago, fitted him with a halo, and placed him triumphantly in the White House. It was a marketing coup.

In ascending order of repugnancy, he began his quest for coronation by feigning traditional, conservative, American values, then slipped into his ‘spreading the wealth,’ social justice, and racial politics. He subsequently spent three years in office hoisting the battle flag of class warfare and preaching the evils of capitalism.

He calms the squirming resistance to tyranny by using the government’s most powerful anesthetics, money, and promises of social justice. The more persistent and vocal critics, the Tea Parties, are demeaned, painted with that dreaded brush of racism, and dismissed as kooks. The more America resists; the more Obama reassures the country that freedom is a failure, and that he is working for our own good and in our best interests.

The antidote to liberty is as it has invariably been, coax more and more people into ceding their freedom for a promise of security and comfort. It is through this deadly portal that the masses always enter on their way to complete enslavement. Barack Obama understands fully the deceit, organization, and propaganda necessary to complete the ‘transformation’ of a once proud, independent, and powerful nation into one of whining beggars subservient to a Master State.

Government and dictators grow by devouring the rights of its citizens. Either the people hold power or the government holds power, and our Constitution very clearly places supremacy in the hands of the people. Without a doubt, Barack Obama is hell-bent on usurping that authority. Given another five years, he very likely will succeed in closing an iron gate of tyranny behind a dormant and disinterested America.