Quantitative Easing (QE): The Beginning of the Federal Spending Death Spiral?

Mike Walker, Col. USMC (retired)

All,

Sorry for the long post and if you do not economics then delete but do not say you were not warned later.

If we are looking for early indicators of the collapse of Federal deficit spending, the Fed’s QE policy is the proverbial “Canary in the coal mine.”

So far it is breathing easily. Hurray! No worries, Mate, at least for today. But do not look away for a moment as Uncle Sam’s days as a spendthrift drunken sailor are coming to and end.

Fortunately, the Federal Government is still a small part of the American economy. Most state and local governments, with notable exceptions such as Illinois (California is on the “watch list”), have made the tough decisions to put them on a sustainable fiscal path and we must never forget that the private sector economy is still the overwhelming engine for economic good.

Nonetheless, the Federal Government is on schedule for a tragic financial meltdown and the Fed is blazing the path to ruin. Here is our reality: the stock market and precious metals are rising in value because we are seeing flight of capital from US Treasuries, once the sine qua non of safe investments.

Of course, the virtual zero interest rate policy of the Fed has dammed up bank deposits (not to mention masking the real cost of future deficit spending). What reasonably informed average Joe would keep money in a bank savings account and what above-average Jane would invest in bank CD’s or other financial instruments?

The rise in the stock market is not as beneficial as we think as we are witnessing investors chasing a return on invest based on an abnormally high taste for risk. The obvious problem being that when you take on risk, you enter the realm of big winners and big losers. No one wants to be the loser, but there you have it.

So what has this to do with QE and a “death spiral”?

Across-the-board “chasing risk for return” is very bad news. Think back to the housing bubble where your family home was increasing in value regardless of what you did to improve (or even lower) its real value. The increases made no sense except as warning that what is too good to be true is not and chasing risk sends the same message. 

That is what QE is doing. China is no longer increasing the size of its US Treasury portfolio, a policy that is being followed by many former Treasury investors. The message is: do not buy US Treasuries if you have a choice.

Enter the Fed and exit hope for a good outcome.

Here is ugly cycle that is being created: the Treasury issues debt to keep the trillion dollars of overspending intact and the Fed is now buying up the debt at a rate that has never occurred in the entire history of America since 1776, which means its balance sheet is larger than ever before and its assets are overwhelmingly US Treasuries (and do not forget that the Fed also gets to print money, aye, there’s the rub!).

So what will eventually happen is that US Government is going to want to borrow and the Fed will become the buyer of last resort. But the Fed will only have two options: liquidate it assets to get the money to buy more Federal debt or print money like Weimar Germany. Since the Fed’s assets will be primarily US Treasuries, cashing them in to buy more US Treasuries is meaningless.

If the USG needs $300B to pay the bills, it is an exercise in futility to have the Fed buy the $300B in Treasuries if it has to cash in $300B in old Treasuries to buy the new Treasuries, as at the end of the day, the USG gets no new money to spend (+$300B - $300B = $0) and has to make $300B in immediate cuts (that makes the sequestration cuts look tame in comparison).

The alternative is to have the Fed simply print $300B in paper money (or some ugly combination of ever more borrowing and printing). That causes an inflationary death spiral as the paper money gradually becomes worthless as the Fed prints a trillion or so US dollars and the end is at hand.

We are now in sailing unchartered and dangerously treacherous waters. There are two truths the will become apparent when the Treasury/Fed Boat sinks: you cannot survive very long is a stormy ocean with only a life vest and there will be a great many casualties.

Mike

John McNaughton's painting... Empower!

From Jim DeMint,

I’ve spent the past 14 years on Capitol Hill. I first ran for Congress because I know conservative ideas work. But I realized our ideas don’t resonate with all Americans.
That’s why I chose to leave the Senate and serve the American people at The Heritage Foundation.
For too long, we conservatives have sat back and relied on lawmakers and politicos to deliver the message of limited government and individual liberty -- the message of the American Founding.
But it’s time to wake up and realize we cannot continue to fight today’s battles with yesterday’s tactics.
We need a leader who can powerfully and positively communicate proven conservative solutions directly to the American people. And Heritage is uniquely poised to take on the challenge.
Will you help Heritage lead this conservative charge? We must reenergize the conservative movement in such a way that Americans can’t help but be drawn in.
Heritage plans to launch bold initiatives that will revive conservative ideas -- American ideas -- with a hopeful, optimistic message. But we can’t do it alone. Find out more about our bold revival and watch a video about how you can lead the charge.
None of what we do at Heritage would be possible without your support.
Sincerely,

Jim DeMint
President-Elect

Sequester Shenanigans

Sequester Shenanigans

Mike Walker, Col. USMC (retired)

All,

 

When the Federal Government gets cut, please be ready for the same type of shenanigans that occurred in California.

 

The California State Government, like Washington DC, has a lot of agencies. When the recession hit, those agencies had their budgets cut and we had a lot of examples of profiles in courage and cowardice, of high ethical behavior and disgusting selfishness.

 

Expect the same from Washington DC.

 

How to spot the unethical lowlifes from the good people? Watch how they manage the cuts. 

California agencies took different paths and, eventually, benefited or were crucified for how they enacted the cuts.

 

The bottom line is that governmental employees have one duty: Provide the best service possible to the citizens. That ethical and moral imperative is especially critical when budgets get trimmed.

 

In California, for example, the DMV prioritized what to cut and then cut everything they could that had the LEAST impact on the services that they provided to the citizens of the State. Nonetheless, once the cuts passed 20% they had to close offices as the furloughs hit. They published the dates in advance and got out ahead of the problem and earned a lot of sympathy and support from across the State (which is hard for the DMV to do).

 

They behaved like professionals who earned the public trust.

 

Then there are the immoral and unethical governmental employees who believe that citizens exist to serve them and meet their needs.

 

California also saw those folks at work as well.

 

The leadership of the California Department of Parks and Recreation decided to become “bureaucratic terrorists.” They closed down the most popular and widely used parks in the State resulting in an immediate backlash from the people. Everyone demanded that the legislators and governor reopen the parks. 

 

The Park & Rec bubbas thought they had won but then came the questions from the lawmakers and the press. They discovered the truth: The bureaucrats had not focused the cuts to protect the parks, but to accomplish the exact opposite.

 

The “bureaucratic terrorists” deliberately avoided closing the parks that had the lowest attendance. They kept parks open during off-season so they could close them during the busy season. They intentionally kept them open during slow hours so they could close them during peak hours.

 

They did everything in their power to make the disruption far worse than it had to be. 

 

It was a disgusting abuse of governmental power.

 

Every governmental agency can and must prioritize their operations (Park & Rec certainly did for all the wrong reasons) and start cutting the least important things first.

 

Ethical governmental agencies will be able to say: "Here is what we cut first..." then "after that, we had to cut..." and finally "Now we have no choice but to cut these really important operations..."

 

Governmental agencies, especially the Defense Department, cannot afford to take the road of the "bureaucratic terrorists."

 

It will be a Pyrrhic victory where you lose your credibility, alienate your allies and strengthen your enemies who want to cut spending even further.

 

Forewarned is forearmed. Protect the heroes and fire the bums.

 

Mike

Barak’s Really Bad Idea? The Water is Fine....

A word from Mike Walker, Col USMC (retired)

All,

Sequestration is the new “boogey man” in “drama central,” AKA Washington D.C. (I actually like Sequestration, but today that is a very unpopular position in D.C.).

Yet, Sequestration starts at home, Barak Obama’s home, to be specific.

Given a fawning Washington press corps that allows the President to dissemble about the facts without challenge, no one can blame him for disowning his own bad idea.

As Washington often resembles a circus that never leaves town then the President can be seen as the lion tamer while the press can be seen as the clowns who flit around the big top while broom brigade sweeps up the mess.

Here is the truth: The White House created the Sequestration. The problem is that Barak no longer loves his creation, as it seems the White House wonks were too clever by half when they created it.

The President demanded Sequestration as part of the negotiations that led to the Budget Control Act of 2011. The poor Republicans had never seen anything like it and it took them several days to even figure out what the heck President Obama was putting forward.

The President remained adamant that Sequestration be part of any final deal, however (and we all know how inflexible he gets when really wants something). So in the end, the Republicans gave in and agreed to President Obama’s demand. 

The rest, as they say is history. The Budget Control Act of 2011 became a major bipartisan agreement:

It passed the House with 95 Democratic and 174 Republican votes.

It passed the Senate with 45 Democratic and 28 Republican votes.

The President signed it onto law on 3 August 2011.

Now, amongst all the smart people in the Beltway, it has turned out to be an ugly and unwanted monster created in the White House.

No wonder Barak Obama is desperately seeking to blame anyone but himself for a highly unpopular policy he created.

ONLY “SMART” BUDGET CUT IS A FAKE BUDGET CUT

IN WASHINGTON, THE ONLY “SMART” BUDGET CUT IS A FAKE BUDGET CUT

PAUL MIRENGOFF  (Powerline)

Critics of sequestration complain that it is a blunderbuss approach to cutting spending. They argue that “targeted cuts” — which operate line-by-line, program-by-program — are the smart way to rein in the budget without doing harm.

But, as the Washington Post demonstrates, in practice “targeted cuts” frequently prove to be no cuts at all. Instead, they are a method through which legislators can claim to be slashing the budget while continuing to spend at the same levels as before.

Consider the $37.8 billion in “cuts” agreed to in 2011, proclaimed by President Obama as “the largest annual spending cut in our history.” The Post finds that package to be “an epic kind of Washington illusion, stuffed with gimmicks that made the cuts seem far bigger — and the politicians far bolder — than they actually were.”

For example, the Transportation Department took credit for “cutting” a $280 million tunnel that had been cancelled six months earlier and a $375,000 road project that had been created due to a typo on a road that didn’t exist.

Meanwhile, the Census Department took a $6 billion “cut” for not conducting the 2010 census in 2011. And Congress agreed, in the spirit of shared sacrifice, to “cut” $14.6 million by not spending money on a visitors center that had already been built.

These aren’t “smart” cuts, they are smart-ass ones.

Going beyond the anecdotal evidence, Post reporter David Fahrenthold analyzed the 16 largest cuts in the 2011 deal, each of which was supposed to trim at least $500 millions from the federal budget. Collectively, the 16 were to account for two-thirds of the total reduction.

In four instances, the agency involved simply stonewalled the Post, making it impossible to tell whether the cuts were real. Under these circumstances, I think we should presume they were not.

In seven of the remaining 12 cases, the Post found that the cuts had minimal or no real-world impact. Instead, they involved the kind of sleight-of-hand described in the examples cited above.

This track record obviously militates in favor of using a sequester, rather than the 2011 approach, this time around. The White House claims that things are different now because the “low-hanging fruit” from 2011 has been cut. But there are always recently expired projects, or non-existent ones, that can be claimed as cuts. Anyone who believes the government has run out of budgetary gimmicks hasn’t been paying attention, and would rather not.

The real question, I think, is not whether alternatives to sequestration can be undermined, but whether sequestration can be as well. The answer is probably “yes,” but not to the degree that past cuts have bee

Women in Combat: The Marine Infantry and Playing “You Bet Your Life” for Real

Contributed by Mike Walker, Col USMC (retired)

All,

Let me begin by arguing that I support opening combat arms to anyone, and I mean anyone, who can lead, win, and protect the Marines (as best possible given the mission) under their charge. Special Operations seems particularly inviting. One of their strengths is not playing by the rules. In many parts of the world, women as a threat are immediately dismissed as part of a cultural prejudice. Women in Special Operations could add an additional layer of complexity to confound and defeat the enemy.

Opening up the combat arms to women is an appropriate and positive decision. When I went through Marine Corps OCS the goal was to weed out those who could not handle the inseparable combination of physical and mental rigor demanded by those who are placed in the position of leading Marines in combat.

One test was to conduct a “fireman’s carry” at a sprint of a “wounded’ Marine fifty yards to safety. Being 5’10” and 150 lbs I was not quite a “Feather Merchant” but neither was I “Muscles McGurk.” My DI picked some 6’3’’ 200 lb candidate who played college ball in Georgia as my “wounded” fellow. The decision was not based on harassment but in driving home the reality that you cannot control who is “fit” and who is “hit” in combat.

Women candidates at that time did not have to meet male goals. It was dismaying to see a male candidate dismissed for failing to meet physical requirements that were waived for a female candidate. We knew there was two sets of sets of standards and males were held to higher level of performance.

I understood why when I applied for the infantry combat arm.

I can only write as a Marine infantry officer. That narrows but does not negate my argument. In the Marine infantry there was a common refrain, “Life’s a bitch and then you die.” Life in the infantry is harsh. The reason for this mentality is simple. In peacetime, infantry life is defined by:

Mission

Terrain

Weather

In combat, your life, for what it is worth, is defined by:

Enemy

Mission

Terrain

Weather

Those are the Leviathans that face an infantry commander day in and day out.

You either cut it or you do not. It is a Hobbesian existence. Either the “System” removes those who are incapable of leading Marines under those constraints or Darwin will. In combat, Darwin uses death and dismemberment as his primary tools.

Washington wonks, despite their attempts at ascendancy to omnipotence, can change neither the face of the earth nor the world’s weather to suit their domestic socio-political agenda or fantasies. They will never, through some muddled combination of legislative and/or judicial acumen, be able to alter the determined effort of an enemy to kill and maim on a battlefield. That is reality.

In the infantry, a leader has to thrive, not simply survive, under cruelly harsh physical and mental pressures. Even in the “Gung Ho” Marine Corps, the majority male officers opt out of a life in the “grunts.” There is no doubt that females will make the same choice.

Let me expand on the harsh life. Officers eat after everyone else. That can mean going without. Sometimes that is not missing much if the chow is served in subzero weather where everything hot is icy cold before it enters your mouth or in the rain where the food is tastelessly floating in water or where the insects are so thick that eating a few bugs during their migration from a nearby shit pile to your spoon is taken in stride.

Your home is on your back and, as you carry it with you, it seems to weigh a ton. If you are on the march and the machine gunner needs a rest then you pick the gun up off the shoulder and carry it for the next several miles. There is not a shred of privacy in the infantry in the field. If you want to change your clothes, you do so in the open. The same goes for washing, shitting and pissing. 

Grunts develop a peculiarly odd sense of humor to deal with the harshness. Never having to had to experience a “menstrual” period” after a few weeks without bathing, I can only guess the outcome, but it must be nicely crusty. In Panama while undergoing jungle warfare training, I remember smelling the Marines a good ten yards before I could see them. What is that stench? It is I! I also recall getting the “running shits” in the desert and loosing my balance while squatting for the umpteenth time and falling ass first into a steaming pile of diarrhea and cutting my skivve shorts off to extract myself (not to mention having to use a badly needed canteen of water to wash with).

There is no need to go into the details of seeing wounded Marines. One lesson is important. A Marine infantry officer leads in combat. Corpsmen treat the wounded. There is also no need to go into the insect bites, stings, body lice, ticks, chiggers, rashes, puss-filled sores, etc. Life is a bitch and then you die. You get the point.

Women should be allowed to go into the infantry. Just enter with your eyes wide open. The enemy certainly does and will kill you if you expose the least weakness.

Semper Fi,

Mike