Monday, July 4, 2011

Happy Birthday America

Quote of the day:
We have enjoyed so much freedom for so long that we are perhaps in danger of forgetting how much blood it cost to establish the Bill of Rights. — Felix Frankfurter, Supreme Court Justice 1939 - 1962

I MENTIONED in my 6/30/11 post that Tom Hoenig, chief executive of the Tenth District Federal Reserve Bank, spoke to the Rotary Club of Des Moines and the Greater Des Moines Partnership. Not being a banker or fiscal policy whizbang, I'd never heard of Mr. Hoenig before, but I sure liked what he had to say. He's known for speaking his mind without regard for parties or persons. He's a critic of the whole "too big to fail" policy that bailed out big banks and financial institutions, and he's against subsidies of any kind whether we're talking about oil, gas, ethanol, corn, beans or anything else. I'm in agreement.

It was covered in the Des Moines Register the following day, but you heard about it first from me. I've attached the article written by Adam Belz that appeared in the Register.

The president of the Federal Reserve Bank of Kansas City delivered a scathing rebuke of U.S. monetary policy, Congress, and the American consumer in a sweeping speech on the economy in Des Moines on Thursday.

Thomas Hoenig, a native of Fort Madison who earned his Ph.D. in economics at Iowa State University, said the economy has been artificially inflated by low interest rates and will face further crises unless policymakers and consumers shift their focus to saving and investing instead of debt-driven growth.

"We have this leveraged economy that we have used to build our growth over the last 10 to 15 years that we cannot carry forward," he said.

Hoenig, 64, who will step down from his post in October, has long been a critic of Federal Reserve policies, including keeping interest rates near zero percent. He said the longer interest rates remain low, the more the economy will suffer when rates inevitably rise.

Before the government began providing a safety net for financial institutions, banks kept more capital on their books. In the boom before the financial crisis, banks and government-sponsored entities like Fannie Mae and Freddie Mac let their capital ratios plummet in order to lend more - and make more - money. Low interest rates allowed this, and it was a "house of cards," Hoenig said.

"You create certain fragilities in the economy that when you do have to reverse your position, in terms of interest rates, whenever that is, it becomes an increasing risk of shock to the economy, whether it's your concerns about the stock market tanking or values of land being affected," he said. "When you artificially hold down interest rates or you artificially bring short-term tools to solve long-term problems, you get worse long-term problems."

He had harsh words for federal lawmakers for not pursuing the December recommendations of the National Commission on Fiscal Responsibility and Reform, a bipartisan group that issued sweeping proposals now collectively known as the Bowles-Simpson plan. The plan called for Congress to, among other measures, eliminate all tax credits and deductions, increase the Social Security age, cut 200,000 federal jobs, raise the federal gas tax, and increase co-payments for Medicaid and Medicare. Congress has disregarded the recommendations.

Asked whether the debt ceiling should be raised, he told a Des Moines Rotary lunch crowd at the downtown Marriott that raising or not raising the debt limit won't solve the nation's problems unless the country takes sweeping, comprehensive steps like the ones outlined in Bowles-Simpson.

"You have now given me the choice of whether I want to be destroyed by being shot in the head or strangled - which gives me a little more time before I die - when I want you to heal me," he said, directing his remarks toward lawmakers in Washington, D.C. "You had a compromise by a joint commission of both parties and you set it aside. For that reason alone, I hold you accountable."

Without a long-term solution like Bowles-Simpson, the country's debt will continue to cause uncertainty for consumers and businesses, and U.S. gross domestic product will suffer, he said.

He called the Dodd-Frank Act, the financial reform legislation signed into law by President Barack Obama a year ago, "2,300 pages of complexity" that ends up favoring large banks over small ones, by imposing regulations that small banks may not have the wherewithal and personnel to comply with. 

"It forces consolidation, and that's a tragedy for this country," he said.

He said the idea that some financial companies are too big to fail is an "abomination" that in effect subsidizes large banks and helps them grow while other sectors of the economy - for instance, manufacturing - suffer. Manufacturing in China and Singapore has fared better since the financial crisis, and Hoenig said that's in part a result of the U.S. government's commitment to rescuing the financial industry from its own excesses. 

"It's no wonder that we have 9 percent unemployment two years into an economic recovery, because you've hollowed out the base that would have otherwise recovered," he said.

Hoenig believes Fannie Mae and Freddie Mac, the beleaguered government-sponsored mortgage guarantors, should be phased out.

"It was designed to enhance our housing market and it destroyed our housing market," he said. "When you have an institution that is that destructive, you should kill it."

He also had strong words for consumers, who still carry debt that's 115 percent of their disposable personal income. Americans must begin to consume less and start saving and investing more, he said.

"We have been, as consumers, driving our economy and the world economy," he said. "But it hasn't really been driven by increasing consumer personal income or real wealth growth, but by an artificial leveraging-up of our consumers."

In the question and answer session I asked him when he was going to run for president. He said, "As soon as somebody gives me $50 million." That's what it would take to throw his hat in the ring. (Don't get me started on campaign finance reform!) I think I just might vote for him whether he's a Democrat, Republican, Independent, Socialist, Tea Partier or any other label.

Friday Paul and I took 176 photos of machinery parts in an unairconditioned factory in Atlantic where the temperature was about 90 degrees. We had planned to attend Yankee Doodle Pops that night, but we were way too tired, plus I think we sweated out all our electrolytes. We came directly home and went to bed — at 7:30! 

Saturday night Paul played a concert with Rick K and the Allnighters at the Goodguys Car Show at the State Fair Grounds. There was this wackily awesome drummer that you have to see to believe. Paul said to him, "You were in drum corps, weren't you." He was. I've attached a couple of videos at the bottom of this post. They're hilarious.

Sunday night we took our friend Myron to eat at Hickory Park in Ames where we met his sister, Marcie. Then Paul and I caught the late showing of Larry Crowne. If you're tempted to want to see it, I'd suggest waiting for it to come out on video. Really, it's not worth the $8 or $10 bucks it costs to see it in the theater. There was zero chemistry between Tom Hanks and Julia Roberts IMHO, and it was written and directed with a gigantically broad brush. The first scene is such a caricature that I couldn't buy anything after that. That's a Nia Vardalos script for you.

Today we wished our country a happy birthday by having a picnic in the back yard, doing the New York Times crossword puzzle, cleaning out and planting yet another flower bed and watching our furry children prowl, romp, stretch and nap in the grass.

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