Hedgehog Party

Freedom

"Freedom is just another word for nothing left to lose."  This line from the Janis Joplin hit song about the drug culture ("Bobby McGee") describes the plight of the Icelanders and their likely vote to default on souverign debt.  In the fullness of time, it will likely describe voters in other jurisdictions as governments try to impose draconian measures to maintain shaky financial structures.

Social transfer payments in many jurisdictions are unsustainable.  Yet, receipt of those transfer payments are the only wealth or potential wealth that large fractions of the voters possess.  There are rapidly approaching majorities of voters in many jurisdictions that have "nothing left to lose."

The financial governance sham is about to be exposed in all of its ugliness and pain.  But the voters do have a solution.  When the meal has been served and the bill arrives, they can just walk.  You could call the action a lot of names, and point out the negative economic consequences, but they will get a clean slate.  The well-connected rats and exploiters of our current system will have been vanquished.

The formula for wealth generation is fairly simple...sound money...produce more...save more.  If the body politic can reform in a way that promotes these ideas, all will be well.

Iceland

Iceland has been in the news in recent years because of the failed attempt to become a world financial centre.  A few bankers got very rich, but the whole enterprise ended in tears.  The current souverign playbook..."let the taxpayers bail out the mess," is not going down well with the voters. 

When the load becomes too heavy (as it is in many countries), the voters will likely choose immediate self-inflicted pain instead of generations of poverty. http://www.bloomberg.com/apps/news?pid=20601039&sid=amtqRO5zQX2g

Poor financial governance is an epidemic, and few governments have resisted the disease.  The Hedge Tax is a gamechanger.  Support it.

More Markopolos

Markopolos is making the media rounds to sell his book.  Hyperbole doesn't make the charges against Geithner and others untrue.  Mish Shedlock weighs in with a summary in this piece. http://globaleconomicanalysis.blogspot.com/2010/03/geithners-illegal-money-laundering.html

It is truly hard to get your mind around corruption and fraud of this scope by public officials.  The source of all is poor financial governance.  Good governance begins with accountability as supplied by the Hedge Tax.

Massive Fraud

The wages of poor financial governance is massive fraud.  Bernie Madoff perpetrated the biggest (hopefully) fraud in history.  This private interview of Harry Markopolos is both frightening and disgusting.  He is the man that exposed Bernie Madoff and the failure of a number of major government agencies.  http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/2_Harry_M._Markopolos.html

This interview is about an hour long, but you really should listen to it.  The growing populist revolt has a source, and it is the corruption in our government.  The worst is that the current unrest is based largely on intuition.  Soon it will be based on facts and the reaction could be brutal.

The Hedge Tax forces accountability...and it will create new governance.

Tea Party

What is the Tea Party?  It is clearly a protest against the current forms of governance.  Both political parties have been flummoxed by this movement.  The initial response by the Democrats was revulsion followed by unsuccessful attempts to paint the movement as "Astroturf" promoted by Republicans.  Mainstream Republicans initiallly dismissed the group as "fringe elements" of no lasting importance.

Both of these responses were serious miscalculations.  We warned of this possiblity in an earlier post.  We also warned that the group was driven by a disenchanted middle class, not a Libertarian fringe.  There is no cohesion for the Tea Party except a distrust of government and many institutions.  In many ways, it is a decentralized political insurgency. 

Insurgencies, as in the case of Al Qaeda, are difficult to combat.  The major parties are organized for setpiece political combat.  Consequentially, they are vulnerable to hits in unexpected ways in unexpected places.  There is no better example than the "hit" on ACORN by James O'Keefe and Hannah Giles.  Unlike Al Qaeda, the Tea Party is not illegal.  That just makes it even tougher for the major political parties.

The Democrats have suffered the most initial damage.  Or so it would seem.  Core Democrat constituencies are sympathetic to the Tea Party, and recent elections have exposed vulnerabilities in the Democratic majority.  But the unseating of Republicans in 2006 and 2008 was driven by many of the same middle class voters.  In other words, this discontent has been bubbling for some time.  It was just unnamed before.

After a lot of initial fumbling, Republicans have very recently hit on a strategy that may absorb much of the Tea Party energy.  I'll call it "an indifferent embrace."  Mainstream Republicans are now suggesting that Tea Party voters will enter Republican primaries and influence the selection of Republican candidates in the general elections.  It is likely that this is a ploy, but it may be that the ploy will play into the hand of the Tea Party.  The Tea Party could take over the Republican Party with a fairly broad based independent constituency.  This could be very bad news for both major parties as we now know them.

It is also potentially good news for the Hedge Tax.  Ultimately, what matters is that the government is more responsive to the voters and less responsive to special interests.  There is no better mechanism than constitutionally driven Tax Reform that will permanently restore the power of the voters.

Poor Financial Governance

This post by the Belmont Club summarizes the cabal that is our banking system.  http://pajamasmedia.com/richardfernandez/2010/02/25/the-last-bubble/  As the post explains, the problem is world wide as interest rates are forced to zero to forestall calamity. 

It is unnerving to have a major institution publish this article.  We feverish hope they are wrong.  But the rats have done their worst for decades....   Support the Hedge Tax

Goldman Sachs

In previous postings, we have been deeply critical of the taxpayer bailout of Goldman Sachs.  Our opinion was that it was a secretive back door bailout via the AIG collapse.  It was also clear that there was a parade of ex-Goldman execs in the center of the government actions.  These names include Hank Paulsen, Ben Bernanke, and Tim Geithner.  Months later, the smoking gun has been discovered.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ax3yON_uNe7I

The corrupt financial governance goes on.  Support the Hedge Tax Reform

Tax Code Thicket

The insane act of the pilot that crashed into the IRS office in Austin Texas had its origin in the convoluted  tax code.  This article by the TaxProf summarizes how it happened.  http://taxprof.typepad.com/taxprof_blog/2010/02/the-austin-pilot-.html

The truth is that almost anyone can be ensnared by the IRS.  The thousands of pages of the code, regulations, and rulings are not fully understood by anyone.  Some choose to fight the unfair system when it bites, but the system is not designed to lose.  And the endgame can be a loss of sanity and life as occurred in this case.

Doing Business

One recurring voter lament is....what happened to the person I helped elect?  When he/she got into office, the votes cast did not resemble the campaign rhetoric.

Part of the difference is due to the normal compromise and horse trading that is part of the political process.   But, more and more, the difference is due to "Doing Business" in Congress.

Our fragmented tax and spend policy empowers special interests.  Those special interests have gained control of our government through massive campaign contributions and the resultant flow of political favoritism.  This corrupt process has clearly shifted into overdrive.  No one can get elected or re-elected without serving those interests.

As the government role increases and tax and spend is unfettered, the politician that tries to serve the general interest and general welfare is swept from office.  Those that remain are those that are best at "doing business."

Support the Hedge Tax.

Local Rats

Corruption of tax policy extends to the local level.  This piece from the Washington Examiner examines the effect of property tax exemptions on the tax burden for the less favored.  http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Goldwater-Institute-investigation-exposes-dark-side-of-special-tax-deals-84738592.html

At the federal level, the Hedge Tax would eliminate the exemptions for Municipal bond interest (this would take 20 years).  Somehow the idea that voters in Iowa should bear part of the burden for a sports palace in Houston seems wrong to the Hedgehog.

Pension Markets

Previously, we posted "Largest Short in History."  The posting described the obligation of the US Government and Taxpayers for trillions in medical benefits.  No funding or reserves for the these obligations exist except for future taxation.

This piece   http://www.latimes.com/business/la-fi-calstrs29-2010jan29,0,4882943.story in the LA Times describes the coming shortfall in teacher pensions.  This is on top of shortfalls in Calpers (CA public pensions). 

Pensions can be described as a market as follows:  Retirees demand pension payments.  Funding is supplied from trust funds and trust fund earnings.  What can go wrong?  The army of retirees grows more rapidly because of demographics.  Earnings of trust funds fall short because of poor market conditions.  Trust funds are underfunded because of budget imbalances.

Step back and look at the landscape of pensions...public and private.  All of them fit the model described in the previous paragraph.  Public pensions and failing private corporation pensions are technically insolvent in many many jurisdictions.

The silence of political rhetoric has shielded pensioners and the public from this reality.  But the market always speaks...even after long periods of silence.

The General Theory of the Hedgehog

The General Theory of the Hedgehog is that a simplified focus of voter behavior is required to correct our poor financial governance.   Fragmentation of taxation and spending has severely weakened the ability of voters to influence legislation.  To correct this distortion, we chose constitutional reform of the tax code. 

The idea behind the balanced budget, single tax rate, single exemption and asset tax was to create a taxing authority that was 1), largely immune to special interest pleadings, and 2), could be directly understood by the mass of voters.  The average voter does not have the time, tools, or interest in deciphering the effects of complex legislation.  Arguably, our congressional representatives have lost that ability as well.  The Hedge Tax forces a direct up or down vote on overall taxation and spending.  Nothing could be more painful to special interests and our current political class.   It is the belief of the Hedgehog that this tax plan would generate a new tax and spend regime and a new class of politicians.

The growing discontent with financial governance has broken into the open.  Various interests have been deeply challenged and harmed by the recent financial crisis.  But the core of the discontent is expressed by a frustrated middle class.  The middle class has not fully participated in the robust financial growth of the past 20 years.  Moreover, the crisis has fully exposed the structural financial weakness of the mainstream entitlements.  This double whammy is the genesis of the populist revolt that we see before us. 

The direction for change is undefined.    Some are simply expressing anger and discontent, some want revolutionary change in government, and some want restoration of the old credit cycle.  Few understand the need for fundamental reform of tax and spend.   The risk is that reform will founder along partisan lines and that the economy will renew its decline.  Should that trigger a currency crisis, about any political outcome is possible. 

The country is desperate for a new leader that can articulate the necessary reform that will allow voters to control the reach of government.   This must be accomplished in the face of the decline in the value of entitlements, and the need to assert control over deficit spending.  If such a leader appears and is successful, he/she will be a central figure in history for the next 200 years.

Where is My Freebie?

The rising tide of populism claimed its first victim in the Massachusetts Senate race.  A new Tea Party message was delivered, but the message continues to be garbled.

The detonator for the MA bomb was the sense that government was willing to help any bank or institution that contributed to the crisis.  It would try to provide welfare for anybody out of a job.  Everybody else, pay your taxes and get back to us later.  The stimulus was a boost for mainstream democratic supporters…especially unions.  The major effects of stimulus wouldn’t begin until 2010…an election year.   Whether this is a fair perception of the administration efforts is beside the point.  It is apparently what the majority of voters believe.

Economists and the financial leadership of the administration have to take a lot of blame for this state of affairs.  Clearly, there was a belief that a heavy dose of stimulus and continued low interest rates would quickly revive the economy.  Unless there is a sudden recovery this year, that belief is obviously wrong.

From a political perspective, we are at a tipping point.  The Tea Party is a major new force in the in the country.   But the Tea Party is a conglomeration of a lot of different beliefs…doctrinaire Libertarians, Populists, and people afraid for the economy and their jobs.   Probably the single force holding this group together is a singular distrust of government and institutions.  

Most of the people in the Tea Party continue to rely on government for their social safety net.  Most look forward to Social Security and Medicare.  Most know that Food Stamps, Medicaid, Unemployment and other social programs should be there if they need them.  But, for the first time, there is growing doubt that the government can deliver those promises.

A major fraction of the Tea Party supporters want the FDR New Deal affirmed.   “Where are our freebies?”  Another major fraction believes that government should be sharply curtailed.  “Throw all of the rascals out.”  The New Deal depended on freebies.  Growing benefits have been delivered for 70 years without adequate consideration of future costs.   Demographic and cultural changes have greatly exaggerated this imbalance.   Soon it will become clear that benefits will be adjusted either by reforming basic programs or via financial collapse.  Will the Tea Party coalesce around fundamental reform?  Or will it take a more sinister form and attempt to overthrow the existing order?

Democrats have taken the lead in promoting entitlement programs, but the Republicans have contributed as well.  Both parties are in danger of being replaced by a new Tea Party coalition.  Changing the message or the “spin” will have very little long term effect, because the financial problems are real and urgent.  So far, neither of the major parties has shown any ability to garner broad support for broad reform.  Instead, both seem content to pursue power for its own sake.

The Tea Party could be the route to a civilized adjustment.  Objective leadership of the new party could forge a new political base.   But this new leadership will have to rein in government to make it workable.  Will the people trained to receive freebies accept this new reality?  Or will our country descend into chaos?

All of this turmoil could have been avoided if financial governance as proposed in the Hedgetax kept voters focused on the general welfare.  Instead, we got the result of special interest pandering.  January 24, 2010

Taxes of the Rich and Very Rich

This NY Times piece confirms a central point of the Hedge Tax proposal.  It also explains the political rationale of the widespread support of the current tax code by the very rich.  Recall an earlier posting of Warren Buffets support for the inheritance tax (he largely avoids paying it).

http://economix.blogs.nytimes.com/2009/12/09/the-rich-pay-more-taxes-than-the-very-rich/?emc=eta1

Fragmented Taxation

The Cap and Trade legislation and the Healthcare proposals before Congress represent more fragmentation of our tax regime.  These bills represent a continuation of the massive complexitiy of the tax regimes that we have allowed to be imposed.

Untended consequences are birthed by these initiatives.  Consider these examples related to the Copenhegan meetings.  I think they represent a permanent disability for manufacturing in the West.  Incidentally, the Russians will reap billions from carbon credits, because they are measured from 1990.  The Russian economic collapse generated massive reductions in carbon emissions.

From EUREFERENDUM

It Pays to be Green

... in Eurabia

The EU's emission trading scheme (ETS) may have been the deciding factor in the closure of the Corus Redcar steel-making plant – reported last week , giving the company a windfall bonus of up to £1.2 billion from the plant closure – on top of other savings.

Earlier this year, Corus – part of the Tata Group Europe - disclosed that its UK steel inventory was "close to exhaustion" and analysts are expecting improved earnings from second-half trading as production is increased to meet a rebound in demand.

Mothballing the efficient Redcar plant (with no expectations of its re-opening) thus fails to make obvious commercial sense, especially as Tata bought the plant only in 2007 as part of its strategy to give it better access to European (including UK markets).

However, revealed by The Times today (although the information has been available since June is an illustration of how valuable an alternative product - "carbon allowances" is to the group.

The paper's story focuses on the rival ArcelorMittal group, pointing out that it has accumulated 20.8 million surplus allowances (EUAs) given to it free by the EU. With the carbon price at over £13, they are worth about £270 million. But, with additional surplus allowances up to 2012 and an increased carbon price – expected to rise to £30 - the company could have gained assets worth around £1 billion.

[...]

This, even for a company the size of Tara steel, is a considerable windfall, over and above the money it will aready make from the EU scheme. But, with a little manipulation, the company can double its money. By "offshoring" production to India and bringing emissions down – from over twice the EU level - to the level currently produced by the Redcar plant, it stands to make another £200 million per annum from the UN's Clean Development Mechanism.

... keep reading.

A Majority of Non-payers

Our tax regime is moving inevitably to a majority of non-payers of income tax.  This is destructiive because in this post http://taxprof.typepad.com/taxprof_blog/2009/12/almost-13-of-tax-.html by the Tax Prof points out, vast numbers of Americans are indifferent to spending and taxation.  With a solid indifferent voter base, it is pretty easy to co-opt enough tax payers to pass any spending program.

That is not the whole story.  Those people that work pay lots of federal taxes in the form of labor taxes (Social Security and Medical taxes).  So not paying taxes is just an illusion.  This is a perfect storm for the political rats, because the true nature of taxation and spending is obscured from the voters.

The Tax Prof goes to the heart of the rationale for the Hedge Tax.  Citizens will make different and more rational choices if they have a simple choice between tax and spend.

Tax Bills

The raging controversies over health care reform and cap and trade are best understood if they are described as tax bills rather than reform.  A view of current and projected deficits certainly supports the idea that massive new revenues are required.  Of course, politicians would lose a lot of votes if they proposed direct new taxes, and it would hurt even more to propose reduction in spending.

Health care reform and cap and trade are perfect vehicles.  They are major "crises;" they are being driven by "greed and miscreants"; and we the people must put a stop to them.  This article summarizes the tax features of the current version of healthcare legislation.  http://www.humanevents.com/article.php?id=34588 It is hard to argue that it is not a tax bill.

The main benefits of these bills are that they are a major payday for politicians (our public rats). For example, Mary Landreiu (D-La) managed to secure a $300 million payoff for the state of Lousiana for her vote to move healthcare to Senate debate.  Think of the endless flood of campaign contributions sure to follow for both parties to fund the fiscal orgy.

Poor financial governance is the origin of these fiscal debacles.  It creates and perpetuates them...support the Hedge Tax Policy at www.hedgehogparty.com.  

Infinite Bond Market

There was a pop tune in the 1950s called "I'm Forever Blowing Bubbles."  I think they whistle this tune down at the Treasury.  Our leaders of financial governance are forever intervening in markets to accomplish this or that.  Inevitably, unintended bubbles form.  Bubbles are fun...even beautiful...but then they pop.  In our current environment, nobody is unaware of the recent demise of the real estate bubble.  But are we aware of the next bubble?

Our economy formed new private credit at a growing rate until 2000.  At that time we passed a point of peak private credit for the first time in over 70 years.  Until the private sector is purged of a lot of debt, real economic growth cannot continue.  The purge is happening in the private sector, but not in the public sector.

No politician or political group can pass up the opportunity to "save the economy and jobs."  Start the public money pump!  In the old Keynesian model, the public money pump worked pretty well.  Liquidity was about all the private sector needed to catch its breath and go on to the next economic peak.  After a major private credit peak, the private sector (and money pump) is frozen.  The public money pump is not designed to carry the whole load.  The Federal Reserve and the Treasury take on the role of the "Wizard of Oz"...just a loud noise from behind a curtain.  The Colossus is just an image and a fraud. 

When politicians (and citizens) demand that the booster pump become the main pump, all of sudden bizarre things happen...trillion dollar deficits as far as the eye can see; vast increases in the Federal Reserve balance sheet; corruption on a vast scale; social unrest; AND the potential for vast new bubbles.

What is the next bubble?  It is unlikely to be stocks or real estate...those recent bubbles are too firmly fixed in mind.  My bet is bonds.  Right now, there is an infinite market for bonds.  Here is how that works.  The Federal Reserve and Treasury supply liquidity, loans, and guarantees in abundance.  Banks receive this largese, but have no private market in which to lend it.   But there is an abundance of government bonds.  Borrow at zero percent, lend at 2-4% to a no risk borrower.  It sounds like a profitable banking deal to me. 

The wild cards are the value of the dollar and the rate of destruction of private sector debt.  That is what makes it interesting...you never know when the bubble will pop.

The Public Option is not Optional

Employer mandates have the effect of mandating the public option.  An analysis of the cost effect on small business leads to the inescapable conclusion that a vast number of employers will discontinue offering health insurance.

http://money.cnn.com/2009/10/08/news/economy/baucus_health_care.fortune/index.htm?postversion=2009100915

The secondary effects are mind-numbing.  Private insurance will collapse quickly, because public insurance is underfunded and does not bear its full cost.  Private insurance will provide a smaller pool for the cost shifting that politicians love. 

Physician reimbursements for public insurance are too low.   Heavier reliance on public reimbursements will force significant number of physicians out of business or they will choose to retire.  The long lines for medical care will begin almost immediately.

A sad day is near...all because of poor financial governance that allows financial ills to form and fester.

High Marginal Tax Rates

This post by the Tax Prof summarizes the effect on marginal tax rates of the proposed health care legislation.  Marginal tax rates as high as 80% are creeping into the middle income tax brackets.  It appears that some version of the health care bills will become reality, and it underlines the damage that a fragmented tax system can cause.  http://taxprof.typepad.com/taxprof_blog/2009/10/80-marginal-.html

Except for reducing "waste and fraud" there is little in the legislation that reduces cost, and a lot that selectively raises taxes.  Few are asking "If you can actually reduce waste and fraud, why aren't you doing it now?" 

The single rate income tax proposed in the Hedge Tax would directly affect 85% of the taxpayers.  The increase would be directly visible, and all of us could decide whether we wanted to increase it to pay for this program.

World Record Short Position

In our previous post, we opined that precious metals were positioned for a massive short covering rally.  That set us to thinking about the largest short postions in history.  There is only one contestant.

The US government (and the taxpayer) owns the largest short position in the history of the world...and it is growing.  That short postion is in health services through Medicare and Medicaid.  It is trillions and trillions of dollars and dwarfs the next biggest short position.  That would be for pensions via Social Security.

This is the prime example of our poor financial governance.  Support the reform of tax and spend throught the Hedge Tax.

Instability

Last year, I thought that there was the possibility that the anticipated currency crisis would begin.  I predicted a surge in the price of gold at year end. The conditions were ripe for it, but for a variety of reasons it did not occur.  Principle among those reasons is deflation.  Deflationary pressures were and are intense.  Massive stimulation by most central banks, and mind bending injections of liquidity are holding deflation at bay.

Stagflation is possible under that circumstance, but the Federal Reserve, Treasury, and other allies also managed to dampen the fall of the dollar.  Part of the relative stability in the dollar is the cooperation between central banks.  No country wants an appreciating currency to dampen exports.

Asians and particularly China are in a bind.  They have massive holdings of dollar backed securities.  They also have a need for continued exports, although their western markets are substantially weakened because of the recession.  Internal consumption and stimulation proceeds apace, but it is unlikely to replace exports over the medium term.

In sum, the conditions this year are much more unstable than last.  US deficits, and currency printing are massively higher.  At high levels, Chinese officials have condemned the failure of US financial governance.    The top financial official was quoted as saying “we hate you guys” in reference to the risk to their dollar holdings.

China is reducing its exposure to the dollar by aggressively acquiring all sorts of commodities and resource producing companies.  But they continue to avoid direct attacks on the dollar to protect their large dollar holdings.  But the indirect attacks are rising.

Many (including me) believe that the price of gold and silver are aggressively manipulated.  Four bullion banks hold more than 50% (and growing) of the short position on the Comex.  In the past month, China has begun an aggressive campaign to encourage citizens to buy precious metals.  It is working.  Over the past 15 years, central banks have been active sellers of gold.  Those programs are coming to an end.  Some, like Russia, are major new buyers of gold.   Metal buyers can ultimately overrun the major bullion bank shorts by taking delivery on the Comex.  This would happen despite the almost infinite financing available to the shorting banks.  Shorts would have to buy the metal, and it is simply not available in the quantities needed.  The metals exchanges could default.

The last hurrah for gold shorts may be coming up.  The IMF is predicted to sell 400 tons of gold next week.  The market reaction is key.   China and Russia are rumored to be buyers of the full amount.  The short term market is setup for a hard sell-off.  But the price decline may be sharp, and only last a few hours.  Or there may be no decline at all.  If the price of gold is over $1000 by October 1, 2009, there should be a price explosion.  My $2,000 per ounce forecast for December of last year will have been one year early.  The citizens of the world are on the verge of fleeing fiat currency.  As usual, gold and silver stocks are the best play.

The payback for our failure to manage tax and spend could be at hand.

Black Box Public Finance

This post by Chris Martenson shows one small way that the Federal Reserve and Treasury obscure the true condition of our public finance.  Bids and bid coverage are important measures of the marketability of our federal debt.  Rigging the market so that "buyers" are actually front men for the Federal Reserve ultimately corrupts the whole process.  Worse, this nefarious game is hidden from all but the most sophisticated observers.

The US denominates its debt in US dollars - the world reserve currency.  All countries have a stake in this unit of interational trade, so our failure at financial governance could be a worldwide financial disaster.  The tried and true method of resolving excess public debt is long term debasement of the currency.  Witness the loss of 95%+ of the purchasing power of the dollar over that past 90 years.  Currently, our public debt accumulation is so rapid that it will take a very large bush to hide this elephant. 

This week's auction features the planting of some new hybrid foliage.  TIPS (Treasury Inflation Protected Securities) have been a minor feature of our auctions for some time.  At the request of the Chinese, they are about to become much larger.  The Chinese and others have been grumbling loudly about the risk of devaluation of our currency.  TIPS would give them the inflation protection they desire.

This is a clever scheme, because it "kicks the ball down the street."  It obscures the fact that this is in reality a de facto denomination of our debt in other currencies.  Is a measured decline into a worthless currency the best we can do?

How deperate we are for a regime that can control tax and spend.  Support the Hedge Tax.

Honest Healthcare Debate

Everybody is lying.  The need to lie is paramount, because misguided policies have undermined the finance of healthcare.  Several groups of rats have been feeding on healthcare for profit and votes for decades.  But, like all of these schemes, economic imbalances eventually come home to roost.  The healthcare chicken has turned into a vulture.

The biggest lie has been tacitly or directly supported by both parties.  What started as a compassionate and civic minded effort to supply healthcare to the poor has morphed into a colossal empire that is a black hole for money and political influence.  As the lure of money has increased, political influence has directed hundreds of billions to special interests such as trial lawyers, health insurance companies, drug manufacturers, device manufacturers and medical providers.  It has also been a bonanza for ambitious politicians.  The overall effect has been to drive up the cost of healthcare way beyond the actual cost of the care provided. 

All of this money had to come from somewhere.  As politicians ran out of ways to raise medical taxes, cost shifting to private insurance buyers has been a major source of new revenue for the past two decades.  But like all things, this scheme has its costs.  The cost is rising private health insurance premiums that are continuing to accelerate.  Each year, more marginal private insurance buyers drop out and the problem gets progressively worse.  The biggest lie is that Medicare, Medicaid, and welfare healthcare are "fully funded."

The healthcare debate is highly partisan, extensively covered, but it sheds very little light on the Problem.  The Problem is that we have a healthcare system that is controlled by special interests that cannot be funded in its current form.  Our current health system is on the verge of financial collapse without major new funding and aggressive cost reduction.

The Democrat lie is that we "must cover" 47 million uninsured through a greater public effort.   In a sense, they mean to retain and ultimately nationalize some form of the current system while "improving coverage" and "reducing cost."  As you read the Democrat proposals, the certainty is major new taxes and aggressive cost reduction.  The route to new revenues is mandated insurance coverage along with surtaxes and penalties...big new direct or indirect taxes no matter how you spin it.  Aggressive cost reduction will be achieved by "medical review boards" that determine allowed care.  This could become truly draconian as the financial stress on healthcare becomes more evident.

The Republican lie is that private insurance with some patches on the current system is workable.  Except for the ususal hits for tort reform, there is very little substance in Republican proposals.  The Republican role is simply to oppose Democrat proposals by pointing obvious shortcomings, and playing on the fears that voters may "lose their health insurance or doctors."  In fact, people are going to lose their current healthcare, because it is being priced out of their reach.  The Republicans give no voice for this issue...shame on them.  As with the Democrats, they are also beholden to the campaign funding provided by special interests.

Both parties are lying (or blind) about the viability of our health care system without cost reform.  Enormus public pressure is needed, because neither party wants to shut off the money spigot from special interests.  The real debate should be over public vs. private healthcare.  But it needs to be an honest debate that gives full weight to the ways to legitimately reduce costs.  Mandates and reduction of reimbursements ultimately damage the availability and quality of healthcare.  Voters are right to fear this outcome.  Health Savings Accounts are of little value if competitive pricing is unavailable.

In my view, the thrust of the debate (such as it is) is completely wrong.  Both parties are working to drive people into private or public insurance.  We should be doing the reverse.  Routine medical care should be paid by individual patients except for the poorest Americans.  Catastropic health insurance (say $10,000 deductible) should be available nationally.  This scheme would probably reduce the paperwork volume by 80% and reduce overall health insurance premiums by a similar amount.  I would think a real reduction in health care costs of 30+% would result from this one change.  There are many other changes that make sense. 

Steeply Progressive Taxation

One of the flaws of steeply progressive taxation is about to be exposed.  One percent of the taxpayers now pay more income taxes than the bottom 95%.  It is pretty clear that major corporations and high income individuals, green shoots notwithstanding, are experiencing massive declines in profits and taxable income.  In fact, the annual profits of the S&P 500 are going to zero for the first time.

The titans of industry and finance will have large declines in taxable income...along with many many other high income individuals.  Goldman Sachs and AIG bonuses just won't be enough to make up the difference.

What this means is much lower income tax collections for the federal (and many states) government.  I'll repeat that...much lower tax collections.   Because of our reserve currency status the Treasury and Federal Reserve can print up the necessary money.  But this is a dangerous shell game when you consider what may happen to the purchasing power of paper money and the value of long term bonds and notes.  We could wake up some morning with a financial crisis that could make September 2008 piddling by comparison.

The Hedge Tax pevents financial malfeasance by our government and the citizens that support it with their votes.  We need it now more than ever.

The Tax Code and Political Payoffs

This is a partisan piece from American Thinker.  But you could easily find many others promoted by both parties when they are in power.  The Hedge Tax won't erase this activity conpletely, but voters would no longer be distracted by class politics. http://www.americanthinker.com/blog/2009/07/a_tax_break_for_trial_lawyers.html

Acey Deucey

Anyone who has played many hours of low ante Acey Deucey can attest to that fact that low probability events occur.  They always occur after enough trials...this is pretty basic statistics.  It has been my contention that the frantic chase after derivative financial instrument profits effectively created a massive number of trials.  Therefore, the event (our modern black swan) that caused our current financial crisis was easily predictable.  Of course, too much money was at stake, so the players cloaked their game in rhetoric and pseudo science.  But it was really just too much leverage.  This article lays it out.  http://paul.kedrosky.com/archives/2009/07/guest_post_nass.html

The shape of our next crisis is not yet clear.  But it is coming...bigger and better than ever.  We are throwing around massive amounts of unregulated money to fund it.

Systemic Flaw

The confirmation hearings for the new Supreme Court justice reminded me of two clauses of the US Consitution...the Spending Clause and the Commerce Clause.  The Founders recognized that these clauses held the key to control of the power of the federal government. 

Through compromise, they settled on this simple language for the Spending Clause.  "to pay the debts of the United States, and to provide for the common defense and for the general welfare of the United States."  Similarly general language enabled the federal government "to regulate commerce among the several states."  It is really hard to believe that these two clauses have evolved into the collossal Leviathan that can spend money on anything, and regulate virtually any activity in the country.

Over time, a combination of court decisions and legislation have removed the intended limitation of the federal government by these two clauses.  Beginning in the early 20th century the rise of progressive government; World War I; the Great Depression; and World War II; set the stage and enabled our current version of government.  In this current crisis, we are learning the cost of a government that cannot be limited by the constitution or the voters.

The proposed constitutional amendment supporting the Hedge Tax was devised to take one step to rein in the power of central government, and make it more accountable to the voters.  The key elements are a reconnection of taxation to spending and a requirement for a balanced budget.  The Hedge Tax will not solve every problem of governance, but it will go a long way.  It will change the focus of the voters from "what's in this for me" to "what will this cost?"  It will correct the systemic flaw in our constitution that is underminng the finance of our country.

Deficits and Inflation

This article by Jonathon Hoenig includes a 1933 inflation propaganda film.  Much of the film repeats the line of thinking currently espoused by our financial leaders.  The government effort in the 1930s was expensive and largely ineffective.  This era launched a debasement of the US Dollar of over 90%  But it was politically popular.  Many of the 1930s programs such as Social Security remain in use and have been greatly expanded in many cases.  Financial and other crises create a public demand for government action.  It remains to be seen whether these current actions represent sound fiscal policy over the long term, or whether a new debasement of the currency has begun.

Nationalizing California

California is a textbook case of bad governance.  It is a harbinger of the fiscal mismanagement that is our federal government.  Polticians can't say no to spending...and they can't say yes to taxation.  It is useful to remember that California is one of the richest states, and has a history of being a leader in the economic development of the country.    All of the economic/political policy elements that the Hedge Tax is designed to correct are on full display.

The end game for California is fairly easy to guess.  A quick sale to the Federal government followed by a restructuring with controlling ownership held by the public employee unions.  Of course, taxpayers in the hinterlands will stand ready will loans and bailouts to keep the whole enterprise afloat.  It worked for GM and Chrysler didn't it?

Soak the Rich, Lose the Rich

High income individuals are making headlines by publicly announcing their intentions to leave high tax jurisdictions for better tax climates.  Rush Limbaugh announced his intent to leave New York City, and the owner of one of the Buffalo, NY professional teams announced that he was leaving the state.  The very rich pay a big fraction of state income taxes...and they are more mobile than ever.  This article summarizes the general effect of this tax induced migration.

"Taxing the Rich" may pay some short term financial dividends, but longer term it weakens the competitiveness of the state.  Politically, it is a no brainer.  It gives the politicians supporting such measures and aura of "helping the little guy," and "bringing the fat cats into line."  The ill effects of these policies take a few months or years to settle...by then the public no longer can make the connection of how it happened. 

The Hedge Tax recognizes the irresistable temptation of "flogging by tax code."  Ultimately, every citizen should support a fair tax system.  That includes a system that does not undermine their economic well-being...Support the Hedge Tax.

Federalism Amendment.com

The grassroots attempt to enact a Federalism Amendment is making headway.  Supported by much of the Tea Party movement and PJTV.com, it offers a mechanism to control the reach of Federal Tax and Spend.  The idea is to renew and add some new features to the US Constitution that will undo 200 years of legislative and judicial damage to individual freedom.

For now this effort is supported by some conservatives and libertarians with a sprinkling of moderate Democrats.  The Fair Tax supporters are pushing inclusion of their tax amendment, and we Hedge Tax advocates have submitted our own tax amendment as an alternate choice.  Probably the broadest appeal is the section on control and funding of Federal mandates.  Congress cannot resist the passage of feel good legislation that kicks the cost to state and local governments.

The important contribution of federalismamendment.com is the creation of a mechanism that nearly identical to that envisioned for passage of the Hedge Tax.  Since mainstream politicians are owned by special interests, this effort represents a method to circumvent our flawed political process.

The mainstream media has ignored or ridiculed the Tea Parties, and the federalism amendment is not on their radar.  Right now, they are correct in their dismissive attitude.  I think they have underestimated the level of discontent over the perceived destruction of our finances and uncontrolled spending.  If the federalism effort can shed the "right wing libertarian" label, then mainstream politicians and the media will have made a serious miscalculation.

Flyover Country

Mayor Bloomberg put this SNAFU in perspective.   "The good news is it was nothing more than an inconsiderate, badly conceived, and insensitive photo op with the taxpayers' money."

But the Flyover is symbolic of a larger issue.  For the past 30+ years,  The financial power center of the country was Wall Street.  The financial crisis has changed that.  Now the financial center of power is located in Washington DC along with the political power.  The potential for mismangement and corruption has been multiplied many times.

For years, the center of the country has been referred to as Flyover Country.  Compared to the coastal regions it is of no importance except for election year pandering.  Flyover Country has been expanded to include New York City.  Welcome to the small world.

Bat Boy

Those of us that were fans of Weekly World News miss the infamous Bat Boy that was created by the editor and publisher Eddie Clontz.  Here is a link to Clontz's hilarious obit in the Economist.  http://www.npr.org/templates/story/story.php?storyId=98045385

Eddie may be gone, but apparently Bat Boy lives.  He is negotiating deals on "cap and trade" to exempt certain refineries and coal fired electrical generation plants.  http://www.washingtonexaminer.com/politics/To-get-votes-Waxman-offers-cap-and-trade-breaks_04_24-43592342.html   You'll have to agree that Bat Boy is eerily similar to Henry Waxman.  These exemptions represent very large sums of money so undoubtedly some votes will be purchased to secure passage.  Thank goodness this exercise is just "good politics."   Or maybe it is an old fashioned form of soft corruption...paid for by the taxpayer of course.  Support the Hedge Tax.  

No Saints

In an earlier post , I suggested that TARP funds would be an enormously corrupting influence.  There was no specific purpose for the funds, so they would just be a grab bag for special interests and thieves.

 

This link to a National Review article supports the point.  http://article.nationalreview.com/?q=ZDE5ZTExZDljOWYyNjZlZjM4MjY5ZTgzYjFmNzc0NTg

 

Although this piece is partisan, it is only the beginning.  The 20 criminal investigations will morph into hundreds (or more), and the story will become mainstream.  When that much money is loosed on the table, there are only Sinners...no Saints. 

 

As always, the core of the problem is our uncontrolled tax and spend policy.  The search for scapegoats  is probably already underway.  Don't be distracted or fooled.  Our representatives (which we elected) are the enablers of this problem.  Demand real change...a new tax and spend policy as proposed by the Hedge Tax.

California Constitutional Convention

Some influential folks are pushing the idea of a constitutional convention in California.  At issue is the budget paralysis that regularly cripples state finances.  A key point of contention is the requirement that taxes can only be raised by a 2/3 super-majority vote in the legislature.  Some want this bar reduced. 

What a perfect venue to consider enacting the Hedge Tax!  Establishing a single rate tax applying to the top 80% of earners, a small asset tax for the truly wealthy and a balanced budget requirement will solve many of California's fiscal problems.  WIth the Hedge Tax, budget paralysis goes away.  The focus will instead turn to spending issues, since taxes will always move up or down with changes in spending.

Rat Race

This article summarizes the competition to supply campaign funds to our representatives for the next election.  It is hard to decide the worth of a good rat...but obviously it is a lot.  A brief survey of my politically active friends revealed none had made any contributions for the next cycle yet.

Clearly, it is the big money interests that are getting their bids in early and often.  They recognize that not only do they need get in on the ground floor, but they need to be positioned to "rebuy" in the event they are outbid.

Political porn is fascinating to watch, but those of us concerned about the future of the country, should stay focused on the corrupt tax and spend culture that is eating away at our republic.  The reviled political process in which we participate is only a result of our failure to rein in the powers of our government.

It is hard to do, since almost everyone is snarfing up the government cheese.  The Hedgehog believes that constitutionally driven tax reform is the only route to real change.  Join the effort. 

Eyesore

When you survey the landscape of bailouts, political pork, and floods of liquidity from the Fed, it makes your eyes hurt and water.  I tried to come up with a phrase and then an acronym to describe it.  Since I have no skill at this, the best I could come up with was ISOR (Insane Spending on the Rich)...Eyesore.

One of the most successful Eyesores is Goldman-Sachs.  Think about it, they received TARP funds, $20 billion from the AIG bailout, became a bank, and made $1.8 billion last quarter.  Now they are raising $5.5 billion is new money to purchase toxic assets(a sweetheart deal for the powerful financial insitutions).  If they can just return those TARP funds, the bonuses can flow again.

Since the big financial institutions are major campaign contributors and sweetheart deal generators for our representatives, don't hold your breath until punitive taxes are applied to them.  Where is Barney Frank when you need him?  On a junket?

The Hedge Tax is designed to put a stop to this madness.  It aggregates the voters in a way that they can express displeasure without taking to the streets.

Our Politicians Love Tax Code Complexity

Steve Malanga has written an excellent article summarizing the use of the Tax Code by our politicians.  Some of the salient points are covered in the following excerpt...or you can read the entire article here.   The Hedge Tax has a number of features.  One of them is the idea that everybody (including corporations) gets one deduction.  And there are no tax credits.  The corruption of our tax code would end.

"Why does the U.S. continue to...make our code ever more complex? Because it is through deductions and credits that legislators manipulate the system. When you hear a politician touting a cause these days--whether it is making us more energy efficient, getting more kids to go to college, expanding educational opportunities in inner cities, or increasing home ownership--you can assume he intends to pursue his cause at least in part through changes in our tax code.

Credits and deductions are also a way for office holders to pay back the always-growing number of rent-seekers in Washington, from lobbyists to advocacy groups, by crafting adjustments in the tax code favorable to their industry or constituency. That’s one reason for the 3,125 changes in the tax code since 2001, an average of more than one a day. Imagine what a loss most politicians would be at on the campaign trail or in K Street meetings with lobbyists if we had a tax code that didn’t permit deductions and credits.

It’s only going to get worse in the near-term. The first Obama budget makes a series of adjustments to the code that the administration claims will make our system fairer, but at the price of even more complexity. Nothing is more illustrative of the problem than Obama’s proposal to reduce the value of the deduction for charitable contributions made by those in the top tax bracket, whom the administration argues benefit disproportionately from their giving. To do this the government must add yet another calculation to the process of determining a tax bill which treats charitable donations at a different rate from a filer’s other deductions. If something as benign as charitable donations get this treatment, you can be sure that many other deductions will soon be similarly indexed. The potential for slicing and dicing the system when you think this way is never ending, so that soon every deduction may have its own rate schedule.

Ironically, this approach makes the tax system more inequitable, not less. That’s because the cost of increasing complexity falls heaviest on the lowest-income filers. A 2001 study by the Tax Foundation estimated that individuals who earn under $20,000 annually spend the largest percentage of their income on preparation and compliance of any group—an average of 4% at the time of the study."

Break up Goldman-Sachs

Mish Shedlock wrote the link on Goldman-Sachs.  We need a lot more indictments of the financial and political chicanery that is being practiced in Washington DC.

The astonishing concentration of power and evidence of potential market manipulation is summarized here.  http://globaleconomicanalysis.blogspot.com/2009/04/time-to-breakup-goldman-sachs.html 

 

Left unmentioned is Henry Paulson's (former Goldman CEO and Treasury Secretary) role in funnelling $20 billion to Goldman thru the AIG bailout.  Don't forget that the same gang from Goldman and other powerful Wall Street interests is in charge in the Obama administration.

 

It is also useful to note that when the going got tough, the tough (Goldman and other investment banks) hollered "nuff" and became banks.  This smooth manuever gave them direct access to the Fed window.  We have no data on how much of the trillions from the Fed have wound up in Goldman's hands (don't bet on zero).

 

It is no wonder that we have a brewing tax revolt (or worse).  The restless natives sense (correctly) that something is wrong.  Tax reform that drives reform in spending is essential, and I believe that the Hedge Tax is the answer.

Everybody should pay income tax

This article in the WSJ outlines the disparity in our current tax code.  It also re-enforces our previous posting on "Ultimate Moral Hazard."  Unfortunately, it leaves out a discussion of the social taxes that are paid by the low end of the income ladder.

To be successful, tax reform must meet a variety of goals.  First and foremost, it must have broad appeal.  Second, it must inherently contain elements of "self control" of tax and spend.  Third, it must be flexible enough to raise required revenue.  Fourth, it must be constructed to resist manipulation by special and political interests.

The Hedge Tax does propose a "peaceful revolution" that meets these objectives.  This need for tax reform is urgent if we are to avoid a real revolution.

The Ultimate Moral Hazard

The TaxProf has produced a nice summary of the most recent tax data.  What is shows is the source of an ultimate moral hazard.  A near majority of our citizens pay no net income taxes.  Therefore, there is no restraint on their demand for increased spending of all types.   A majority of our legislators are happy to agree, because it is a sure route to a lot of votes.  A few "scapegoat" de jour votes are the only loss.  When coupled with a free ride on budget deficits, we have created the potential for a "perfect financial storm."

The Hedge Tax was devised the eliminate this hazard.  Changing the flat income tax rate is the only source of new revenue, and that rate directly affects 85% of the taxpayers.  There is a limited Asset Tax included in the Hedge Tax, but that is likely to be continuously maxed out.  The requirement for a balanced budget eliminates the final escape hatch for legislators.  New spending programs face an immediate reaction from the voters.  Support the Hedge Tax.

Two Kinds of Rich

Last week, the Darien News-Review published "Two Kinds of Rich," an article I wrote describing how the Asset Rich are at an advantage over the Income Rich when it comes to paying taxes.  You can find it here.

As the article points out, the Income Rich are facing the prospect of dramatically higher taxes.  At the same time, the Asset Rich are poised to escape much of this additional tax burden thanks to many loopholes and other benefits at their disposal. 

The Hedge Tax addresses this unfairness with the introduction of a small Asset Tax.  The purpose of this tax, like the Hedge Tax proposal overall, is not to "soak the rich" with excess taxes.  Rather, it is to ensure that they pay taxes like everyone else, that they feel the tax burden like ordinary citizens do.

Brother, can you spare a trillion?

This title can be viewed in two ways.  First, compared to the 1930s lament and song (Brother, can you spare a dime?) our modern beggars need a lot more money.  This article from CNN Money summarizes the appropriations and expenditures of each injection of taxpayer funds in this crisis.

Second, the supplicants are not wearing scruffly clothes and arriving on freight trains.  Instead, they wear $2000 pin striped suits and arrive in limos or private jets.  Often, they are (were) the biggest cheese gathering rats of our bubble boom.  Only the $8 billion in additional umemployment benefits represents direct support to citizens.  The rest is supposed to "trickle down" from financial insititutions.  As I recall, "trickle down" was a derisive slogan used by the Democrats during the Reagan battles...but maybe things are different this time.

There are other shoes to drop.  Despite the prop to earnings from removal of "mark to market of assets", there are are lot of insolvent banks.  The FDIC will require massive fund injections to shore up requirements for failing banks. The decline in employment has hurt Social Security and Medicare contributions.  The Trust funds may end the contribution to general revenues next year.  The trust funds contain Government IOUs, so new taxation and deficits will be required to cover the loss.  A number of states are insolvent, and they will require a massive injection of funds .

Depressions like what we have now are only relieved by debt destruction.  Restarting lending and propping up weak debt will only prolong the agony.

Raise Everybody's Taxes

The Hedge Tax is designed to raise everybody's taxes when additional revenues are needed.  Coupled with a balanced budget amendment, politicians are forced to go to a broad spectrum of the voters to gain support.  This scheme strikes directly at the heart of special interest groups

The recent procedural vote on cap and trade demonstrates how this can work.  This article summarizes the "pushback" on the cap and trade scheme to raise carbon taxes.  A number of democratic congresspersons quickly realized that this tax would affect everybody and bailed.  It is fun to mete out taxation punishment on the rich, big oil, or fatcat executives.   But when a tax affects a large number of constituents, suddenly the green turns to yellow. 

Giddy

The financial markets are giddy.  The G-20 has engineered "loans" to the IMF and the World Bank totalling over $1 trillion.  This sum apparently saves everybody from the folly of previous bad lending.

What is the real meaning?  The financial markets are rightly excited.  Every taxpayer's wallet has been opened to the financial barons of the world.  Best of all, the taxpayer doesn't really know it.  The "loans" are financed by deficits, so the inflationary effects of the gift will not be known for months or years.  In the meantime, the financial rats can make new fortunes by trading in the old toxic waste at taxpayer expense.  Our financial and poltical leadership understand this very well...shame on them.  There is no price too high to maintain power...so long as it is the taxpayer that pays it.

With some luck, a new round of lending can commence based on the old lending formulas.  For example, GM (the government motor company) has renewed subprime auto lending.  Why wouldn't you buy a new car?  The payments are low, and if circumstances are dire, the taxpayer will pick up the tab (I'm not making this up).

Rest assured, no politician will be forced to explain why new bad loans cure the effect of old bad loans.  Desperate folly abounds.  It might work...but only for awhile.  The Hedge Tax would have prevented this.  I pray that our republic can survive it. 

300 Billion Unintended Consequences

All government programs have unintended consequences.  Usually, that unexpected impact does not undo the orginal intent of the legislation.  Hopefully, that will be the case for the plan to "monetize" long term treasuries. 

The decision to purchase $300 billion in long dated treasuries carries this risk.  How?  First, the plan lowers interest rates.  The US has a lot of debt to sell (far beyond the $300 billion).  Lower rates make the instruments less attractive to buyers.  Second, existing debt holders may sell into the "backstop" bid thereby sopping up the cash infusion....China comes to mind.  Third, this plan undermines the confidence in the future value of our currency.  You have probably noticed that China and Russia have proposed a new reserve currency to replace the dollar.

Much of US foreign military and economic policy rests on the reserve currency status of the US dollar.  The effect of this debt purchase policy on our country could be profound.  Ruinous deficit spending has been allowed to become a routine part of fiscal policy.  Adoption of the Hedge Tax would begin to undo this malfeasance.

Tax Bracket Creep

Inflation and the resulting tax bracket creep has not been a major policy issue since the early 1980s.  In the 1970s, it was a big issue, and it will become a very big issue again in a few years.  Inflation and tax rates were so high in the 1970s that taxpayers suffered a loss of real wealth on passive income such as interest.   Interest income minus taxes was substantially less than inflation.  This problem was a major reason for the rise of Ronald Reagan and supply side economics.  Since that time, inflation has been subdued.  However, inflation does go on albeit at reduced rates.

Bracket creep is a major benefit to politicians.  It permits tax increases without new legislation. How does it work?   We have a progressive taxation system.  If prices and wages are increased by inflation, then the PERCENT of GDP taken by taxation increases.  This tax increase will occur with no change in legislated rates.  The inflation of the 1970s was ignited by deficit spending to support Lyndon Johnson’s Great Society and financing of the Viet Nam war.   Many fear that there will be greater inflation than in the 1970s because of the very large current deficits.  Read the whole article.

Socialism

This short article, posted by the Ludwig von Mises Institute, clearly illustrates the insidious allure of government largess.  Voters will always demand more from government - always - unless one things is true:  there is a clear linkage between government spending and the taxes people must pay.  Without such a linkage, Socialism is the eventual outcome.  With such a linkage, government will only deliver what its citizens are willing to pay for. 

The Obama administration is planning to ramp up spending dramatically, and, as they tell us, the bottom 95% of taxpayers "won't see their taxes increase one dime" as a result. 

OK, class, any guess as to how this is going to turn out? 

The Hedge Tax, which forces the taxing/spending linkage, is the way out of this predicament - and the key to our future! 

The loyal opposition

I think GOP opposition to President Obama’s plans is a good strategy, and actually one that helps the president.  

 

The GOP can’t materially influence the budgets, bailouts and tax increases the Democratic majority is planning to pass (after all, Democrats won the election big).  Since GOP support doesn’t matter, Republicans should simply vote ‘no’ to all of this and wait.

 

This should influence the president and his party to be more careful in crafting their legislation.  They’ll know that a GOP free from the “baggage” of having supported the president could be a very powerful political force.  

 

It’s a gamble for Republicans, to be sure.  If the president fails, they’ll return to power quickly, but if he succeeds, they could end up in the political wilderness for a generation or more.  

 

For the sake of the country, I do hope the president succeeds, but I’d rather have a healthy opposition ready to capitalize on his overreaching and missteps than a compromised opposition vulnerable to charges of “you voted with us; you’re to blame for bad results just we are.”