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	<title>Reno Hayek Symposium &#187; Tom</title>
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	<link>http://renohayek.com</link>
	<description>Articulating conservative solutions to current issues &#38; supporting their intelligent champions</description>
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		<title>Constitution&#8217;s First Amendment Is Nothing To Obama</title>
		<link>http://renohayek.com/2012/02/constitutions-first-amendment-is-nothing-to-obama/</link>
		<comments>http://renohayek.com/2012/02/constitutions-first-amendment-is-nothing-to-obama/#comments</comments>
		<pubDate>Sun, 05 Feb 2012 06:36:58 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Constitution]]></category>
		<category><![CDATA[Freedom]]></category>
		<category><![CDATA[Government Regulation]]></category>
		<category><![CDATA[Law, Morality & Religion in the Public Square]]></category>
		<category><![CDATA[Rule of Law]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3079</guid>
		<description><![CDATA[As an American Catholic, I am appalled at Obama and his &#8220;Catholic&#8221; minion, Sebelius, who ignore the Constitution. I shouldn&#8217;t be surprised, they have continually done that before. What follows is a statement read this weekend in Catholic churches throughout Nevada. Freedom of religion is at stake here: Note the conclusion in the third to last [...]]]></description>
			<content:encoded><![CDATA[<p>As an American Catholic, I am appalled at Obama and his &#8220;Catholic&#8221; minion, Sebelius, who ignore the Constitution. I shouldn&#8217;t be surprised, they have continually done that before. What follows is a statement read this weekend in Catholic churches throughout Nevada. Freedom of religion is at stake here:</p>
<p style="text-align: left;"><a href="http://renohayek.com/wp-content/uploads/2012/02/NV-Catholic-Statement-HHCSTATEMENT20123.jpg"><img class="aligncenter size-large wp-image-3084" title="NV Catholic Statement-HHCSTATEMENT2012" src="http://renohayek.com/wp-content/uploads/2012/02/NV-Catholic-Statement-HHCSTATEMENT20123-753x1024.jpg" alt="" width="678" height="922" /></a>Note the conclusion in the third to last paragraph: To abide by the law, leads to a violation of our moral teachings. To ignore the law makes us subject to fines and other consequences. To act within the &#8220;nonexemption&#8221; leads us to abandon our mission to serve people in need. None of these is acceptable to people of faith.</p>
<p style="text-align: left;">This is what lead to the founding of our great nation. Freedom from religious persecution.</p>
<p>And the critical last question posed by the Nevada bishops: &#8220;Where else will this regulation lead?&#8221;</p>
<p>Obama and his ilk must be stopped for the sake of our freedoms.</p>
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		<title>Tax Rates, Loopholes, and Reality</title>
		<link>http://renohayek.com/2012/01/tax-rates-loopholes-and-reality/</link>
		<comments>http://renohayek.com/2012/01/tax-rates-loopholes-and-reality/#comments</comments>
		<pubDate>Mon, 30 Jan 2012 05:14:52 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Taxation]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3077</guid>
		<description><![CDATA[Brad Schiller&#8217;s excellent discussion of tax rates, &#8220;loop holes&#8221; and reality in today&#8217;s RGJ is re-published herewith: Mitt Romney’s 15-percent tax rate seems hugely unfair to the middle-class family that is burdened with a 24 percent bite. Or, even to the few “millionaires and billionaires” who actually pay the top marginal tax rate of 35 [...]]]></description>
			<content:encoded><![CDATA[<p>Brad Schiller&#8217;s excellent discussion of tax rates, &#8220;loop holes&#8221; and reality in today&#8217;s RGJ is re-published herewith:</p>
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<p>Mitt Romney’s 15-percent tax rate seems hugely unfair to the middle-class family that is burdened with a 24 percent bite. Or, even to the few “millionaires and billionaires” who actually pay the top marginal tax rate of 35 percent.</p>
<p>But Mitt Romney actually pays a higher rate than the average millionaire (12.8 percent of adjusted gross income) and a much higher rate on total income than the Obamas pay.</p>
<p>Inequities in tax burdens originate in the exemptions, adjustments, deductions and credits written into the tax code — the so-called “loopholes.” Middle-class homeowners love the deductions for mortgage interest, state and local taxes and charity. Millionaires cherish the low tax rates imposed on carried interest and capital gains. Small businesses love the 100 percent expensing of capital investments.</p>
<p>President Barack Obama enjoys a slew of loopholes as well. The Obamas took in close to $1.8 million of cash in 2010, thanks to book royalties and capital income (interest and dividends). They claimed more than $450,000 in adjustments, deductions and exemptions to reduce their “taxable” income. With foreign tax credits, they paid Uncle Sam $438,949 in income taxes. That was 32.8 percent of taxable income — seemingly more than twice the “Romney rate.”</p>
<p>But that’s a misleading comparison. If you strip away all the loopholes the president used, the effective Obama tax rate plunges. Based on their reported “gross” income ($1,795,614), the Obama tax rate was 24.4 percent. That’s about the same as a middle-class family earning $75,000 to $100,000. That clearly violates the “Buffet rule” that expects millionaires to pay higher tax rates than the people who work for them.</p>
<p>The Buffet rule gets completely eviscerated when you look closer at the Obamas’ income. “Gross” income, as defined by the IRS, doesn’t include all forms of income. In fact, virtually all fringe benefits are excluded from gross income and, therefore, not taxed. For the typical salaried worker, the implied tax saving is significant. For the Obama family, this loophole is a real bonanza.</p>
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<p>For starters, the Obamas live rent free. President Bill Clinton reportedly made just one room of the White House (the Lincoln bedroom) available to campaign donors of $25,000 or more. Zillow.com estimates the entire 132-room, 55,000-square-foot home is worth $300 million. A bare-bones 5 percent rental cap would value occupancy at $15 million a year. And that’s without the small army of gardeners, housekeepers and servants.</p>
<p>The president also gets free medical care, unlimited transportation services, 24/7 security, life insurance, a generous pension, free food and even free postage. Just to cover incidentals, he gets an extra $50,000 in pocket change. Mrs. Obama gets a nice benefit package as well.</p>
<p>If you add all this up, the president’s compensation package rivals that of the highest-paid bankers, athletes and private-equity managers. And maybe he deserves it. But there is no way to reconcile it with the Buffet rule.</p>
<p>The important thing in tax policy is not just the tax rate, but how much of a person’s income is actually taxed at all. Conservatively, the Obama’s real income (total compensation) is in the neighborhood of $20 million. They paid taxes of $438,949. That’s an effective tax rate of just 2.2 percent. Makes Mitt Romney look like a real tax patriot.</p>
<p>Brad Schiller is a professor of economics at the University of Nevada, Reno and author of “The Economy Today.” (McGraw-Hill, 2012).</p>
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		<title>Marco Rubio For President</title>
		<link>http://renohayek.com/2012/01/marco-rubio-for-president/</link>
		<comments>http://renohayek.com/2012/01/marco-rubio-for-president/#comments</comments>
		<pubDate>Sat, 28 Jan 2012 23:20:36 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Politics]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3070</guid>
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		<title>Marco Rubio&#8217;s Letter to Obama on Debt Limit</title>
		<link>http://renohayek.com/2012/01/marco-rubios-letter-to-obama-on-debt-limit/</link>
		<comments>http://renohayek.com/2012/01/marco-rubios-letter-to-obama-on-debt-limit/#comments</comments>
		<pubDate>Fri, 13 Jan 2012 03:14:46 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Budgets]]></category>
		<category><![CDATA[Deficit]]></category>
		<category><![CDATA[Fiscal Policy]]></category>
		<category><![CDATA[National Debt]]></category>
		<category><![CDATA[Presidency]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3064</guid>
		<description><![CDATA[January 6, 2012                                         President Barack Obama The White House 1600 Pennsylvania Avenue NW Washington, D.C. 20500 Dear Mr. President Any day now, news reports suggest you will ask Congress to approve yet another increase in [...]]]></description>
			<content:encoded><![CDATA[<p>January 6, 2012                                        <a href="http://renohayek.com/wp-content/uploads/2012/01/marcorubio11.jpg"><img class="alignright size-thumbnail wp-image-3066" title="marcorubio1" src="http://renohayek.com/wp-content/uploads/2012/01/marcorubio11-150x150.jpg" alt="" width="150" height="150" /></a></p>
<p>President Barack Obama<br />
The White House<br />
1600 Pennsylvania Avenue NW<br />
Washington, D.C. 20500</p>
<p>Dear Mr. President</p>
<p>Any day now, news reports suggest you will ask Congress to approve yet another increase in the debt ceiling. The expected request is another $1.2 trillion, adding to a three year debt binge that has totaled $4.5 trillion on your watch and that has enabled our overall debt to surpass $15 trillion. Your latest request will push the federal debt limit well above $16 trillion.</p>
<p>This pending request will be the sixth time during your Presidency that Congress is being asked to keep allowing government and spending to grow at rates that are unsustainable. In other words, you have made it a routine part of your job to ask for more room to spend without any plan to reduce our debt.</p>
<p>Instead of making debt ceiling increases a routine Washington exercise, we need to make it routine to actually spend no more than we take in. Until then, I will oppose your request to continue borrowing and spending recklessly.</p>
<p>As I wrote in The Wall Street Journal in March 2011, I will oppose a debt ceiling increase unless such an authorization is accompanied by a real plan to tackle our debt. Ideally, such a plan would feature both pro-growth elements and spending restraints, including fundamental tax reform, regulatory reform, meaningful cuts to discretionary spending, a balanced-budget amendment, and reforms to save Social Security and Medicare.</p>
<p>If we had done this in mid-2011 when we last debated the debt ceiling, we could have set America on a path to economic growth and prosperity. This would have led to more jobs and, in turn, to more duly employed taxpayers generating more growth-driven revenue to help us pay down our debt. Instead, you failed to lead, punted the tough decisions and, in doing so, our credit rating was downgraded for the first time in our history. <strong>It’s a tragic reality but, on your watch, more and more people have come to believe that America is becoming a deadbeat nation inevitably heading toward a European-style debt crisis.</strong></p>
<p>When you served in the Senate in 2006, you called raising the debt limit “a sign of leadership failure.” Using your own standard, this request will mark your sixth “sign of leadership failure” on the debt ceiling issue alone. Throughout our history, Americans have revered courageous leaders and celebrated them as profiles in courage. Unfortunately, the first three years of your presidency have been a profile in leadership failure. While you may choose to run your reelection campaign against a “Do-Nothing Congress,” your insistence on doing nothing to meaningfully tackle our debt poses a direct threat to America’s exceptional character and is leading us towards a diminished future.</p>
<p>America deserves leaders who will stand front and center, level with the American people about our challenges and offer real solutions to solve them. Instead of simply asking for another debt ceiling increase, I urge you to come forward with a real plan to tackle our debt in 2012.</p>
<p>Sincerely,</p>
<p><a href="http://www.rubio.senate.gov/public/index.cfm/press-releases?ID=e55fb2da-b24b-43d8-a0e0-44840d006381"><strong>Marco Rubio</strong></a><br />
United States Senator</p>
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		<title>War on Drugs-Unintended Consequences: Killing Innocents and Wasting Money</title>
		<link>http://renohayek.com/2012/01/war-on-drugs-unintended-consequences-killing-innocents-and-wasting-money/</link>
		<comments>http://renohayek.com/2012/01/war-on-drugs-unintended-consequences-killing-innocents-and-wasting-money/#comments</comments>
		<pubDate>Wed, 11 Jan 2012 05:47:49 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[National Character]]></category>
		<category><![CDATA[War on Drugs]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3057</guid>
		<description><![CDATA[Jerry O&#8217;Driscoll alerts us to this excellent Cato video featuring a young El Paso citizen, Beto O&#8217;Rourke, a former El Paso councilman who had just been introduced by Mary O&#8217;Grady, a WSJ feature writer. Like Prohibition the only accomplishment of the war on drugs is increased gangland crime and wasted money on enforcement. Oh, there [...]]]></description>
			<content:encoded><![CDATA[<p>Jerry O&#8217;Driscoll alerts us to this excellent Cato video featuring a young El Paso citizen, Beto O&#8217;Rourke, a former El Paso councilman who had just been introduced by Mary O&#8217;Grady, a WSJ feature writer. Like Prohibition the only accomplishment of the war on drugs is increased gangland crime and wasted money on enforcement. Oh, there is the matter of Eric Holder&#8217;s gun running and the possibility of Mexico becoming a failed government. Those aside, this video brings the drug war up close and personal.</p>
<p><object style="height: 390px; width: 640px"><param name="movie" value="http://www.youtube.com/v/tnO8vVafpFg?version=3&#038;feature=player_detailpage"><param name="allowFullScreen" value="true"><param name="allowScriptAccess" value="always"><embed src="http://www.youtube.com/v/tnO8vVafpFg?version=3&#038;feature=player_detailpage" type="application/x-shockwave-flash" allowfullscreen="true" allowScriptAccess="always" width="640" height="360"></object></p>
<p>The &#8220;war&#8221; will of course fail. The lives ruined and wasted in the process will be the price. Perhaps it is time for a change. Like alcohol, regulation and taxation may indeed be preferable. We learned a lesson with the 21st Amendment. Can we relearn that lesson, and soon? </p>
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		<title>Debt Limit? What debt limit?</title>
		<link>http://renohayek.com/2012/01/debt-limit-what-debt-limit/</link>
		<comments>http://renohayek.com/2012/01/debt-limit-what-debt-limit/#comments</comments>
		<pubDate>Sun, 08 Jan 2012 21:26:02 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Budgets]]></category>
		<category><![CDATA[Fiscal Policy]]></category>
		<category><![CDATA[National Debt]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3053</guid>
		<description><![CDATA[We will soon see a new Obama sponsored debt limit increase. Look for another replay of the last fiasco. Kyle Meintzer alerts us to this close to home video on debt limits: For the U.S. cutting expenses is the only answer. Real cuts are necessary, not mere reductions in the rates of increasing government spending.]]></description>
			<content:encoded><![CDATA[<p>We will soon see a new Obama sponsored debt limit increase. Look for another replay of the last fiasco. Kyle Meintzer alerts us to this close to home video on debt limits:</p>
<p><object style="height: 390px; width: 640px"><param name="movie" value="http://www.youtube.com/v/Li0no7O9zmE?version=3&#038;feature=player_detailpage"><param name="allowFullScreen" value="true"><param name="allowScriptAccess" value="always"><embed src="http://www.youtube.com/v/Li0no7O9zmE?version=3&#038;feature=player_detailpage" type="application/x-shockwave-flash" allowfullscreen="true" allowScriptAccess="always" width="640" height="360"></object></p>
<p>For the U.S. cutting expenses is the only answer. Real cuts are necessary, not mere reductions in the rates of increasing government spending.</p>
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		<title>Public Employee Unions Strangle Governments and Numb Public Employees</title>
		<link>http://renohayek.com/2012/01/public-employee-unions-strangle-governments-and-numb-public-employees/</link>
		<comments>http://renohayek.com/2012/01/public-employee-unions-strangle-governments-and-numb-public-employees/#comments</comments>
		<pubDate>Sun, 08 Jan 2012 05:06:54 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Economics]]></category>
		<category><![CDATA[Employment]]></category>
		<category><![CDATA[Justice]]></category>
		<category><![CDATA[State Finances]]></category>
		<category><![CDATA[Unions]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3036</guid>
		<description><![CDATA[Reno Nevada cannot afford to staff five of its fire stations because of crippling union compensation, bloated benefits, top heavy command structure and make-work work rules. This is only one example of how public employee unions are strangling the communities that they are hired to serve. This is one small example that is replicated throughout each community [...]]]></description>
			<content:encoded><![CDATA[<p>Reno Nevada cannot afford to staff five of its fire stations because of crippling union compensation, bloated benefits, top heavy command structure and make-work work rules. This is only one example of how public employee unions are strangling the communities that they are hired to serve. This is one small example that is replicated throughout each community and state in the nation. Unfunded union benefits alone&#8211;a time bomb waiting to explode&#8211;are Three Trillion Dollars nationwide.</p>
<p>The sad truth is that there is no justification for public employee unions in the first place. The system that tolerates them is dark and unjust existing only for (i) the benefit of the politicians dependent on union contributions and support to get themselves elected, (ii) the union bosses that get power and wealth from their members, and (iii) the few deadwood employees who would fail in any competitive environment and are dependent on union seniority to remain on the public payroll. Excellence is not even mentioned, mediocrity is the norm.</p>
<p>Also true, the good, dedicated, high-preforming public workers are held back by the same unions that claim to represent them. Performance bonuses that could otherwise be available to reward excellence in performance are nonexistent. Seniority governs, holding back the top performers. This disincentive enforces mediocrity, the stuff of a declining society. Likewise the union members really have no voice. The cliques supporting the union bosses pressure conformity. If work slowdowns are called for, work slowdowns are socially enforced. Then, there is the lack of political choice in where political contributions generated from the pockets of public employees from their union dues go. In essence, they are paying for incompetent political leadership but have no choice in the matter. Finally, there is the false promise of retirement benefits which, because of the incompetent political leadership, will not be available to them on retirement. In short, the public employee union members are used for short term gain by others.</p>
<p>There is a critical difference between private sector unions and public sector unions, PRIVATE SECTOR UNIONS ARE SUBJECT TO THE LAWS OF THE MARKETPLACE. PUBLIC UNIONS ARE A MONOPOLY WITHOUT MARKET COMPETITION.</p>
<p>This fact is lost on the voting public. Private unions work for companies that compete in the marketplace. If their demands are too exorbitant in terms of wages, benefits or work rules, their employer will lose business to it competition. If the employer loses enough business, the employees lose their jobs. So a competitive market forces parties to be reasonable and respond to market conditions; in short, to excel in their jobs.</p>
<p>In the public union case, the government by definition is a monopoly free from competition. There is no market in which it must compete. Governments are by definition inefficient necessities in society. If their workers are allowed to unionize and collectively bargain for wages and benefits, there is no check or balance on their ability to extort increases, security, tenure, etc. A strike, walkout or slowdown creates a situation where there are no substitute government services. No competition.</p>
<p>A public union labor negotiation, is really no negotiation at all. The ritual of collective bargaining in the public union case is just a union boss talking to the incompetent politician who was elected with the help of the union dues. This incestuous relationship is driving our states, counties and cities to the brink of bankruptcy. It is dis-economic at its core.</p>
<p>Public employee unions perpetrate a fraud not only on the unsuspecting public but on the public employees themselves. We all lose with this unjust, uneconomic system.</p>
<p>Time for a change!</p>
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		<title>Time For Debate on the Role of Government</title>
		<link>http://renohayek.com/2012/01/time-for-debate-on-the-role-of-government/</link>
		<comments>http://renohayek.com/2012/01/time-for-debate-on-the-role-of-government/#comments</comments>
		<pubDate>Tue, 03 Jan 2012 22:39:50 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Deficit]]></category>
		<category><![CDATA[Democrats]]></category>
		<category><![CDATA[Entitlements]]></category>
		<category><![CDATA[Fiscal Policy]]></category>
		<category><![CDATA[National Character]]></category>
		<category><![CDATA[National Debt]]></category>
		<category><![CDATA[Politics]]></category>
		<category><![CDATA[Republicans]]></category>

		<guid isPermaLink="false">http://renohayek.com/?p=3027</guid>
		<description><![CDATA[Considering our current state of affairs, I&#8217;m beginning to think that the only course of action is to force a national debate on the role of government. As the current president and his party are for big government, maximum entitlements and dependency, and generation choking deficits, the opposing candidate should present the exact opposite. The Republicans or [...]]]></description>
			<content:encoded><![CDATA[<p>Considering our current state of affairs, I&#8217;m beginning to think that the only course of action is to force a national debate on the role of government. As the current president and his party are for big government, maximum entitlements and dependency, and generation choking deficits, the opposing candidate should present the exact opposite. The Republicans or Independents should nominate a pure candidate that presents clear issues and choice. A brokered Republican convention or third party candidate may provide a way to offer that debate. A centrist candidate will not offer the clear choice we need.</p>
<p>Consider the WSJ editorial, <em><a href="http://online.wsj.com/article/SB10001424052970204026804577098823067809332.html?KEYWORDS=%22The+Spenders+Won+in+2011%22">The Spenders Won in 2011</a>.</em> Republicans controlled the House yet failed to get any significant reduction in spending. Deficits generated by a Democrat controlled Congress were $2.98 Trillion in 2008, $3.52 Trillion in 2009, $3.45 Trillion in 2010; and even with a Republican House are $3.59 Trillion in 2011 and  projected to be $3.65 Trillion in 2012. We are over <a href="http://www.usdebtclock.org/">$15 Trillion in national debt</a>. This is debt that we will pass onto our children and grandchildren. How moral is that? We take handouts that our grandchildren will pay for!</p>
<p>There must be a debate on the role of government. It does everything as Obama, Pelosi and Reid propose. Or is is limited as our constitution suggests. If the nation opts for the &#8220;free lunch,&#8221; our nation will become another Greece. If the nation chooses the moral course of eliminating the &#8220;free lunch&#8221; our children and grandchildren will have a chance to live productive lives in this country.</p>
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<p>Short of a moral decision in an election on that all-encompassing issue, those of us who want a better future for our children are left with only two options: revolution or individual expatriation! The only alternative is to continue on the current unsustainable path with either party in control or gridlocked by the other. This is Friedrich Hayek’s <em>Road to Serfdom!<strong>  </strong></em></p>
<p>The centrist position, the middle ground, is what constantly gets us into trouble. In essence, Republicans equal Democrats; neither party can say no; neither can cut spending. We need to get off the treadmill. We are stealing from our grandchildren. This is immorality near its height.</p>
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		<title>The World&#8217;s Policeman Has Become the World&#8217;s Enabler</title>
		<link>http://renohayek.com/2012/01/the-worlds-policeman-has-become-the-worlds-enabler/</link>
		<comments>http://renohayek.com/2012/01/the-worlds-policeman-has-become-the-worlds-enabler/#comments</comments>
		<pubDate>Mon, 02 Jan 2012 06:28:57 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Defense]]></category>
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		<guid isPermaLink="false">http://renohayek.com/?p=3017</guid>
		<description><![CDATA[It can&#8217;t continue. It has got to stop. Since the end of WWII we have been the western world&#8217;s policeman, unpaid despite the sacrifice of our blood and treasure. We rebuilt Europe and Japan following the war then we paid for and continue to pay for their defense. As a consequence we have enabled the socialistic [...]]]></description>
			<content:encoded><![CDATA[<p>It can&#8217;t continue. It has got to stop. Since the end of WWII we have been the western world&#8217;s policeman, unpaid despite the sacrifice of our blood and treasure. We rebuilt Europe and Japan following the war then we paid for and continue to pay for their defense. As a consequence we have enabled the socialistic welfare states of Europe to increase their welfare. Now, to the point where the weaker ones are bankrupt. To top that off our president is taking the country in the same welfare state direction and the Fed is attempting to continue helping Europe kick the can down the street supporting the zombie European nations.</p>
<p>I was impressed with Ed Crane&#8217;s comment in a WSJ op-ed on Ron Paul that the U.S. spends more than the rest of the world on defense&#8211;in essence defense of the western world! &#8221;&#8230;an overreaching military presence around the world is inconsistent with small, constitutional government at home. The massive cost of these interventions, in treasure and blood, highlights what a mistake they are, as sensible people on the left and right recognized from the beginning. Of course we want a strong military capable of defending the United States, but our current expenditures equal what the rest of the world spends, which makes little sense. It is futile to try to be the world&#8217;s policeman&#8230;&#8221;</p>
<p>My point is that to the extent we overspend on defense, Europe doesn&#8217;t need to spend. Their taxes to the extent paid go to increase statist expansions and welfare in countries like Greece, Portugal, Italy and Spain.</p>
<p>To top that off, our Fed seems to think it legitimate to help finance Europe&#8217;s profligate ways. Jerry O&#8217;Driscoll exposes Bernanke&#8217;s covert effort to bail out the ECB in <a href="http://renohayek.com/2011/12/bailout-er-of-last-resort-for-europe/">his recent WSJ op-ed highlighted in our blog</a>. This is clearly <em>ultra vires</em>, beyond the legal power of the Fed and against what its chairman has publicly stated.</p>
<p>In effect we have given Europe the leeway to expand its welfare state beyond its capacity to pay for that expansion. Our president who has no concept of economics admires the European model and seeks to expand our own welfare state beyond its capacity to pay for the expansion. His statist stimulus expenditures were nothing more than payments to increase the size and scope of government. His Obamacare takeover of medicine is nothing more than an unsustainable entitlement addition to the already unsustainable entitlements of Medicare, Medicaid, and Social Security.</p>
<p>We have enabled Europe&#8217;s welfare/statist addiction at a time when we can&#8217;t afford our own addiction. That latter addiction is theft from our grandchildren. Immorality par excellence! It must stop!</p>
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		<title>&#8220;Bailout-er&#8221; of Last Resort&#8211;For Europe?</title>
		<link>http://renohayek.com/2011/12/bailout-er-of-last-resort-for-europe/</link>
		<comments>http://renohayek.com/2011/12/bailout-er-of-last-resort-for-europe/#comments</comments>
		<pubDate>Wed, 28 Dec 2011 16:04:54 +0000</pubDate>
		<dc:creator>Tom</dc:creator>
				<category><![CDATA[Economics]]></category>
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		<guid isPermaLink="false">http://renohayek.com/?p=3013</guid>
		<description><![CDATA[Jerry O&#8217;Driscoll penned a dynamite op-ed in today&#8217;s WSJ. It raises serious questions about the Fed&#8217;s role and is reprinted below: The Federal Reserve&#8217;s Covert Bailout of Europe When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap. By GERALD P. O&#8217;DRISCOLL JR. America&#8217;s central bank, the Federal Reserve, [...]]]></description>
			<content:encoded><![CDATA[<p>Jerry O&#8217;Driscoll penned a dynamite op-ed in today&#8217;s WSJ. It raises serious questions about the Fed&#8217;s role and is reprinted below:</p>
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<h1>The Federal Reserve&#8217;s Covert Bailout of Europe</h1>
<h2>When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.</h2>
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<h3>By <a href="http://online.wsj.com/search/term.html?KEYWORDS=GERALD+P.+O%27DRISCOLL+JR.&amp;bylinesearch=true">GERALD P. O&#8217;DRISCOLL JR.</a></h3>
<p><a name="U603350262337OVE"></a>America&#8217;s central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.</p>
<p><a name="U603350262337YEE"></a>The Fed is using what is termed a &#8220;temporary U.S. dollar liquidity swap arrangement&#8221; with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or &#8220;swaps&#8221; dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.</p>
<p><a name="U603350262337FBH"></a>Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman&#8217;s collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.</p>
<p><a name="U603350262337PTC"></a>The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.</p>
<p><a name="U603350262337D8D"></a>The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.</p>
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<p><a><img src="http://si.wsj.net/public/resources/images/OB-RE145_odrisc_D_20111227171036.jpg" alt="odriscoll" width="262" height="174" border="0" hspace="0" vspace="0" /></a></p>
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<p><cite>Getty Images</cite></div>
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<p><a name="U60335026233745H"></a>The Fed&#8217;s support is in addition to the ECB&#8217;s €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB&#8217;s euro lending.</p>
<p><a name="U603350262337JDB"></a>This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.</p>
<p><a name="U603350262337YED"></a>The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed&#8217;s reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed&#8217;s Swap Operations report, and the ECB website.)</p>
<p><a name="U603350262337WOD"></a>No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.</p>
<p><a name="U603350262337JEC"></a>First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have &#8220;the intention or the authority&#8221; to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.</p>
<p><a name="U603350262337RVF"></a>Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.</p>
<p><a name="U603350262337CTB"></a>Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed&#8217;s monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.</p>
<p><em>Mr. O&#8217;Driscoll, a senior fellow at the Cato Institute, was vice president at the Federal Reserve Bank of Dallas and later at Citigroup.</em></p>
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