The real financial crisis

Isn’t in New York City – or even on Wall Street for that matter. Rather, it’s in the capitol city of every nation in the world.

Few rules govern how nations can borrow the money they need for expenses like the military and health care. The market for sovereign debt — the Wall Street term for loans to governments — is as unfettered as it is vast.

“If a government wants to cheat, it can cheat,” said Garry Schinasi, a veteran of theInternational Monetary Fund’s capital markets surveillance unit, which monitors vulnerability in global capital markets.

The Future of the GOP

After browsing The American Blog today, I wanted to share a quote from John Fortier on the future of the Republican Party.

Make no mistake about it – the Democratic Party is growing. It’s demographics – hispanics, high-educated white voters – are growing and more and more young people are associating themselves as social liberals who care little for fiscal or economic conservatism.

That spells trouble for Republicans and according to Fortier it means:

The GOP needs more Bob McDonnells and Scott Browns, not wide-eyed, good government types or stodgy conservatives, but people with a mix of conservatism and at least a part of the populism that is mainstream in the middle class.

Fortier is addressing an original piece, which might be worthwhile to look at in part. Henry Olsen at National Review addresses what may lead to the downfall of the GOP.

My thoughts on the issue are fairly straightforward. The Republican Party needs to have a positive voice that advocates fiscal discipline, pro-growth economic policies and a strong national defense plan. The approach should be level-headed, involve moderation and seek pragmatic solutions to policy challenges.

We should concentrate first on balancing the federal budget by reforming the tax code and cutting unnecessary spending. Tax reform should create a more capital friendly environment that encourages small-business growth and corporate investment at home, not abroad. Entitlement spending should be near the top of the list when it comes to what needs reform. Our social programs cannot be responsible for bankrupting our nation. Underwriting the world’s security is expensive and unfortunately, we must make a choice between financing a modern welfare state or being the world’s most powerful – and most secure – country.

We should call for the continued reform and strengthening of our armed forces. Unfortunately for Congress, this may mean their districts will lose important government contracts.

Social issues like gay-marriage and abortion should be addressed at the state-level where the people can make their own decisions. We should recognize, however, the inevitable fact that the Court is more than likely to address these issues from an equal rights standpoint.

Our family first approach should advocate an egalitarian system and a business world that accepts women as part of the workforce and as mothers.

Health care and education also need serious reform. There are a number of other issues that deserve attention, but we must develop priorities.

Power Rates, Regulation & Energy Costs

News out of Richmond today – Appalachian Power is prepared to suspend its most recent interim rate increase. After “concerns” arose about people facing higher electric bills, Virginia lawmakers began working to prevent the rate increase, causing Appalachian Power to suspend its request.

Appalachian Power Vice President Dan Carson says the utility is prepared to suspend an interim rate increase that took effect in December.

Carson made that statement Wednesday afternoon at a legislative hearing in Richmond.

Concern over rising electricity bills prompted lawmakers to introduce a number of measures directed at Appalachian Power.

Carson says the action would take effect after the governor signs proposed legislation.

He says the action would provide relief in a matter of days rather than weeks or months.

Martinsville Delegate Ward Armstrong says the proposal is a “good first step, but just a good first step.”

I want to do some more research on this, including trying to get in touch with Appalachian Power, but my early inclination is to say that the power company is probably justified in its rate increase. I watched the following video on APCO’s Youtube Channel and heard something that immediately made it all click for me.

“Although we realize it’s a bad time to raise rates due to the economy, the cost of generating electricty has gone up, we’ve had to meet more federal guidelines for emissions on our power plants. Even though it’s a bad time for the economy, it’s something that we could not prevent.” (my emphasis)

Obviously – what intrigues me here are the federal emissions guidelines. I want to look more into this and I’ll come back to it soon. I do, however, want to add something on the subject of power companies.

I understand people are having trouble paying their bills. My parents and plenty of people I know are among the many who have to ask themselves every month, how am I going to make this work?

I also understand though, Appalachian Power is a business. They have costs and they deserve to make a profit. Part of your state lawmaker’s job is to decide how much profit they should make – or at least, how much they should charge you. Next time Appalachian Power asks for a rate hike, don’t get upset at them – call your state legislator. And when you go to vote in November, ask yourself who Appalachian Power is sending money to – I’ll give you a hint, his name is Ward Armstrong.

Thoughts on the President’s Strategy for Afghanistan

The President’s decision to send 30,000 new troops to Afghanistan is the right decision. Unfortunately, the attached conditions leave me disappointed. While I understand the political difficulty of the President’s decisions, I hoped for another outcome.

White House Photographer Pete Souza

President Obama in his address on “the Way Forward” in Afghanstian said he would commit 30,000 new troops to the war-torn country, but stipulated they will begin withdrawing in 18 months.

I recognize the tough political position President Obama is in. The left is already blasting him for creating a “surge” and the right, though more friendly than the left, is upset at the timetable.

His decision reflects the difficulty of bridging domestic politics and international relations. Throughout U.S. history, policymakers have faced this dilemma. Moreover, throughout the recorded history of international relations, policymakers have faced this dilemma. How does one reconcile the “national interest” with public opinion, the influence of democratic institutions like Congess and other political interests, i.e. the people who donate money and drive your policy?

President Obama was elected on a platform of change. Thus is his difficulty of continuing the war in Afghanistan much the way his predecessor did and thus is the reason for the timetable – to pacify his political pace. You can’t blame him, it is an obviously necessary move if he doesn’t want to ruin his party’s midterm elections in 2010 or his reelection campaign in 2012.

Having admitted that I understand his logic and reasoning for implementing a time table, I still have to share my distaste. I hoped that the President might put politics aside for the sake of victory.

It comes down to this question: do we have a vital interest in a peaceful and allied Afghanistan? I would answer yes and say furthermore, we have an interest in a peaceful and allied Middle East. That includes Afghanistan, Pakistan, Iran, Iraq and beyond. Because defeat in Afghanistan would allow the Taliban to operate functionally, Afghanistan is a country of vital interest to the security of the United States. Lest we not forget from where the terrorist attacks of September 11 were orchestrated.

The President disagrees, I believe and has done so by making evident his lack of desire to achieve total victory in Afghanistan. He has scaled back the war on terror, actually ended it, and this move further reiterates that point.

The President has developed an exit strategy not predicated on victory. He has done so for the two reasons I already mentioned: (a) domestic political influence and (b) failure to understand the vital importance of a peaceful and allied Afghanistan.

On U.S. Fiscal Responsibility

President Obama is expected to make fiscal solvency the focus of his presidency in 2010, beginning with his State of the Union Address in January. This is a step in the right direction for his presidency and the country, but it is not enough. If we are honestly interested in solving our “debt problem,” then it is not enough to merely make fiscal solvency the focus of the Administration. Rather, sustainability will need to be the primary objective of the White House and Congress on every policy issue presented.

The Congressional Budget Office called the federal budget, in its current form, “unsustainable.” A working paper from the American Enterprise Institute highlights the CBO’s projections, with a concluding analysis.

According to several recent reports issued by the Congressional Budget Office (CBO), the U.S. federal budget is on an unsustainable path. In fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 44 percent of GDP at the end of fiscal year 2008 to 61 percent at the end of fiscal year 2010. The current deficit is due in part to the stimulus legislation and efforts to stabilize financial markets. CBO (2009a) projects that spending related to such economic weakness will push primary spending (defined as all spending, except interest payments on federal debt) up to 26 percent of GDP this fiscal year, the highest since World War II.

The long-term budget outlook is equally troubling. The CBO report (2009b) projects that under the Obama Administration proposals, the cumulative deficit for the period 2010-2019 will be approximately $9.1 trillion. In other words, the average deficit per year will approach $1 trillion. After 2019, the situation is expected to worsen with deficits (under certain scenarios) projected at 17 percent of GDP by 2040.

These projections raise serious concerns about the long-term sustainability of U.S. fiscal policy. If spending grows as projected and revenues do not rise at a matching rate, annual deficits will climb and federal debt will grow significantly. As debt increases, a higher and higher share of national output will be devoted to interest payments, and the level of taxation needed to sustain government becomes historically unprecedented. Large budget deficits would reduce national saving, lead to more borrowing from abroad and also lower domestic investment. If such a path is to be averted, then changing policy sooner reduces the size of the problem significantly.

Fiscal solvency is the most-pressing long-term issue faced by the Obama Administration and the current Congress. Our fiscal recklessness undermines our economic future, the position of our currency in the world and threatens our position as the world’s pre-eminent economic superpower.

The need to save our economy from the brink of collapse and create jobs is, understandably, a top-priority. Beyond that, and beyond the current economic cycle, however, policymakers need to be committed to not only balancing our yearly budgets, but also lowering our debt load. It could even be said that if the United States had maintained over the past three decades a fiscal policy even somewhat resembling that of a responsible one, short-term deficits would not be a problem. Short-term deficits are acceptable if and only if the United States has a responsible long-term fiscal policy.

As our deficits grow and as we leave them unattended, more and more of the burden for repaying our debt will be passed on to my generation and my children’s generation. It will require more resources and a larger part of their economy to make these payments. That could mean a weaker social safety net and higher taxes. It could mean reduced military spending and the sacrifice of strategic security. It could mean cuts to education, transportation and more. The sacrifices we have to make today in order to put ourselves on a path to solvency will be marginal compared to the choices and challenges of the next thirty years, if we allow our fiscal irresponsibility to continue.