About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Sunday, August 7, 2022

Pandemic Quiz

I was surprised how many people got the right answer to the DJIA quiz back in January.  One such surprise person, in the unlikely camp, told me "even though I am not good at math per se, due to my profession (real estate investing) I do understand finance math and the time value of money.  I even teach financial calculator and 'Time Value of Money" classes from time to time."

So let's up the ante.

Due to the pandemic many government & private company reports can show distorted year over year results when comparing a pandemic locked-down year like 2020 to a pre-pandemic year.  For instance a company's earnings report could look disastrous comparing 2020 results to those of 2019.  Both government & private companies solved this problem by comparing 2021 results to those of 2019 - i.e., comparison of two years ago rather than one.  See graph below that shows a smooth curve for "To two years prior" for the entire time frame shown & a similar curve for "To one year prior" except for the spike when comparing the results of 2020 to 2019.

  Click on graphic to enlarge

A second tactic involved taking data from 18 months or longer & displaying the data on an annual basis.

Our quiz involves a problem based on the second approach.

Pandemic Quiz

Due to the pandemic a certain index could not be determined at all after December, 2019 until the close of March, 2022.  The index had a reading of 10,000 on December 31, 2019 & 16,809 on March 31, 2022.  The institution responsible for the index likes to post the percent change of the index every January that represents the change for the past year determined from the end of December values of the index for the respective years.  The index follows the compound-interest law.  Based on the two index readings given above, what is the value of the index on December 31, 2020 & the percent change of the index from December 31, 2019?

Thursday, July 21, 2022

Brushing Up On Social Security

"The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund's reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits." - From the 2022 Social Security Board of Trustees' Annual Report.

The above conclusion from the 2022 Trustees' report & the information presented in the graph above from the 2000 Trustees' report show remarkable consistency in the Trustees' calculations - the Social Security Trust Fund was projected on the graph to pay 72% of scheduled benefits after 2037, with further reduction after that, & the 2022 report makes the numbers 77% of scheduled benefits after 2034.

The Medicare Trustees' 2022 report determined the Hospital Insurance (HI) Trust Fund will be able to pay scheduled benefits until 2028, afterwhich "the fund's reserves will become depleted & continuing total income will be sufficient to pay 90% of total scheduled benefits."

The Supplemental Medical Insurance (SMI) Trust Fund (i.e., Medicare Part B - doctors & non physician medical services) is paid for mainly by general tax revenues collected by the U.S. Treasury.  Part B is also financially supported by a monthly premium, paid by recipients, that covers about 25% of the program's costs plus an annual deductible & 20% copayments.  As per this formula the Trustees warn that "SMI will place steadily increasing demands on both taxpayers and beneficiaries" like the 14.6% increase in Medicare Part B premiums this year from $148.50 to $170.10 per month.

Through 2021 the above type of information regarding Social Security reducing scheduled benefits in the not too distant future was found on page 2 in bold print on the document entitled "Your Social Security Statement" (available to everyone online & mailed to people over 60 who do not have an online account).  

As of June 1, 2022 the Social Security administration "redesigned the Statement to make it easier for you to read & find the information you need!" except of course for the warning of the impending shortfall of benefits - that is now euphemistically mentioned with a link not prominently displayed  that tells the real shortfall message.

Clicking on the link starts by letting you know there may be a problem.  See below.

And ends by defining the problem like the old statements used to in bold.

Despite the general feeling that people have, that they know what they are doing regarding Social Security, I have never met one person @ any of my FairTax seminars or radio programs I have been on, including the program hosts, who were aware of the Trust Fund's pending exhaustion & the program's subsequent reduction in benefits. 

A June 2021 Harris poll found that a significant lack of knowledge about Social Security carried over into just about every aspect of the program.

For instance, 53% of those surveyed believed they knew exactly how to maximize their Social Security benefits yet only 7% correctly identified all four of the factors that determine the maximum Social Security benefit someone can receive - factors they had control over during their working life & not factors like life expectancy that nearly one fifth of respondents thought was one of these factors.

The poll also found poor knowledge & misconceptions among those participating in a series of true-false statements presented as follows:

1.  You cannot sign up for Medicare unless you are enrolled in Social Security.

2.  Your income does not impact how much you are charged for Medicare.

3.  Somebody who makes $150,000 (per year) pays as much in Social Security taxes as millionaires.

4.  If I claim benefits early, my benefits will go up automatically when reaching full retirement age.

5.  If I don't work for @ least 35 years, my Social Security benefits will be reduced.

6.  Social Security offers guaranteed income for life.

And I add four of my own favorite true-false statements: 

A.  During your working life your employer pays half of your Social Security taxes.

B.  There is a legal connection between FICA taxes & benefits.

C.  Both workers & retirees have no legal claim to benefits, regardless of how much in taxes they have paid into the system.

D.  Just like the current system, privatized personal accounts, where a portion of FICA taxes are invested in the stock market, will result in a person having an actual account with their name on it for retirement & also will have the ability to leave these assets to their heirs.

Social Security, Medicare, & Medicaid (now with 95 million Americans enrolled) make up the cornerstone of the American welfare state.  Two thirds of seniors depend on Social Security as the main source of their income & for one in five it is the only source of income.  Without Social Security half of all seniors would be living in poverty.

The graph below shows the skewing of the ratio of taxable earnings to benefits in favor of low earners compared to high earners.  For instance, using the numbers from the graph below the maximum earner annually pays 5.37 times ($17,707 versus $3,296) more in Social Security taxes than the low earner but receives only 2.67 times more in benefits ($34,180 versus $12,825).

But the above table & calculation are only part of the real life story of uneven results from person to person.  "Social Security transfers income from people with low life expectancies to people with high life expectancies, from single workers & from married couples with substantial earnings by the secondary earner to married one earner couples, & from people who work for more than 35 years to those who concentrate their earnings in 35 or fewer years."  Source - NBER Working Paper Series, Redistribution In The Current U.S. Social Security System, by Jeffrey B. Liebman, dated December 1, 2001.

With regard to the life expectancy point from the above NBER report I knew a man who paid the maximum Social Security tax every year of his life & died less than one month before his 62nd birthday thereby not collecting one cent from Social Security himself.  His wife collected a survivor benefit & lived to be 93.  Had the man been single all of the potential benefits would have been lost.  These are the uneven situations of life the formula cannot account for.

Nevertheless, FDR's intent when he signed the Social Security Act of 1935 into law on August 14, 1935 was clear - life expectancy was 64 years meaning that someone in their twenties, thirties, or forties who originally paid into the system to help the elderly would actuarially not live to collect any benefits themselves @ age 65.  This not only takes the term "Ponzi Scheme" to another level but shows the fraudulent premise this government program was founded upon.

Because the Social Security benefit formula replaces a greater fraction of the lifetime earnings of low earners than of high earners, Social Security is considered progressive regarding benefit payouts.  It is regressive regarding the payroll tax. 

The following graph shows how someone's monthly benefit is determined using bend points (90%, 32%, & 15%) per the formula once the Average Indexed Monthly Earnings (i.e., average inflation-adjusted monthly wage over a lifetime in today's dollars) are known.  The decreasing slope of each line on the graph illustrates the progressivity of Social Security benefits.  

For instance the benefit for someone with an Average Indexed Monthly Earnings of $6,172 is determined by taking 90% of $1,024 ($921.60) & adding 32% of the difference between $6172 & $1,024 ($1,647.36) = $2,569 per month.  See left side of graph.

There are many suggestions regarding shoring up Social Security's solvency such as raising the full retirement age & the early eligibility age & basing both on 38 years of earnings rather than the current 35, increasing the payroll tax, raising the payroll tax cap, allowing participation in private accounts, & slowing the cost of livings adjustments especially for high earners.

All of these types of suggestions only tinker around the edges of the solvency problem so that they will have to be reimplemented again in the future.

I have presented, on this blog, the permanent long term solution to Social Security's solvency problem several times over the past ten & one half years - namely replacing the average real wage index with the cost of living index (CPI) in the determination of someone's Primary Insurance Amount
(i.e., a person's monthly benefit @ their Full Retirement Age) & phasing it in after ten years without affecting any current recipient of benefits or anyone 55 or over.  This solution was first presented by Susan Lee in November, 2004 & confirmed by Amity Shlaes in November, 2007.

Social Security currently makes up almost 25% of federal spending so it is important for a well informed citizenry to understand it as the number of workers decreases, the number of beneficiaries increases, & benefits increase faster than the cost of living.  

Thanks to a frequent contributor to RTE for sending me this video entitled Social Security Facts.  Readers of this blog should know most of the information but it is a good recap despite having three errors that I found.  I'd be interested to see if anyone picks them up.  Let me know.

If you did not know about the pending Trust Fund shortfall, any of the ways to maximize Social Security benefits, some of the above true-false statements, how to calculate your benefit, or what happens to your benefit if you do not have 35 years of earnings, it is time to brush up, if not for yourself, then to help a friend, an adult child, or grandchild who has plenty of time to plan to avoid bad mistakes & maximize the program's benefits.

French President Emmanuel Macron, referring to France's labor problem, summed up our Social Security solvency problem when he said "We have a strength, which is our social & educational model, & a weakness is that we no longer have the productive model which makes it possible to finance it."

Friday, July 1, 2022

A New Birth Of Freedom Is Needed To Reverse The Progressive Administrative State

"This was the object of the Declaration of Independence.  Not to find out new principles, or new arguments, never before thought of, not merely to say things which had never been said before; but to place before mankind the common sense of the subject, in terms so plain & firm as to command their assent, & to justify ourselves in the independent stand we are compelled to take." - Thomas Jefferson, Letter to Henry Lee, May 8, 1825


The Declaration of Independence is a document about ultimate purposes, what is called in classical philosophy final causes - the things we seek above all others, the things we would die for, & that is why the 56 delegates to the Second Continental Congress signed that they  "mutually pledge to each other our Lives, our Fortunes, & our sacred Honor."

The Declaration is divided into three parts: 1) a statement of universal & timeless principles, 2) a list of 27 "Oppressions" committed by King George III of England, such abuses forming "a History of repeated Injuries & Usurpations, all having in direct Object the Establishment of an absolute Tyranny over these States," & 3) the conclusion "That these United Colonies are, & of Right ought to be, Free & Independent States; that they are absolved from all Allegiance to the British Crown, & that all political Connection between them & the State of Great-Britain, is & ought to be totally dissolved." 

The Constitution, written eleven years after the Declaration of Independence, expresses the formal cause, or form of government based on the timeless principles of the Declaration.  These two documents establish the formal & final causes of the United States & make possible the freedom that is the birthright of all Americans.

The country was founded on the principles of limited government, personal responsibility, & free enterprise.  The Founders held "these Truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, & the Pursuit of Happiness." 

And "to secure these Rights, Governments are instituted among Men."   

"We the People" of "the thirteen United States of America" envisioned a government that was not only seen as "deriving their just Powers from the Consent of the Governed" but was going to be specifically designed & intended to protect Man's individual rights - the natural rights people had in the state of nature due to their humanity.  

In forming the social compact of government, our forefathers were not going to surrender their individual rights in favor of government protection (allegiance - protection arrangement) but rather were envisioning a government whose only proper moral purpose was to protect man's rights to his own life, & his own property while protecting him from physical violence better than he could protect these rights alone in a state of nature.  Accordingly, protection of individual rights is the only proper subject of legislation.

As the federal government was formed individual natural rights expanded to include fundamental civil rights, or rights of citizenship, that were defined by positive law such as the right to vote, the right to sit on a jury, the right to hold office, the right to a fair trial, the right to government services like fire & police protection, the right to use public facilities like churches, hospitals, & police stations, the right to travel from state to state, the right to make & enforce contracts, & the right to purchase, inherit, lease, sell, hold, & convey real & personal property.

Ayn Rand called the United States "the first moral society in history."  And it remains the richest, most prosperous country in history because the government "instituted among Men'' placed the power of the people superior to any power of the government.  Free enterprise capitalism pulled more people out of poverty that any other system ever devised. Just try to name another.

You can't beat it - but you can abuse it, not appreciate it, & take it for granted 246 years after its founding.

As early as 1860 Progressive theories to reject the principles of the Declaration of Independence & the Constitution began.  Progressivism was not a homegrown political theory, but one imported from Germany where many early American progressives studied.  Johns Hopkins University in Baltimore was founded in 1876 to bring the German progressive educational model to the United States.

The Germans taught that a "living Constitution" is needed to understand the political theory of organic life.

The Progressives thought there was no principled limit to government & their idea of a "living Constitution" paved the way for government to determine the rights & liberties of individuals, not "their Creator."  Social expediency, determined by the government, would control & decide the sphere of individual freedom of action.

Early Progressives like TR & Woodrow Wilson knew there was little difference, if any, between Progressivism & Socialism.  Wilson explained that Socialists would bring about their ideal society faster through revolution, while Progressives sought to do it incrementally.

Social Insurance programs trace back to Germany in the late 1880s when Chancellor Otto von Bismarck implemented his Prussian Plan to provide retirement benefits & other benefits to German workers.  Bismarck's plan was the basis of TR introducing in 1912 a platform calling for national health insurance for industry which in turn led to FDR getting his idea for Social Security & universal single payer healthcare being  part of the New Deal.

The change from liberty to government dependence under the New Deal is based upon the ideas of Woodrow Wilson & TR.  Thus, the more than 50% socialist government we have today in America is wrought by the political theory of the Progressives & their rejection of the principles of our founding documents - the Declaration of Independence & the Constitution.

Specifically, Progressives believed that modern life in the first half of the 20th century gave rise to problems that were too complex for the principles of the American founding or the structure of the limited government established by the Constitution with all its checks & balances.

Progressives believed that the ends of government change over time & they did not want to take the time to amend the Constitution.  It was far easier to just work around it.  Progressives felt that the government was becoming less of a danger to the governed & better able than the individual to solve society's problems.

But the Constitution is not the law that governs us, it is the law that governs those who govern us.  Temporary politicians should not be able to change the meaning of the law that governs them without going through the Amendment process any more than you & I should be able to change the laws that they make that govern us without going through the legislative process.

Progressivism deteriorated further into an administrative state as citizens lost more & more contact with their elected representatives when the legislative branch was reorganized (Legislative Reorganization Act of 1946) to make congressional oversight of the bureaucracies they created - IRS, EPA, FDA, CDC, & the Fed as a very few examples - a main function of Congress.  

Accordingly, as congress's role changed so did that of the President who was now seen as a visionary rather than the enforcer of laws as an  Article II executive.  For instance, Biden's woke vision is one of implementation of AOC's crippling Green New Deal, adding tens of thousands of potential Democrat voters by ignoring immigration law while letting the poorest, lowest skilled, least educated people flood across our southwest border to receive government services & welfare, degradation of race relations by supporting Critical Race Theory & Black Lives Matter, & restorative justice that focuses on rehabilitation of criminals through reconciliation with horrified victims.  Biden & Harris clearly demonstrate that they are uninterested in carrying out the basic functions of Article II like protecting our southwest border & protecting the sovereignty of the United States - this is a Progressive tenet of the administrative state.

The priorities of the government were inverted by this administrative state that was founded on the idea it was best for people who were unbiased, scientific, & had technical expertise above that of the elected representatives to make policy.  In short, it was thought that a committee of people like Issac Newton, Frederic Bastiat, & Albert Einstein should head every issue undertaken & Congress would merely oversee the committee's work & the President would be free to envision an even brighter future since theoretically nothing could go wrong.

The reality is that the modern administrative state is far different & of course was anti-constitutional from the start & really returns the country to pre-constitutional government.  Laws are made by the agencies created by Congress & many get down to minute details trying to control people's lives like the amount of water that can be used in our washing machines & dishwashers, the content of light bulbs, & the composition of gas can spouts.  EPA & OSHA inspectors can show up @ businesses without a warrant for an inspection.  And instead of people in positions of power having high technical expertise many have poor credentials for their assigned work like people without professional engineering licenses overseeing wetlands regulations.

In practice the administrative state has created an oligarchy managed by an elite class of administrators who are distinct from ordinary Americans.

The two biggest problems the country has faced the past two & one half years are the Wuhan coronavirus pandemic & the highest inflation in the past 40 years.

Anthony Fauci, Director of the National Institute of Allergy & Infectious Diseases, has been the perfect example of what the administrative state produces to solve problems.  Fauci has been wrong more than he has been right with orders to wear masks & then not wear masks &/or to stand six feet apart before saying this is not important.  With all of his wrong information no one has ever suggested he step down or be fired.  On the contrary, @ 81 years old he is the highest paid federal government employee & still going strong.

As far as the inflation problem, both Biden & Congress have washed their hands of working on any meaningful solution after being the cause of the problem to begin with.  Biden says he is relying on Fed Chairman Jerome Powell to bring down inflation & Congress dutifully holds oversight hearings with Powell, questioning him as if they had nothing to do with the problem.  Powell is not an economist - he is an attorney with a degree in politics from Princeton.  No one asked for the inflation problem or the solution from an opaque institution that most people know absolutely nothing about - yet it is about to bring on a recession that throws millions of people out of work.

Check out the deterioration of the currency of the republic after the enactment of the Legislative Reorganization Act of 1946 with the stability of the price level under the gold standard from 1800 to 1946.

 click on graph to enlarge

As shown above citizens today are deprived of the legal protections of constitutional government & are subject to the arbitrary will of unelected elites who operate in an insular manner in an administrative state resembling absolute monarchs.  Our lives are affected by presidents who have pens & phones used to issue executive orders instead of going through the legislative process.  And activist courts have been used to make laws when the ballot box didn't work - until recently.

But last month the Supreme Court issued four decisions based on the Constitution & oh what a difference it makes not just in the result but the constitutional reasoning used to arrive @ the result.  Please note the Supreme Court was not making law in these decisions but rather was saying that the decisions reflected the correct constitutional interpretation for the issues raised in the cases presented.  The losing parties are free to rewrite the affected laws or amend the Constitution to gain their desired result, instead of the lawless Progressive methods of bureaucratic administrative state authoritative or arbitrary orders to advance their agendas. 

Rather than find a right to abortion, like the 1973 Court did relying on the Griswold case from 1965, in the "penumbras, formed by emanations" in the Bill of Rights that leads to a right to abortion under the non existent constitutional right to privacy our current Supreme Court found that there is no constitutional right to abortion since the topic was not mentioned in the text of the Constitution & no state allowed it @ the time of the founding or 1868 when the 14th Amendment was ratified.  A state by state review was included in the current Court decision.  The 1973 decision had relied on the Due Process clause of the 14th Amendment (it's in the 5th Amendment also) plus the decision in the Griswold v. Connecticut case.  In short, Roe passed an activist 1973 Supreme Court based on penumbras (partially shaded outer regions of the shadow cast by an opaque object) & emanations (an abstract but perceptible thing that issues or originates from a source) to a right that doesn't exist - & 50 million lives were lost.  It is no wonder that Justice Antonin Scalia called this reasoning "garbage."

In the West Virginia v. EPA case the high Court found that the EPA (part of the Executive branch) overstepped its authority by issuing coal-fired power plant regulations that were a "transformative expansion" of its power.  Chief Justice John Roberts wrote "A decision of such magnitude & consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from the representative body."  The EPA had planned to put in place regulations that included how much electricity you could use in your own home.

I have received comments recently about our elected representatives hiding from the line of duty & the above EPA case makes me wonder why there was no complaint of an encroachment of power on Congress by Congress - our elected representatives who, in times of trouble, prefer not to be seen or thought of.

The Supreme Court also found that Bremerton High School in Washington state could not prohibit "the free exercise" of religion of their football coach kneeling in prayer @ midfield after games, & that the right of the people of New York to bear arms "shall not be infringed."

And, on another matter of current interest, Mike Pence did not have the authority to return certified ballot lists from electors from any state - Pence's only function on January 6, 2021 was to open certified state election results & have them counted in the presence of Congress.

So as we celebrate the founding of our country in the year 2022 & of the independence of the United States of America the two hundred forty seventh, it is best to realize the Progressive onslaught described above that has been turning the country incrementally, for over 100 years, from a growth & liberty nation to a welfare state.  Handing the Democrats the presidency & both chambers of Congress in 2020 has come within a whisker of one vote here or there, by Joe Manchin or Kyrsten Sinema, from tipping the bucket over to run dry.

When I hear conservative pundits on TV gleefully say that we are going to have a red wave in the midterms to take our country back I always think how I would like to ask them why they thought we lost the country so that we need a red wave to take it back.  There is no debate on the conservative side - just presentation of one-sided talking points & laughing @ the Democrat opposition including Biden & Harris.

Last month five associate justices, & the Chief Justice of the Supreme Court shined the light on the courage it takes to make the difference to return to excellence.

"Freedom is never more than one generation away from extinction."  It will take a Herculean effort from all of us, not just justices on the Supreme Court, to ensure "that this nation, under God, shall have a new birth of freedom, & that government of the people, by the people, for the people, shall not perish from the earth." 

Sunday, June 19, 2022

Fresh Faces Needed In 2024 For The Good Of The Country

"There's a significant amount of our base that is happy with an off-ramp from the Trump train."  Arkansas Governor Asa Hutchinson speaking @ a meeting with WSJ reporters on May 31.

"As Ronald Reagan understood, successful politics really is about addition & multiplication.  We have been doing far too much subtracting & dividing."  Maryland Governor Larry Hogan speaking @ the Ronald Reagan Presidential Library in California as part of a speakers series on the GOP's future following its loss of the White House, Senate, & House during Trump's tenure in office.


A WSJ poll in March found 85% of Republicans viewed Trump favorably.  Hutchinson & Hogan, in the above quotes, were addressing the 15% who don't, plus those who would not like to see Trump run again, & those who are sorry he has endorsed so many primary candidates in the midterms.

Trump has endorsed over 300 primary candidates including those in primaries yet to be run.  Some of these endorsements have helped candidates but also some races have shown there are limits to a Trump endorsement.

Conservative commentators on TV do the disservice of overstating Trump's influence.  For instance earlier this spring it was reported that Trump went 22 for 22 one particular primary night.  What wasn't reported was that in 19 of the 22 contests Trump's endorsees were running unopposed.

Some of Trump's endorsements include Rand Paul, & the following congressmen who all won their primaries with 100% of the vote:  John Joyce, Russ Fulcher, Dan Bishop, Mike Kelly, Guy Reschenthaler, & Scott Perry.  These types of endorsements pad Trump's overall record.  Another trick is to endorse late when the winner is pretty well known like Doug Mastriano running for PA governor.

Karl Rove has developed what he calls his 30-70 Rule - namely that in contested primaries a significant percent of the time Trump's endorsed candidate, whether winning or losing, receives between a quarter & a third of the vote, meaning that such candidates have about 70% of the electorate not supporting them.

J.D. Vance won the Ohio Senate primary with 32% of the vote.  Mehmet Oz won the Pennsylvania gubernatorial primary with 31%.  Bo Hines won NC 13th CD with 32%.  Madison Cawthorn lost the NC 11th CD with 32%.  Janice McGeachin lost the ID gubernatorial race with 32%.  Charles Herbster lost the NE gubernatorial race with 29%.

And in the Georgia races that Trump took personally his endorsees lost big:

David Perdue lost with 22% of the vote to Brian Kemp in the gubernatorial race.  Jody Hice lost with 33% to Brad Raffensperger in the Secretary of State race.  John Gordon lost with 26% to Chris Carr in the State Attorney General race.  Patrick Witt lost with 17% to John King in the state Insurance Commissioner's race.  

Perdue, Hice, & Gordon focused their campaigns on discussing the 2020 presidential election while the three victors, & Witt, focused on more current issues of concern.

Voters will learn another important point about Trump's motivation in his primary endorsements - namely, does he back Republicans he did not support in the primaries who won, against a Democrat opponent in the general election in November.  There is no bigger example than the Georgia gubernatorial race in which incumbent Brian Kemp now has a rematch with Stacey Abrams.  Kemp beat Stacey in 2018 by 54,723 votes, out of just under 4 million votes cast, 50.2% to 48.8%.  Lightning will have struck twice in Georgia if Trump does not get behind Kemp like he failed to do with the two Georgia Senate runoff candidates in January 2021 that cost the GOP control of the Senate thereby bringing on all the misery that Biden has inflicted on the country.  Trump's failure to back Kemp would be a loss for Georgia & the republic. 

Along with Brian Kemp & Brad Raffensperger, Trump's ire has focused on Liz Cheney from Wyoming.  We'll have to wait & see how her primary turns out on August 16.

Trump's endorsement of House Minority Leader Kevin McCarthy is a confusing one when you consider Trump's dislike for Cheney, who is Vice -Chairwoman of the House January 6 Select Committee investigating the riots of January 6 @ the Capitol.  After denying it, McCarthy is heard on audiotape blaming Trump for the attack on the Capitol & saying that he was going to ask Trump to resign, which he never did that we know of.  Who was McCarthy talking to on the audiotape?  Liz Cheney (among others).

In McCarthy, Trump sees a future Speaker of the House that he wants to be allied with.

McCarthy has a Liberty Score of F @ 44% & Trump feels he is "an outstanding Representative" & "a strong & fearless Leader."  Of course McCarthy is anything but & some of the most loyal members of Trump's base, like John Cardillo, are growing more & more dissatisfied with some endorsements like Oz & McCarthy.

Contrast Trump's endorsement of McCarthy with his criticism of Congressman Chip Roy of Texas - Liberty Score A @ 100%.  Chip originally supported contesting the 2020 presidential election (as did I) but as the weeks rolled by his repeated calls to Mark Meadows for evidence of election fraud were unanswered & finally Chip voted against overturning the presidential election.  Trump then turned on Chip & said he "has not done a great job, & will probably be successfully primaried." Chip won his primary against three opponents with 83.2% of the vote.  There is no elected representative finer than Chip Roy.

The above examples show that Trump can positively influence some races but the bigger story is that he is divisive & could cause major harm in many races this fall like both the Georgia gubernatorial & Senate races (Herschel Walker versus incumbent Senator Raphael Warnock).  Whether it is people in Trump's base not supporting a candidate who irritated Trump somewhere along the never-proven-election fraud trail or a Liz Cheney supporter who refuses to back a candidate that Trump endorsed, the division could result in two more terrible years of Biden being unchecked by Congress.

Biden won the presidency in 2020 with 306 electoral votes to 232 for Trump - virtually the opposite of Trump's electoral college win over Hillary Clinton in 2016 - 304 to 227.

Biden received 81,284,778 votes nationally compared to Trump's 74,224,501.  If you subtract the popular vote totals in California & New York Biden was still ahead in the total from the other 48 states by 36,327 votes.  In 2016, the same analysis showed Trump winning the other 48 states by over 3 million votes so there was definitely a stronger anti-Trump movement this time in the other 48 states.

The majority of people who voted for Biden could not stand Trump, in fact they loathed him, & just as importantly they were more interested in security than liberty, never understanding or caring that it is liberty that provides security.  They just ignorantly knew they wanted the security that they thought socialism provided.

These people knew that voting for Democrats meant they were taking a chance on politicians, who to one degree or another, had supported defunding the police, had agreed with establishing sanctuary cities & states that protect illegal immigrants from federal law enforcement, & had turned a blind eye to the night after night burning, looting, & destruction of innocent residencies & businesses in Portland, Seattle, Minneapolis, & Kenosha by Antifa & Black Lives Matter thugs.  There was no condemnation by the hostile anti-American media or any Democrat candidate, including Biden, for these violent acts so voting for a Democrat ticket was @ a minimum tacit approval of the aforementioned violent acts.

I looked @ election results to find out the relative strength of both Biden & Trump as the person @ the top of the ticket in 2020.  A strong presidential candidate will bring out supporters who then vote for his party's candidates for other offices riding the coattails of the person @ the top of the ticket to victory.

Biden had very strong coattails.  

In California CD-12 Biden got 86.1% (337,517 votes out of 392,046 votes cast for president) & Pelosi got 77.6% (281,776 votes out of 362,950 votes cast for congressional candidates).  Biden got 55,741 more votes than Pelosi in her own district - a strong performance.  Biden similarly outperformed AOC (73.3% to 71.6%) & Ilhan Omar (80.3% to 64.3%).

Trump's coattails were weaker & even non-existent in most congressional districts in the three states that provided Biden's electoral college victory.

In the opposite of what you'd expect from a strong presidential candidate Trump received fewer votes than every winning congressional Republican candidate in Wisconsin & all of them in Georgia except for Marjorie Taylor Greene.  The results were more mixed in Arizona but still weak.

For instance, in Wisconsin CD-1 Trump received 53.9% (220,668 votes out of 409,363 cast for president) & Bryan Steil received 59.3% (238,271 votes out of 401,754 votes cast for congressional candidates).  Congressman Steil received 17,603 more votes than Trump in CD-1 & yet there were 7,609 more votes cast for president in the district, meaning there was an underperformance for Trump.

Trump received 63,547 fewer votes in Wisconsin than the five winning Republican congressmen combined.  Trump lost Wisconsin by 20,682.  Had he kept up with the winning Republican congressmen's vote tallies Trump would have won Wisconsin by 42,865 votes.  There are similar underperformances in Georgia & Arizona.

Click here to see my detailed tabulation for all three of these states in a Table entitled Presidential & House Vote Count By Congressional District - 2020.

For die hard Trump supporters who think he can win in 2024 if he runs, I'd like to see a state by state analysis to see how he reaches 270 electoral votes, especially considering the above analysis of votes by congressional districts.  Peggy Noonan wrote "He lost in 2020 by seven million votes with a growing economy & no inflation - & that was before the events of 1/6."

Starting in July 2020 Trump set the stage for his post-election claims of fraud & court appeals when @ one of his signature rallies he presented an out of character scenario in which he raised the possibility of him losing the election - he gave the excuse of losing because of voter fraud.  I remember, watching live, thinking to myself, if he knows all of these details of potential fraud why doesn't he do something about it now - months before the election?  This way he could win.

But one poll after another had continuously & repeatedly shown Biden winning the presidency by large margins.  I believe Trump's internal polling showed him losing also, especially in the important swing states that he had won in 2016 by very narrow margins.  It makes sense that Kellyanne Conway not only told him that he lost after the election, as she wrote in her recent book, but most likely also told him that he was going to lose before she left the White House in August 2020 - why else would the only woman who had successfully guided a presidential campaign to victory resign shortly before her chance @ a second victory.  One way or the other Trump turned on Kellyanne also.

Candidates' internal polling is the best.  Pat Caddell famously told Jimmy Carter the night before the election in 1980 that he was not going to win & Carter wept.  More recently Hillary Clinton called off a fireworks display over the Hudson river the day before the 2016 election when Trump admitted "I surprised them."  Accordingly, if Trump's internal polling led by someone of Kellyanne's caliber tells him he cannot win in 2024 we will not run.

The 2016 presidential election was extremely close with Trump exceeding the needed 270 electoral votes by winning Pennsylvania, Michigan, & Wisconsin by a combined total of 77,736 votes thereby setting up the potential for a Biden win in 2020.

But the 2020 presidential election was even closer with Biden exceeding the needed 270 electoral votes by winning Arizona, Georgia, & Wisconsin by a combined total of 42,918 votes.

The results of the last two presidential races were about as even as you can get so 2024 candidates all get a good start.  We need fresh faces for the good of the country.

Thursday, June 2, 2022

Forecasting Red Wave In Midterms Is Ripe For Disappointment Sooner Or Later

After reporting on one pitiful Biden anti American policy after another, just about every conservative TV commentator I watch has become giddy forecasting the red wave that they are sure is coming after the November midterms.  Some even correct their cohost calling the red wave a red tsunami. 

Republicans are counting on the historical fact that almost always the President's party loses congressional seats in midterm elections.  Since 1900 only three presidents have seen their party gain House seats in their first midterm election - TR in 1902, FDR in 1934, & GW Bush in 2002.  And of course James Monroe, our best president, not only gained House seats for his party in both of his presidential terms but also did not lose a Senate seat during his entire administration which is something that no other president ever achieved.

The forecast red tsunami in the Senate is on shakier ground in that Republicans are defending 20 Class III Senate seats in 2022 & Democrats are defending 14.

Now I shudder every time I hear such glowing forecasts & early last month I was vividly reminded why when I started to receive messages, including from people in this readership, about Dinesh D'souza's new documentary entitled 2000 Mules that claimed that 2,000 people (i.e., the mules) were part of a plan to stuff fraudulent ballots in drop boxes in key counties in five swing states that changed the outcome of the 2020 presidential election.

In making the documentary Dinesh worked with the conservative Texas-based vote-monitoring organization True the Vote founded by Catherine Engelbrecht, whose stated objective is stopping voter fraud.  The thesis of the film is based on using the location ping system that cell phones generate to observe & analyze the activity around ballot drop boxes of carefully selected counties of five swing states (Michigan, Pennsylvania, Wisconsin, Arizona, & Georgia) that figured in the final outcome of the 2020 presidential election.

Yahoo-Finance reported - "Dinesh D'Souza's new movie "2000 Mules," which launched on Saturday, May 7, 2022, grossed more than one million dollars in less than twelve hours on the video streaming platform Rumble and its subscription-based platform."  And it didn't take long thereafter for fact checkers like The Dispatch to write that "the movie, however, is riddled with errors & previously debunked claims of voter fraud, & it's based on a faulty premise."

Now, in discounting the documentary I didn't get into any of the weeds regarding cell phone pings & the like - I began by just looking @ the general picture.  In May, 2018 Trump pardoned Dinesh for a felony conviction for making illegal campaign contributions - so for starters Dinesh owed Trump one.  And Dinesh knew he had a willing audience of Trump supporters & he could use the money after being in prison.  Also, Dinesh had presented videos out of context before to make deceptive points - like Biden & the Pledge of Allegiance when he was not really reciting the Pledge.  (We have enough real gaffes by Biden without making them up.)

But then I wondered how the conspirators knew which five states to concentrate on & how many stuffings of the drop boxes it would take to pull the voter fraud off.  For instance, the conspirators wasted their efforts in MI because Biden got 43,000 more votes than Hillary did in 2016 just from the counties where the University of Michigan & Michigan State are located - this figure alone is more than four times what Trump won Michigan by in 2016.  Also, why leave the Senate 52 to 48 with a Republican majority on the November election day?  And as I have told many people for over a year, if the Republicans were so inept to let this happen to them & the Democrats were so crafty to pull the fraud off the Republicans deserved to lose.  

Finally, Dinesh's timing is awful, releasing the documentary 18 months after the presidential election serves no practical purpose @ a time when more & more people are fatigued by Trump's constant drumbeat of election fraud without ever producing one piece of evidence that stood up even in courts with Trump appointed judges.  

For instance click here to listen to the recording of the January 2, 2021 telephone call between Trump & GA Secretary of State Brad Raffensperger where Trump said "I won this election by hundreds of thousands of votes.  There's no way I lost Georgia.  There's no way.  We won by hundreds of thousands of votes," while reciting smaller numbers of allegedly contested votes (providing no sources) before stating "All I want to do is this, I just want to find 11,780 votes, which is one more than we have because we won the election. . ." 

Brad calmly told Trump "Well, Mr. President, the challenge you have is the data you have is wrong," & Georgia General Council Ryan Germany told Trump "What we're seeing is not @ all what you are describing."  Brad replied in part to a specific claim ". . . it's extremely unfortunate that Rudy Giuliani or his people, they sliced & diced that video & took it out of context.  So the next day we brought in WSB-TV & we let them . . . see the full run of tape.  I mean, what you'll see, the events that transpired are nowhere near what was projected by" - Brad was cut off by Trump but it is safe to say Brad was about to say "Rudy" based on his preceding remarks.

The above listed telephone recording is part of the evidence that Fulton County District Attorney Fani Willis is using in her criminal investigation of Trump's efforts to influence the Georgia election results in the 2020 presidential election.

Far too many Republicans are still happy to discuss the November 2020 presidential election while the Democrats are busy working on issues to convince voters to vote Democrat in the midterms.

Biden is considering forgiving up to $10,000 of student loans for borrowers with incomes below $125,000 per year - a mere token gesture for AOC, Bernie, Warren, & Schumer who want every dime of federal student loans forgiven but would consider $50,000 as a good starting point of discussion.  Forgiving $50,000 of federal student loan debt per borrower would eliminate the entire student loan debt of 36 million people - a powerful & tempting argument for Democrats trying to buy votes from students & their parents.  But it does come with some negatives & Democrats will sort them out & make a play closer to the midterms.

The point is while some Republicans were thrilled that Dinesh released a documentary with air tight proof, to them, that Trump had the election stolen from him Democrats were coming up with a student loan forgiveness plan that could affect millions of voters in the midterms.  Borrowers had already been warming to the idea because payments & interest accrual have been suspended for borrowers with federal student loans since March 13, 2020, @ the start of the Covid-19 pandemic.

The leak last month of a Supreme Court draft opinion dated February 10, 2022 indicated that the high court could overturn the hideous Roe v. Wade decision by the end of the month.  This issue will bring every Democrat & then some out to vote.

And after 19 children & two teachers in Uvalde, Texas were shot to death by a madman the Democrats have new material in their never ending gun-control arguments.  A CBS poll last month showed 54% of Americans want stricter laws covering the sale of guns, while 46% want to keep gun laws as is or make them looser.

But topping it off will be the January 6 Committee report that will fill the airwaves in the weeks before the midterms with photos, quotations, & more detail than any of us could imagine targeted to remind Independent leaning women in the suburbs, who voted against Trump in droves in 2020, of just why they voted that way.  And of course Republicans handed this to Democrats on a silver platter that the media will find irresistible.

Now the purpose of this post is not to debate student loan forgiveness, the possible repeal of Roe, gun-control laws, or the legitimacy of the January 6 Committee.  The point is the Democrats should not be taken lightly & will use these four issues to increase their turnout while trying to change the subject from their 16 month despicable assault on America that reversed every policy that was working under the Trump administration.  Biden assumed the presidency on January 20, 2021 to find, in Mike Huckabee's words, "the most secure southwest border in history, a strong recovering economy, energy independence, a vaccine for Covid-19, a return to manufacturing, an uptick in wages for the working class, a stronger NATO & military, & protection for unborn babies."

Since becoming President, Biden's pitiful record includes 1) trying to destroy the oil & gas industry, in a play to promote AOC's Green New Deal, that has resulted in the highest gasoline prices ever, 2) flooding the country with deficit spending that has produced the highest inflation in 40 years with only Manchin stopping even more spending under the Build Back Better plan that provides benefits that become part of permanent universal new middle class entitlements & ample funding to get AOC's Green New Deal started before it overwhelms everything, 3) incentivizing tens of thousands of the poorest, lowest skilled, least educated people from Central America, all originally wearing Biden T-shirts (with virtually none of them even knowing who he was), to come to our southwest border to pursue admission to the U.S. to take advantage of the 126 welfare programs identified by the Cato Institute - & to vote Democrat out of appreciation for being allowed entry into the country, 4)  abandoning Afghanistan with a humiliating withdrawal plan that was exactly backwards -  implementing it during the summer fighting season, closing Bagram Air Base with our troops stealthily leaving the base in the middle of the night without telling the new Afghan commander, relying on the Taliban for security that resulted in the deaths of ten Marines, two Army soldiers, & one Navy corpsman, & worst of all evacuating civilians last, 5) condeming & criticizing police instead of those committing rampant crime on our streets while not calling out the breakdown of the family structure in the crime ridden zones where the high percentage of out of wedlock pregnancies & the large number of children who can not identify their fathers are the points that really matter, 6) tricking people into believing we have top notch government schools when many graduates can barely read @ a fourth grade level while the hateful teachings of Critical Race Theory (CRT) & Black Lives Matter (BLM) coupled with the historical inaccuracies & deliberate lies of The 1619 Project are pushed to indoctrinate not only students from 4 to 23 but also people in businesses & even the military, & 7) nominating unqualified people to high poitions such as Saule Omarova, educated @ Moscow State University on the Lenin Personal Academic Scholarship, to oversee banks in her position as head of the Office of the Comptroller of the Currency, Sarah Bloom Raskin, a Green New Dealer, to be the Fed's top bankiing cop more interested in climate change than the proper allocation of capital to grow the economy,  Lisa Cook, the first Black women to sit on the Fed's board, whose academic studies focused on policies that promote opportunity for racial minorities & women rather than macroeconomics & monetary policy, & Ketanji Brown Jackson to Associate Justice of the Supreme Court, whose hearings exposed her as having a liberal judicial philosophy & record that is sympathetic to terrorists & to being soft on crime with special leniency towards child pornography offenders.

The above paragraph describes a detestable record that clearly shows Biden needs to be checked in the second half of his presidency before he can do more damage.  This can be accomplished, for the most part, by voting in Republican majorities in the House & Senate, but bragging about a red wave is not helpful & can easily backfire.  And we have found that RINOs are not the answer.  Just ask yourself - did you vote for Mitt Romney for President in 2012?

The recent $40 billion aid to Ukraine bill shows the weak-kneed representatives we have elected.  Only eleven senators & 57 congressmen voted against the package - not because they were against helping Ukraine but because there was no responsible financial alternative offered by their fellow representatives such as taxing every taxpayer $500 or cutting some other program or taking it from already authorized funds.  Only 68 (12.7%) of our 535 elected representatives thought this way.  You can find all of the Senate votes here & all of the House votes here.

I summarize the nay voters below:  

Senate - Marsha Blackburn, John Boozman, Mike Braun, Mike Crapo, Bill Hagerty, Josh Hawley, Mike Lee, Cynthia Lummins, Roger Marshal, Rand Paul, & Tommy Tuberville.

House - Jodey Arrington, Brian Babin, Jim Banks, Andy Biggs, Gus Bilirakis, Dan Bishop, Lauren Boebert, Ken Buck, Tim Burchett, Cat Cammack, Madison Cawthorn, Michael Cloud, Andrew Clyde, James Comer, Warren Davidson, Scott DesJarlais, Byron Donalds, Jeff Duncan, Ron Estes, Ron Fulcher, Matt Gaetz, Bob Gibbs, Louie Goumert, Bob Good, Paul Gosar, Garret Graves, Marjorie Taylor Green, Diana Harshbarger, Vicky Hartzel, Kevin Hern, Yvette Herrell, Jody Hice, Clay Higgins, Bill Huizenga, Ronny Jackson, Mike Johnson, Jim Jordan, Debbie Lesko, Billy Long, Tracey Mann, Thomas Massie, Brian Mast, Mary Miller, Barry Moore, Troy Nehls, Ralph Norman, Scott Perry, John Rose, Matthew Rosendale, Chip Roy, Pete Sessions, Greg Steube, Tom Tiffany, Jeff Van Drew, Beth Van Duyne, Bruce Westerman, & Roger Williams.

Please note that members of the Republican leadership are not on either list.  And there is a good reason.  The Liberty Scores of every member of congressional leadership of both parties is graded "F" ranging from 2% to 56%.  A Liberty Score is a tabulation that concentrates on fidelity to the Constitution that shows the actual voting record of each member of Congress, summarized below for the leadership of both parties.  

Republican: McConnell F @ 44%, Thune F @ 47%, McCarthy F @ 54%, Scalise F @ 56%, & Stefanic F @ 44%, 
Democrat: Schumer F @ 2%, Durbin F @ 2%, Hoyer F @ 8%, & Pelosi F @ 7%

As you can see Republican scores are higher than Democrats', but still @ a failing grade, for every member of the leadership.  And that is what we get when we elect these types of people.  Liberty Scores help separate rhetoric from reality.  Whenever I see a politician on TV that I am unfamiliar with I check their Liberty Score & that flushes out the fakers instantly.

Click here to find the Liberty Score of all Members of Congress.  (Please note that not everyone on the above Senate & House lists are graded highly.  Some Members just get religion @ times over certain issues.  For instance, there is no more staunch supporter of the Senate filibuster rule than Kyrsten Sinema - who is graded F @ 5%.  Counting on Sinema & Manchin - F @ 18% - to block Biden's programs clearly shows the fragility of the Republic.)

Compare the above seven points regarding Biden's record with what is needed in Republican leadership from special people that have Liberty Scores of "A" - people who speak of & demonstrate through their voting records & actions the ability to lead a strong party like Ed Butkera recently wrote in the WSJ - a "party of lower taxes; a strong national defense; a strong border; free, not limited, speech; freedom to practice your religion; getting criminals, not guns, off the streets; insuring that parents can imbue their values & not those of some educator to their children; & the sanctity of unborn life."

What we have are leaders, & in turn a very great majority of the rank & file Republican members, who can only support these points some of the time.  Accordingly, forecasting a red wave in the midterms with such people on the ballots is ripe for disappointment sooner or later.

Click here to hear Mike Huckabee provide his list of what to stand for in such a way that reminds us how much his leadership is sorely missed.

Tuesday, May 17, 2022

Inflation Analysis - Its Cause, Cure, & Danger From China

"Inflation is when you pay fifteen dollars for the ten dollar haircut you used to get for five dollars when you had hair." - Sam Ewing, former professional baseball player for the White Sox & Blue Jays


The Federal Reserve (Fed) has never telegraphed their intent to raise interest rates as clearly as they have recently calling for seven rate increases in 2022 & four more in 2023 - this to the consternation of investors & borrowers but a delight to the long forgotten saver in America.  

Short term interest rate increases are the primary way the Fed uses monetary policy to bring down inflation - & they have finally recognized the need to do just that after a year of inaction.

Interest rates have risen fast as the bond market has not waited for the actual rate increasing action by the Fed.  The yield on the benchmark 10-year U.S. Treasury note has risen from 1.496% @ the end of 2021 to 2.995% today, doubling.  

Now the Fed's intent & need to raise rates so dramatically was prompted by their recognition that the inflation caused by their participation (creating money by buying Treasury Covid stimulus securities) in the Treasury's cash-in-hand spending programs over the past two years in response to the Wuhan coronavirus pandemic was not transitory as they had thought. That is, for far too long the Fed thought inflation would be short-lived & would not lead to permanent economic damage - they were counting on the supply-chain problems caused by Covid interruptions being corrected without any intervention on their part.   

We are seeing the definition of inflation play out - namely, what happens when too much money chases too few goods & services.  During the pandemic the Fed electronically printed $5.5 trillion covering Covid stimulus bills while millions of people did not produce goods or were unable to perform services due to the government's lockdown rules - yet people received this stimulus money from the government to purchase the fewer goods & limited services that were available.  This is the cause of the current inflation that started to pick up in March 2021 & has continued to accelerate with no definite end in sight.  In essence money was created & spent faster than the short handed pandemic-affected economy could produce goods & services inevitably resulting in inflation.

Inflation refers to a general & sustained increase in prices of goods & services in an economy - not just for any single item.  Professor Friedman, who gave us the above definition, famously said that "inflation is always & everywhere a monetary phenomenon, in the sense that it is & can be produced only by a more rapid increase in the quantity of money than in output."

The Fed has the congressional mandate to conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, & moderate long term interest rates."  We can see that the Fed is behind the curve in fulfilling their function.

Right out of the box, on March 3, 2020 Congress threw $8.3 billion in emergency spending @ the Wuhan coronavirus to fund the development of a new vaccine that resulted (with a portion of funding from the CARES Act) in Trump's Operation Warp Speed vacince project, for health agencies & testing, & for small business loan subsidies.  Fifteen days later Congress raised the stakes to $100 billion to provide free testing for Covid-19, tax credits for employers who offered paid sick leave, & increases to unemployment benefits & food assistance so you can see the too much money part of the inflation definition actually encouraging the too few goods & limited services part of the definition.

Then on March 27, 2020 the $2.2 trillion CARES Act (Coronavirus Aid, Relief, & Economic Security Act) passed Congress that included direct cash payments to households ($1,200 per adult plus $500 per qualifying child under 17), an additional $600 per week in unemployment compensation through July, bailouts for airlines & other businesses, & loans & grants to small businesses.  By the time CARES was done $2.7 trillion had been added to the national debt.  

But, to top it off, during the week of December 21, 2020 the fourth, & first since March, Covid relief bill (The Coronavirus Response & Relief Supplemental Appropriations Act) for $900 billion & the $1.4 trillion omnibus Consolidated Appropriations Act for 2021 were both signed into law by Trump.  The Covid relief bill included direct cash payments in the form of income tax rebates of $600 per adult plus $600 per child; an increase of $300 per week in federal unemployment compensation; an allowance for employers to voluntarily provide paid leave through March 31, 2021 thereby receiving a payroll tax credit; an extension of the federal eviction moratorium through January 31, 2021 including $25 billion in emergency rental assistance to help renters impacted by Covid-19 to pay for past due rent, future due rent, & utility bills to prevent power shutoffs; a 15% increase to SNAP (food stamps) benefits through June 30, 2021 estimated to be an extra $25 to $30 a month for everyone enrolled in the program; $69 billion for Covid-19 vaccines, testing, & tracing; $3.2 billion to expand broadband access to low-income families; & $100 million for the Administration for Community Living to address abuse, neglect, & exploitation of the elderly.

This ended the Trump portion of economic stimulus bills that contributed to the inflation that started in March, 2021 & grew progressively worse each month until it accelerated in October, 2021 reaching 40 year highs starting in January, 2022.  This opened the door for Biden to finish the job by showing we really have one big government party with two wings. 

On Thursday March 11, 2021 Biden made his first presidential prime time TV address to mark the one year anniversary of the Covid-19 pandemic in America.  The address also coincided with his signing into law the same day of the $1.9 trillion stimulus bill known as the American Rescue Plan Act (ARPA).

Almost half of this gigantic stimulus spending went directly to the well publicized $1,400 per person direct deposits or checks ($8,400 for a family of two adults & four small children), $1,300 per child expanded child tax credits ($5,200 for this same family), bigger food-stamp payments, & $300 per week federal enhanced unemployment benefits in addition to regular state unemployment benefits.  And $350 billion payments were made to states - the majority of which went to Democrat states that have been financially irresponsible for decades meaning that states like Tennessee, Florida, Texas, & Georgia bailed out New York, New Jersey, Illinois, & California.  For instance, New York received more money from the bill than Florida despite New York having a smaller population than Florida - one of the consequences of the November, 2020 election. 

The ARPA also provided 14 weeks of paid sick, family, & medical leave through September, 2021, while reimbursing local governments for the cost of this leave, provided an additional $25 billion for rental relief & $5 billion to cover home energy & water costs for low income people, extended the federal eviction moratorium through September & allowed people with federally guaranteed mortgages to apply for forbearance until September, provided $40 billion to ensure childcare providers can remain open & expanded the childcare tax credit, provided an additional $15 billion to the Paycheck Protection Program in flexible, equitably distributed grants to small businesses to help them reopen & rebuild, & provided $20 billion to support public transit agencies to ensure that workers keep their jobs & routes are not cut from service.

Under Biden's direction Congress also passed a $1.2 trillion Infrastructure bill (Infrastructure Investment & Jobs Act).  But thanks to Democrat Senators Joe Manchin (WV) & Kristen Sinema (AZ) the much larger $3.5 trillion Build Back Better bill (which originally included the infrastructure bill) has stalled @ least for now.

Breaking out the cost of the Covid stimulus the past two years:  $3.6 trillion under Trump & $1.9 trillion under Biden.  Much of the money from the federal spending bills in 2020 went to household savings because of the lockdowns - i.e., much of it wasn't spent right away.  As the lockdowns were removed the pent up demand started to come forward & inflation started to pick up in March, 2021 - the very month Biden signed the $1.9 trillion American Rescue Plan Act thereby adding more fuel to the fire.  Americans are still holding an estimated $2.5 trillion more than normal stockpile of savings that was accumulated during the pandemic spending spree.  Source: Princeton Professor Alan Blinder.  And some of this savings will be used for consumption thereby continuing to feed the inflation beast.

From the supply side: the pandemic has produced a gap of about 3 million fewer people in the labor force than what had been projected for 2022 as some 2.6 million people retired earlier than expected between February, 2020 & October, 2021 thereby crimping the supply of goods & services by this measure - see graphic below.  And employment is still 1.2 million people below the pre pandemic level.  The April unemployment report showed a decline in the labor force of 363,000 people attributed to either lingering fears of catching or spreading Covid or workers thinking that their wages will not keep pace with inflation - some employers complain that workers quit after just a few hours on the job, if they show up @ all.  Also hurting supply is the China Covid lockdown, the Russian war in Ukraine, & Biden's policy to destroy the oil & gas industry as he continues AOC's Green New Deal war on fossil fuels.  Increasing the supply of oil & gas back to the point where just two years ago America was energy independent would bring down the price of gasoline @ the pump without any action by the Fed.

The most widely reported measure of inflation is the Consumer Price Index (CPI) prepared by the Bureau of Labor Statistics.  The CPI measures the weighted average of the prices of a fixed set of consumer products & services meant to represent the broader economy & specifically the things that an average urban consumer buys.  The prices in this basket of goods & services are evaluated, including price checking by a workforce of 477 on-the-ground economists who track changing prices for hundreds of thousands of goods & services every month.  The final monthly change is known as the CPI inflation.  About 80,000 items make up the CPI.  See image below for the eight major groups of the CPI.

The CPI is meant to reflect the purchases of a typical urban consumer, which represents 87% of the American population so when you hear the CPI inflation report for the month that is what they are talking about.

Since the above description of the basket of goods & services uses the words "average" & "typical" it is important for everyone to calculate their own individual inflation rate for the sake of accuracy in financial planning as well as having a better understanding of the government's inflation policies that devalue your income & net worth.  This becomes obvious when you see that someone who has a greater weighted average of their expenses in medical & housing expenses has a higher individual inflation factor than someone who spends most of their money on things like apparel whose prices rise slower than medical & housing items.  That is, if medical costs are going sky high but you are in good health & take no medicine your inflation factor is not affected by high medical costs - the opposite is also true if you are in poor health.

This type of phenomenon can also play out in different regions of the country.  The April inflation report showed that CPI inflation was 8.3% year over year for the country as a whole but 11.0% in Phoenix, 10.8% in Atlanta, 9.6% in Miami in contrast to 7.2% in Chicago, 6.3% in New York, & 5.0% in San Francisco.

People are often fooled by what are known as visible price change components in the CPI.  For instance everyone knows when gasoline (signs along the highway tell you) & grocery (everything marked in the store) prices are increasing & this realization tends to make people feel everything is high.  Compare this to prices of appliances that you may not have bought for years & are not as aware of their costs as you are of gas & groceries.  It is best to check your own personal record to see if other items in your budget are increasing as fast as you think gas & groceries are.  The results of a detailed calculation of changes in your entire expenses is much better than an opinion you get based on one visible component you see @ a gas pump.

Food & energy prices are the components in the CPI that the Fed has the least control over because they are both traded in the futures markets where their prices are actually determined & can be volatile.  For instance, during the two year pandemic West Texas Intermediate (WTI) oil has traded as high as $119 per barrel on March 1, 2022 & as low as negative $37 per barrel when the front month May, 2020 contract price dropped over 300% in the final two trading days of the May contract before the owner of the contract had to take delivery.  See graph below.  Obviously, the Fed has no control over even less volatile situations that regularly pop up in the futures market.

Food & energy price volatility is the reason that the Fed concentrates on what they call "core inflation" - that is the inflation rate with food & energy contributions stripped out.  It is not that the Fed thinks that people don't buy food & energy products but rather they think they have a better control of the core inflation measure than one with these two components that can be distortedly volatile.

Since 2000 the Fed has preferred to use the Personal Consumption Expenditure (PCE) index for inflation prepared by the Bureau of Economic Analysis.  Like the CPI this index accounts for the prices that consumers pay for a wide range of goods & services but also more heavily takes into account changes in consumer behavior substituting less expensive items for items that have increased more in price. See graphic below.

The PCE index runs about 2 percentage points lower than the CPI - same economy but different results which is partly why I suggest calculating your own individual inflation factor & just talk about the CPI or PCE when referring to the general economy for the average urban consumer.  BTW - the CPI changed methodology along the way - the 7.5% CPI inflation of last January would be more in line with the 10+% CPI readings of the 1970s when rent-housing prices made up a higher contribution to the overall index.  Since January that rate has only gone higher.

So how does the Fed intend to bring inflation down?

The first way is to increase interest rates as mentioned @ the very beginning of this post.  And it just can't be a willy nilly increase here or there.  A good starting point is to raise the Fed's policy rate (the Fed Funds rate) so that it is higher than the PCE core inflation rate which is currently running over 5%.  The Fed funds rate is less than 1% currently so they have a long way to go.  It should stay above the core PCE rate until the Fed's inflation target of 2% for the overall PCE index is reached.  The PCE inflation rate was 6.6% in March - a new four-decade high.  See graphic below.

You can also check out the relationship using the following graph where the difference between the Fed Funds rate & core PCE inflation is depicted.  Notice that core inflation was higher than the Fed Funds rate in the 1970s (i.e., the blue line was below zero from 1975 to 1980) that led to the high inflation that Paul Volker had to bring down starting with raising the Fed Funds rate to 9% higher than inflation - a move that was devastating then & would be again today.  These two graphs provide a world of information regarding the history of American inflation over the last 60 years.

Since January 2012 the Fed's Federal Open Market Committee (FOMC) - the actual committee that determines short term interest rates - has interpreted a PCE inflation rate of 2% as meeting the Fed's congressional mandate of price stability.  The Fed targets this positive number instead of zero because they feel that the price indexes have a slight upward bias meaning that if the reading is 2% the actual inflation rate is probably slightly less than that.  Since interest rates & inflation tend to be proportional, having a positive number target implies that the Fed will have somewhat more room to cut interest rates if needed than if they targeted no inflation.  And having a positive number target guards against the even worse (than inflation) economic disease "deflation."

Nevertheless, the Fed's program of effectively inducing 2% PCE inflation will reduce the purchasing power of the median-income American household by $1,370 each year if the members of that household's consumption patterns coincide with the methodology used in determining the PCE index.

The second way that the Fed plans to bring inflation under control is to shrink its massive balance sheet passively.  Also known as runoff, passive reduction of the balance sheet means the Fed will allow some of the individual debt instruments in its portfolio to mature without reinvesting the proceeds, rather than actively selling them in the open market.  The Fed takes the money @ maturity & just like it created the money out of thin air lets it disappear by erasing it electronically thereby actually reducing the money supply meaning there is less money chasing the same amount of goods @ the moment of erasure which is a move in the right direction for bringing inflation down.

Home buyers are already feeling the impact of the mortgage interest increases.  The average rate on a 30-year fixed rate mortgage rose from 3.1% @ the end of 2021 to 5.1% @ the end of April bringing the monthly mortgage payment for the median priced house to $1,383 from $1,064 a year earlier.  The old rule of thumb to determine if someone could afford a mortgage was to make sure that the mortgage payment was less than 25% of the buyer's gross income.  Over time that figure gradually increased to 28% & had stretched to 29% @ the start of 2021.  The percentage ballooned to 34.2% of gross income in January 2022 so the Fed's interest rate hikes in April will cut even more people out of the housing market thereby reducing demand for houses as shown by these changes to the old rule of thumb.

But a 5.1% mortgage rate is still less than the current annual inflation rate of 8.3% meaning that over the long term if this higher rate persists the borrower will pay the mortgage off with inflated money.  The bank will have unwittingly subsidized the purchase of the house @ their own expense by accepting mortgage payments with money worth less & less in purchasing power every month.  This example shows why the Fed has to raise the Fed Funds rate, & in turn commercial banks the mortgage rate, above the inflation rate.   The economy is very used to functioning with cheap money & its way past time for the Fed to bring back stability & reestablish value in the economy.

Following his Senate confirmation (80 to 19) to a second four-year term, Fed Chairman Jerome Powell said "The one thing we really cannot do is fail to restore price stability.  The economy doesn't work for anyone unless you do that."  That is the central point of a healthy economy & only time will tell if he really understands & believes this.

Commercial banks help in the flow of money in an economy by providing deposit & credit facilities.  When a commercial bank grants a mortgage they credit the account of the borrower with new funds & write up a loan liability @ the same time.  Both sides, assets & liabilities, of the commercial bank's balance sheets expand thereby creating money under what is known as our fractional reserve banking system.  As mortgage interest rates go up there will be less demand for mortgages thereby helping to keep the money supply in check through reduced volume of commercial bank's lending programs. 

The destructive nature of inflation is also clearly shown by understanding the cost-of-living-adjustment (COLA) that the Social Security Administration (SSA) makes every year.  In October the SSA announced that the COLA for 2022 would be 5.9% based on the CPI.  But on an annual basis so far the CPI has been higher than 5.9% every month in 2022 so people on Social Security are playing catchup & really will never catch up.  They should get another scheduled increase in October 2022 based on these higher 2022 numbers but if inflation keeps increasing it will be to no avail.  This principle also applies to worker's salaries - workers are always trying to catch up to what inflation has been.

In summary, America is suffering the highest inflation rates in over 40 years because of the government's deficit spending programs that overstimulated the economy in attempts to help ease the tragedy of the Wuhan coronavirus pandemic.  Way too much money was created in America to chase a pandemic reduced supply of goods & services.  Although the Fed seems to be prepared to solve this problem the Democrat Biden administration wants to keep on spending.  It has never given up on passing the $3.5 trillion Build Back Better (BBB) plan that provides benefits that become part of permanent universal new middle class entitlements & ample funding to get AOC's Green New Deal started before it overwhelms everything.  Just imagine how high inflation would be if this BBB plan had passed.  The Biden administration could not take inflation any less seriously than they do.

But China does take inflation seriously & sees our lack of preparedness & interest in this regard over the past two years as an important opportunity to move another step forward to reaching their goal of replacing America as the financial leader on the world stage.  

While America did nothing for a year but grow the money supply China stayed particularly focused on price stability in China starting with providing far less stimulus than the U.S. during the pandemic.  

China relies more on investment than consumer spending to drive economic growth so it is less susceptible to demand-led inflation - the opposite of the U.S.  China also maintains enormous reserves  of strategic commodities it can call on to contain inflation - it has enough wheat to last a year & a half & enough rice to last over a year.  Copper, aluminum, soy beans, & wheat were released in 2021 as needed.

China also uses price controls & protective trade actions.

Now all of these tactics do not follow good economic principles but they are shuffled quickly from one to the other so that so far no long term damage has occured from using them.  At least they have a plan including a rainy day fund which is more than we have.

And global investors are buying China's approach.  On April 12 the yield on the benchmark 10-year Chinese government bonds closed lower than the comparable 10-year Treasury note meaning investors in the bond market saw less risk with Chinese debt securities than equivalent American debt securities.

Over the past several months Saudi Arabia has also considered accepting Chinese yuan instead of dollars as payment for oil delivery.  But the Saudis hedge this bet by continuing to peg the riyal to the dollar in foreign-exchange currency markets.

The dollar has been the world's reserve currency since July 1944 with the signing of the Bretton Woods Agreement that pegged the dollar's value @ $35 per troy ounce of gold with the other countries' currencies pegged to the dollar.  On Sunday night August 15, 1971 Nixon took America off the gold standard because the dollar could no longer maintain its value in relation to gold.  Inflation from the Vietnam war & the enlargement of the American welfare state were overpowering the value of the dollar & the economy.

The gold standard was completely replaced by fiat money meaning it is used because of the government's order that the currency must be accepted as a means of payment.  What really backs the dollar is the future tax generating power of the economy  - euphemistically known as "the full faith & credit of the U.S. government."

Now spending money with no regard for any economic principle does not inspire much faith & credit in the U.S. government - especially since we now have a giant competitor that really is an enemy that wants to take over America's prominent economic position in the world.

Inflation is a devaluation of a currency & this leads to trouble as Lenin very well knew when he said "There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, & it does it in a manner which not one man in a million is able to diagnose."  

Consumer prices in China rose 0.85% in 2021 while they rose 7.0% in America.