Posted by on May 24, 2013
Follow all our members with the FSC Majority twitter list and check out the highlights below.
Posted by on May 23, 2013
During the first term of the Obama administration, our nation racked up four straight years of trillion dollar-plus deficits and as much debt as was accumulated in our first 200 years. Under President Obama, our national debt has increased by more than $6 trillion – the largest increase under any president in history.
But according to President Obama's Treasury Secretary, Jack Lew, it’s time to pop open the champagne and celebrate because “we are overachieving on deficit reduction right now".
That’s funny, because it wasn’t that long ago when a $642 billion budget deficit and a $17 trillion national debt was a bad thing.
Watch Secretary Lew's take on this year's deficit in an exchange with Congressman Marlin Stutzman during yesterday's hearing below:
So what does “overachieving” look like to the Obama administration? Just this month, the Congressional Budget Office updated its budget outlook (.pdf) with the following deficit and debt estimates:
In his testimony (.pdf) earlier this year to the House Budget Committee, CBO Director Doug Elmendorf said:
As Secretary Lew himself pointed out in his exchange with Congressman Stutzman, “the path we are on is what is most significant.”
We agree, Mr. Secretary. But here's the path (.pdf) we are on.
If the Obama administration wants to give themselves high-fives and hand out gold stars for “overachieving” with a deficit that is $642 billion – the fifth biggest deficit in history – and headed higher because of their spending policies, then be our guest.
It just shows how out of touch they are with hardworking taxpayers who understand that unless we change course Washington’s reckless spending will leave their children and grandchildren with fewer opportunities, a lower standard of living and less freedom.
Posted by on May 22, 2013
Congressman Mick Muvaley explains in the video above how a provision buried deep within the 2,300-page Dodd-Frank Act is hurting the very people it was supposed to help in the war-torn central African nation of the Congo. The provision – added to Dodd-Frank as Section 1502 without any congressional hearings – requires public companies to certify their supply chains are free of any and all “conflict minerals” originating in the Democratic Republic of Congo.
As many as 12.5 million Congolese – 17% of the country’s population – depend on mineral trading to make a living. But today, as the conflict rages on, up to 2 million Congolese miners have lost their livelihoods and are now even more impoverished than before Dodd-Frank’s enactment.
Posted by on May 22, 2013
Chairman Jeb Hensarling joined Fox Business's Neil Cavuto last night in advance of today's hearing with Treasury Secretary Jacob "Jack" Lew. Today's hearing is Secretary Lew's first appearance before the House Financial Services Committee.
The scandal at the IRS is an issue that should rise above partisanship. It hits at the heart of who we are as a people, and why we fight for justice and fear such a large, powerful government that clearly has become “too big to manage.” What the IRS did was wrong because it tries to turn our citizens into subjects. It is wrong because it violates both our constitutional and civil rights. It is wrong because it treats citizens wishing to speak out against the government’s policies – exercising a God-given right – like an enemy under state investigation. In a word, it is tyranny.
Posted by on May 22, 2013
By Phil Gramm and Steve McMillin
President Obama has raised the national debt by nearly $6.2 trillion, the equivalent of $78,385 per family of four. It is true that projected deficits recently have been reduced. April tax filings increased 28% from 2012, but much of this was thanks to a one-time rush at the end of 2012 to report income before rates rose in January. The second largest reduction in the deficit came from Fannie Mae taking a one-time accounting adjustment.
But unless the economy soars, or a significant budget agreement is reached, the most lasting legacy of the Obama presidency will be a $10 trillion increase in the national debt—a burden that bodes ill for the nation's future.
Once the Federal Reserve's easy-money policy comes to an end and interest rates return to their post-World War II norms, the cost of servicing this debt will explode. The cost will increase further as the Fed sells down its $1.85 trillion holding of government bonds, and the Social Security system runs deeper and deeper into the red. The Treasury will then have to pay interest on an ever-growing percentage of the debt.
Since the World War II era, the average maturity of outstanding federal debt has been about five years, and the average interest cost on a five-year Treasury note has been 5.9%. At this interest rate, the expected cost of the Obama debt burden will eventually approach some $590 billion per year in perpetuity, exceeding the current annual cost of any federal program except Social Security.
An America forever burdened by massive government debt would have been unthinkable for much of the nation's history. Beginning with the Revolutionary War, the pattern has been that federal debt increased to help finance the nation's armed conflicts. But government spending after the wars dropped and debt was paid down, or even paid off, as under President Andrew Jackson in 1835.
Federal borrowing during the Civil War reached nearly $2.8 billion, about 30% of GDP. Thereafter the government ran surpluses and redeemed U.S. bonds that served as the reserve base of national banks and literally burned U.S. paper currency—greenbacks—in the furnace of the Treasury building. The money supply fell and federal spending plummeted to $352 million in 1896 from $1.3 billion in 1865.
These are policies that horrify modern Keynesian economists. Yet over that late 19th-century period real GDP and employment doubled, average annual real earnings rose by over 60%, and wholesale prices fell by 75%, thanks to marked improvements in productivity.
With the onset of the Great Depression, the national debt increased dramatically for the first time in the peacetime history of America, reaching 43% of GDP in 1938. World War II meant more borrowing. Since 1930, there has been no concerted effort to pay down the national debt. Any reductions in the national debt relative to the GDP have been almost solely the result of economic growth and inflation.
As the debt burden rises, so too does the cost of servicing the debt increase as a share of the growth the economy is capable of generating. When the debt on which interest is paid equals the GDP level of a nation, the economy must grow faster than the interest rate to avoid debt-servicing costs consuming all the benefit of economic growth. A nation then begins to lose its ability to grow its way out of a mounting debt crisis. Its options start to narrow down to forced austerity, inflation or default.
Today the total U.S. federal debt is 103% of GDP. Since interest paid to the Fed, the Social Security system and other government pension funds is effectively rebated to the Treasury, taxpayers currently bear only the burden of interest on 60% of this debt. But the size of the debt and the percentage of the debt on which interest will have to be paid are rising.
Some seek solace in the fact that at the end of World War II, the national debt exceeded GDP and still the economy prospered. But when the war ended, federal spending dropped to $29.8 billion in 1948 from $92.7 billion in 1945. Spending as a percentage of GDP fell to 12% from 44%. The U.S. emerged from the war as the world's dominant producer of goods and services. The demand for dollars around the world was insatiable, and a long period of record prosperity ensued. High GDP growth and inflation eventually brought down the debt-to-GDP ratio.
Americans today face a totally different situation. Spending and huge deficits continue unabated, and growth rates have declined since the recovery began four years ago. The reduction in government spending that occurred following World War II would be politically impossible today short of a cataclysmic crisis. Under Mr. Obama, the government has run trillion-dollar deficits for four consecutive years, and the top marginal tax rate today is already higher than it was when the budget was balanced in fiscal year 2001.
The president and many in Washington are complacent because, thanks to the Fed's unprecedented near-zero interest rate policy, the burden of servicing the debt today is just 0.9% of GDP, the lowest level in over five decades. But this cannot last, and the Fed is already looking for an exit plan.
Sadly, nations generally discover the truth of Albert Einstein's dictum that compound interest is the most powerful force in the universe—not through the happy accumulation of wealth but through the agonizing enslavement of debt.
Mr. Gramm, a former Republican senator from Texas, is senior partner of U.S. Policy Metrics, where Mr. McMillin, a former deputy director of the White House Office of Management and Budget, is a partner.
A version of this article appeared May 22, 2013, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: The Debt Problem Hasn't Vanished.
Posted by on May 21, 2013
Tomorrow, Treasury Secretary Lew will deliver his annual report on the Financial Stability Oversight Council (FSOC). Here’s three things you need to know about FSOC:
1. The FSOC is failing to effectively monitor and mitigate systemic risk
The Government Accountability Office (GAO) noted in an audit report to Congress in September 2012, the FSOC has “not developed a structure that supports having a systematic or comprehensive process for identifying potential emerging threats.” And just last month, witnesses testifying on behalf of the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) -- both FSOC member organizations -- similarly failed to provide any metrics to identify “grave threats” to the nation’s financial stability.
Given the FSOC’s issues with even identifying threats, it’s clear the FSOC is presently incapable of effectively responding to those threats. This failure to explicitly prioritize systemic risks leaves policymakers without the information they need to allocate scarce resources to the most serious threats to our economy.
2. The FSOC is failing to effectively coordinate member-agency rulemaking
In the last year, the FSOC’s member agencies have publicly disagreed about the implementation of Basel III, swaps regulation, cross-border resolution, and the Volcker Rule. These disagreements create significant uncertainty for market participants, and this uncertainty imposes unnecessary costs on the economy. Unfortunately, as Congresswoman Ann Wagner’s recent questioning shows, the FSOC is unable to even identify these costs.
3. Despite it’s statutory purpose, FSOC fails to end too-big-to-fail
The Dodd-Frank Act directs the FSOC to “promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the U.S. government will shield them from losses in the event of failure.” But in its 2013 annual report, the FSOC candidly admits that the “credit rating agencies continue to factor a systemic support uplift into the long-term credit ratings of the largest U.S. financial institutions,” which denotes “the perception that the actions of government authorities during the recent crisis imply a guarantee” to institutions perceived to be “too big to fail.”
To put it more bluntly, the FSOC itself admits its own failure to fulfill its duty established by Dodd-Frank.
Posted by on May 20, 2013
Five hearings -- including Treasury Secretary Lew’s first testimony before a House committee since the IRS scandal -- make for another busy week at the House Financial Services Committee. Be sure to check back here on the Bottom Line Blog -- and subscribe to our email lists -- for updates throughout the week.
Here’s what’s happening:
On Tuesday the Financial Institutions Subcommittee kicks off the week with a hearing on the CFPB’s “ability to repay” rule at 10 a.m. And later, the Monetary Policy & Trade Subcommittee explores the unintended consequences of Dodd-Frank’s conflict minerals provision. That hearing is scheduled for 2 p.m.
On Wednesday at 10 a.m. we’re joined by Secretary Lew for the annual report of the Financial Stability Oversight Council (FSOC). The Oversight & Investigations Subcommittee takes over at 2 p.m., to ask Deputy Attorney General James Cole why some large financial institutions seem to be “too-big-to-jail” under the Obama Administration.
Rounding out the week on Thursday, the Capital Markets & GSEs Subcommittee will consider legislative proposals to relieve the red tape on investors and job creators at 9:30 a.m.
Posted by on May 18, 2013
Wall Street Journal: How to Let Too-Big-To-Fail Banks Fail
Dodd-Frank does not end the threat of taxpayer bailouts. A reform to the bankruptcy code will do the trick.
There are three distinct phases of leadership when attempting to implement change: vision, structure and implementation. This same process can be applied to congressional leadership regarding U.S. financial reform.
Bloomberg: The Question the Fed Should Be Asking
Ed Koch, the late mayor of New York City, used to stop residents on the street and ask, “How am I doing?”
With next month marking the four-year anniversary of the end of the 2007-2009 recession, the longest and deepest since the Great Depression, it seemed like a good time to ask the same question -- of the Federal Reserve.
New York Times: Why Fund Managers May Be Right About the Fed
The economics world has been having a lot of fun with hedge fund managers.
After several such managers at a recent conference denounced the aggressive money-printing policies of Ben S. Bernanke, the Federal Reserve chairman, the economic blogosphere rose up to mock them.
As a response to the recent crisis, the DFA and G20 have created a new class of too-big-to-fail institutions. Constraining the risks these firms take must be an explicit goal of CFTC, SEC, and foreign rulemaking. On the other hand, finding ways to curtail the extent to which emerging rules actually constrain private firms' pursuit of profits is the goal of lobbying and other avoidance activities. Within and across borders, regulatory competition and the ability to persuade elected politicians to pressure regulators on their behalf helps the industry to bend the rules in their direction.
Posted by on May 17, 2013
Posted by on May 16, 2013
At today's oversight hearing with SEC Chairman Mary Jo White, Chairman Hensarling said the IRS scandal causes Americans to wonder “just how pervasive the IRS’s tactics of harassment” are within the administration and whether a proposal before the SEC raises similar concerns that political opponents of the administration could be targeted. Click here for his full opening statement.
Here's what they're saying;
Bloomberg Businessweek: SEC’s White Rebuffs Call to Forswear Political Spending Rule
Market Watch: Republicans alarmed over political spending plan
The Hill: Hensarling links IRS scandal to corporate disclosure proposal at SEC
WSJ: In Wake of IRS Scandal, a Push to Nix Disclosure of Corporate Political Cash