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Sen. Paul Questions Sec. Kerry at Senate Foreign Relations Committee hearing- 4/18/2013

April 18, 2013 in Politics & Elections

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Source: RAND PAUL

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Why Irish Banks Are Not Smiling

April 18, 2013 in Economics

By Christopher Westley

IrishBanks.2012

Great chart from Moody’s:

Ireland’s banks received bailouts in the billions of euros in 2009 and 2010, including €67.5 billion from the EU, other European countries, and the IMF as part of a larger overall bailout effort. While the lion’s share of these funds have flowed to bondholders outside of Ireland, they have done little to promote real wealth creation and regime certainty in the Irish economy. One wonders how the situation would be today if Ireland had, like Iceland, required its banks to internalize their losses (which would have resulted in some to fail), defaulted on its bond debt, and allowed many of its malinvestments created during the boom to be restructured in a correction.

Regardless, the “best and the brightest”–people like Klaus Masuch and Poul Thomsen–who argued for the bailouts back then envisioned a different situation in Ireland today. If Cypress provides any lesson, Irish depositors should hold cash and be wary of any “bail-in” programs that might be implemented there in response to a banking crisis.

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Source: MISES INSTITUTE

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Chained CPI Won't Fix Entitlements

April 18, 2013 in Economics

By Michael D. Tanner

Michael D. Tanner

In what is being widely hailed as a major compromise, President Barack Obama has embraced the idea of “chained CPI” in his budget. Apparently this idea originated with House Republicans, which provides more proof that not every Republican idea is a good one.

The consumer price index (CPI) measures inflation based on the changing cost of the things we buy over time. The basic CPI measure uses a basket of goods that includes food, housing, clothing and gasoline. In turn, CPI is used to make cost-of-living adjustments for a wide variety of government programs including Social Security, veterans’ benefits and food stamps. The idea being that as the cost of the items in the basket increase, benefits should rise at the same rate in order to keep pace.

However, most economists agree that traditional CPI measures don’t accurately account for the way people really live. For instance, when prices go up, people sometimes settle for cheaper substitutes (i.e. if the price of beef increases, people may eat more chicken instead). Chained CPI attempts to include such behavioral changes in calculating the real level of inflation in the economy.

Chained CPI is liable to achieve far less savings than expected.”

Because of this, chained CPI generally runs about 25 to 30 basis points lower than traditional CPI measures. Therefore, if chained CPI were used to calculate cost of living increases for government programs, it would slow the growth of those programs over time.

This has made the idea popular with Republicans and now, with the Obama administration.

In reality, however, shifting to chained CPI would likely save far less money than commonly believed. For example, the Obama administration proposal would limit the applicability of chained CPI so as to protect lower income and vulnerable populations.

This significantly reduces potential savings. In fact, the Obama administration anticipates only about $130 billion in savings from the change over the next 10 years (though the savings would accumulate in the out years). Given that Social Security alone faces a $22 trillion shortfall (in discounted present value terms over an infinite horizon), that is barely a drop in the bucket of what is needed.

While we should all want the most accurate possible measure of inflation, shifting to chained CPI should not be used as an excuse to shirk the sort of structural reforms necessary to restore Social Security to long-term sustainable solvency.

There can be …read more
Source: OP-EDS

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Tom Woods interviews Mark Thornton

April 18, 2013 in Economics

By Mark Thornton

Here is my interview by Tom Woods on the Peter Schiff Show. We discuss gold prices, where is all the inflation, and what central banks are up to.

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Source: MISES INSTITUTE

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The Climate Horror Picture Show, Brought to You by Dodgy Science

April 18, 2013 in Economics

By Patrick J. Michaels

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Patrick J. Michaels

Pop quiz. Who wrote this:

“There is medium evidence and high agreement that long-term trends in normalized losses have not been attributed to natural or anthropogenic climate change”?

  • a) Someone who does not know how to write
  • b) The Koch Brothers
  • c) The Cato Institute
  • d) The United Nations’ Intergovernmental Panel on Climate Change (IPCC)

Well, it’s obviously “a”, and not likely to be “b”, as Charles Koch writes very clearly. Nor would such a poorly constructed sentence have gotten by the Cato editors (“c”).

Which leaves “d.” That’s right, it’s in a recent report on “climate extremes” from our pals at the UN. Of course they couldn’t come right out and say it, so it’s up to others to translate to common English: any trends in weather-related losses are not related to dreaded global warming.

The current National Assessment is an incredible exaggeration of the effects of climate change on the United States.”

But that hasn’t stopped the $3.5 billion per year U.S. Global Change Research Program (USGCRP). Instead, their draft “National Assessment” of climate change in the United States flogs more “extreme” climate in just about every one of the 30 chapters in this 1200-page doorstop.

The USGCRP is just about every organization that consumes an oodle of the multibillion dollar pie. It therefore considers its pronouncements to be the consensus of climate scientists.

So does the IPCC. They can’t both be right.

One thing that’s apparent in the new Assessment is that federal funding is awarded preferentially to those who thrive in a data-free environment. Weather-related damages are not increasing, as percentage of GDP. When you produce more stuff (increasing GDP), there’s more stuff to get hit by bad weather.

The “Transportation” chapter of this climate horror picture show asserts that pernicious climate change is “reducing the reliability and capacity of the U.S. transportation system”. Really? But, here is reality:

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Does this look like reduction in capacity?

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Does this?

Or is this related to global warming?

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The fact of the matter is the vast balance of evidence is that the current National Assessment is an incredible exaggeration of the effects of climate change on the United States.

So why was it done?

Consider the “mission statement” of the USGCRP: “Thirteen Agencies, One Mission: Empower the Nation with Global Change Science”.

The operative word is “empower,” which is the purpose of the Assessment. It is to provide …read more
Source: OP-EDS

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Europe, a Troubled Region

April 18, 2013 in Economics

By Steve H. Hanke

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Steve H. Hanke

The most recent banking crisis in Europe erupted on the Island of Cyprus. Among other things, one result of the final EU-IMF bailout package was the imposition of capital controls, or restrictions on currency convertibility.

Currency convertibility is a simple concept. It means residents and nonresidents are free to exchange domestic currency for foreign currency. However, there are many degrees of convertibility, with each denoting the extent to which governments impose controls on the exchange and use of currency.

The pedigree of exchange controls can be traced back to Plato, the father of statism. Inspired by Lycurgus of Sparta, Plato embraced the idea of an inconvertible currency as a means to preserve the autonomy of the state from outside interference.

The temptation to turn to exchange controls in the face of disruptions caused by hot money flows is hardly new. Tsar Nicholas II first pioneered limitations on convertibility in modern times, ordering the State Bank of Russia to introduce, in 1905–06, a limited form of exchange control to discourage speculative purchases of foreign exchange. The bank did so by refusing to sell foreign exchange, except where it could be shown that it was required to buy imported goods.

Otherwise, foreign exchange was limited to 50,000 German marks per person. The Tsar’s rationale for exchange controls was that of limiting hot money flows, so that foreign reserves and the exchange rate could be maintained. The more things change, the more they remain the same.

Before more politicians come under the spell of exchange controls, they should reflect on the following passage from Nobel laureate Friedrich Hayek’s 1944 classic, The Road to Serfdom:

“The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges.

Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.”

Hayek’s message about convertibility has regrettably been overlooked by many contemporary economists. Exchange controls are nothing more …read more
Source: OP-EDS