Sustaining Stimulus Efforts

As Ben Bernanke has declared that the recession is nearing a slow end and many around the world are looking to reduce stimulus efforts in an effort reign in out of control spending, the U.K. has affirmed that they will continue their efforts. This WSJ article further details what our European friends are thinking.

I applaud their efforts, as I insist to all anti-New Deal conservatives who claim only WWII brought America out of the Great Depression, I would argue that the scaling back of federal spending and other measures around 1937 slowed the return to "normalcy" in the economy as the country needed continued stimulus. Governments around the world must recognize such a potential mistake as one may devastate the progress many countries have seen in getting out of recession.

The Say On Pay: Should the Federal Reserve be Empowered to Regulate Risk-Inducing Pay?

A year after the economic meltdown that brought on bailouts and ultimately an economics stimulus package to the tune of trillions of dollars, the government looks to be trying to stop such an occurrence in the future. The proposed antidote being a new authority assigned to the Federal Reserve where compensation packages will be analyzed to see if they could bring down the economic system.

I don't really buy this. The government should not have any say on how companies pay their executives unless when federal money is involved. Whilst the bank bailouts of '08 could create a moral hazard problem whereas financial sector companies could not feel compelled to limit risk and stay solvent thinking that the government will help them regardless, I believe that even those companies that have been saved see the value in limiting risk. The fact of the matter is that it's the pay that drives the best talent to these companies and if American companies are going to be put at a severe disadvantage in terms of offering superior pay over overseas competitors such as Deutsche Bank and Barclays.

While stopping another 2008-like economic meltdown is important, it should not be handled by allowing the government to put limit pay packages that put American companies at a competitive disadvantage.

Has not much changed?

This WSJ article talks about the lack of realized reform nearly a year after the collapse of Lehman and the rescues of numerous financial institutions.

While realized reform is not present, the mindset of firms, regulators, and of consumers has changed the landscape of financials. The scrutiny that these corporations are now put under when it comes to executive bonuses and debt holdings has increased exorbitantly and there aren't any signs of that changing.

Health Surtaxes, ObamaCare, and Incentives

While it is admirable that President Barack Obama is looking to ensure that all Americans can receive adequate healthcare coverage, the more I hear about how he wishes to accomplish it the more I cringe and worry for the fate of American Capitalism. Proposed surtaxes on the very richest of Americans threaten to destroy the incentives to work hard in the pursuit of a more comfortable life. 

I'm going to introduce a certain scenario. A person goes off to an Ivy League university coming from the inner-city projects. He works extremely hard there and lands a very lucrative job upon graduation. He works and he works sacrificing in the hopes of rising to the uppermost ranks of his field. His salary increases and increases and the person lives an increasingly comfortable life. If this person has worked so hard for so long to reach a point where he is CEO, why should our government decide that he must give up more? The man deserves to keep what he has earned. It is unfair for our government to decide that the burden of taxes must be laid upon those who worked the hardest, had the most talent, and ultimately had the skills marketable enough to rise to the top and receive appropriate compensation in a free market economy. 

Although the idea of healthcare for all is a just cause, diminishing incentive and taking from those who have toiled greatly to receive large salaries do not deserve to be discriminated and picked out to face extremely high marginal tax rates at the upper brackets of U.S. taxes. 

Two Sides to a Piece of Paper

There's a very amusing article in the WSJ today that talks about how the federal government is cutting about 100 million dollars from the deficit by doing various things including photocopying on two sides. How have they not done this already...

Why the Fed's Autonomy Must be Saved

While many question the competence and effectiveness of the strategies taken by  Ben Bernanke's Federal Reserve, the semi-autonomous nature and whether it will remain in such a way have come under fire from many critics, most notably Ron Paul. The libertarian hailing from Texas has supported a measure that would authorize audits of the Federal Reserve's actions during the financial meltdown this previous Fall and the current economic recession. While Paul calls for complete abolition of the Fed, many others are calling for an increase in oversight the board must face. 

I have a few issues with these happenings. Primarily, Paul's support of a complete removal of the current Federal Reserve Board is ludicrous. There is no better way to combat the danger of inflation and deflation more quickly or effectively. Without Bernanke, it is quite possible that the current downturn would be much worse if it weren't for Helicopter Ben swooping in and helping save the financial sector. The target for the Federal Funds Rate had to be dropped in to keep the credit flowing throughout the economy. Without such Monetary Policy, our economy would have been even worse off.

Furthermore, the board must remain autonomous. It takes too much time to pass a stimulus bill in Congress, so why should the Federal Reserve be limited by whatever Congress imposes or even the President? What kind of knowledge advantage do congressmen or the President have over a man as qualified as Bernanke. None. Increased regulation of the Federal Reserve system would be devastating as it could delay the implementation of highly needed increase/decreases of the Funds Rate and/or may result in improper action. 

And The Supreme Court Puts a Stay on the Fiat Deal...

With junior creditors given a subordinate status to senior lenders, consumer groups and the Indiana teacher's pension fund won a battle today when the Supreme Court put a stay on the sale, possibly leading to a review and overturn of the sale. 

This was definitely needed. Obama and his grandiose visions and execution of a quick sale to Fiat pressed along by the sheer zealousness of the Treasury Department and the President himself represent an appeal to special interests while neglecting those of others. Clearly politicians can not be trusted to bargain a deal to the likes of this one...

But should the Supreme Court rule the sale unconstitutional and potentially force a liquidation by Chrysler? This may raise more problems, since such an action would only give creditors 800 million dollars to fight over and result in massive job losses across the nation. 

A gray area is probably best. Ruling in complete favor of the pension fund will only cause liquidation and upholding the actions by the Obama Administration wholeheartedly would set the stage for the Executive Branch to continue to take precedented action in helping strike private sector deals, an unfavorable possibility. The Supreme Court must censure the administration and rule that such dealmaking is not a full right of the branch, and that culling who deserves the most simply based on what the government thinks is a breach of the laws of the land. The pension funds should be given a fair chance to recover their lost investments.