• It took 51 weeks to grow from $12 trillion to $13 trillion.
• It took only 27 weeks to grow from $13 trillion to $14 Trillion
  

The government’s fiscal year began on October 1, so the first quarter of fiscal 2011 is already behind us.  Astoundingly, even in the face of an unprecedented debt crisis the government spent 3% more than in the first quarter of fiscal 2010! (Source: Monthly Treasury Statement: December, 2010)

The political-media establishment blames taxpayers for this debt crisis.  But The data show spending is the real cause.

Whenever they’re confronted with their profligate spending Democrats blame “wars that were not paid for.”

Fortunately, we can check this claim because the Congressional research service has provided a meticulously detailed report of the cost of the wars in Iraq and Afghanistan. In the report they tabulate Defense Department expenditures plus expenditures by other departments (Veterans Affairs for example) that were made necessary by the wars.   It turns out that over the nine years since the 9-11 terrorist attacks the entire cost of both Iraq and Afghanistan has been just over $1 trillion.   During the same nine years the government spent a total of $26.7 trillion.

So, the notion that there would be no debt crisis if there had been no military operations in Iraq or Afghanistan turns out to be bunkum.

President Obama and the Democrats want us to believe the current tax rates, known as “Bush tax cuts,” that were enacted in 2003 caused tax revenue from “the rich” to decline.  Again the data contradict them.

The 112th Congress faces an unprecedented crisis.  Today, government Debt is about 95% of GDP.  The only time it was ever higher than today was during World War II when it touched 120% of GDP.  But unlike today 90% of the war time budget was for military expenses.  When the war ended most of the cost of government ended with it.  Debt was reduced to 60% of GDP within a decade.

This time, the cost of overseas combat operations is only about 4% of total spending.  There would be no significant decrease in government borrowing even if the President were to simply abandon Iraq and Afghanistan and bring all troops home immediately.

As always Democrats and so-called progressives insist that all would be well if only the rich paid a little more.  But even if the IRS increased the tax rate on all income over $500,000 from 35% to 90% it would not generate enough to balance the budget.

If it were possible to enact sweeping tax hikes and increase income tax revenue by 50%,  this year’s deficit would still be over $1 Trillion.

There is only one way out of this crisis: deep cuts in spending.

We suggest Congress enact a scheduled phase-out all programs not explicitly authorized by the US Constitution.

The private sector is unable and unwilling to generate enough taxable income and profit to support government’s mushrooming appetite.

The drop in individual income tax revenue in fiscal 2009 was the steepest since 1939.  As the chart shows revenue continues to plummet in fiscal 2010.

Virtually all individual income tax is paid by the top half of income earners, those with the resources to invest in business enterprises that create jobs.  Half the taxpayers earning over $200,000, the group targeted by President Obama for punitive tax increases,  are small business owners, who directly invest their own after-tax profits in business expansion. Investment of after tax profits is especially critical in 2010 as bank credit is still unavailable to most small businesses.

Thus, a drop in individual income tax revenue signals declining small business profits and declining resources available to invest in businesses and create jobs. Not only is current tax revenue down, but without current investment, future tax revenue will decline even more.

Corporate income tax is a direct tax on corporate profits.  President Obama and the Democrats make no secret of their contempt for profits.  But it is those profits that fund job creation and provide tax revenue to government.

The drop in corporate income tax revenue in fiscal 2009 was the steepest since 1932, the depths of the Great Depression.  As the chart shows, revenue continues to crash in fiscal 2010.

We all know what the excuse will be when the establishment media finally confront the Obama Administration  with this ominous data:

“Bush policies.”

But Obama continued and expanded the worst “Bush policy,” the massive bail-out program begun at in the final months of the Bush Administration.  Obama seized control of AIG, GM and Chrysler.  He prevented failing, insolvent companies from going through bankruptcy.  Instead, he kept them alive with transfusions of government cash.  He discouraged risk-taking and investment by promising to burden businesses with new taxes, new health care mandates, forced unionization, and an artificial energy shortage created by government.  Obama owns the “policies” driving this downward spiral.

The Bottom Line

The path to prosperity is liberty, not larger, more powerful, more authoritarian government. Greater liberty, and much less government intervention will leave companies, investors and entrepreneurs free to create wealth, produce profits and provide jobs.

Ironically, greater liberty also generates more tax revenue.

Unemployment Rate

The purpose of the original chart (all the blue parts) and the report it came from was to help sell the “stimulus” package, or “recovery plan,”  by planting in the public mind the perception that experts had done the math and knew how the government could “save or create 3.5 million jobs,” by borrowing and spending nearly $800 Billion.  In a televised address President Obama claimed:

“The report confirms that our plan will likely save or create three to four million jobs. 90 percent of these jobs will be created in the private sector – the remaining 10 percent are mainly public sector jobs we save, like the teachers, police officers, firefighters and others who provide vital services in our communities.”

The chart and the light and dark blue lines were copied directly from the report.  Everything in red was added by Liberty Works.

Our red bar showing the actual unemployment rate overlays the chart’s lines that track the predictions of the Obama economic team.   The actual rate, 8.9% is a full point higher than the President and his team promised it would be, even though Congress did enact the stimulus/recovery just three weeks after inauguration.  In fact, it’s even higher than the economic team predicted it would be if no stimulus were enacted.

The difference between promises and and actual results equals an additional 1.5 million jobless men and women.

For a century so-called “progressives” have promoted expansion and consolidation of power, authority and wealth in the central government in Washington.  Centralized power that overwhelms state and local government, and individual liberty, is a violation of both the spirit and the plain language of the U.S. Constitution.  Yet The People have elected and reelected politicians who have made federal powers and budgets so vast and opaque they are beyond comprehension or management.

Each new generation of voters has been deceived by politicians who promised that more of their earnings paid in taxes to fund more federal power would provide greater prosperity than they could earn for themselves, working and interacting in a market economy.

• control, restrict and ration medical services,
• artificially increase the cost and decrease the supply of energy,
• partially nationalize the financial sector and domestic auto companies
• coerce millions into involuntary union membership, and
• federalize K-12 education.

Individual liberty and free markets, the foundations of our prosperity and success as a nation, are at risk.

The President claims his government take-over of health care will “save each family $2,500,” and save the government Trillions, even as it expands to cover 150 million Americans whose medical services are now paid through private insurance.

He claims, in the same self-assured tones, that massive new government intervention to increase the cost, and reduce the supply of energy will create “green jobs,” either 4 million, 5 million, depending on which of his speeches you believe.  Of course he doesn’t mention the millions of jobs that will be lost because of escalating energy prices.

If we the people permit Congress to pass the Obama agenda, we will, once again, learn the hard way, as we have with the stimulus/recovery plan, that politically inspired economic projections don’t come true, but the negative consequences of bureaucratic supervision and lost liberty always emerge, after it’s too late to stop the federal power grab.

First, giving credit where due, without Specter’s efforts on the Senate judiciary Committee there would be no Supreme Court Justice Clarence Thomas.

In 1991 the first African-American Justice, Thurgood Marshall retired.  An immediate uproar ensued from the left, demanding that President Bush 41 appoint another African American.  Bush appointed Clarance Thomas, a staunch Conservative who held that the Supreme Court should observe the original meaning of the Constitution.  The Left went ballistic.  They wanted another black Justice, but they certainly did not want anyone like Clarance Thomas.

When Thomas’ bitter and contentious Senate Judiciary Committee hearings were about to adjourn, liberal Democrats suddenly produced one of his former employees, Anita Hill, who regaled the committee and the TV audience with lurid charges of sexual harassment.  Clarence Thomas came back to the hearing late in the evening after Ms. Hill’s first day of testimony, and told the committee they were engaged in “a high tech lynching.”

The next day, Senator Specter, a member of the Committee, assumed the role of trial attorney and very effectively cross examined Ms. Hill, “demolishing” (his word) her credibility.

Thus, Senator Specter was the hero of the Clarence Thomas confirmation battle,  standing for truth and justice, even though he clearly did not agree with Thomas’ views on the Constitution and judicial philosophy.  At the bottom of this post is a 1991 video of Specter discussing Ms. Hill in an impromptu press conference in corridor outside the hearing room.

On most other matters, Senator Specter has been a disappointment to those of us who believe in more liberty and less authoritarian government intervention.  He has never been a reliable Senate vote for the conservative, limited government position, or even so-called “moderate” Republican positions. His most recent disappointment was voting in favor of the Trillion Dollar, Obama “stimulus bill.”  Like all the other Senators who voted in favor, Arlen Spector did not read the bill and did not know what he was voting for.

Whenever possible, Specter uses controversial issues to enhance his political power and influence by  sitting squarely on the fence so that both sides are forced to grovel before him in an effort to secure his tie breaking vote.

The media are cheering Specter’s party-switch as a testimony to the positive power of the Obama agenda, and speculate that Specter will be rewarded by the Democrats with highly desirable committee assignments.  However, his real motivation is simple: He is up for re-election next year and he was virtually certain to lose the Republican primary in Pennsylvania.  So, he wants to run in the Democrat’s primary.  His Senate career is on life support and the Democrats  probably didn’t have to offer him anything to persuade him to switch.

Specter’s future Senate votes will be calculated to attract special interest support back home in an effort to piece together a coalition of voters for his reelection.  It’s likely that his party switch won’t make his votes any different from what they would have been had he not switched.  The only difference is that now it will be the Democrats and their supporters who suffer frustration and anger as a result.

DECEPTION ALERT: This video was apparently placed on YouTube by someone who wanted Anita Hill to destroy Clarence Thomas, which explains the added title:  “Specter’s Innuendo.”  In reality Specter was 100% correct about Ms. Hill, and she was the one guilty innuendo.

President Obama’s Fiscal Responsibility Summit bamboozled the stupefied national media into reporting on deceptive campaign-style hype as if it were a serious policy meeting.

Chutzpah (pronounced and sometimes spelled “hutzpah”) is a Yiddish term meaning shameless, brazen temerity, combined with contempt for the intelligence of others.  Perhaps the most famous description of Chutzpah came from humorist and author Leo Rostin:

Chutzpah is that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan.

By hosting a “Fiscal Responsibility Summit” at the White House, President Obama has surpassed all rivals and earned the title of Chutzpah Grand Champion for all time.

Barack Obama:

• Promoted the $787 Billion “Stimulus” package, the largest spending Bill in American history.
• To a meeting of Democratic Congressmen said:  “Then you get the argument that this is not a stimulus bill, this is a spending bill.  What do you think a stimulus is? [laughter]  That’s the whole point. [more laughter] no, seriously.  THAT’S THE POINT!
• Added $1.3 Trillion, plus interest, to the government’s debt in just three weeks.
• Gleefully promises to spend Trillions more in borrowed money on a constellation of stale, discredited, social engineering schemes and causes.
  

Barack Obama then convened a “summit” to hector the rest of America about “fiscal responsibility!”  The Chutzpah is simply breathtaking! This is like the Hooters girls scolding the church choir for immodest robes, or the Jim Beam Company ordering employees to attend an AA meeting in the distillery tasting room!

Here are some excerpts from Pesident Obama’s speech at the Fiscal Responsibility Summit:

My administration came into office one month ago in the depths of an economic crisis unlike any that we’ve seen in generations.  And we recognized that we needed to act boldly, decisively and quickly — and that is precisely what we did.

They did indeed act quickly.  Under Obama’s leadership the Congress that still hasn’t produced the regular budget for the current fiscal year, which began October 1, slammed together $787 Billion in extra spending, mostly on liberal priorities that have been proposed for years but couldn’t survive the regular legislative process on their own merits.  This monstrous act of bold fiscal incompetence was completed so quickly there wasn’t even time to print the final version of bill before the vote.  The only copy was a previous version with handwritten corrections, cross-outs, and notes in the margins.  No Congressman or Senator who voted for the stimulus had read it.

This administration has inherited a $1.3 trillion deficit — the largest in our nation’s history — and our investments to rescue our economy will add to that deficit in the short term.

The President and his media spokespeople repeat this “inherited deficit” claim every day, hoping to persuade us that it is verified fact.   But Without the Big Bailout, that Obama fully supported during his campaign and has vowed to spend in its entirety, the inherited portion of the deficit would have been about $600 billion.

During Obama’s four years as a Senator he did absolutely nothing to reduce the deficit except call for cutting off support for the Iraq operation, just as the troops were engaged in the intense combat phase of the spectacularly successful surge strategy that has brought peace and stability to Iraq.  Abandoning Iraq might have reduced the deficit by about $75 Billion, while setting off a firstorm of horrific consequences.

He never advocated any specific cuts to the budgets of any federal department or agency.  Indeed, he campaigned on promises of Trillions in new spending!  Portraying himself as the victim of someone else’s negligence is fraudulent, to say the least.

We also have long-term challenges — health care, energy, education and others — that we can no longer afford to ignore.

Energy is a challenge only because Obama and his supporters plan to restrict or even ban cheap, abundant, domestic sources of energy and spend Billions of tax dollars on dubious, politically correct “alternative” energy and conservation schemes.

Education is a challenge because no matter how consistently they fail, the same federal programs, bureaucracies and teacher unions continue to enjoy ever increasing support from the federal budget. Obama is a staunch supporter of these special interests.

Health care is indeed a challenge after decades of bone-headed government programs, regulations, restrictions and mandates imposed on health care providers and health insurance carriers.  Obama’s solution is for government to assume even more power, and take ove health care responsibilites for tens of millions, or even hundreds of millions of people who are now covered by private insurance.

But I want to be very clear…we cannot, and will not, sustain deficits like these without end.

After just promising to spend hundreds of Billions more on health care, energy and education this assertion was utterly preposterous!

We are paying the price for these deficits right now.  In 2008 alone, we paid $250 billion in interest on our debt — one in every 10 taxpayer dollars.

In the first 20 days of his Presidency Obama  added over $1.2 Trillion to the federal debt.  That increase, plus the deficits already baked into the budget will increase this interest cost by 50%, to about $375 Billion, in just two years.  And that’s before the borrowing Obama just promised, to pay for government health care, even more subsidies to failing education programs, and a new alternative energy program.

…today I’m pledging to cut the deficit we inherited in half by the end of my first term in office.

OK, he claims to have “inherited” a deficit of $1.3 Trillion.  Half of that would be $650 Billion.  The chart below shows the deficits during the Bush years, that the Obama campaign characterized as irresponsibly huge.

Obama is claiming credit in advance for “reducing the deficit” to 43% more than the largest Bush deficit.  Obama’s amazing speech continued…

To start reducing these deficits, I’ve committed to going through our budget line by line to root out waste and inefficiency…And already we’ve seen how much money we can save, just in the last 30 days.

Take one example — the Department of Agriculture has moved some of its training programs online, saving an estimated $1.3 million a year.  They’re modernizing their financial management system, saving an estimated $17.5 million.

This would be a real knee-slapper if it weren’t so arrogantly contemptuous of us, the audience he was speaking to.  The Dept. of Ag. will save $19 Million on training and bookkeeping.  But every year the same department hurls nine hundred times that amount at farming companies to subsidize their businesses!

The reason Obama talked about saving relative nickels and dimes on training instead saving serious money on farm subsidies is to avoid a fierce backlash from an entrenched special interest constituency who would lose it’s annual handout.  It’s the special interest spending that grows government, not the lack of on-line training.

Obama went on to claim that:

…we are making important progress towards fiscal responsibility this year in this budget.

With this preposterous claim Obama surpassed every politician in history in The Great Chutzpah Competition!

The Bottom Line

Even as he TALKS about “fiscal responsibility” President Obama is racing to spend this government into an unprecedented financial crisis.  It will take decades for America to recover from the damage being done right now, in Washington.

The two points all the Democrats, and their friends in the media continuously emphasized  are that the stimulus must be big and it must be passed immediately.  A Trillion Dollar spending plan was to be completed in  two weeks, by the Congress that, last year, could not pass agency budgets less than half that size, in twelve months.

In his campaign speeches Barack Obama promised a thousand times to fix the “broken politics in Washington.”

I believed that Democrats and Republicans and Americans of every political stripe were hungry for new ideas, new leadership, and a new kind of politics – one that favors common sense over ideology…this country can’t take four more years of the same old politics and the same failed policies. It’s time for something new.

But Obama’s party, Obama’s home state, and Obama’s  political friends and associates  brought a heavy dose of the same old broken, and petty politics to Washington this week, and thus derailed their own most urgent, Trillion Dollar Stimulus Plan.

The Senate Appointment

Rod Blagojevich, the Democrat Governor of Democrat-dominated Illinois kicked off this latest round of “broken politics.”  He faces multiple felony charges arising from attempts to sell his power to appoint a replacement to the US Senate to serve out the remaining two years of Obama’s term.  Obama, Senate Majority Leader Reid, and several high-visibility Democrats had announced  that anyone appointed by “Blago” would be “tainted” and “unacceptable.” Reid even claimed, wrongly, that the Senate had the Constitutional power to refuse to seat a Senator just because he or she was appointed by Blago.

At first, Obama and the Democrat leaders  called for Illinois to conduct a special election instead of allowing Blago to appoint someone.  But then, a few days later, they realized that a special election held because of the Democrat Governor’s corruption, could result in a Republican victory.  So they junked that idea.

Last week the defiant Blago appointed former Attorney General Roland Burris, an African American.  Harry Reid reacted  immediately, with the promise that he would prevent Burris from being seated.

The implied accusations of racism from some of Obama’s Illinois asociates began at the news conference where Blago announced his selection.  Bobby Rush, an Illinois Representative in Congress stepped in front of the cameras to openly inject racial politics.  The six minute video is below, here is an excerpt:

Let me just remind you that there presently is no African American in the US Senate…And that makes a difference.  This is just not a state of Illinois matter, but indeed by this decision it has tremendous national importance, national importance…I ask you not to hang or lynch the appointee…separate the appointee from the appointor.

This is a matter of national importance -  there are no African Americans in the US Senate, and I don’t think that anyone – any US Senator who is sitting in the Senate right now – wanna go on record to deny one African American from being seated in the US Senate.

Yesterday was the swearing-in ceremony for new Senators.  Senate leaders refused to permit Burris to attend or be sworn.  Their lame justification was that the Illinois Secretary of State has refused to “certify” Burris, implying that the Secretary of State has the power to veto a Governor’s appointment, which he clearly does not.  This excuse will evaporate in the Illinois court in a few days.

Today, Burris met behind closed doors with Reid and the Democrat leaders, but nothing was resolved and his appointment still hangs in limbo.

The Offended Senator

Monday, President-elect Obama announced his choice for head of the CIA: Leon Panetta, a perennial Washington fixture.   Immediately, Democrat Senator Feinstein, Chair of the relevant Senate committee, rushed to the cameras to announce her disapproval.  Washington insiders all agree her reaction was due primarily to Obama’s failure to give her a “courtesy heads-up” in advance of his announcement.

Incalculable Risk

This burst of “broken politics as usual” gushing from the new President’s own party, own state, and personal associates certainly casts doubt over the efficacy of much hyped Trillion Dollar Stimulus Plan.

The national media is trying furiously to sell us the notion that this gang of petty buffoons can assemble the largest spending bill in American history in just two weeks!  Nobody in the political media establishment even cares that much of the proposed spending will be Unconstitutional.  In truth, Obama and the Congress are careening into uncharted territory, attempting something that has never been done before, by dysfunctional politicians, based on faith in discredited economic theories.
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On Main Street success is measured in satisfied customers and profits.

In the Washington establishment success is measured in contributions from special interests, accumulated political power, and media attention.

To achieve success in the automobile business the first step is to offer products that lots of customers are willing to pay for.

To achieve success in the Washington establishment the first step is to offer political results that special interest constituencies are willing to pay for.

The Wall Street Journal reports that Congress may authorize the government to buy equity shares in GM and Chrysler.  Apparently, the goal is to give politicians  authority over company operations through an appointed “auto czar.”  Some in Congress want to force these companies to discontinue SUVs, full size pickups, and all but the smallest, highest mileage cars. On Meet the Press, President-elect Obama echoed the mindless, political-media opinion:

…U.S. automakers have made repeated strategic mistakes.  They have not managed that industry the way they should have, and I’ve been a strong critic of the auto industry’s failure to adapt to changing times–building small cars and energy efficient cars that are going to adapt to a new market.

The data in this table, and the facts below demonstrate the foolishness of the opinions coming from Congress, Barack Obama and media commentators.

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FACTS:

• Ten of the twenty top selling vehicles, adding up to 49% of total units sold, are made by the GM, Ford and Chrysler.   The Detroit Three are making vehicles that plenty of we the people want to buy, even if politicians and the green lobby don’t like those vehicles.
  

• Even though ten different models are available in America with EPA ratings of 30 MPG or higher,  only one of those has unit sales high enough to make this top 20 list.  The Detroit Three would not, as Barack Obama claims, be in better financial condition today if they they had years ago abandoned larger vehicles to make even more small ones to compete with the ten that already saturate that market segment.

• Twelve of the top twenty, including five Japanese models, representing more than half of unit sales,  are EPA rated 24 MPG or less.  Almost 97% of unit sales, including nine Japanese models are rated at less than 30 MPG.  In the real world, we the people base our buying decisions on several considerations, only one of which is gas mileage.  Only in surreal Washington politics is it assumed that all of us should drive virtually identical, small sized, high gas mileage cars.
  

• Only four of the top selling twenty, representing 21% of unit sales, meet or exceed the government’s arbitrary fuel consumption standard, based on political rather than engineering considerations.

• Seventeen of the top selling 20, including seven made by Japanese companies, consume more fuel than the government standard. Called Corporate Average Fuel Economy, or CAFE, the standard is 27.5 miles per gallon.  For the models that don’t meet the standard manufacturers must pay penalties to the government of $82 – $633 for each vehicle sold.

The political-media establishment scorns Detroit’s “business model,” because it isn’t consistent with the political goals of the elite. They call it “mismanagement” and “strategic mistakes” when these companies build cars that customers want and are willing to buy, including larger sedans, full sized pickups and SUVs.

Following politially motivated advice from Washington, to abandon top selling vehicles and try to compete in the already saturated small car segment, would destroy rather than revive the Detroit Three.

The so-called “debate” over this issue has been a classic example of how ignorant and out of touch with reality the Washington media-political machine has become.  The continuous flow of ignorant opinion and misinformation showcases the utter laziness and sloth of the elite media.  It appears that nobody who steps in front of a camera has bothered to consider even the most easily understood facts and data.

It appears that decisions that will ultimately cost taxpayers $38 Billion, or probably much more, will be based on myths and folklore, rather than genuine facts and data, and therefore will lead inescapably, to even bigger problems than  the auto makers already face.

Consider this exchange between TV reporter Tom Brokaw and President-elect Barack Obama on Meet the Press yesterday:

MR. BROKAW:

One of the great concerns in this country, of course, is additional job loss, which would be considerable if the Big Three in the auto industry in this country–GM, Ford and Chrysler–were to go down…Do you think the Big Three deserve to survive?

PRES.-ELECT OBAMA:

Well, I, I think that the Big Three U.S. automakers have made repeated strategic mistakes.  They have not managed that industry the way they should have, and I’ve been a strong critic of the auto industry’s failure to adapt to changing times–building small cars and energy efficient cars that are going to adapt to a new market.

Obama is merely regurgitating the establishment chant we hear every time we switch on the TV, that the Detroit auto makers are in trouble because they don’t produce “small, energy efficient” cars.

Let’s see if the data supports this assertion.   We’ll compare General Motors, the company currently suffering the most criticism, with Toyota, the company most admired by the political-media Elite.

GM’s two models with the highest gas mileage are the Chevrolet Aveo and Cobalt both with an EPA rating of 27.  Toyota offers three modles that exceed GM’s highest mileage cars:

• The Prius Hybrid with an EPA rating of 46 MPG
• The Yaris with an EPA rating of 32 MPG
• The Carolla with an EPA rating of 31 MPG

FACT: As of November, sales of these thee models add up to 596,802 units, or 4.8% of all vehicles sold in the US this year.  That means, of course, that 95.2% of all vehicles sold, including hundreds of thousands sold by Toyota, are rated at less than 31 MPG.

On the other hand, the three GM vehicles with the lowest gas mileage are

• Suburban SUV
• Tahoe/Yukon SUV
• Sierra/Silverado pickups

FACT: As of November, Sales of these three GM vehicles add up to 765,701, or 6.1% of all vehicles sold in the US this year.

So in this, the worst year ever for GM, with gasoline prices spiking to record highs, It’s three lowest mileage vehicles are still outselling Toyota’s three highest mileage vehicles by 27%.

FACT: Toyota’s best selling model, is not one of those three highest mileage vehicles.  It’s the somewhat larger Camry, rated at 25 MPG.

FACT: GM’s Chevrolet Malibu, comparable to the Camry, is also rated at 25 MPG.

FACT: GM’s best selling car the larger Chevrolet Impala with a rating of 22 MPG,  has had sales of 231,841 units as of November.

FACT: Toyota’s Avalon, is comparable to the Impala, is also rated at 22 MPG and has had sales of only 37,852 units as of November.

How could someone who actually looked at the data conclude that GM’s problem is that it’s vehicles are not small enough?  Or, not fuel efficient enough compared to the competition?

Obama says GM’s decisions over the past 20 years to continue selling large SUVs, pickups, and sedans were “strategic mistakes.”  What if GM had, instead, done what the politicians and media favor, switch all production over to small cars like the Toyota Corolla?   The answer seems pretty obvious: GM would have ceased to exist and Toyota, with it’s full line larger vehicles and full size pickups would now have a 30%+ market share instead of 17%.

GM management has certainly made mistakes.  Some of those mistakes were made decades ago and still haunt the company today.  But producing vehicles that customers want to buy is NOT a “strategic mistake.”

The biggest “strategic mistake” of all will be a big taxpayer investment in the auto companies that gives politicians a seat at the management table, and the power to veto product lines based on political considerations.

It would cost the taxpayers less, and ultimatley save more auto company jobs if Congress would just hurl the $18 Billion into the Patomic, and let the companies go through Chapter 11 bankruptcy reorganization.

The executives submitted to scores of stupid questions, and endured many hours of ignorant opinions from Senators and Congressmen, most of whom have no real business experience, and certainly no comprehension of the massively complex and intensively competitive automobile industry.

What was conspicuously absent from these star chamber hearings was any of the facts leading to the obvious conclusion that much of the cause of Detroit’s financial crisis was green politics in Washington, with blame falling squarely on Congress.

A favorite criticism from the political-media elite is that General Motors has stupidly continued to make cars “nobody wants to buy.”  But, since the early 90s GM has made some of the most wanted vehicles available in America:  Large pickups and large SUVs.

GM didn’t invest Billions on world class engineering and design of these vehicles out of stupidity.  They did it to meet consumer demand – demand that was so great that Nissan began offering similar vehicles.  Toyota, a company that basks in the glow of political-media-green admiration, invested Billions in engineering and a new plant in Texas, to introduce a new product, just one year ago, that competes directly with GM in the large, V8 powered, pickup market.

Through October of this year, even with gasoline prices spiking to record highs and a financial crisis that has disqualified half or more potential buyers from auto loans, General Motors has still sold over 1.2 million of these popular vehicles including:

• 67,000 of America’s largest SUV, the Chevrolet Suburban and it’s nearly identical cousins, the GMC Yukon XL and the Cadillac Escalade EXT.

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• 141,775 of GM’s slightly smaller but still large SUVs, the Chevrolet Tahoe and GMC Yukon and Cadillac Escalade.
  

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• 1,009,069 full sized pickups, including the Chevrolet Silverado and Avalanche, and the GMC Sierra.

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A lot of politicians are chauffeured around daily in the huge Suburbans and Escalades.     But, political-media establishment opinion leaders have always been opposed to large vehicles for us common people.

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When politicians say “nobody wants to buy” an SUV or large pickup, listen between the lines for the real meaning: the environmental lobby that rules Washington these days doesn’t want these vehicles offered for sale, because too may customers like them and buy them.

For three decades the government has attacked Americans who want or need large vehicles through a regulation called Corporate Average Fuel Economy, or CAFE.  CAFE imposes an arbitrary fuel consumption standard, based entirely on political rather than engineering considerations.  Currently, the standard is 27.5 miles per gallon average for all cars sold by a given company.

If too many of us customers defy the elites and  buy larger pickups and SUVs instead of tiny sedans, the auto company’s CAFE average falls below the standard and it must pay a penalty.  And who does the penalty cash go to?  Not to customers to help pay for gasoline.  It goes to the government, of course.

How much is the penalty?  Currently, the penalty is $5.50 per car for each tenth of a mile per gallon under the 27.5 MPG standard.  So, if  Joe the Plumber buys a Chevy pickup for his business with an EPA rating of 17.5 MPG, GM must pay the government $550.

GM can pay cash or, theoretically, it could offset the penalty on the pickup by selling small cars that exceed the 27.5 MPG standard.  But this is can’t happen in the real world.

To understand the problem, consider this tiny car called the Yaris,  made by Toyota, the company most favored by the “green” blowhards.  It’s rated at 31 MPG.  So, in order to avoid penalties for selling 17.5 MPG pickups, GM would have to develop a car like the Yaris and sell three of them for each pickup.  But there are not nearly enough customers who actually want to drive a Yaris-sized car to make this equation work.

Besides, the limited market for miniature cars is already saturated with models from foreign companies, many assembled in American plants, that have a huge competitive advantage in that they do not have burden of the United Auto Workers Union.

On top of the CAFE penalty are decades of relentless political pressure from Congress, adverse publicity from the know-nothing media, and continuous attack by “green” activist groups.

GM does offer several, newly engineered, world-class quality cars that are roughly the same size, and achieve the same mileage ratings as the Camry, the most popular car sold by politically favored Toyota, with ratings from 24 to 26 MPG.  But GM gets no political or media praise for these cars because it continues serve American customers who wish to drive Pickups and SUVs.

If the Senators and Congressmen really wanted to help they could start by killing the politically motivated CAFE law that punishes families and businesses who need large vehicles, and punishes the companies that provide those vehicles.

But that won’t happen because their first allegiance is to the “green” lobby, not to the auto companies, not even to the union workers they claim to care so much about.

Various financial publications have come up with estimates ranging from $3 Trillion to $7 Trillion for the total amount of cash and backstop guarantees the government has hurled at problem financial institutions in just three months.

One might expect the new administration to distance itself from this reckless misadventure, but President-elect Obama has embraced and supported these measures.   He has even appointed Tim Giethner, President of the New York Federal Reserve Bank, and one of the three bailout decision-makers in the current administration, to be the next Secretary of The Treasury.

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Wisdom & Ingenuity Vs Courage & Sacrifice

During a recent press conference Mr. Obama offered assurances that we’ll “get through” the economic crisis because he has confidence in:

• “the wisdom and ingenuity  of my economic team (a group of veteran, Washington-Wall Street operatives)”
• “the hard work, courage, sacrifice of the American people.”

So in Obama’s mind, the “wisdom and ingenuity,” the thinking, planning, and economic decision making for 300 million Americans is better managed by a dozen august officials in Washington, and then forced upon the rest of us by the government.

On the other hand, the “hard work and sacrifice” that will be required to reconcile all that ivory tower “wisdom and ingenuity” with the realities of the marketplace will, of course, fall upon us less enlightened slugs out here on Main Street.

Mr. Obama seems not to understand that this is more of the same, anti-liberty hubris that brought us to this point of economic crisis.

Politicians and government officials, attempting to be the source of wisdom and ingenuity for all of us, used laws and regulations to force mortgage lenders to issue subprime loans.  Then they empowered government sponsored Fannie Mae and Freddie Mac, to seek out sub-prime borrowers. They did this, even though there already were private sector lenders that specialized in sub-prime mortgages, putting their own resources at risk.

Now, tens of millions of Americans are suffering serious financial setbacks, and having to exhibit “courage and sacrifice” to endure misery caused by politicians in Washington.

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Too Big To Fail

On a parallel track, a history of Federal Reserve and Treasury bailouts of financial institutions, over several decades, established the concept that some companies are “too big to fail.” The leaders of those companies were thus encouraged to purchase or insure risky mortgage backed securities it now appears they didn’t even understand!  Now, we the taxpayers are funding bailout after bailout of these “too big to fail” institutions, which will soon include General Motors, Ford, and Chrysler.

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A Path To Disaster

America has started down a dangerous new path.  Government is rapidly becoming THE major source of capital and credit, pushing aside private sector sources. This means politicians and bureaucrats, most of whom have no relevant experience or qualifications, are beginning to use the power of government to substitute their judgment for that of entrepreneurs and investors in deciding which enterprises, products and services are worthy of the resources to start up or expand, and which are not.

President-elect Obama seems to be fully supportive of this trend and prepared to accelerate it as soon as his administration begins.  It’s time for those of us who prefer Liberty to the “wisdom and ingenuity” of elite government officials to begin demanding a halt to this madness before our nation is driven into economic stagnation and misery.

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Constitutional Amendment

We have a humble proposal:  A Constitutional amendment that prohibits future bailouts.  The Constitution has never authorized these bailouts, but Congress has done them anyway.  Now, the American People must put the politicians and the Executives and managers of all businesses and financial institutions on notice: In the future they will be totally accountable for their actions and will not be given access to any government funds if their decisions bring down their companies.  No company is too big to fail.

“Globalization” is a a term generically used to describe the opening up of product and financial markets around the world over the past 25 years. Gone are the days of real protectionist trade policies and limited capital flows between countries. The 80’s, 90’s and 2000’s so far have been a golden era of relatively free markets.

Prior to the 80’s we had growth, to be sure. But since then we have had unprecedented growth in GDP, wealth, employment and equity appreciation. And this has occurred globally. Free trade and capital flows are good indeed. And these capital flows have gone disproportionately to the US, as we has been viewed as the mother of all investment opportunity countries. The flows of capital have been so huge as to finance both the US budget and current account deficits – despite all predictions to the contrary.

But, what could kill this environment, now 25 years and running?  What could cause a global financial collapse?

Policies that that make America a less attractive place for the world’s capital to invest, that’s what. If the foreign capital does not flow in, US interest rates skyrocket.  And we are in for one tough time.

And what might those harmful policies include?

• US trade protectionism.
• Global warming driven environmental policies harmful to US industries vis-a-vis China or India.
• A more oppressive regulatory environment.
• Higher taxes on capital, capital gains and profits
• More silly regulation of the financial industries of the Sarbanes-Oxley type.
• A general loss of US entrepreneurial spirit, driven out of the culture by government actions, coupled with a rising spirit of entitlement and grievance.

If any of these sound familiar, it’s because Barack Obama, Harry Reid and Nancy Pelosi have been identified with all of them.

Notwithstanding today’s (November 24) rally, the markets are awfully nervous. If the Obama Administration turns out to govern the way the Obama campaign promised, America is in deep trouble. If Obama recants all his promises, he’s really a Republican.

I don’t know what he will do. I just know he is in a box.

Clearly, investors are not confident that Congressmen, Senators, and Treasury officials have the insights to resolve the credit crises any more rapidly or decisively than the market forces they seek to subdue.  There was a brief rally leading up to election day, but the downward spiral resumed the following day.

1. Government seizes Fannie Mae and Freddie Mac.
2. John McCain moves ahead in the polls.
3. Lehman Brothers Bankruptcy.
4. Government seizes AIG.
5. Bush Administration announces bailout plan.
6. Federal Reserve Chairman Brenanke and Treasury Secretary Paulson testify on Capital Hill on bailout.
7. Barack Obama pulls ahead in the polls.
8. Barack Obama, John McCain and Congressional leaders meet with President Bush to negotiate terms of the Bailout.  Meeting ends in disagreement.
9. Washington Mutual becomes largest thrift failure in history.
10. House votes down first version of bailout legislation.
11. Senate passes, and President Bush signs revised bailout.
12. Barack Obama explains to Joe the Plumber that he will hike taxes on small businesses in order to “spread the wealth.”
13. Joe Biden warns the nation that Barack Obama will face a “generated” foreign crisis during his first six months.
14. Treasury Dept. announces bailout funds have been invested in bank stocks instead of mortgage backed securities.
15. Barack Obama elected President.
16. Chairman Brenanke and Secretary Paulson testify before an angry, Disappointed House Banking Committee.
17. Auto Executives Come to Washington with tin cups.
18. Auto Executives go back to Detroit empty handed.
19. Barack Obama announces his intention to appoint Tim Geithner as Treasury Secretary.

The announcement at 3PM Friday that Tim Geithner would be appointed Treasury Secretary transformed what was shaping up to be another down day on Wall Street into a spectacular, final hour rally.  For the day the Dow was up $494, or 6.5%, and the Nasdaq was up $68, or 5.2%.

Mr Geithner, who is currently President of the New York Federal Reserve Bank has served both Republican and Democrat administrations for almost two decades.  In recent weeks he has worked closely with Secretary Paulson on bailout decisions and thus brings a measure of continuity through the transition to the new administration.

Investors were thrilled to learn that for this post President Elect Obama had decided to go with experience instead of delivering on his campaign promise of “change we can believe in.”

Perhaps President-elect Obama can make the rally last longer.  He can announce that he will permanently cancel his plans, and renege on his campaign promises to:

• Punish small business with tax increases
• Hike the capital gains tax on investors who take the risks and make the investments necessary to jump start the economy
• Implement a crushing new tax on carbon
• Appoint Supreme Court justices who are hostile to liberty and private enterprise

Click the boat to see all articles in Big Bailout Series

Treasury Secretary Henry Paulson and Federal Deposit Insurance Corp. Chairwoman Sheila Bair testified before the House Banking Committee today.

Paulson gave a vague summary of how bailout funds have been deployed so far..  The Congressmen on the committee were dissatisfied because there has been no direct intervention to prevent foreclosures.

Paulson tried to pacify the Congressmen by listing various government initiatives that encourage lenders to voluntarily make concessions to borrowers, but Committee Chairman Barney Frank cut him off, complaining that these preexisting measures were largely ineffective and were not a substitute for using Bailout funds to directly help borrowers.

Sheila Bair described a “proactive program of loan modifications” being conducted by Indymac Bank, which became a ward of the government, managed by her agency, after it failed last June. Indymac offers borrowers a combination of temporary and permanent changes in interest rates and terms to reduce the monthly payment, but does not reduce loan balances.   Most of the Congressmen were enthusiastic supporters of this program.

As a 26 year real estate investor in a region with one of the highest foreclosure rates, I humbly offer insights the media and most of the politicians don’t seem to understand.

Foreclosures most often occur when the loan balance exceeds the market value of the home.  Borrowers who can not afford their payments and know they have to give up their properties will sell if they owe less than they will receive from a buyer.

But, when the net proceeds of a sale, after paying commissions and closing costs will be less than they owe, they have an incentive to just walk away and let the lender foreclose.  Why bother with a sale if you won’t receive any cash?

Even borrowers who can afford their payments have a strong incentive to walk away when they see neighboring homes selling for less and less and the gap between their market value and what they owe growing larger and larger.

In a speech to bankers back in March Federal Reserve Chairman Brenanke agreed with this assessment and warned his audience:

“In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure…A recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that total losses exceeded 50% of the principal balance, with legal, sales, and maintenance expenses alone amounting to more than 10% of principal,” Bernanke said. “With the time period between the last mortgage payment and…liquidation lengthening in recent months, this loss rate will likely grow even larger.”

Brenanke added that lenders and those who own the securities backed by the at-risk mortgages are likely to lose more through the foreclosure process than they would through reducing what homeowners owe.

He was right.  Market values in the worst regions, including California, Florida, and Ohio, have fallen at least another 15% since March, and here in Northern California, values have fallen more than 50% since the bubble burst in three years ago.  Losses to lenders are indeed even larger, just as Brenanke predicted.

This is a textbook supply-demand scenario, with the continuously increasing supply of foreclosed properties for sale driving market values ever lower, leading to more foreclosures, more supply and even lower market values.

Generally, we at Liberty Works oppose any government intervention in what should be free markets and private sector business and lending relationships.  In this previous post we described how government pressure on private lenders and reckless malfeasance by the two Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, led to writing tens of millions of mortgages that can not be repaid, leading to the current, intractable crisis.

To be sure, there were also bad actors on Wall Street, abetting the process of bundling  these subprime mortgages into securities and selling them to pension funds and financial institutions worldwide.  But, had the government not thrown its massive weight behind the practice of granting mortgages borrowers could not reasonably be expected to maintain there would have been far less exposure on Wall Street and the pain would have been limited to a few of the most irresponsible of financial institutions, who would be driven out of business.  There would be no massive spill-over, and no need for Government to, in Secretary Paulson’s words “rescue the financial system from an imminent melt down.”

Reluctantly, we conclude that because government caused this crisis, government has a moral obligation to do what only government can do to stop the foreclosures.

While politicians and government officials have generated a lot of publicity around their various measures to “keep people in their homes and avoid foreclosures,” these programs have been largely ineffective because they usually increase, rather than reduce principal balances.  Thus, wave after wave of foreclosures continue, each a reaction to the most recent drop in market values.

If the foreclosures are to be stopped, government intervention must come in the form of principal reductions to a point below market values where borrowers can realize some cash after paying sales expenses.

Some officials have proposed plans that lower balances but then deprive borrowers of part or all of their equity if they sell in the future, redirecting that equity back to the lenders or to the government.  This concept, if implemented, will fail because it doesn’t solve the problem of the borrower’s incentive to walk away and let the lender foreclose.

Government currently has the power to reduce the pain it has caused, either by ordering lenders to lower loan balances to below current market value, or by changing bankruptcy law to permit the courts to order the balances lowered.  A bankruptcy law change would give lenders a powerful incentive to come forward and offer borrowers substantial balance concessions in order to avoid a worse outcome in bankruptcy court.

What’s the alternative to systematically lowering balances?  Those same lenders and millions more Americans will suffer even greater losses.

When systematic balance reductions become reality the decline in market values will cease immediately, as buyers who have been waiting on the sidelines for prices to bottom out will rush in to snatch up all the remaining foreclosures.

Toyota began building cars in America in 1984.  Their non-union plants offer competitive wages and benefits and they have no trouble attracting enough American employees.  Their business philosophy encourages every employee to be a partner in a relentless effort to improve quality and efficiency.

Volkswagen, Porsche, Mazda, Hundai, BMW, Mercedes, Toyota, Honda, and Nissan have all followed Toyota’s lead and opened assembly plants in America.  All are successful and profitable here.  Their total labor costs are less than half those of the unionized Detroit auto makers, but their employees are content and satisfied.

How did the United Auto Workers Union respond to emerging competition from Asian and European companies?  They maintained bitter, adversarial relationships with their members’ employers, and obstinately demanded ever more costly work rules, higher wages and more lavish benefits, putting those employers at an ever greater competitive disadvantage.

Just last year, the UAW finally reached an agreement with General Motors to change the pension system for future retirees, replacing the promise of a fixed retirement income  with company contributions to individual retirement accounts owned by the employees.  The union also agreed to a deal that calls for GM would make large lump sum payments to the pension fund in 2010 and the UAW to assume financial responsibility for supporting several hundred thousand current retirees.  But, it now appears that it will be impossible for GM to raise the money to make those payments. The UAW was twenty years too late in agreeing to these changes.

Its unlikely that hurling Bailout cash at the Auto makers will keep them in business for more than another year.  Then, they’ll be back for more cash.  Eventually, they’ll have to submit to reorganization in a bankruptcy court that will cost workers and retirees dearly.

The UAW claims to represent the best interests of its members.  If that were true, it would have advised them two decades ago that competition from foreign owned, American plants would surely threaten their future employment.

The union would have best served its members by becoming a more cooperative partner with their Auto Company employers.  Union boses should have educated the members on the massive changes in the Automotive marketplace and the need for them to scale back wage and benefit increases and relax work rules to prevent their employers from becoming non-competitive.

Instead, the union betrayed its members who have followed their union boses over a cliff, sacrificing long term job and retirement security for short term gains.

On the Left side of the war are collectivist ideas, backed by labor unions and Democratic politicians, and the public education establishment.  On the right side are the ideas that informed the founding of America, and made us the most successful, prosperous society in human history: liberty, individual responsibility, free enterprise, limited government.

The American auto companies of Detroit, General Motors, Ford and Chrysler, were once  known as The Big Three, because they manufactured almost all (90%) of the cars sold in America.    In The fifties and sixties General Motors’ market share hovered just below 50%, and “The General” was under constant threat of government attack as a monopoly.

Those were the good old days.  Today, we should call GM, Ford and Chrysler The Desperate Three.  This year, the three of them combined will produce about 40% the cars Americans buy.  It now seems certain that General Motors, and maybe Ford as well, will be forced into Chapter 11 bankruptcy/reorganization within weeks if Congress doesn’t come through with bailout cash.

The political big gorilla in the room is, of course, the union, The United Auto Workers (UAW).   The Desperate Three employ 239,000 people in North America.  But the cost of current workers is only the beginning of the UAW’s tab.  Long term union contracts have increased the burden on The Desperate Three over several decades, to the point where they  now support 775,000 retirees and surviving spouses with monthly pension and medical benefits, AND provide health insurance to an additional 985 thousand Americans!

To the Political Left these numbers are as they should be.  In their doctrine “a good job” is an entitlement and it should be a program of total economic security for the employee and his family.  The Desperate Three’s union contracted high wages, strict work rules, generous benefits and fabulous retirement programs have been the standard by which The Left seeks to measure all jobs.

The unions and the Leftist establishment had hoped their new President Obama combined with the Democratic Party’s increased majority in Congress would harness the power of government with new, pro-union laws and regulations to reverse the three decade decline in union membership and usher in a new era of union expansion and dominance.  But, non-union workers will be even less interested in tying their futures to the union movement if the Desperate Three are forced into chapter 11 bankruptcy/reoganization, resulting in major wage and benefit concessions ordered by the court.

The UAW has been a pillar of Democratic Party financial support for eight decades and now demands a hefty return on it’s investment.  Congressional Democrats are under immense pressure to come up with something to preserve the myth that unionization can milk endless benefits out of an employer with no downside consequences.

On the Liberty/Free enterprise side is the argument that Chapter 11 is the appropriate solution to this problem, with all stakeholders, including the union, making concessions to restructure General Motors into a healthy, competitive enterprise.

GM is selling several high quality products, has a world class engineering shop and a network of thousands of dealerships.   Without the burden of excessive debt and 775,000 retirees to support GM would instantly be transformed into a vibrant, profitable company.  The bankruptcy court is one of the few government services mandated by the US Constitution, and it has the means and authority to help GM turn around.

Of course there will be pain.  Any court ordered restructuring will surely force union employees and retirees to accept substantial reductions.  This is the unavoidable consequence of so many years of meeting excessive union demands.

A cash bailout from Congress, without major concessions from the union, will only delay the inevetable demise of GM.  In a few months we’ll be right back here again.  And again, the impulse from the Democrats in Congress will be to find some way to keep alive the fiction that this company can survive without the UAW accepting major cuts in wages and especially in benefits and retiree payements.

The case of Detroit’s Desperate Three Auto Makers leaves no doubt:  The Left’s economic ideas are immoral and unworkable.