The Circle of Socialism: The Real Story of “Quantitative Easing” and the Federal Reserve
Posted by Josh Kimbrell on Sep 14, 2012
America’s got a massive deficit and debt problem. On that, most folks can agree. How it happened, however, is something many aren’t so certain to say.
The process of running up a $16 trillion Federal deficit may seem complex and convoluted, but it’s really no more complicated than the average American family swimming in a sea of credit card debt. The same principles are at play, and the same mistakes are being made.
Government, like most households, finances its spending in one of two ways: income (in the form of taxes for government / salaries and wages for households) or through the use of debt (Treasury securities for the government / credit cards, student loans, car loans, etc. for households).
The responsible government and/or household strives to make the ends meet by using the income coming in, all the while striving to stay away from the use of debt. Deficits come when debt is treated like income and as like it never needs to be repaid.
Despite their similarities, however, there are several major financial differences between our Federal government and the average household. The biggest of these differences is the ability of the Federal Reserve to print the money to pay back the government’s debt obligations. Where households actually have to earn the cash they need to pay back their debt obligations, the government just fires-up the printing press. This means that, ultimately, we all pay for fiscal irresponsibility in Washington in the form of devalued dollars, which lead to higher prices on everything from corn flakes to clothes and a lower standard of living.
Here’s how DC’s debt cycle works:
First, Congress blows over a trillion dollars more every year than the Federal government takes in through tax revenue.
Then, the US Treasury Department issues bonds to securitize the debt (remember, the bond is the credit card of the government), then the Treasury sells these bonds to investors to raise the capital needed to pay for this out-of-control spending by the Congress and President.
Now, the question becomes: who buys the bonds? Since the Treasury has issued trillions of dollars in new bonds since Barack Obama became president, private investors are less interested than ever before.
This is where the Federal Reserve comes into play: they print money out of thin air to buy bonds no one else wants to touch.
Since the stimulus packages and big government bailouts began back in 2008, the Federal Reserve has been the single largest purchaser of bonds issued by the Treasury. This is a telltale sign that investors in this country, as well as abroad, have very little appetite to continue bailing out an out-of-control government in Washington.
It’s also important to point out that the Federal Reserve doesn’t take in tax revenue, so they have to come up with the money to buy Treasury bonds by just creating it out of thin air. They just make (quite literally in this case) the money they need to buy the bonds no one else will buy.
So, the cycle of socialism is the following:
Congress blows the money.
The Treasury issues bonds to raise money to cover spending by Congress.
The Federal Reserve prints the money needed to buy the bonds from the Treasury.
If it sounds nice and tidy, trust me, it’s not.
There have been other governments in modern history that have tried this same sort of scheme, with predictable results. The German Weimar Republic gave it a whirl, destroyed their economy and ended up with Adolf Hitler. The Greeks gave it a go, only to find themselves going down the road to economic oblivion. Just two examples of what not to do that policymakers in Washington seem unwilling to heed.
Hyperinflation is the inherent result of printing money from thin air, and this is a de facto tax on the American people.
Think about it, if the government prints money to pay their own bills, that destroys the value of money already in circulation. We call that process of monetary debasement, inflation. That means that the dollars in each of our pockets are becoming more and more worthless as the printing presses keep printing. This goes back to the fact that everything from corn flakes to clothes more expensive for American consumers.
So, the circle of socialism, wherein an over-promising, big spending Federal government attempts to cover for their financial mismanagement through the printing of cash (something far less popular than outright tax increases) which actually has the same effect as a tax hike. The lasting effect is less purchasing power for American families, which translates into hampered economic demand and sluggish economic growth.
I’m in no way advocating tax hikes, but I am suggesting that we start focusing on spending cuts. If we don’t, inflation will make us feel like we’ve had a tax hike…and I think we’re taxed enough already.

We later found out that this person had 15 arrest warrants, one for attempted murder.
Anderson Independent Mail
Woman allegedly posing as doctor arrested at senator’s pharmacy By Nikie Mayo

ANDERSON — A woman allegedly posing as a doctor to get prescription pain pills was arrested Thursday at an Anderson legislator’s pharmacy. Sen. Kevin Bryant said he caught the woman himself.

Bryant represents Senate District 3 in the South Carolina legislature and owns a pharmacy on Anderson’s North Main Street that bears his name.

The identity of the woman arrested and the Anderson Police Department incident report were not immediately available.

Bryant, a pharmacist, said that he took the woman’s call and that she requested 180 Lortab, the maximum amount that can be dispensed at once. “That amount of medication would be for a patient in serious pain — a cancer patient or a person with major back pain,” Bryant said.

Bryant said the woman identified herself as a doctor in a Greenville practice.

“She gave the name of a real doctor in a real practice,” he said. “But the name she gave was for someone we have dealt with infrequently, so we didn’t automatically know that she wasn’t telling the truth.”

Bryant said he became suspicious of the woman when he asked her for the license number assigned to her by the U.S. Drug Enforcement Administration, which shows that she is allowed to prescribe narcotics.

“Usually, a doctor never knows that number,” Bryant said. “They either have their assistants give it to us or they get real irritated when we ask for it and they say, ‘Hold on, let me look it up.’

“She knew that number so quickly, off the top of her head,” Bryant said. “That raised a red flag.”

Bryant said he called the Anderson Police Department and the South Carolina Department of Environmental Control.

“The police said for us to keep her busy once she got here,” he said. “I’ve got to hand it to my technicians, who were asking her what kind of pills she wanted and what color she wanted so it would stall her. We saw the plainclothes officer arrive, and he arrested her.”

Bryant said he reviewed his records after the woman was arrested Thursday and is trying to figure out if she might have given the names of at least two other doctors to obtain prescription medication from his pharmacy during the course of several years.

“We haven’t dealt with this person very much, but it is kind of embarrassing as we look back and see that she may have tricked us before,” he said. “It’s a shame these people don’t do something legitimate, because they are very smart. They would be very good at legitimate work.”

At this point this is report is my opinion and not necessarily that of the LCI sub committee. I hope i’m wrong and these problems are fixed and taxes come down, however, I remain skeptical.

The Obama Administration’s Department of Labor has warned the committee to not have the appearance of influencing ongoing UI claims. We will make an attempt to obtain closed cases for review. I’ll try to get the 5 pager from the US DOL up soon.

SUMMARY
UI rates for all employers in 2013 may rise as much as 12% or more based upon the application of UI law by DEW in the latter half of 2012. Individual employers, furthermore, may see their rates triple or quadruple if a separated employee is found “eligible” under the application of UI law by DEW in the latter half of 2012. The basis of that application of UI law by DEW remains undetermined at this time as DEW has provided no consistent, uniform or verifiable explanation of its actions under the statutes.

The sub and staff have reviewed only a portion of the cases deemed “eligible” by DEW. Staff initially disregarded those determined “eligible” because of “non-response”, but staff subsequently determined that DEW frequently fails to follow its policy regarding employee contact. DEW indicated that it would execute its policy and attempt to contact the employers in question. DEW has not responded to staff inquires concerning the follow up.
Review of the cases otherwise deemed “eligible” reveals no discernible set of uniform or consistent standards with which DEW adjudicates claims either under the new law (Act 247) or law that has been in existence for decades. DEW apparently has no definitions of the terms “inefficiency”, “inability” and “incapacity”. DEW testified that it relies upon state case law to inform its adjudicators on these terms, but DEW has not responded to requests for those citations.

None of the cases reviewed exhibit any uniform or consistent application of these terms. Such inconsistency has resulted in dozens of incorrect rulings of “eligibility” and the employers in question will see their UI rates rise two to three-fold or more.

DEW testified that “’cause’ is something less than misconduct” and that “’cause’ includes any type of fault that does not rise to the level of ‘misconduct’ or drug use or ‘gross misconduct’”. Federal law apparently grants each state the ability to define “fault” for itself. DEW apparently has no definition of “fault”. None of the cases reviewed exhibit any uniform or consistent application of the term.
DEW testified that it has some set of standards concerning the weight of evidence. DEW provided training material that indicates that adjudicators should defer to a “preponderance of the evidence”. None of the cases reviewed exhibit any uniform or consistent application of any standards relative to evidence.

Review of the claims revealed that DEW frequently fails to follow its stated policies. The failure to follow the stated employer-contact policy has been noted. DEW also failed, in the claims reviewed, to follow its policy concerning medical absenteeism. DEW has not responded to requests for further information on these particular claims.

DEW failed in many of the claims reviewed to apply the proper statute or standard of review. Act 247 contemplates full ineligibility for claimants who exhibit “wilfull and wanton disregard of an employer’s interests….” DEW, as previously noted, apparently has no definitions for the terms of exceptions, and therefore it remains unclear how the determinations occurred—other than that the adjudicator was “convinced” as DEW testified was necessary.

DEW, finally, has failed to supply the sub with information requested both at the hearing and afterwards. It remains impossible for staff to determine why or how DEW is executing the law, new or old, without the information requested and promised.

The failure of DEW to properly or even consistently apply the law, new or old, will result in two major consequences: 1) since the claimant is fully eligible, each of these claims goes directly on the employer’s record, and that means a rise in assessment tier next year for that employer. 2) DEW has informed staff that there are, on average, now 150 claims each week ruled eligible under Act 247. At an average weekly benefit of $239, DEW will pay out $17,900,000 in benefits just for half the year that the Act 247 will be in place. Based upon historical trends, this may result in an approximately 20% or higher rate increase for all employers.
No review has been conducted of the hundreds of claims ruled partially eligible, but it appears unlikely that those claims are adjudicated with any greater consistency or fidelity to the law than the ones ruled “eligible”. The failure of DEW to provide the requested information leaves no conclusion other than DEW neither is following the law nor has a legitimate or consistent understanding of its meaning.

Senator Shane Martin says NO to gas tax increase!

Recently, our 4th Congressional District DOT Commissioner made a motion to take local project control away from counties. He won the vote and is now advocating increasing the gas tax. The Spartanburg Legislative Delegation, Spartanburg County Council, and City Council held a meeting to be updated by our Commissioner and SPATS director. During this meeting, Johnny Edwards (4th District DOT Commissioner) and O’Neal Mintz (Spartanburg County Council Member) advocated increasing the gas tax. I told them both NO!

For my response, check out the links below to The Spartanburg Herald Journal as well as the YouTube video of me standing up for you, the taxpayer.

http://www.goupstate.com/Title=Funds-cut-for-local-road-projects
http://www.youtube.com/watch?v=0iA1SPur7DI&feature=youtu.be

Since then, I received the following email advocating a gas tax and attacking my stance against it. Here is my detailed response to what we are facing. This can be applied to many other issues as well.

Actual E-Mail from Constituent to me (personal information removed for privacy)

In your statement this morning in the Spartanburg Herald about waste in the SCDOT. Be specific instead of generalizing. I have a question for you. Can you buy paint at the same price you could in 1987? Can you buy a 2000 SF house for the same price you could in 1987? However you expect the SCDOT to take care of the second largest road system in the country on 1987 funding. If you really think there is waste in the DOT then do something about it and quit hiding behind the rhetoric. Our infastructure is deteriorationg before our eyes and we have no leadership to do anything about it. The commision is trying to patch the system because legislature ignores it. I guess when we have a major catastrophe like Minnesota then we will have a knee jerk reaction. I will remind you of this email and everyone else I can.
My response to constituent:

Dear,
I appreciate you asking for specific examples of SCDOT waste. Perhaps the most glaring is the I-73 project as a whole and specifically the I-73 interchange near Dillon. I-73, I trust that you would agree, will never be built in our lifetime. The northern states of its origin, such as Michigan and Ohio have done little or no actual work on it. The fact is, why would they build an express lane to carry their dwindling populations away to vacation or even move to other states? South Carolina, on the other hand, remains undaunted.
Let me begin by noting that it costs $150,000 to resurface one mile of two-lane, flat road. The entire SC portion of the I-73 project is estimated to cost approximately $2.3b dollars. Most of that money, of course, has been neither spent nor even appropriated, but instead of planning that money for, to use our example, the resurfacing of over 15,000 miles of existing roadway (over 10% of the state’s total), the SCDOT Commission prefers to plan for a section of US Interstate that will link up with—nothing.
SCDOT indeed approved in April 2011 a bond issue, i.e. borrowed money to spend on an I-73 interchange. The proposal contained “projects” across the state to garner the support of all commissioners—in true log rolling fashion. The I-73 project was the interchange in Dillon that will cost $185m, $105m of which would be borrowed under this scenario. That money could pay for over 1200 miles of resurfacing in the Pee Dee, but politicians like to cut ribbons instead of fill potholes. The politicians down there call it the “Interchange of Hope”, but given the likelihood of I-73 itself, I call it the “Interchange to Nowhere”.
Now, the Commission is a 7-member body from the state’s 6 transportation districts and one at-large. The district commissioners are elected by legislators within those districts and the at-large is appointed by the governor. The Secretary of Transportation, who runs the agency, also is appointed by the governor. So, the legislature controls the Commission, which picks the projects, and the governor controls the Secretary, who carries them out. That means, of course, that no true accountability exists, and when things go wrong or the politics are uncomfortable then the governor blames the Commission and the legislature blames the governor and her secretary.
I believe that the SCDOT should be a true cabinet agency, and I have voted to abolish the Commission, and I will again every chance that I get. Legislators who want their local projects, however, will block such efforts, and I suspect that it will be many years before we get there. Projects similar to I-73, of course, exist all over the state. SC taxpayers put over $12m into road infrastructure at CU-ICAR which, over a decade later, remains nearly empty. Taxpayers are on the hook in the future for over $550m to extend I-526 to James and Johns Islands in Charleston even though the locals, including the local elected officials, don’t want it. And the list goes on.
Your question about the relative value of money over the last 25 years actually allows me to illustrate even more brightly the point that I was making last night. I’m sure that you are aware that inflation over that period has led to the approximate halving of the relative worth of a dollar between 1987 and 2012. The Bureau of Labor Statistics reports that it takes $2.02 in current money to purchase the same goods as did $1 in 1987. The standard argument in Columbia now is that we must raise taxes to cover inflation. That argument not only offends the taxpayer but also masks the true problem, government spending practices themselves.
Inflation, of course, appears in every single walk in life, not just roads. The concept of inflation, moreover, was not new in 1987. Everyone, in other words, knew that it would happen over the ensuing 25 years. Inflation, as you may recall, ran at an average rate of just over 7% in the decade of the 1970s and just over 5.5% in the ‘80s (you undoubtedly remember that it broke into double digits for three of those years). Simply using recent history as a guide, SC and the SCDOT at that time should have set aside money to account for inflation. Such prudent financing in fact would have led to large surpluses inasmuch as inflation in the ‘90s and ‘00s fell off dramatically (3$ and 2.56% respectively). I suppose, however, that we should not expect SCDOT to accomplish basic financing when, as we saw last winter, they can’t even maintain a positive cash balance without asking for a bailout from the federal government.
This, of course, is what successful private sector businesses do, but we know that such is rarely if ever the case in government, and it certainly was not the case at SCDOT—or any other SC government agency for that matter. SCDOT, and SC government in general, spends every dollar that it receives for two reasons. The first, as previously noted, is that politicians like to cut ribbons and not, in this case, put money aside for future needs. The second is that politicians always assume that when things get bad enough, e.g. crumbling roads and bridges that they will be able to hornswaggle the taxpayers out of more money with arguments like “safety” or “for the kids” or, in this case, “what can you buy in 2012 with 1987 dollars?”.
Taxpayers, as you know, have succumbed to this chicanery for decades, but they don’t believe it any longer. The problem in government is not lack of money but lack of prioritization, lack of standards and, most importantly, lack of the ability to say “no”. You may have heard of a large group of people out there whose motto is “Taxed Enough Already”. I agree with them. We have been taxed enough already. It is time for the government, or in this case SCDOT, to treat our money like something other than Old Faithful which it can count on more of with unceasing regularity.
The Commission, to go to your last point, is not trying to do anything noble in the wake of other failures. The Commission not only is part of the problem but also the architect of the problem. The Commission sets the priorities and votes on the projects. The Commission is a purely political animal responding to political impulses and cares not a whit about the sound finances of South Carolina or its taxpayers. It has ample assistance from the politicians, but the Commission itself is no angel.
So, to summarize, I will not now, nor will I ever, vote to increase the fuel tax unless and until I see that the SCDOT spends every penny of taxpayer money that it already receives like I would spend my money at home—and then I still would oppose a tax increase because regardless of the era we must live within our means. Increasing the flow of money to Columbia, for any agency, will only result in more special favor boondoggles like I-73 or more sheer financial incompetence as we see now at SCDOT. I will not be a party to that.
I do appreciate, nonetheless, your passionate insistence that we take more money out of the pockets of taxpayers. I always enjoy a straightforward discussion, but on this one we simply disagree.