The View From 1776

Responding to Liberals’ Wall Street Pirouette, a reader wrote, among other observations:

I was right with you until…
“the huge overproduction of housing would not have
occurred.”

What “over-production”?

Remember: supply, demand and price balance except where
force or fraud intervene, in a theoretical environment of
scarcity. So, how do you precisely define
“over-production” or “over-supply” or “surplus” or
“shortage”?

My explanation:

Bottom line: the crash of the housing industry, the subprime mortgage meltdown, and the securitized debt disintegration that threaten the financial community originated with the Federal Reserve.  In the extended period during the 1990s and into recent times, Fed Chairman Alan Greenspan kept interest rates artificially low by flooding the market with excess money.  Chairman Bernanke, who believes that the Depression was caused by the government’s failure to spend enough, is carrying on that destructive policy.

The Fed’s current emergency actions may temporarily bail out Wall Street, but they will only impede and prolong the workout in the housing industry.  Continuing inflationary expansion of the money supply will keep us at square one, with unqualified buyers who will have no equity in the properties they aim to buy using mortgage loans which their incomes are insufficient to service.

The interpretative problem originates in Keynesian macroeconomics, part of the religious dogma of liberal-progressives.  Keynesians assume that aggregate demand and aggregate supply for the economy as a whole are single “things” that can be reduced to one supply-and-demand graph.  This is an oversimplification that masks a huge complexity of demand and supply factors, along with widely differing time scales of production.

Keynesians’ oversimplification leads them to the assumption that, if aggregate demand is less than aggregate supply, then the government has only to put more fiat dollars into consumers’ hands to increase consumption and to re-energize economic production and employment.

What in fact occurs is that additional artificial-money handouts from the government simply drive up prices, prolonging and aggravating the distress.

Instead, government needs to butt out and let normal market processes take place.  Wage rates, housing prices, and housing inventories need to fall as fast as possible in order to clear the market.  Once inflation fears are quelled by restricting the money supply and new lower costs and prices enable buyers to qualify for sound mortgage loans, the housing industry can rebound on a profitable basis.

I find the Austrian economic school version, as I understand it, a more reliable analytical tool than Keynesian doctrine. 

Ludwig von Mises, Friedrich Hayek, et al focused upon the lengthy time scale that applies to production of capital goods (which includes all the intermediary steps from raw materials to manufacturing the machinery and tools for production) that are necessary for the production of goods for immediate consumption.

Monetary manipulation by the Fed sends misleading signals to the very large part of the economy that is involved in long-cycle production of capital goods.  Excess expansion of the money supply leads capital goods producers to over expand their investments in production capacity to meet an illusionary, credit-based consumer demand.  Additionally, the artificially low, Fed-managed interest rates make investment in capital projects appear to be profitable, though they may be uneconomic at free-market interest rates.

Capital goods producers, in our present case, are home builders and building materials suppliers.  They are parts in a long time-scale of production that cannot possibly respond to short-term government consumer handouts or to the Fed’s low interest policies implemented by expanding the money supply.

Homebuilding, in most jurisdictions, is a very lengthy process, commencing with locating developable sites, demographic analysis, securing options on the land, drawing up site preparation and building plans, getting them approved by local authorities (usually with months or years of lawsuits and other community action opposed to any new development), and finally obtaining land financing, construction loans from banks, and arranging packages of permanent mortgage financing for home buyers when the finished product eventually hits the market.

It is not unusual for builders of multiple homes on large sites to have two to five years of time, effort, and money invested before they see a dime of income.  In most cases, their profit on a development deal is realized only at the back end, after several years of building homes, when all the original capital investment and land acquisition financing has been paid off.

That is why real estate, and to some extent all capital goods production, is such a boom-and-bust business.  Once having embarked on a large project, the developer can’t just stop it or put it on hold, because the interest meter is always running on his land loans and construction financing.

Misunderstanding the nature of the problem, Congressional liberals aim to end recessions by churning out an endless array of government spending programs, and the Fed accommodates them with a flood of money. 

That over-expansion of the money supply and, in the early stages, the artificially low interest rates for loans make developers think that consumers have sufficient real savings to buy their products and that the projects will be profitable.  Remember that developers must make multi-year spreadsheet projections of costs and revenues to determine the economic feasibility of a project and to persuade lenders and equity investors to finance it.  And their spreadsheet projections must employ assumptions about interest rates.

The result is commencement of long-term projects that lead to oversupply of finished goods several years later.

Whenever we experience economic shocks such as the current subprime meltdown, the natural, though misguided, tendency is to search for a villain, somebody or some institution whose malfeasance caused the problem.

In fact, such shocks are inherent in the Fed’s creation of excess money supply and artificially low interest rates.  Once the dollar begins falling in foreign exchange markets and inflation worries begin to take hold, the Fed has to slow down creation of money in an effort to keep inflation within its policy limits and to fix interest rates at what its bureaucrats have selected as the appropriate level of market interest rates.  When the Fed begins to change course, the game is up. 

Deals that appeared several years earlier to be profitable no longer are when inflation drives up production costs and selling prices.  But the capital goods capacity expansion and finished goods oversupply are already in the pipeline.

A Rose by Any Other Name
(A Funny Thing Happened on the Way to Totalitarianism)

By Rattlesnake Central - Melanie Wooten

“United States corporation” and the District of Columbia Organic Act of 1871 - more anti-”banker” misinfo (disinfo?)

I have always been fascinated by the fact that we wandered off the reservation of CONSTITUTION FOR the united STATES of AMERICA and went to Constitution of the United States of America.  I knew that the language of the original broadsides was critical to our very existence as a Nation, but I had no idea when or how or why the change was effected.  The argument stated in the above link not only provides the key to my contentions but it also sets out the basis of District of Columbia v Heller (No. 07-290). 

Basically, if the Constitution of the United States (Civil Rights Act of 1871) can trump the Constitution for the united States (I do that deliberately!), we are done for because we have admitted that the federal law passed to establish, define and govern federal property, i.e., the Civil Rights Act of 1871, called Constitution of the United States, which applies ONLY to the District of Columbia, Guam, Puerto Rico, et al., can govern us, the citizens of the individual states, i.e., CONSTITUTION FOR the united STATES of AMERICA, in areas outside federal jurisdiction.

The fact that the Supreme Court of the United States (SCOTUS) has decided to hear arguments on the right of a citizen of a federal territory (Heller) to own a gun in a federal territory (District of Columbia) should wave a bright flag of warning to those of us who still believe in the CONSTITUTION for the united STATES of AMERICA.  The truth of the matter is that unless the individual states decide and legislate individually that it is illegal for a citizen in THAT state to possess a gun in THAT state, the decision will be in actuality no more than a fart in a tornado.  We have been conditioned to believe that laws passed governing federal territories apply to the states.  NOT TRUE!  We have GIVEN UP our rights; they did not take them!  The truth is that under the CONSTITUTION for the united STATES of AMERICA, I do have the right to keep and bear arms, but taking a gun to a national park (a federal territory governed by the Constitution of the United States) is a no-no (or was until recently).  Case decided; no problem!!

Throughout our history, we have had decisions made that drew the bright line of where federal jurisdiction ended and the states’ jurisdictions began.  The best-known example is the Dred Scot decision, where SCOTUS ruled that the law in the state where Dred Scot originally lived required that Mr. Scot be turned back to his owner because under extant law, he was the property of the owner.  Case closed.

During WWII, there was a Hawaiian case, Duncan v. Kahanamoku, 327 U.S. 304 (1946), where a defense worker waiting to enter his work area (federal land) got into an altercation with another worker and was arrested by the Marines guarding the premises.  The case arose when he was moved around the island of Oahu and his rights under habeas corpus were denied him, but because his attorneys could prove that Hawaii was not in imminent danger of invasion, a pre-requisite for suspension of habeas corpus, the military governorship was null and void, so Mr. Duncan had to be released.  The decision of the state courts was subsequently overturned on the basis of evidence that the offenses complained of had occurred on federal property.  Case closed.  Bottom line:  if we don’t like a law, change the law; don’t ask the courts to do the legislature’s job! 

Like it or not, the post-Roosevelt SCOTUS turned modern America upside down when it said that the federal government could tell the states what they can and cannot do based on something other than the Constitution, which is the only arena over which SCOTUS has jurisdiction.  In other words, SCOTUS was permitted to legislate morality, distinctly outside its purview!  Since the Constitution had irrevocably and subtlety changed in 1871, and before that in 1867, by the 14th Amendment, precedents were established under which we are still reeling. 

If SCOTUS rules that DC law under which the Heller case was brought trumps the Constitution; specifically, the 2nd Amendment, we have willingly laid bare our necks to the yoke of the federal government and yet another right of the individual states will have been handed over, not taken.  The last time I looked, only the 3rd Amendment remains untouched by presidential fiat or federal decisions, and then only because we have not been ordered to feed and quarter federal troops at federal command under our own roofs!

All of these individual skermishes (gold-fringed flag, gun control on federal lands, establishment of jurisdiction over schools, churches, etc.) are strangely reminiscent of those situations giving rise to the War Between the States.  Anyone who has studied our history understands that this war was fought because the States believed that THEY controlled the federal government.  The War of Northern Aggression (look at the map before you screech!) came as a direct result of an individual state (South Carolina) refusing to turn over collected taxes to President Lincoln, who sent gunboats to obtain said taxes.  We all know what happened after that.

I do not pretend to know where this will end.  I do know that we have fifty states who each came into the union individually under broadly different circumstances, such as Texas and California who were republics before joining/being annexed to the united States; Virginia, Massachusetts, Kentucky and Virginia who were commonwealths; others whose government forms I have forgotten (I are old; cut me some slack!) I also know that “E Pluribus Unum” ("From many, one") stands in grave danger of being totally irrelevant.  The State of Montana has refused to comply with federal edict(s) and is threatening to secede; Texas is making similar noises.  All states are straining under the burden of non-funded mandates, which are no more than attempts by a federal government to bring the states involved back into line.  The dialogue is almost word-for-word that of the Confederate states prior to the bombing of Ft. Sumter, so if other states decide to confront the federal government over what it can and cannot control, I tremble for my Country.  My only consolation is that at age 68 I probably will not see the total disintegration of my America.

When we were taught our history, we learned of the “Immortal Trio”:  John C. Calhoun of South Carolina; Henry Clay of Kentucky; Daniel Webster of Massachusetts, who guided the American ship of state in the turbulent years before the War Between the States.  Daniel Webster was a staunch defender of the Constitution, stating:  We may be tossed upon an ocean where we can see no land—nor, perhaps, the sun or stars. But there is a chart and a compass for us to study, to consult, and to obey. That chart is the Constitution.

Our Constitution was hijacked over 150 years ago and for that length of time, we have been re-arranging the deck chairs on our sinking ship of state while our federal government steers America ever closer to the shoals that would cause her to founder.  What is at stake now is will we raise our eyes, and arms, in time to save her?

In addition to assessing the inflammatory preaching by the Rev. Jeremiah Wright in terms of patriotism and decency, let’s also examine it from the viewpoint of Christian love.

Let’s acknowledge at the outset that we in the general public do not know the typical content of Rev. Wright’s sermons, whether his condemnation of the United States and of whites was an aberration or the norm.

Therefore judge nothing before the appointed time; wait till the Lord comes. He will bring to light what is hidden in darkness and will expose the motives of men’s hearts. At that time each will receive his praise from God. (1 Corinthians 4:5)

But, however humanly understandable may be Rev. Wright’s vitriol reported in the media, it is far removed from the teachings of Jesus.

If I speak in the tongues of men and of angels, but have not love, I am only a resounding gong or a clanging cymbal.  If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but have not love, I am nothing.  If I give all I possess to the poor and surrender my body to the flames, but have not love, I gain nothing.

Love is patient, love is kind. It does not envy, it does not boast, it is not proud.  It is not rude, it is not self-seeking, it is not easily angered, it keeps no record of wrongs.  Love does not delight in evil but rejoices with the truth.  It always protects, always trusts, always hopes, always perseveres.

Love never fails. But where there are prophecies, they will cease; where there are tongues, they will be stilled; where there is knowledge, it will pass away.  For we know in part and we prophesy in part, but when perfection comes, the imperfect disappears. When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put childish ways behind me. Now we see but a poor reflection as in a mirror; then we shall see face to face. Now I know in part; then I shall know fully, even as I am fully known.

And now these three remain: faith, hope and love. But the greatest of these is love. (1 Corinthians 13:1-13)

Just as the Apostle Paul, in loving solicitude, chided the straying members of the church in Corinth, it is not out of order to suggest that the author of blacks’ difficulties in our society is more their own dominant culture than racism.

As commentators endlessly have noted, other oppressed minorities have, by pulling up their own cultural socks, managed to do well in the United States.  Roman Catholics in general and the Irish in particular spring to mind, both as reviled in their time as have been the blacks since Emancipation.

Bill Cosby nailed the problem.

As I wrote in Bill Cosby Collides With the Liberal Establishment:

Bill Cosby’s altogether laudable remonstrance to individuals in the black community to put their own houses in order is a direct challenge to the liberal dogma that social problems can be corrected only by government’s changing the structure of society.

...Black cultural mores, not white society, he says, are responsible for staggeringly high teen-age pregnancies, illegitimate children, and single-parent families.  The high percentage of blacks who fail to complete their schooling and do poorly academically reflects the black community’s cultural preference for sports and entertainment, rather than for the long, hard grind of acquiring knowledge as the road to success.

Cosby’s calls for personal re-examination have generally been greeted with approval by black church leaders.  But many black politicians and leaders of civil-rights groups like the NAACP, as well as white liberals, have attacked Cosby for “blaming the victim.” In a New York Times op-ed article, white liberal Barbara Ehrenreich dismissed Cosby’s plea as “Billionaire bashes poor blacks.”

Returning to the Apostle Paul’s admonitions:

Do you not know that the wicked will not inherit the kingdom of God? Do not be deceived: Neither the sexually immoral nor idolaters nor adulterers nor male prostitutes nor homosexual offenders nor thieves nor the greedy nor drunkards nor slanderers nor swindlers will inherit the kingdom of God.  (1 Corinthians 6:9-10)

Flee from sexual immorality. All other sins a man commits are outside his body, but he who sins sexually sins against his own body. Do you not know that your body is a temple of the Holy Spirit, who is in you, whom you have received from God? You are not your own; you were bought at a price. Therefore honor God with your body. (1 Corinthians 6:18-20)

The fiercely anti-Christian root of blacks’ difficulties is that too many of them and their leaders, such as Jesse jackson and Al Sharpton, have turned away from God and worship the atheistic, materialistic, socialistic political welfare-state.

Senator Obama’s seemingly limitless faith in restructuring society through the collectivist agency of the political state as the solution to what he perceives as racism is a denial of personal responsibility. 

Without free will and personal repentance, without God, our nation is doomed.  Senator Obama and his liberal-progressive supporters heedlessly promote that bitter end.

Pastor Steve Treash preached the sermon for Easter Sunday at the Black Rock-Long Ridge Congregational Church in North Stamford, Connecticut.

The good news is that death is dead; fear has fled; and new life is ahead.

Jesus came to free us from the fear of death, to unite us with God in eternal life.

Since the children have flesh and blood, he too shared in their humanity so that by his death he might destroy him who holds the power of death—that is, the devil— and free those who all their lives were held in slavery by their fear of death. (Hebrews 2:14-15)

Early on the first day of the week, while it was still dark, Mary Magdalene went to the tomb and saw that the stone had been removed from the entrance.  So she came running to Simon Peter and the other disciple, the one Jesus loved, and said, “They have taken the Lord out of the tomb, and we don’t know where they have put him!”

So Peter and the other disciple started for the tomb.  Both were running, but the other disciple outran Peter and reached the tomb first.  He bent over and looked in at the strips of linen lying there but did not go in.  Then Simon Peter, who was behind him, arrived and went into the tomb. He saw the strips of linen lying there, as well as the burial cloth that had been around Jesus’ head. The cloth was folded up by itself, separate from the linen.  Finally the other disciple, who had reached the tomb first, also went inside. He saw and believed.  (They still did not understand from Scripture that Jesus had to rise from the dead.)

Then the disciples went back to their homes, but Mary stood outside the tomb crying. As she wept, she bent over to look into the tomb and saw two angels in white, seated where Jesus’ body had been, one at the head and the other at the foot.

They asked her, “Woman, why are you crying?”

“They have taken my Lord away,” she said, “and I don’t know where they have put him.” At this, she turned around and saw Jesus standing there, but she did not realize that it was Jesus.

“Woman,” he said, “why are you crying? Who is it you are looking for?” 


Thinking he was the gardener, she said, “Sir, if you have carried him away, tell me where you have put him, and I will get him.”

Jesus said to her, “Mary.” 


She turned toward him and cried out in Aramaic, “Rabboni!” (which means Teacher).

Jesus said, “Do not hold on to me, for I have not yet returned to the Father. Go instead to my brothers and tell them, ‘I am returning to my Father and your Father, to my God and your God.’ “

Mary Magdalene went to the disciples with the news: “I have seen the Lord!” And she told them that he had said these things to her. (John 20:1-18)

After the stunning developments leading to Jesus’s crucifixion, His disciples were filled with dread, because many people knew that they had been His followers.

On the evening of that first day of the week, when the disciples were together, with the doors locked for fear of the Jews, Jesus came and stood among them and said, “Peace be with you!” After he said this, he showed them his hands and side. The disciples were overjoyed when they saw the Lord.

Again Jesus said, “Peace be with you! As the Father has sent me, I am sending you.” And with that he breathed on them and said, “Receive the Holy Spirit." (John 20:19-22)

Filled with the Holy Spirit and the peace of Jesus, the disciples were transformed, experiencing a new life ordained by Jesus’s love. Initially consumed with fear for their own lives, they went forth fearlessly to preach the gospel in His name, willingly enduring insults, injuries, and horrific deaths.

Washington Post columnist E. J. Dionne, Jr. blames capitalism for the Wall Street meltdown that led to the collapse of Bear Stearns and its acquisition by J. P. Morgan Chase with financial support by the Federal Reserve.  Needless to say, Mr. Dionne uses his analysis to praise collectivist government intervention in the style of Franklin Roosevelt’s New Deal alphabet agencies.

He writes:

I don’t fault Ben Bernanke, the Fed chairman, for being so interventionist in trying to save the economy. On the contrary, Bernanke deserves credit for ignoring all the extreme free-market bloviation.

Undeniably, there was gross imprudence in the fantastic degree of leveraging by investment banks to underwrite structured investment vehicles and, in Bear Stearns’s case, to carry the riskiest tranches thereof for a seasoning period before dumping them into the secondary market.

In the same fashion, there was gross imprudence among the baseball players who used steroids, but that is no reason to condemn the game of baseball.

The real villain in this set of events in the Federal Reserve itself.  See Federal Intervention Always Has Negative Results.

Human beings, from the wage-earning homeowner to the Wall Street tycoon, will always find ways to use huge amounts of money when the economy is awash in liquidity created by the Fed’s deliberate policies (what Fed chairman Bernanke laughably called, a few months ago, “a worldwide glut of savings"). 

The Fed’s rampant expansion of the money supply gave false signals to the entire economy, leading individuals to go on a spending binge, buying automobiles, gizmos, and homes on credit.  The New York Times reported:

...personal debt in the United States is $13.8 trillion, including mortgage debt, slightly less than the country’s $14 trillion G.D.P.

In other words, a huge part of everything produced in the United States has been bought, not out of real saving, but on credit. 

Equally damaging has been the misallocation of the economy’s scarce resources induced by inflationary expansion of the money supply.  In the traditional capitalist economy based on savings rather than on credit, without lenders thrusting home mortgages and credit cards into the hands of non-creditworthy borrowers, the huge overproduction of housing would not have occurred.

That credit would not have existed had the Fed not flooded the market with excess money.  The Fed played the role of the man who gives matches to small children and tells them to set the woods afire so that shiny red fire trucks will appear, with wailing sirens and clanging bells.

Capitalism is the precise opposite of this mindless splurging. 

Capitalism is a system in which individuals are free to save or to spend what they get in return for their labors.  Only when they save (i.e., abstain from consumption) and invest their savings in more productive or innovative enterprises can the economy add jobs, pay higher wages out of the increased productivity, and increase the supply of desirable goods and services available to producers and consumers.

The capital in capitalism is savings invested in productive activity.  It is the opposite of spending phony money created on the books of account at the Federal Reserve.

Read George Shadroui’s Crossing Swords: Dwight Macdonald and Journalism as Style over Substance, posted on the Intellectual Conservative website.

It’s lengthy, but the scope of the article more than justifies it. 

When William F. Buckley, Jr. graduated from Yale in 1950, liberal-progressives were supremely confident that socialism was mankind’s sole hope for peace, justice, and harmony.  So much so that they turned blind eyes toward Stalin’s mass murders in the Soviet Union.

Although Judeo-Christianity was the foundation of Western civilization, of conservatism, and of the United States itself, celebrated New York liberal icon and literary critic Lionel Trilling could write correctly that, “In the United States at this time liberalism is not only the dominant but even the sole intellectual tradition.  For it is a plain fact that nowadays there are no conservative or reactionary ideas in general circulation.” ( The Liberal Imagination, 1949).

We’ve had a barrage of encomia to the late William F. Buckley, Jr., but none that I have read covers so well as Mr. Shadroui’s essay the nature of Mr. Buckley’s early struggles to give voice to Judeo-Christian traditions, which had long since fallen out of favor in literary and higher-education circles.