Occasionally, I post political cartoons that illustrate an issue without the need of a lengthy description.  I feel this cartoon encapsulates the stimulus package perfectly.  It was featured in yesterday’s version on CongressDaily by National Journal.

This Op-Ed was published in the New York Times on Saturday February 14, 2009.

Thirty Years Later, a Return to Stagflation

By Representative PAUL D. RYAN

Congress has made a terrible mistake. Amid a rhetorical debate centered on words like “crisis,” “emergency” and “catastrophe,” it acted too fast. While arguments were made about the stimulus bill’s specific components — taxpayer money for condoms, new green cars and golf carts for federal bureaucrats, another round of rebate checks — its more dangerous consequences were overlooked. And now the package threatens a return to the kind of stagflation last seen in the 1970s.

To get a sense of the pressures ahead, we must first assess our fiscal health. We started this year with a projected trillion-dollar budget deficit for the 2009 fiscal year. In 2008, we spent $451 billion just to pay the interest on our debt.

With the stimulus bill now becoming law, we’re digging even deeper into debt. The headline price tag of $787 billion doesn’t include the extra $348 billion it will take to finance the new debt, or what it will cost when Congress extends the spending programs in the bill, as is likely — as much as $2 trillion more. Add in the billions that are being used to prop up the financial system, and when the dust settles on 2009, with millions of baby boomers retiring and entitlement spending exploding, taxpayers will face a financial nightmare.

From a global perspective, the picture only looks worse. As we have debated how much money to borrow and spend in hopes of jump-starting our economy, we’ve ignored the worldwide stimulus binge. China, Europe and Japan are all spending hundreds of billions of dollars they don’t have in hopes of speeding up their economies, too. That means the very countries we have relied on to buy our bonds, notably China and Japan, are now putting their own bonds on the global credit markets.

American Treasury bonds have been selling briskly on the global credit markets because they have been the calm in the storm of the global credit crisis. This has allowed advocates of borrow-and-spend to argue that for the United States, borrowing is uniquely cheap. But what happens when there is an excess supply of bonds on the worldwide markets? The cost of borrowing will rise. Today we fear deflation, but eventually our fears will turn to inflation.

It seems that no one in Washington is discussing what happens when the world begins this gargantuan borrowing spree. How high will interest rates rise? And more fundamentally, who will have the money to buy our bonds? It is possible that the Federal Reserve will succumb to pressure to “monetize” our debt — that is, print new money to buy our bonds. In fact, the Fed is already suggesting that it will buy long-term Treasury securities in order to lower borrowing costs. If it does, then our money supply, which has already increased substantially over the past year, will grow even faster.

As Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon.” It is a situation in which too few goods are being chased by too much money.

To American families, inflation is a destroyer of savings, a killer of wealth, a crusher of confidence. It calls into question the value of our money. And while we all share in the pain, the people whom inflation hits hardest are elderly people who live on fixed incomes, those in the middle class who are struggling to save for retirement and college and lower-income people who live paycheck to paycheck.

Combine high inflation and high unemployment and you have stagflation. Hindsight shows how the pain of the late 1970s and early 1980s could have been avoided, yet we’re now again planning to borrow and spend — and raise taxes — as President Jimmy Carter did. Soon we may again find ourselves watching a rising “misery index” of inflation and unemployment together. If that happens, individual earning power will evaporate, and our standard of living will decline.

To prevent stagflation, we should enact fiscal policy reforms that apply the lessons we learned from the 1970s. Keynesian stimuli based on borrowing and spending have not worked and will not work. One-time rebate checks do not increase the incentive to expand business operations and create jobs. But marginal cuts in tax rates do. We also must lower our job-killing corporate income tax rate, the highest in the industrialized world after Japan, and ease business worries by making it clear that there will be no tax increases in 2010.

We should also re-establish the sound dollar. For the past decade, the Federal Reserve has manipulated interest rates and vastly over-expanded the money supply — and in so doing fueled the housing bubble that precipitated our current crisis. To end uncertainty about the economy, to keep interest rates down, and to give Americans the confidence they need to take risks and ensure future growth, we should make price stability a priority, guaranteeing the value of the dollar.

Finally, we should tackle the entitlement crisis, which will be a $56 trillion liability that we have not figured out how to pay for. As members of the baby boom generation retire, and health care costs continue to spiral out of control, Social Security, Medicare and Medicaid will collapse. By reforming those programs and bringing their costs down to sustainable levels, we will show the world and the credit markets we are serious about reducing our debt. Then our credit will improve, the cost of necessary borrowing will drop, and we can stave off stagflation.

Paul D. Ryan is a Republican representative from Wisconsin, and the Ranking Member on the House Committee on the Budget

Guest Blog by Senator Jim DeMint (R-S.C.)

Just a few hours ago, the U.S. House of Representatives voted 246-183 to pass the so-called “economic stimulus” package proposed by President Obama and written by congressional Democrats. Every single House Republican opposed the bill. (Roll Call)

This evening members of the Senate will meet to cast their votes as well. Sadly, three Republicans will likely join Democrats to ensure the bill is passed.

The massive spending bill, filled to the brim with a liberal wish list of pork projects, spends a minimum of $789 billion and possibly as much as $3.27 trillion (Heritage Foundation).

As my friend, South Carolina Governor Mark Sanford, and I wrote today in the Washington Examiner (DC Examiner):

"Each and every one of the $800 billion in  taxpayer dollars that Mr. Obama wants to inject into the economy has to come from somewhere, and in this case, we are laying the bill at the feet of those  very children and grandchildren whose future the President says he’s committed  to protecting. And we share the belief that mortgaging the economic future of  successive generations of Americans in order to buy ourselves some short-term  job relief is not only bad policy, it’s an abdication of our  responsibility.  A moral argument is certainly in play here—Obama just  happens to be on the wrong side of it."

The final version of the bill was made available to the public (and to us Republicans in Congress) yesterday at 11 p.m., which gives us less than 24 hours to read 1,071 pages. I can guarantee you that none of my congressional colleagues will have read this bill in its entirety before they vote on it today. It will likely be years before we learn the true consequences of today's irresponsible action.

It is disappointing to see the same old games being played in Washington after being promised that things were finally going to change. However, there is reason to be hopeful. For weeks my office and others on Capitol Hill have been flooded with calls and letters from constituents voicing angry opposition to the stimulus package that will do little, if anything, to stimulate the economy. (McClatchy) It’s heartening to hear from so many of my fellow Americans who are informed and involved and anxious to preserve their freedom.

So while liberals rushed through a temporary victory for Big Government today, I am confident Americans will win the final battle for freedom in the days to come -- as long as they are vigilant in their quest and speak out to protect their liberties.

Elected as South Carolina’s 55th senator in 2004, Senator DeMint quickly established himself as one of the most effective conservative leaders in Washington, seeking to enact innovative solutions to improve America for future generations. He has been a tireless advocate for smaller government, individual liberty, a strong national defense and traditional values.

I listened to many of the speeches given by supporters of the bill yesterday. I also had the opportunity to question the Director of the Congressional Budget Office on the subject. The tepid arguments and weak rebuttals of the proponents here lead me to believe that perhaps even they know that this is not really about stimulus. Being generous, I can say that maybe 25% of the items in this bill have some multiplier effect. But the rest is just spending. Just 2 months ago, President Obama’s Chief of Staff, Rahm Emmanuel, said “Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before."  

Couple that statement with the President’s repeated comments yesterday that this is just “the first” in a series of economic recovery actions, and it becomes clearer to me that this bill is really about getting about a 20% annual increase in non-entitlement federal spending right now, and paying for it with tax increases to be named later. The public would not stand for that in the normal course of politics.

If you don’t believe that, I hereby submit for your consideration a document that was sent to me by a Democratic Congresswoman from California in order to entice me to vote for the package because of the money that California would receive. It actually pushed me even further in the opposite direction. I think it will have the same affect on you so here is link. Virtually all the spending in here is merely the federal government paying for programs that the state is already doing. In another case,  billions of dollars are allocated for more school construction, at a time when we have just borrowed and spent $30 billion on school construction in California, and where some of our failing schools happen to be housed in beautiful new buildings.  The State of California will get a $32 billion spending increase in this bill, paid for by federal taxpayers. I hope that the idea of raising taxes in California will be dead now. Isn’t $32 billion more spending enough for now?

Last night, the House of Representatives passed a “so-called” stimulus bill, without any Republican support.? In my previous posting, I explained why this bill is not, and will not be stimulative.? In fact, I am not even calling it a stimulus bill, I am calling it a “big spending bill”, because that is exactly what it is.

I know it is easy to criticize, and not offer alternatives, but don’t worry, I have my own ideas on what should have been included in the stimulus package. ?

The main part of any stimulus should be to create consumer demand for homes and cars. This economy will not recover until the housing and car markets find a bottom and start rising again. An up-to-$25,000 refundable tax credit for the purchase of a house (new or existing) and an up to $4,000 credit for a new car, coupled with aggressive loan rates from Fannie Mae and Freddie Mac (4.5% or less), would get a lot of people to overcome their economic fears and take advantage of a great deal.

These should be short-term (no more than 10 months), and then phase out. Obviously, no sub-prime stuff here. This would only be for people with the ability to make real down payments and who have real credit.

That should be put together with a short-term Capital gains tax holiday, in order to get capital to move to more efficient uses.

It is also important to include some infrastructure spending such as creating a national Wi-Fi broadband system, which would generate huge job creation as the tech sector figures out new ways to use that capability.

These are things that will create many downstream jobs in the private sector that are sustainable and would also serve to settle down the panic that is now out there in the minds of consumers, rather than creating a one-time, feel-good government job.

It is frightening if one of your neighbors has lost his job and another her home; but? if one neighbor comes home in a new car and another rents their house out because they just bought a new house, while you may not run out and do either of those things, you will likely at least go out to dinner.

More than anything else, businesses need a market to sell to. That is how recessions end.

This plan would cost only a fraction of the $825 billion in the Democrats’ giant spending package.

On the eve of this historic Inauguration, it is easy to recognize the impact this event will have on American History. Since the founding of our great Republic, Americans have always relished our most sacred of traditions…freedom. This is yet another display which will be viewed all across the globe, and allows us, as Americans, to display our commitment to our founding virtues.

I encourage all Americans to welcome our new Commander – in – Chief and President, Barack Obama. We may not always agree on policy, but we are united by our American tradition, culture, and patriotism.

May God Bless this President and May God Bless America.

In today’s edition of Roll Call, there is a rather telling article regarding earmarks in the Economic Stimulus Package.  The article, titled “Artfully Redefining Earmarks,” clearly points out that some members clearly don’t get it, including those close to Speaker Pelosi.  House Majority Whip James Clyburn (D-S.C.) is quoted in the article saying: “I know the politics of all this.  I just think they’re wrong about it…I love earmarks.”

It should be noted that President-Elect Obama has clearly stated that any stimulus must be earmark free.  Therefore senior Democratic Members of the House are crafting “Legislative formulas …to ensure that their districts share in the wealth…,” in clear defiance of the standard bearer of their party.

It is Clyburn’s intent to have these formulas act as trade-offs for members, particularly freshmen, who need political cover in order to support a stimulus package. 

As I have said time and time again, Members of Congress are not ATM machines.  Fiscal stimulus goes beyond ideological boundaries; and earmarks, or legislative formulas for that matter, have no place in legislation designed at tackling our nation’s economic woes.

I am no fan of the Democrats pay-as-you go (PAYGO) rule that was put in place at the beginning of the 110th Congress, in fact their rule was nothing more than a cheap gimmick which they ignored on a wide range of bills. When taken together this would amount to an increase in the deficit by more than $420 billion.

Well the 111th Congress will further weaken the PAYGO by:

• Providing an exception for emergency legislation (theoretically anything could be termed “emergency legislation” in order to bypass PAYGO)
• Allowing the “banking” of savings in one bill so they can be used to offset spending in another bill. In addition to circumventing their rule in the 110th Congress, increasing the deficit by $420.1 billion, the Majority manipulated the rule by using the same offsets for multiple pieces of legislation (in one case they used a single offset 25 different times). Instead of addressing these violations and gimmicks, this new change stretches the rule to accommodate even more spending.
• The Democrats instituted their pay-as-you-go [PAYGO] rule at the beginning of the 110th Congress with a promise that it would end deficit spending. Since then, however, the fiscal imbalances have worsened dramatically: the deficit has swollen from $162 billion 2 years ago to current projections of more than $1 trillion this year; and the debt, which exceeded $10 trillion in September, may force the Treasury to borrow an additional $2 trillion this year alone, according to some analysts.
• Allowing the Majority to “shop” for budget baselines to make PAYGO compliance easier. Specifically, the rules package modifies the requirement that the House use the most recent baseline from the Congressional Budget Office. In 2008, the Majority waived the PAYGO rule for the Farm bill and justified the waiver based on an out-dated baseline.

The majority makes these exceptions, but still fails to plug existing loopholes in the overarching rule.  PAYGO does nothing to tackle the out of control growth of entitlement spending and it does not apply to entitlement spending increases in appropriations bills. It is clear that PAYGO indiscriminately favors tax increases.

This was published in today's edition of Investor's Business Daily.  It outlines a few of my thoughts and ideas on the path towards restructuring our financial regulatory system. 

Bold Changes Should Prevent Another Crisis
By REP. JOHN CAMPBELL

The credit markets continue to unfreeze. The general economy continues to sink. There are new stock market lows and unemployment highs and we don't know where and how it will all end.

But it will end. And we need to start thinking about what regulatory structure will replace the one that failed us so miserably this time. We came perilously close to an abyss (or collapse or Armageddon, depending on who is describing it).

I looked down into that abyss and what I saw was way scarier than any Stephen King movie. Therefore, I think we need dramatic changes to ensure that this sort of calamity does not befall us again.

So what do we do to keep it from happening again while still preserving free markets and rewarding enterprise and innovation? Here are a few thoughts:

1. Banks should be boring entities that you can trust. If you want to double earnings annually, go into another business. We have seen how important our regulated banking sector is to the entire economy. We cannot let them get into high-risk territory.
Read More...

Senator Tom Coburn (R-OK) recently released a report on the “Worst Waste of the Year.” This report details some of the most ridiculous, wasteful, duplicative, and flat out silly instances of spending that comes out of Washington, DC.

Coburn says that “Wasting taxpayer dollars in any year is unacceptable, but the extent to which it occurred in 2008 was a clear demonstration of how Washington politicians often put low-priority items ahead of more important needs.” I could not have said it better myself.

In his report, Coburn spells out a 7 step plan for reducing wasteful Washington spending:

1. Eliminate programs that do not work;
2. Eliminate or consolidate duplicative programs;
3. Eliminate earmarks;
4. Implement stronger transparency measures;
5. Conduct more congressional oversight;
6. End automatic budget increases for federal programs; and
7. Establish independent and enforceable performance measures for every program.

To view Senator Coburn’s report in full Click Here.

As part of my weekly report as Chairman of the Republican Study Committee’s Budget and Spending Task Force, I made note that according to the Congressional Budget Office’s (CBO) December Budget Review, the first two months of FY 2009, the federal government has run a deficit of $408 billion on a cash flow basis, which is 163% above the level through the first two months of FY 2008. .

CBO also notes a lower deficit figure of $267 billion if TARP spending to date is accounted for instead on a net present value basis. Including TARP Spending, federal outlays have increased by 48% and receipts have decreased by 6%. The FY 2008 deficit was $455 billion, the highest nominal deficit in U.S. history -- $293 billion or 180% more than the FY 2007 deficit.

For both the current fiscal year and FY 2010, some economists predict deficits of more than $1 trillion. To put this into perspective, a deficit of this magnitude would not only be the largest nominal deficit in U.S. history, but would also be the largest deficit as a percentage of GDP since World War II.

Recently, Americans for Tax Reform (ATR) unveiled a new project called the Center for Fiscal Accountability. The project specifically strives:

• To work with policymakers and activists to enhance transparency in government spending by creating searchable online databases;
• To develop best practices based on experiences at various levels of government;
• To highlight developments and efforts pertaining to the area of fiscal accountability;
• To educate taxpayers on fraud, waste and abuse in government finance and to provide them with the tools to combat these;
• To serve as a clearinghouse for information and to facilitate contact between parties involved in the effort to make government more accountable to taxpayers.

Not only does this website endeavor to hold federal government agencies accountable, it is also zeroing in on keeping state and local government accountable and transparent.

Here is a link if you’re interested in making sure your government is accountable to you.

According to some of the most recent reports, it is clear that Senator Ted Stevens has indeed lost his bid for reelection for Senate in Alaska (read article here).

Yesterday, Rep. Jeff Flake (R-AZ) and I wrote a letter to the Chairmen of the Appropriations Committees in both houses, asking that they thoroughly review 39 earmarks that Senator Stevens recently garnered in the Continuing Resolution. In light of Sen. Stevens’ recent conviction on charges of corruption, these earmarks worth $240 million should be inspected before any action is taken to fund them. A copy of the letter can be found here.

Many of you watched the final presidential debate on Wednesday night, and the candidates were asked, “What would you cut from the federal budget”.  If the answers given were unsatisfactory to you, the National Taxpayer’s Union (NTU) and Citizens Against Government Waste (CAGW), have teamed up to provide lists that show exactly where the waste is, and what needs to be cut. 

Don’t take my word for it, CAGW for instance lists 701 areas that can either be cut or dramatically reduced, totaling $1.9 trillion over five years.

National Taxpayer's Union

Citizens Against Government Waste – Prime Cuts

CAGW and NTU Joint Press Release