How to Save America
America is headed for trouble unless it
solves several problems. These problems will
not be solved by marches through the streets,
camping in public parks, riots, or terrorism.
That could result in governmental havoc and produce a totalitarian, military dictatoriship.
We must make the changes through our
legal system of enacting laws, constitutional
amendments, and court actions. This will require contacting legislators and demanding
that the needed changes be implemented.
This presentation will clarify what our primary and secondary problems as a nation are,
along with suggestions for how to solve them.
The changes must be made without destroying our Constitution or our legal system.
Our nation was founded by good men who
had high Christian principles. The result of their
efforts was a governmental system which was
superior to any other one on earth, and founded
on several outstanding personal freedoms.
PART ONE consists of a brief overview of the
two basic problems which, you will quickly see,
are closely interlocked. Unless they are solved,
America cannot return to prosperity.
PART TWO reveals how the lawful manner
in which Americans can solve these problems.
PART THREE and onward will provide you
with a far-ranging coverage of many other problems which need to be corrected in order to return
America to its full, former prosperity.
WHAT THE 2007-2008 CRASH
IN THE 1920s
You are going to learn that prosperity cannot return to America unless these two flaws
are corrected. Of course, there are other problems which also need to be solved, but these two
are basic.
A way will be shown whereby this can be
successfully done,—because it has successfully
been done a number of times in the past.
IN THE 1920s
IN THE 2000s
Facts will be presented below which clearly
establish the fact that there were two significant causes to both the economic crisis in the
1920s (which led to the Great Depression), and
the Great Recession (in our own time).
The two causes are intertwined: (1) As
most of the wealth of the nation is obtained
by a small number of people, (2) they have the
power to coerce Congress into enacting legislation which favors them still more.
Here, in Part One of this report, we will consider the interplay of these two trends in the
events of the 1920s and 2000s, culminating
in the 1928-1929 Crash and the 2007-2008
In the 1920s, it was the vast accumulation
of wealth in the hands of a small number of
people in the nation, which siphoned purchasing power away from most Americans.
This situation would be repeated in the
Great Recession that started 80 years later at
the end of 2007.
“As mass production has to be accompanied by
mass consumption [purchase by average Americans], mass consumption, in turn, implies a
distribution of wealth—not of existing wealth, but
of wealth as it is currently produced—to provide
men with buying power equal to the amount of
goods and services offered by the nation’s economic machinery.
“Instead of achieving that kind of distribution,
a giant suction pump had by 1929-1930 drawn
into a few hands an increasing portion of currently produced wealth. This served them as
capital accumulations.
“But by taking purchasing power out of the
hands of the consumers, the savers denied to
themselves the kind of effective demand for their
products that would justify a reinvestment of their
capital accumulations in new plants. In consequence, as in a poker game where the chips were
concentrated in fewer and fewer hands, the other
fellows could stay in the game only by borrowing.
When their credit ran out, the game stopped.”—
Mariner Eccles, Beckoning Frontiers, 1951.
The years leading up to the Great Depression
of 1928 saw the same pattern develop which occurred 80 years later, culminating in the 2007
Crash. So much money was in the hands of
a few that most Americans had to borrow in
order to live a normal life. Between 1913 and
1928, the ratio of private credit to the total national economy nearly doubled. Total mortgage
debt was almost three times higher in 1929 than
in 1920. Eventually in 1929, as in 2008, there
was no more credit available to the common
people. The economic balance had been ruined. The wealthy had great luxury, and the rest
of America had very little. So the Crash came.
In the 1920s, the richer Americans created
stock and real estate bubbles that foreshadowed
those of the late 1990s and 2000s. There was also
frantic speculation in purchasing land.
The bright hopes of Wall Street encouraged
everyone—rich and poor—to invest in stocks.
Just as in the 2000s, many lost much of their
savings, often all they had, on stocks and property bubbles.
Ironically, the same methods of fleecing the
public were used in the 1920s as were used in
the first decade of 2000.
The Goldman Sachs Trading Corporation
was started in the mid-1920s. G-S took 10% of
the total, and made an enormous profit when it
sold 90% to the public at $104 per share. After
the Crash, the shares owned by the public were
worth $1.75 each.
In that same decade, National City Bank (later
named Citigroup) repackaged bad Latin American
debt as new seurities and sold them to investors
at top prices. After the crash, the bank’s remaining assets were taken by its top executives as
“interest-free loans,” while their investors were
left with paper worth a fraction of what they had
paid for them.
The Dow (back then called the Dow Jones
Stock Index) ballooned from 63.9 in mid-1921
to a peak of 381.2 eight years later—before it
began its plunge.
Just as would later occur in the first decade
of the 21st century, immense riches in the
hands of powerful men—resulted in a massive
increase in the number and influence of lobbyists in Washington and state legislatures in
the 1920s. Prior to 1920, the power of lobbyists
had been much smaller.
“There was less criticism of business lobbying
in the 1920s. Moreover, it had its defenders like
Herbert Hoover. Whether Americans welcomed
the new lobbying or not, it was a political fact
of life. The 1920s saw the systemizing of lobbying that caused a permanent change in the
political process. Congressmen, especially
those serving on important committees, were
subjected to an intense barrage by legislative
agents [lobbyists], as were administrators on
various regulatory commissions. In a position to
present ‘expert’ facts, legislative agents drafted
or heavily influenced legislation and commission decisions. They changed the face of lawmaking. The intense, indirect lobbying—through
well-orchestrated propoganda campaigns in lo-
cal, state, and national media—also represented
a significant development, and provided those
with enough money and influence to reach the
public with a means of obtaining exceptional
political leverage . .
“Decisions were made by small numbers of
people at the top of the [wealthy] hierarchy.
There is little basis for viewing them as an extension of democracy.”—Lynn Dumenil, Eric Foner,
The Modern Temper: American Culture and
Society in the 1920s, pp. 51-52.
In the year 1928, the wealthy had a higher
percentage of the nation’s wealth than at any
other time in the 20th century.
Because the general public were impoverished
because of the massive flow of wealth to a few at
the top, manufacturing plants found it increasing
difficult to sell to anyone.
Since they had most of the money in the
nation, the wealthy found they could make
the most money by speculating in stocks. This
resulted in tremendous stock activity. It was actually a gambling frenzy. But this greatly weakened
the stability of the stock market.
And then came the crash. (More on this later
in this report.)
After the Crash of 1929, the economy spiraled downward. Unemployed workers,with little
or no access to credit, were unable to purchase
much of anything. This cause businesses to lay
off even more workers, which further contracted
spending, leading to even more layoffs. (As we
will learn later, a different method was used in
an attempt to stop the crash of 2007.)
The central problem back then, as now, was
not too little savings, but too little demand for
all the goods and services that an economy
can produce. When the workers are paid very
little, they have little extra with which to buy
Ordinary people must receive enough in wages
so they can purchase products. Workers should
receive a proportionate share of the fruits of
economic growth. Only when this basic balance
exists can there be economic prosperity for the
whole nation. Otherwise, the economy will shrink
until there only exists the wealthy people holding
tightly to their wealth, and the rest of the public,
who are living miserable lives.
The government feared to tax the rich, because of the contributions and lobbyist “gifts”
received from those wealthy men.
Unfortunately, because of heavy political contributions and lobbyist activity, government had
been bought. It was no longer free to enact corrective legislation to restore prosperity to everyone.
The 1920s, culminating in 1928, marked
the high point of lobbying activity in America.
It would be surpassed in the decade beginning
in 2000, which culminated in 2008—and another Crash.
Savings of average families averaged 9-10%
of after-tax income from the 1950s to the early
1980s, but, unfortunately, by the mid-2000s they
were down to just 3%,
The total income going to the richest 1% of
Americans peaked in both 1928 and in 2007—
the very years in which the terrible financial
crashes occurred!
In 1928 and 2007, the income of the wealthy
reached more than 23% of the total income of the
nation. Between those two high points (1928
and 2007), the amount of money in the hands
of the wealthy dropped off heavily—and, as a
result, there was general prosperity by average
Between the two peaks (1928 and 2007), the
share of national income going to the top 1%
steadily declined, from more than 23% to 16-17%
in the 1930s, then to 11-15% in the 1940s, and to
9-11% in the 1950s and 1960s, finally reaching
the lowest point of 8-9% in the 1970s.
But, by the late 1970s, the share going to
the richest one percent began to climb again.
Reagan’s “trickle down” economy had begun: The
wealthy few had 10-14% of national income in the
1980s, 15-19% in the late 1990s, and over 21%
in 2005, reaching its next peak of more than 23%
in 2007.
The three decades from about 1947 to 1975
were outstanding! During those years the basic economic contract was being fulfilled. The
nation provided its workers enough money to
buy what American factories produced. Mass
production and mass consumption proved perfect
companions. Almost everyone who wanted a job
could find one with good wages, or at least wages
that were trending upward. During this quarter
century, everyone’s wages grew—not just those in
the top 1% or the top 10%.
During those years, the wages of lowerincome Americans grew faster than those at
or near the top. The pay of workers in the bottom fifth more than doubled over these years;—a
faster pace than the pay of those in the top fifth.
Productivity also grew quickly during those
years, defying the self-serving pronouncements of
sol-called expert economists who declared that
a wide inequality between the rich and poor was
necessary for rapid growth because top executives
and needed the incentive of outsized earnings.
It was a false report that the more the rich
made, the better it was for the rest of us. In
some mysterious way, their vast hourd of wealth
was supposed to be nicely “trickling down to us.”
During those years, labor productivity (average outpout per hour worked) doubled, as median incomes. Expressed in 2007 dollars, the
typical family’s annual income rose from about
$25,000 to $55,000.
We were all in it together, rising and falling together. Continually doing better because everyone
was sharing in the fruits of productivity.
During those years, nearly full employment
occurred. Businesses were not afraid to expand
and hire more workers. Conseqently the share
of total income that went to the middle class grew
while the portion going to the top declined. Yet
because the economy expanded so well, just
about everyone came out ahead—including
those at the top.
In the late 1970s, the richest 1% of the U.S.
took in less than 9% of the nation’s total income.
After that, income began concentrating in fewer
and fewer hands.
But, tragically, from the early 1980s onward, more and more money began flowing to
the wealthy, while the wages paid to the rest
of Americans became stagnant—they stopped
increasing. A widening inequality began.
The reversal had actually begun in the late
1970s and gathered momentum through the
1980s and 1990s, and then really zoomed in the
Middle-class wages stopped climbing, even
though the economy continued to expand and
jobs were abundant. Once again, as in the
1920s, almost all the benefits were again going to the top.
For several decades, the pay of American
workers coincided with their output. In fact, the
middle class received an increasing share of the
benefits of economic growth. But then the change
began. Output per hour—a measure of productivity—continued to rise. But real hourly
compensation was left far behind.
Then something very ominous occurred;
something which would produce disastrous
results. Yet neither you nor I noticed it, In 1999,
Wall Street used their lobbyists to convince
Congress (and the Clinton administration) that
America no longer needed the Depression-era
law which separated investment from commercial banking.
With that repeal, a wonderful new day for Wall
Street—and all the major banks in the land—
had opened up! They were now able to return to
the opulance and luxuriant living of the 1920s!
—They could once again indulge in applying
company money, and investor funds, in risky
stock market and investment manipulations!
Today the situation has not changed, even
though we are now several years beyond 2008.
The Street’s major function is to make financial
bets. Wall Street is a casino in which high-stakes
wagers are placed within a limited number of betting houses that keep a percentage of the wins for
themselves and fob off losses on others, including
Following that terrible banking law of 1999,
the year 2000 dawned, and it would take less
than eight years to destroy America.
—Yet it is an astonishing fact that when the
Crash came, because of Wall Street’s control
of Congress through lobbyist payoffs,—that
1999 repeal was not repealed after 2007, but
continues on today the law of the land, and the
banks would be able to continue selling high-risk
investments to a gullible public. (More on this
later in this report.)
Lobby groups and their members sometimes write legislation and whip bills. In 2007
there were approximately 17,000 federal lobbyists in Washington. They explain to legislators
the goals of their organizations.
Prior to the 1980s lawmakers rarely became
lobbyists as the profession was generally considered ‘tainted’ and ‘unworthy’ for once-elected
officials such as themselves; in addition lobbying firms and trade groups were leery of hiring
former members of Congress. But new higher
salaries, increasing demand and a greater turnover in Congress and a change in the control of
the House all contributed to a change in attitude
about the appropriateness of former elected officials becoming lobbyists from that time onwards.
The route between these roles became known as
the “revolving door.”
The increasing number of former lawmakers
becoming lobbyists led Senator Russ Feingold
(D-WI) to propose paring back the many Capitol
Hill privileges enjoyed by former senators and
representatives. His plan would deprive lawmakers-turned-lobbyists of privileges such as
unfettered access to otherwise ‘members only’
areas such as the House and Senate floors and
the House gym. But it did not pass.
In July 2005, Public Citizen published a report entitled “The Journey from Congress to K
Street”: the report analyzed hundreds of lobbyist
registration documents filed in compliance with
the Lobbying Disclosure Act and the Foreign
Agents Registration Act among other sources. It
found that since 1998, 43% of the 198 members
of Congress who left government to join private
life have registered to lobby. The Washington Post
described these results as reflecting the “sea
change that has occurred in lawmakers’ attitudes
toward lobbying in recent years.” The report included a case study of one particularly successful
lobbyist, Bob Livingston, who stepped down as
Speaker-elect and resigned his seat in 1999. In the
six years since his resignation, his lobbying group
grew into the 12th largest non-law lobbying firm,
earning nearly $40 million by the end of 2004.
During roughly the same time period, Livingston,
his wife, and his two political action committees
(PACs) contributed over $500,000 to the PACs or
campaign funds of various candidates.
The Jack Abramoff Indian lobbying scandal
which started in the 1990s and led to a guilty plea
in 2006 inspired the Legislative Transparency
and Accountability Act of 2006 (S. 2349) which
was debated on the Senate floor in March 2006.
According to Time Magazine article in its April
10 issue, the Senate passed legislation the first
week of April 2006 to reform U.S. lobbying practices. The Senate bill: (1) would bar lobbyists
themselves from buying gifts and meals for legislators, but it would leave a big loophole: firms
and organizations represented by those lobbyists may still dole out freebies; (2) Privately
funded trips would still be allowed if lawmakers
get prior approval from a commissioned ethics
committee; (3) It would also require lobbyists
to file more frequent, more detailed reports on
their activities, which would be posted in public
domains. But the bill was not enacted into law!
Lobbying expenditures increased dramatically after 2000. Between 1998 and 2010, three
of the top business groups spent the following
amounts on influencing legislation:
• Finance, Insurance, and Real Estate:
$4,274,060,331 ($4.3 billion).
• Drug and medical: $4,222,427,808 ($4.2
• Petroleum and Energy: $3,104,104,518
($3.1 billion).
The total amount spent by lobbyists between
1998 and 2010 was $28,919,684,431. Part of
that $28.9 billion went to lobbyists as salaries,
and a still larger amount was used “to influence legislation.” It is an interesting fact that it
is not long after coming to Washington before
every Congressman and Senator becomes a
millionaire. Every year he remains in public
office, his wealth steadily increases.
Questions to consider:
Why did Congress fail to raise taxes on the
rich and cut them for poorer Americans? Why
did Congress fail to stop overseas tax havens
by threatening loss of U.S. citizenship to anyone
who keeps his money abroad in order to escape
U.S. taxes?
Congress could have expanded public investments in research and development, and
required any corporation that commercialized
such investments to create the resulting new
jobs within the borders of the U.S.
Congress could have insisted that foreign nations we trade with establish a minimum wage
that is half of their median wage.
But instead, it did the opposite. Beginning in
the late 1970s, and with increasing intensity
over the next three decades,Congress deregulated the corporations and financial industry.
The cost of public higher education was
increased. Job training was reduced. Public
transportation was reduced. Bridges, ports, and
highways were permitted to corrode.
Congress stood by as big American companies became global giants with no further
loyalty, or hardly any connection, to the U.S.
By 2009, Intel, Caterpillar, Microsoft, IBM,
and other so-called American firms derived most
of their revenue overseas, and most of their workers lived in foreign countries.
Thanks to the comforting gifts received
from lobbyists, Congress permitted CEO sala-
ries to skyrocket to more than 300 times that
of the typcial worker, while the pay of financial
executives and traders rose into the stratosphere.
Increasingly, the ranks of America’s super-rich
were made up of top business and financial executives.
Of all the CEOs on the 500 largest American
companies, more than half of all the money
that the top one-tenth of 1 percent of American earners reported on their 2001 taxes
represented the combined incomes of just a
few men. The great majority of the rest of the
highest-paid men were financial traders and
hedge-fund managers.
—Yet it was those very men who had done
so much to destroy the U.S. economy over the
last decade!
In 1999, the government deregulated Wall
Street, thus permitting it to do anything it wanted.
In 2008, the government insured it against
major losses, and, by its silence, told it to
continue betting away the money of the nation.
Our government leaders knew the facts, but they
were receiving so much in contributions that they
had to remain silent and do nothing.
And then Congress brazenly dared to halve
the top income tax rate for the rich from the
range of 70 to 90% that existed for several decades of national prosperity. —That top income
tax was reduced to 25 to 39%!
This allowed many of the nation’s rich to
treat their income as capital gains subject to
no more than 15% tax. Added to this, inheritance taxes were reduced so low that only the
topmost 1.5% of earners paid any.
Yet at the same time, sales and payroll taxes
were significantly increased. This took a bigger
chunk out of the pay of the middle class and the
poor than of those who were well-off.
(Yet so many Americans still do not understand the underlying principle here, so they are
thrilled when a presidential candidate offers to
toss them a 9-9-9% tax, or a 15% tax, or some
other “flat tax.” —Flat tax means the wealthy pay
even less than they are paying now, and the tax
load is even heavier on the rest of us!)
IN THE 2000s
Savings had averaged 9-10% of after-tax
income from the 1950s to the early 1980s,
but by the mid-2000s were down to just 3%,
The drop in savings went hand-in-hand with
an increase in household debt (including mortgagues). Family debt rose from 55% of household income in the 1960s to an unsustainable
138% by 2007! Ominously, much of this debt
was backed by the rising market value of people’s
homes. —Their homes were the most stable asset
that so many of them had!
Average Americans coped with the problem
of an ever-shrinking income in three ways:
First, the women went to work. Second, most
people worked longer hours. Third, they used
up their savings and began borrowing as much
as they could. Not even their homes were spared.
Between 2002 and 2007, American households
browwed $2.3 trillion on their homes, putting
themselves even more deeply into debt.
Before the 2008 meltdown, about half of
U.S. consumer spending was done by the highest-earning fifth of the population. Roughly
40% of total spending came from the top 10%.
But that was hardly because richer Americans
were spendthrifts; it was because they were the
ones who had an excess to spend. The top 10%
took home almost 50% of total income.
Had the broad middle class received a larger
portion, total spending would have been far
greater—and the middle class would not have to
go so deeply into debt.
As lobbying has become more lucrative, an
ever larger number of former federal officials have
decided to cash in on it. In the 1970s, only about
3% of retiring members of Congress went on
to become Wshington lobbyists. But by 2009
more than 30% did—primarily because they
could make so much money doing it.
Starting salaries for well-connected congressional or White House staffers had ballooned
to abut $500,000 (while non-connected former
government workers only received about $90,000
a year). Former chairs of congressional committees and subcommittees commanded $2 million
or a year to influence legislation in their former
The Center for Public Integrity selected the
years 1998 to 2004 (picked because they straddled both Democratic and Republican administrations), and found that in those six years more
that 2,200 former federal officials registered
as lobbyists, along with more than 200 former
members of Congress.
Tragically, for our fair land, a staggering
amount of money from big corporations, execu-
tives, and other wealthy idnividuals lies like a
thick fog over the nation’s capital, enveloping
Not only has it enriched Washigongton lobbyists, lawyers, and public relations professionals,
and won over a very large number of elected officials,—but it has also brought great wealth to
the place in which they live: greater Washington
D.C. Seven of the suburban counties around
the District are listed by the Census Bureau
as among the nation’s twenty with highest per
capita incomes.
Whenever new legislation is considered, it has
to meet the demands of Big Business, or it will
never be enacted.
It is for such reasons that Congress says nothing when the corporations take their business
operations overseas and primarily hire overseas
workers. Indeed, Congress will enact incentives
to help them do it.
The wages of the typical American had
hardly increased in the three decades leading
up the the Crash of 2008, considering inflation.
In the 2000s, the earnings of average Americans
actually dropped.
According to the Census Bureau, in 2007 the
median male worker (with as many men earning
more than he, and as many earning less) took
home just over $45,000. Considering inflation,
this was far less than the typical male worker
earned thirty years before. Middle-class family
incomes were only slightly higher.
But the American economy was much larger
in 2007 than it was thirty years before. If those
gains had been divided equally among Americans, the typical person would be more than
60% better off than he actually was by 2007.
Where did those gains go? Who got that money? Just as in the several years preceding the
Great Depression 80 years earlier, by far most
of the wealth had flowed into the hands of a
relatively few men.
According to tax records going back to 1913,
the share of total income going to the richest
1% of Americans peaked in both 1928 and in
2007! That fact cannot be a coincidence! —Yet
it was in those two years that the two greatest financial crashes of modern America have
By 2007 (the year when the present economic
slide began), the richest 1% took in 23.5 percent of the total national income. It is no mere
conincidence that the last time income was
this concentrated was in 1928—when the Great
Depression Crash began.
Just as in 1928, the wealthy in America had
nothing to spend their vast wealth on—except
stocks and other investments. With so many dollars pursuing the same assets, values exploded.
The Dow Jones Industrial Average reached 8,000
on July 16, 1997, and 11,000 on May 3, 1999.
The Dow dropped somewhat in 1999 when
the various speculative bubbles burst. But they
recovered on the hope that even higher share
prices were to come. Stock prices were pushed
up higher in a feeding frenzy of wanting still more
profit. By October 19, 2005, the Dow had risen to
12,000; and on April 25, 2007, to 13,000.
The wealthy were heavily invested and the
middle classes borrowed on their credit so they
could get in on the action.
It is highly significant that, between 1997
and 2007, finance became the fastest-growing
segment of the U.S. economy. The gains reaped
by financial executives, traders, and specialists
repesented almost two-thirds of the growth in
our GNP (gross national product).
By 2007, financial and insurance companies
accounted for more than 40% of American corporate profits and almost as great a percentage
of salaried income.
Both before and after the bubble burst, the
biggest Wall Street banks awarded tens of billions of dollars in bonuses to their wealthiest
executives and managers. In 2009, the 25 bestpaid hedge-fund managers together earned $25.3
billion, an average of $1 billion each.
The financial sector had gained the upper
hand. It had so much accumulated wealth that
it could dole out a little in contributions—and
dictate what government must do.
The expectations of bond traders dominated
public policy. The stock and investment market
had become the measure of the economy’s success—just as it had before the Great Depression.
The Great Recession that started at the end
of 2007, has produced no new economic order.
Instead, the U.S. government stepped in quickly
with enough newly-made money to weaken the
downward slide. Between 2008 and 2010, the
government and the Federal Reserve loaned
or gave $700 billion in bank bailouts, plus a
stimulus package of about the same amount, and
a massive expansion of the money supply.
Yet, ironically, the success in slowing the
economic collapse reduced the urgency to
solve the underlying causes.
Nothing was done to reduce the massive inequality in the nation: A small number still have
most of the money, and nearly all the rest of
Americans are in poverty or near-poverty.
Because of this, the buying power of the
public is reduced to very little—so high unemployment will continue. Businesses will not
do better, because they have few to sell their
products to. Median incomes will remain flat or
in decline, and most families will stay economically insecure. Inequality will continue to widen.
The rich will become richer and the poor will
become poorer. And Congress will refuse to tax
the rich. Neither richer Americans nor foreign
consumers will fill the gap.
What type of political backlash will it result in?
Opposition to international trade, immigration,
foreign investment, big business, Wall Street, and
govrnment itself.
—The better plan would be for Americans
to demand that the rich be taxed heavily and
that Congress no longer be controlled by big
business through their campaign contributions
and lobbyists.
If those two changes will be made, America
will become young and vibrant again!
By the way, not one of the men in the fnancial sector who gambled away America’s money
in stocks, investments, and property; not one
has been penalized! They have all been permitted to keep their vast hoard of money.
In 2007, Kenneth Lewis earned $100 million as CEO of Bank of America. He received that
salary bonus at the same time that he was leading his bank toward a subsequent bailout by the
federal government—so it would not financially
collapse. Just as did dozens of other CEOs at that
time, Lewis took his princely reward and neither
the company nor the government took any of it.
The year before Lehman Brothers’ total collapse because of its daring stock and investment
manipulations,—its CEO, Richard Fuld, collected
$500 million of compensation in salary and other
What if Richard Fuld had only been paid $2
million a year, instead of $500 million? Would he
have been any less efficient as a corporation CEO?
He probably would have done the same as he did
for the larger compensation. Lehman Brothers
totally collapsed and is now gone. Fuld’s manage-
ment plan turned out to be worthless.
We would solve a vast number of America’s
problems if Congress enacted a law that no
one can receive more than $200,000 a year in
salary, bonuses, and/or stock options.
What those business leaders and their cronies were actually doing was stealing company
funds. The result brought great loss to investors
and so weakened the firms that they were greatly
weakened and only saved by government bailouts.
But, because of contributions and lobbyist
pay-offs, Congress dared do nothing about it.
In the fall of 2008, the failure of Lehman
Brothers caused Wall Street to panic. Hank
Paulson was Secretary of the Treasury. Before
taking that position, he had been CEO of Goldman Sachs.
Paulson and Ben Bernanke (chair of the Federal Reserve) warned the nation of economic
catastrophe if $700 billion in taxpayer money
were not immediately handed over to the
When Paulson and his group of helpers (all
present or former key Treasury officials, and
all formerly high up in either Goldman Sachs
or Citibank) decided what to do, they decided
to also bail out giant insurer AIG—which owed
Goldman $13 billion. A U.S. inspector general
later quietly reported that AIG would not have
been bailed out if the plan was for it to use a
large part of the money it received to repay
that $13 billion owed to Goldman. For many
months, neither the government nor Goldman
told the public about the deal.
Other big banks (Bank of America, Wells
Fargo, and JPMorgan Chase) were told to value
their bad loans, and the full amounts were given
them by the government.
Within a year, each of the above banks were
once again giving big salaries and dividends to
their CEOs and key traders.
While the giant bailout was sold to the
American people as a way to save Main Street
and jobs, yet it did nothing for either. Only the
big banks were helped. Small businesses could
not get loans, few homeowners were able to renegotiate their mortgages, and large numbers lost
their homes.
Although millions of homeowners faced
foreclosure, even the banks’ mortgage businesses returned to profits. Yet while the government was subsidizing the banks’ mortgage
loans,—the banks were not passing the savings
on to the homeowners. At the time, the Wall
Street Journal mentioned “If banks had cut mortgage rates in line with [the government subsidies],
homeowners would have benefited. Instead, the
benefit appeared to have accrued to the banks.”
Great care was taken by Congress and the
president to protect the banks, but no help was
given to the homeowners about to lose their
Did you know that Wall Street successfully
lobbied against a proposal to allow homeowners to declare bankruptcy rather than forefeit
their homes?
Ony by an extraordinary effort by the U.S.
government did the meltdown of 2008 not put
us into the 1928 recession. The federal Reserve
Board lowered interest rates to near zero, making it easier to borrow. Congress and the White
House bailed out Wall Street, cut taxes, and spent
hundreds of billions of dollars on jobs and unemployment benefits.
Officials of the Treasury and the Federal
Reserve instinctively throw money in the direction of whatever assets are threatened. They talk
solemnly of the importance of “stabilizing” the
system and ”recapitalizing” it.
But, because of the heavy contributions, arranged—under the table—by lobbyists, Congress
did not dare—not even after the 2008 Crash and
discovery of what the bankers and investment
houses had done—make any changes. Congress
did not dare to repeal that 1999 law which
permitted Wall Street to live as recklessly with
money as it wanted to.
Because of the multiplied billions in bailouts
by government (at your great-great-great grandchildren’s expense), in less than a year Wall Street
was back. The six largest remaining banks had
grown larger, their executives and traders were as
rich or richer, their strategies of placing large bets
with other people’s money no less bold than they
were before the meltdown of September 2008.
The possibility of new financial regulations
from from Congress did not worry them a bit.
The Congressmen and Senators had been wellpaid and there was nothing to worry about.
Just one well-written law by Congress could
have stopped all this nonsense and theft in its
tracks. But no such law was written, Not one
was suggested. None was enacted.
“Why didn’t politicians do more? It may have
had to do with Wall Street’s money. The Street is
where the money is, and money buys campaign
commercials on television. It is difficult to hold
people accountable for bad behavior while simultaneously asking them for money.
“In recent years Wall Street firms and their
executives have been uniquely generous to
both political parties, emerging as one of the
largest benefactors of the Democratic Party. Between November 2008 and November 2009, Wall
Street firms and executives doled out $42 million
to lawmakers, mostly to members of the House
and Senate banking committees and House and
Senate leaders.
“In 2009, the financial industry spent more
than $300 million lobbying members of Congress. During the 2008 elections, Wall Street
showered Democratic candidates with well over
$88 million and Republicans with more than
$67 million.”—Robert Reich, Aftershock, pp.
Members of Congress who willingly cooperate with their heavy donors, can retire from
Congress and hire on as a high-priced lobbyist
[employee] for those firms.
At the present time, the median expected salary for a typical lobbyist in the United States
is $99,292. This basic market pricing data is
based on yearly certified compensation analyses.
According to Public Campaign, thirty big
U.S.corporations actually spent more money
lobbying the federal government between 2008
and 2010 than they spent in taxes. For example,
General Electric—one of the top 10 most profitable companies in the world—got a net tax rebate
of $4.7 billion during this period. Meanwhile, it
spent $84 million lobbying the federal government. That was a pretty good bargain, wasn’t it?
The same non-profit firm (Public Campaign)
publishes a list of thirty corporations—and every
one of them pays very little in taxes, while giving very large lobbyist contributions. The totals
for all thirty are $163.1 million in U.S. profits,
$10.6 million paid in taxes, and $475.7 million
in lobbying.
It is business as usual in Congress and
in America’s State Capitals. The lobbyists are
busily plying their trade. And the rest of us are
The official word is that, in order to solve
this Recession and return America to prosperity
is for the rest of us to experience hardship until
this financial crisis is past. We are told that “the
long-term answer to the nation’s economic ills
is for typical Americans to borrow less, save
more, tighten their belts, and spend within
our means.”
But doing so will do no good, because the basic
problems have not been solved.
A key reason that millions of Americans
have borrowed is because they were being paid
enough so they could live without borrowing!
The basic solution required to change all
this is twofold:
First, political contributions and lobbyists
must be stopped.
Second, the rich must be heavily—yes,
Ideally, a law should also be enacted that no
one can receive more than $200,000 a year in
salary, bonuses, stock options, or from any other
source. The excess profits could go to benefit
lower-salary workers, produce better manufacturing equipment, and community betterment.
Because lobbying, political contributions,
and super-pacs have, at times, been ruled by
the courts as “free speech” rights, a constitutional amendment will be required in order to
make the basic changes needed which will free
legislaters and judges from having to receive
money in order to be elected.
So now we are beginning to see what we
must do in order to make the needed corrections:
First, we have identified two of the basic
problems that need to be solved.
Second, we must use, what we will call, “the
anti-Codex method” to elminate them.
Keep in mind that we cannot rely on legislators
to make these changes without our help! They
simply are not able to. Remember that cougar,
tied up in the crate.
But what is the anti-Codex method? I want
you to know that it has worked repeatedly ever
since the early 1990s!
Instead of sitting in city parks, marching
through streets carrying placards, or complaining to one another,—all we need do is use this
simple method of prodding Congress (and state
legislators as well) to make the changes which
are needed. But in order to do it unified action
is needed. That is the key to success.
Here is the story behind this ongoing nutrition war. Understanding it, you will be better
prepared to work together with other Americans
to bring sanity back to Congress:
In 1994 the U.S. Dietary Supplement
Health and Education Act of 1994 (DSHEA)
was enacted by Congress. This was done in
spite of a massive money campaign by the big
pharmaceutical, medical, and food industries.
This law, which is still in effect, guarantees both
free availability of nutritional supplements (including vitamins, minerals, and herbs) and the
providing of information about their health and
medical benefits.
How was this bill enacted?
• First, people all across America were tired
being sick all the time and having the FDA ban
many supplements and limit dosages of what was
available. Citizens wanted to use natural remedies and nutritional supplements instead of a
steady diet of fast food junk, medicinal drugs,
and repeated operations.
• Second, a nationwide coalition, representating the nutrition industry, which lacked the
money of Big Pharma and its buddies, alerted
Americans to this proposed legislation.
• Third, people all over the nation con-
tacted their senators and representatives—and
demanded that this bill (DSHEA) be enacted.
It is said to have been the largest voter demand on Congress in decades. And it worked!
Under the threat of being kicked out of office in
the next election if they did not vote as expected,
Capital Hill enacted that law!
Then, quietly, the big money interests began
laying plans for a counterattack.
Big Pharma in the U.S. decided to team up
with the largest pharmaceutical conglomerates in
Germany. Two years later, in 1996 the German
delegation to the Codex Alimentarius section
of the World Health Organization (WHO)
put forward a proposal that no herb, vitamin
or mineral should be sold for preventive or
therapeutic reasons, and that supplements
should be reclassified as drugs, and only sold
through drug stores in low dosages at high
prices. (Understanding the Codex Alimentarius
Preface. Third Edition. Published in 2006 by the
World Health Organization and the Food and
Agriculture Organization of the United Nations.
Accessed 3 September 2008.)
For example, Vitamin C, which is now about
as cheap as salt, would henceforth be sold in
tiny, low-dose tablets at high prices—and only
available through drug stores. It might be one of
the many nutrients which would require paying
a doctor for a prescription.
Through treaty arrangements, this ban
would affect nations all over the world—including, ultimately, the U.S. The result would be a
massive increase in pharmaceutical sales (plus
more visits to doctors and hospitals),
Who cares about the health of the public, as
long as the big interests are enriched.
“The Codex Alimentarius (Latin for ‘Book of
Food’) is a collection of internationally recognized standards, codes of practice, guidelines
and other recommendations relating to foods,
food production and food safety.
“Its texts are developed and maintained by
the Codex Alimentarius Commission, a body
that was established in 1963 by the Food and
Agriculture Organization of the United Nations (FAO) and the World Health Organization
(WHO). The Commission’s main aims are stated
as being to protect the health of consumers and
ensure fair practices in the international food
The Codex Alimentarius is recognized by
the World Trade Organization as an international reference point for the resolution of
disputes concerning food safety and consumer
“The Codex Alimentarius officially covers all
foods, whether processed, semi-processed or
raw, but far more attention has been given to
foods that are marketed directly to consumers.
In addition to standards for specific foods, the
Codex Alimentarius contains general standards
covering matters such as food labeling, food
hygiene, food additives and pesticide residues,
and procedures for assessing the safety of foods
derived from modern biotechnology. It also contains guidelines for the management of official
[i.e., governmental] import and export inspection
and certification systems for foods. The Codex
Alimentarius is published in Arabic, Chinese,
English, French and Spanish.”—Codex Alimentarius: How It Began, FAO Corporate Document
It is obvious that the biggest special interests
on the globe were about to swallow up one of the
smallest and least-wealthy groups: the processers and sellers of healing herbs and nutritional
In the summer of 2005, the 28th Session
of the Codex Alimentarius Commission was
held in Rome (Codex Alimentarius Commission
28th Session, FAO Headquarters, Rome, Italy,
4-9 July, 2005; official report).
(For some unknown reason the CAC always
seems to hold its most important meetings in
Among the many issues discussed were the
“Guidelines for Vitamin and Mineral Food
Supplements”, which were adopted during
the meeting as “new global safety guidelines”
(UN Commission adopts safety guidelines for
vitamin and food supplements United Nations
News Center. Published July 11, 2005).
The United Nations’ Food and Agriculture
Organization (FAO) and World Health Organization (WHO) stated that the guidelines are “to
stop consumers overdosing on vitamin and
mineral food supplements.” —That is a pretty
daring admission, for it clearly revealed their
The UN and its food and drug backers are
determined to stop you from taking more than a
sliver of vitamins and minerals each day, while a
variety of junk food, such as “Sugar-coated Tutty
Frutty Corn Jumbles,” can brazenly declare on
each box that they increase energy, reduce diabetes, help the heart, and build strong bones!
The Codex Alimentarius Commission (CAC)
has said that the guidelines call “for labeling
that contains information on maximum consumption levels of vitamin and mineral food
supplements.” (UN Commission adopts safety
guidelines for vitamin and food supplements
United Nations News Centre. Published July
11, 2005).
Codex is made up of many standards for every
aspect of food. One of these standards was ratified
(approved) in July 2005. This was the destructive Codex Alimentarius Vitamin and Mineral
Guideline (VMG). According to the regulations
included as part of it, the VMG can ban all high
potency and clinically effective vitamins and
minerals. For example, the B vitamins, so important for preventing various nerve problems,
would each be restricted to only a few amount
per dose. Other nutrients, including even amino
acids, would also be under threat.
Texas Republican Rep. Ron Paul declared that
the Central American Free Trade Agreement
“increases the possibility that Codex regulations
will be imposed on the American public” (“The
vitamin police”, The Orange County Register.
August 14, 2005).
You see, the problem is that Codex can creep
into America through the back door! It can enter through trade agreements our government
establishes with Europe or South America!
In July, 2003, Senator Dick Durbin (D-IL)
introduced the Dietary Supplement Safety
Act of 2003 (S. 722). If enacted, it would have
banned all but the weakest vitamin supplements from store shelves, forcing the average
consumer to pay sky-high prescription costs
to obtain effective doses for general health maintenance. In spite of heavy lobbying activity, the
public arose and demanded that it not be passed.
A “food safety bill” (HR 2749) had been enacted by the House on July 30, 2009 after two
failed attempts on the previous days. If passed by
the Senate, the bill would become law and lead to
the loss of clean, healthy food and independent
farming in the US and the complete industrialization of the US food supply. But Americans rallied
and it did not become law.
In late 2009, there was talk that the binding
food standards called the Codex Alimentarius,
and created by the World Health Organization (WHO) and the UN’s Food and Agriculture
Organization (FAO), being set to be become
law in America on Thursday, December 31,
2009—and in 183 other member countries. But
a massive deluge of protests from Americans, by
letters, phone calls, and emails, convinced Congress not to enact it.
Business was not as usual in Washington
D.C.! The lobbyists were working feverishly, and
yet the America public, once they were aroused
to work together in a unified manner, defeated
the lobbyists!
The Dietary Supplement Safety Act of
2010 (S. 3002) was introduced by Senators
John McCain and Byron Dorgan into the U.S.
Senate. If enacted into law, this bill would require
all dietary supplement manufacturers, distributors, and holders all the way down to the retail
store level to be comprehensively registered. It
would also allow for the arbitrary banning of
nutritional supplements by the FDA and the introduction of deceitful reporting of adverse events
related to them. But, once again, American citizens rallied and stopped it.
On June 30, 2011, Sen. Dick Durbin (DIL) and Richard Blumenthal (D-CT) introduced
the Dietary Supplement Labeling Act of 2011
(DSLA). This legislation would require FDA to
establish a clear definition of which products are
foods and should be regulated as such and which
products are meant to be health aids and should
be regulated by the FDA as dietary supplements.
In late summer 2011, Sen. Richard Durbin
(D-IL) tried to get most of the provisions of S.
3002 into a non-food, necessary appropriations bill.
In addition to Congressional laws, additional
efforts to get the UN Codex regulations into
America through treaties have been attempted.
Vitamins and minerals in foods would be
drastically reducted and limited specifically
to the small amounts allowed by the Codex
The amounts allowed would considered by
some experts ot be so small that it will result
in mass malnourishment. In addition, it would
require that every cow be fed bovine hormones
(which would later enter your body if you ate that
Fortunately, this law did not go into effect in
America at that time. Why? Immense numbers
of citizens contacted Congress and demanded
that Codex, and similar U.S. laws, not be approved!
The U.S. has a powerful legal tool for health
freedom: the Dietary Supplement Health and
Education Act (DSHEA), passed in 1994 after
massive grass-roots action. DSHEA scientifically
classifies nutritional supplements as food and
prevents dosage restrictions; Codex unscientifically classifies those nutrients as toxins (!) and
its VMG sets ultra-low doses. But those regu-
lations violate U.S. law because they violate
DSHEA. Many Americans believe they must
unite to protect DSHEA,—their best legal defense against Codex-type legislation and treaties.
The Dietary Supplement Health and Education Act (DSHEA, 1994), was an American
law classifying supplements and herbs as
foods. It specified that no upper limits could
be set on their use. As mentioned earlier, this
law was passed by unanimous Congressional
consent following a massive grass-roots support
organized by health food stores. Millions of American activists told Congress, in no uncertain terms:
“Protect nutritional supplements as foods or
we will remove you from office”.
Congress listened and carried out the will of
the people.
(Did you know that fruit, vegetables, nuts, and
seeds continue to be banned by the FDA from
mentioning that they are healthful? When Diamond Walnut Co. in California tried to mention
that their products are healthful, the FDA, threatening them with dire consequences, stopped them
fast. Yet walnuts are rich in fiber, B vitamins,
magnesium, and antioxidants such as Vitamin
E, and omega-3, the best type of oil.)
DSHEA appropriately classifies nutritional
supplements as foods which can have no upper
limits set on their use. DSHEA recognizes that
people use nutrients safely to deal with their
individually differing needs for nutrients. The
concept of “biochemical individuality” means
that people have different needs for nutrients at
different times. Are nutrients toxins? No, they
are not toxins. They are substances essential
to prevent, treat and cure nearly any chronic
condition, in differing doses at different times
in different people.
DSHEA protects the US from Codex Alimentarius’ deadly Vitamin and Mineral Guidelines.
Americans will continue to reach our Congressional members, educate them about the facts
on Codex Alimentarius, and direct them to vote
against anything that would threaten DSHEA.
Congress holds the keys to our health freedom. And it is their job to listen to us.
Americans did it for DSHEA in 1994 and
2009. They can do it again in order reform
America. Massive phone calls and e-mails from
the public were more powerful than a sizeable
army of lobbyists with fistfuls of cash in their
Let us now consider what needs to be
changed by Congress in order to return
America to fiscal sanity. To do so will require
a national network of voter contacting, such
as is used to fight Codex and its backers.
We have just viewed the way, by a massive
petitioning of Congress, to eliminate this basic
problem. And once it is completed, very many
of our other national problems can be solved
Here are some of ongoing problems which
we live with, year after year—because this
underlying situation has not been eliminated:
• We send men and women who promise great
things to Congress and the White House—and yet
upon arriving, they sit there, collect big salaries,
and appear to accomplish almost nothing.
The cause is a situation that is almost never
mentioned. It is a money flow problem.
• The wealthy keep getting richer, and the
poor keep getting poorer.
• The bankers seem to be running Congress,
and no one seems to understand why.
• There are special interests all over the nation which are untouchable. No legislator dare
interfere as they gather in more and more money.
Special interests always get what they want,
while the rest of us sit on the sidelines wondering
how they do it.
• Only a few groups of people are consistently paid much higher wages or make more
profit—and it keeps getting bigger. The rest may
complain, but nothing is done to stop it.
And these problems will continue year
after year—and keep getting worse year
after year—until we address the underlying
—It is not that hard to solve to eliminate
the causes of these problems if the American
public will demand that it be done!
In this brief report, I am going to tell you
what that problem is, and suggest rather simple
ways to solve it.
Whether or not you like my solutions,—this
basic problem has to be solved, and if it continues to be ignored,—America will continue
to keep heading downhill.
I am a native-born American citizen. On my
mother’s side, I go back to the Revolutionary War.
One of my ancesters came over on the Mayflower.
I love this country and the Constitution and
Amendments on which it is founded.
But, frankly, another amendment is needed.
It will plug a loophole that is permitting special
interests to destroy our nation.
Until this basic problem is solved, few men
in elected office will dare to cast their votes for
what they know to be right.
From the time that a man files his candidacy
for public office, until he is elected and goes to
Washington, he rather quickly learns that all the
time he is there,—he is going to obey the special
interests that got him elected!
Why is this?
Because it now requires millions of dollars
in order to be elected to the House, the Senate,
or the White House.
“I helped elect you. Now this is what I want
you to do for me.”
The first half of the problem are the immense number of political contributions required to put a man into office.
The man who is elected was already bought
before he got there! Not by one, but by many dif-
ferent special interests.
The second half of the problem are the lobbyists. There are literally thousands of them in
Washington D.C. alone! All aside from the White
House, it is estimated that there are eight to ten
lobbyists, plus many assistants, for every one of
the 535 members of Congress.
According to the Center for Responsive
Politics, in 2008 lobbyists in Washington D.C,
spent 3.30 billion dollars in that year alone
“to influence legislation.” The lobbyists focus
their attention on 100 Senators, 435 Members of
Congress, and 7,000 staffers.
The Washington Post is one of the best investigative newspapers in America! You ought to
subscribe to it! Here is what they say:
“To the great growth industries of America
such as health care and home building add one
more: influence peddling.
“The number of registered lobbyists in Washington has more than doubled since 2000 to
more than 34,750 while the amount that lobbyists charge their new clients has increased
by as much as 100 percent. Only a few other
businesses have enjoyed greater prosperity in
an otherwise fitful economy.”—Washington Post,
June 22, 2005.
“Lobbying firms can’t hire people fast
enough. Starting salaries have risen to about
$300,000 a year for the best-connected aides
eager to “move downtown” from Capitol Hill or
the Bush administration. Once considered a
distasteful post-government vocation, big-bucks
lobbying is luring nearly half of all lawmakers
who return to the private sector when they
leave Congress, according to a forthcoming study
by Public Citizen’s Congress Watch.
“Political historians don’t see these as positive
developments for democracy. ‘We’ve got a problem
here,’ said Allan Cigler, a political scientist at the
University of Kansas. ‘The growth of lobbying
makes even worse than it is already the balance between those with resources and those
without resources.’
“ ‘People in industry are willing to invest money
because they see opportunities here,’ said Patrick
J. Griffin, who was President Bill Clinton’s top
lobbyist and is now in private practice. ‘They see
that they can win things, that there’s something
to be gained. Washington has become a profit
“Take the example of Hewlett-Packard Co. The
California computer maker nearly doubled its
budget for contract lobbyists to $734,000 last
year and added the elite lobbying firm of Quinn
Gillespie & Associates LLC. Its goal was to pass
legislation that would allow the company to
bring back to the United States at a dramatically lowered tax rate as much as $14.5 billion
in profit from foreign subsidiaries.
“The extra lobbying paid off. The legislation
was approved and Hewlett-Packard will save millions of dollars in taxes.
“Over the past five years, the number of new
federal regulations has declined by 5 percent,
to 4,100, according to Clyde Wayne Crews Jr., a
vice president of the Competitive Enterprise Institute. The number of pending regulations that
would cost businesses or local governments
$100 million or more a year has declined even
more, by 14.5 percent to 135 over the period.
“The result has been a gold rush on K Street,
the lobbyists’ boulevard. The owner of a large
lobbying shop said that five years ago he could
hire veteran Capitol Hill staffers for $200,000
a year or less. Now the going rate is closer to
$300,000 a year and the most-sought-after
aides can expect even more. In 2002, Susan
B. Hirschmann, chief of staff to House Majority
Leader Tom DeLay (R-Tex.), had so many lobbying offers that she enlisted Robert B. Barnett, the
attorney for Bill Clinton and Sen. Hillary Rodham
Clinton (D-N.Y.), to receive and filter them.
“For retiring members of Congress and senior administration aides, the bidding from
lobbying firms and trade associations can get
even more fevered. Well-regarded top officials
are in high demand and lately have commanded
employment packages worth upward of $2 million a year. Marc F. Racicot, a former Montana
governor who chaired the Republican National
Committee, will soon collect an annual salary
of $1 million-plus as president of the American
Insurance Association.
“The fees that lobbyists charge clients have
also risen substantially. Fierce, Isakowitz &
Blalock and the Federalist Group report that at
the end of the Clinton administration, $20,000
a month was considered high. Now, they say,
retainers of $25,000 to $40,000 a month are
customary for new corporate clients, depending
on how much work they do.”—Washington Post,
June 22, 2005.
Lobbying activities are also performed at
the state level, and lobbyists try to influence legislation in the state legislatures in each of the 50
states. At the local municipal level, some lobbying
activities occur with city council members and
county commissioners, especially in the larger
cities and more populous counties.
In December 2007, the Center for Public Integrity (CPI) gathered the total number of lobbyists in each state and divided it by the total number of legislators. On average nationwide, there
are five lobbyists for every state legislator. The
influence industry in state capitals continues to
grow, as state lobbyists and the companies and
organizations that hire them spent a record of
almost $1.3 billion in 2006, according to the
CPI’s sixth-annual review.
It also found that nearly 47,000 such interests—companies, advocacy groups, labor
unions, professional organizations and even
government agencies—hired more than 38,000
individual lobbyists. This averages out to five
lobbyists and almost $130,000 in expenditures
per state legislator.
But, of course, Washington D.C. is at the center
of it all. Strangely enough, these lobbyists are
generally the highest-paid employees in Washington D.C.! Who are their employers? All the
special interests in the entire nation! These are
the wealthiest organizations in America, plus
wealthy individuals.
Why are the lobbyists paid so much? Because
they are so effective in getting Congressmen and
Senators to do their bidding.
The organizations want Congress to enact
legislation to help them. The wealthy individuals, including bankers, want Congress to
protect their wealth.
How do they get Representatives and Senators to do this? By promising a hefty amount of
money in response to an agreement to send a
certan bill to Congress, or to vote a certain way
on pending bills.
I am ashamed to say it, but the name of the
game is bribery—and on a vast scale.
First, during each election process, there
are Pacs and Super Pacs (plus donations from
wealthy individuals). Pacs are Political Action
Committees. These are groups which receive and
pool political contributions to specified parties or
candidates. The Super Pacs are much larger Pacs
which accept contributions from large organizations or their associations, and distribute the
money to parties and candidates. More later on
the Pacs. More later on what the wealthy receive
in return for their donations.
Second, between elections there are the
lobbyists, making sure they are well taken care
of in return for the bills they enact into law.
Congressmen and Senators are busy people,
yet one lobbyist after another keeps entering
the door of their congressional offices. Yet each
one need spend only a few minutes inside. He tells
what he wants and then, assured it will be taken
care of, promises a generous political contribution from their organization. Then the lobbyist
is out again, walks down the hall, and pops in
another office.
It is a well-known fact that, from the time
that a Congressman arrives in town, he has to
spend a sizeable portion of his time, during the
next two years, either on the phone plugging for
donations for his next reelection battle, or talking
to lobbyists who offer him multiplied thousands
in return “for a favor.” Then, if reelected, the
begging cycle is repeated. The problem is the
high cost of getting elected.
By the way, just who are those lobbyists?
The lobbyists in Washington include many
former representatives and senators. They
know their way around the office buildings, know
elected officials and their secretaries by name,
and have been long-time friends. They stop in,
ask for what they want, receive quick assurance
from the office-holder that it will be done, and
then leave. A nice check for thousands of dollars “as a campaign donation” will come in the
mail shortly after their departure.
We are told that this is democracy, and that
everyone can speak to our political leaders. That
may seem true. Yet there is an abundance of
evidence that it is the special interests in the
nation which are getting what they want, and
the rest of us are living on the left overs.
But, more specifically, who are these special
These are the large corporations, the biggest banks, the biggest food companies, the
largest drug syndicates, petroleum and coal
companies, the labor unions, the liquor interests, the gambling consortiums. —All the rich
organizations who can afford to continually flood
Congress with big checks.
What about the other smaller wealthy groups?
They are members of national organizations
which lobbyists in Washington to represent them.
This includes the abortionists, gay rights, government workers (who are united in unions),
and many more. On state levels, this includes
state workers and teachers who are members of
unions. Did you know that, in some states, each
public school teacher pays hundreds of dollars
a year for union dues? The money goes to bribe
legislators that these workers are poor and need
another raise each year,—while non-union workers in that state frequently live on half of those
Lastly, there are those living with abundant
means. Living in lavish wealth, they ask only
that an abundance of special favors be given
them—so they can keep most of that wealth and
give only a smidgen back to the government in
taxes of various kinds. More on this later.
Obviously, this points a finger at the Republicans who want the wealthy to not lose a dime of
their accumulated treasures.
But never fear, the Democrats are well cared
for by the labor unions and a host of other contributors.
Why is it that Congress (either Democrat or
Republican) never enacts a law forbidding excessive wages, bonuses, and retirement packages to
the immensely wealthy?
Why is it that Congress (both Dmemocrat and
Republican) never limits the ability of the finance
industry (Wall Street, Banks, investment brokerage houses) to amass tremendous wealth?
We need to stop banks from gambling and
restrict them to their legitimate purpose: connecting borrowers to lenders and savers to
investors. Yet Congress, stuffed with political contributions, steadily refuses to do it. They refuse
to enact hardly any regulations over the banking
and stock market industries.
Why is it that, year after year, Congress (both
Demmocrat and Republican) always keeps subsidizing the wealthiest industry in America—the
petroleum industry—with billions of dollars “to
help them explore for more oil”—while each year
the net profits of the oil companies exceeds that
of nearly every one else?
In order to figure out what is taking place,
follow the money flow.
First, the money flows to the politicians.
Then, in return, they enact laws and administration departmental decisions to send money
back to the big interests.
One of our founding fathers, back in the late
1700s, said that a democracy could only work
if the people in it were good. Otherwise, they
would arrange for all the money to go to
them—and they would bankrupt the nation.
And that is what is happening today!
Our political leaders are caught in a trap of
inflowing money!
America has become lopsided. Indeed, it has
been turned upside down!
Back in the spring of 1967 in the hills of
eastern Washington State, I met an old trapper. We were sitting outside talking together, and
I had mentioned about a bobcat which would
come right up to our house in the broad daylight,
when he turned to me and said, “Do you know
how to catch a cougar?” Also known as a puma,
mountain lion, catamount or panther (depending on the region of the American West you are
in), the cougar is a fierce creature the size of a
smaller tiger.
“You mean catch him alive?”
“Yes, we did it back in the days before tranquilizer darts. We caught them alive, put them
in crates, and trucked them to zoos. They paid
us well.”
Astonished, I replied, “How did you do it?”
Then old trapper told me something I never
“First, we would catch his foot in a type of
trap which did not injure it. Then two of us would
lasso him two or three times. We would then walk
around, back and forth while he screamed and
jumped around. Soon he would be all tied up,
including his feet. Lastly, we would pass one rope
through his mouth and he couldn’t even scream
anymore. After we delivered him, it was the job of
the zoo to figure out how to release him. We had
gotten our money and that was all that mattered.”
—Tragically, this is what—all across
America—the big donors (wealthy people and
wealthy corporations) have done to nearly all
of our political leaders. After they are settled in
their legislative offices, the lobbyists keep them
tied up—in subservience to their hidden masters.
The result is do-nothing politicians who accomplish little in solving real problems.
Unfortunately, there are few candidates
who get into office while still preserving their
Stuffed with money, they recognize that
the lobbyists are their money tree, and they
do nothing to oppose them.
What about those office holders who still
have their integrity? They are unable to make
the necessary changes, because it requires
majority votes to do so.
In addition, there is an atmosphere in the
legislative houses that a few men, who are party
leaders, make the major decisions.
In Congress, for example, the speaker decides which bills will be brought to the floor.
Then the “whip” scurries around demanding
that party members vote the party line. Congressmen know they had better obey or they will
not be given extra funds during the next reelection campaign.
Did you know that every time in past history
when a nation has been prosperous—the middle class merchants are doing well, the poorer
classes who work for them have adequate
wages, and there are few who are super rich?
Did you know that every time in history
when a nation is in serious financial trouble,—a
small number have amassed most of the wealth
in the nation, and both the middle class businesses and the workers are having a hard time
making their way. (That, by the way, is what has
happened in most communist nations.)
That is the situation in Greece right now! And,
unfortunately, in America too.
Study history. During the Dark Ages, the
wealthy had everything, and everyone else
were serfs.
It was not until the rise of middle class
merchants that conditions began to change.
that, if elected, he would have too much integrity
to be enslaved by their money.)
Oh, and what about the White House?
The method of repaying their special interest
masters is done differently. Instead of merely
signing laws in the Oval Office, the various
executive branches do special favors for the
special interests.
Why is it that the FDA (Food and Drug Administration) permits poisons to be sold to Americans, while repeatedly trying to throttle any attempts to advertise the value of good, wholesome
remedies and foods;—the ones which cannot be
patented and sold for big profits by the drug industry, the processed food interests, or the meat
I said at the beginning, I love America. And I
do. I am writing this because I do. We have wonderful blessings in America, but we have problems
too. —Yet some of the key causes of our growing
problems can actually be solved!
But it cannot be done with massive political contributions at every election, and
a flood of lobbyists controlling Congress
between elections.
The special interests must go. The needs of all
America must become a special interest! More on
how this can be done later in this report.
Here is a story to remember: I was living in
Eastern Shore, Maryland back in the early 1970s,
when one day I met a local pastor who told me
his story:
Raised in West Virginia, he had an uncle
who was in the State Legislature down in
Charleston. About the time that this young man
was ready to start college, he was approached by
some men. They told him that, because he had
the same last name as his uncle who was a wellknown figure in the State House,—they offered
to start this young man on the road to the U.S.
He told me that they had it all planned out,
and they explained it to him. First, he would run
for a local county office. He would win because
Democrats controlled the State. In the following
election, he would run for the State Legislature
in Charleston, and they would make sure he won
that seat. After several terms, at the right time,
they would have him run for Congress—and they
assured him that he would be elected. From then
on, he would live handsomely because of the
contributions that came in, some of which he
could siphon off.
All they asked in return was just one
thing: total loyalty to do everything they asked,
vote only for the party line, remain in lock-step
with fellow Democrats, whether it be in the State
House or in Congress.
Then, years later, when he decided to leave
Congress, he could slip into a job as a lobbyist
in D.C. and his financial picture would improve
even more.
As he told me the story, he said that he did
consider it for a time. But he decided to become
a Christian, so he took a college course and seminary work to become a minister.
For your information, it was not until the
1960 Kennedy/Nixon presidential election that
television began for the first time to be widely
used. From that year onward, political campaigns became more and more costly!
We need to do what it takes to eliminate
those costly elections!
We have come to a time when it is frequently
stated in the media that so-and-so has little
chance of becoming elected because he has not
raised enough contributions. Wait a minute! That
means he has not been bought yet! The ones
with the biggest war chests during an election
campaign have the most hidden masters to obey
after they are elected!
Then, when they arrive in Washington D.C.
in January,—they are mere automatons, obeying the big interests that bought and paid for
them earlier.
It was repeatedly stated that the problem with
Mike Huckabee was that he had not received
enough big contributions. In reality, that was an
excellent point in his favor, yet because of it, he
could not pay for enough TV ads to win the election! (Probably because the big interests realized
Why is it that every Congressman and Senator always leaves Washington wealthy, even
before he becomes a lobbyist? Think about it.
There is a reason.
“Members of Congress—especially senators—are far richer than the average Americans they represent, the Center for Responsive
Politics said Wednesday.
“About 60% of first-year U.S. senators and
40% of House of Representatives freshmen
are worth at least $1 million, an amount just
1% of Americans can claim to have, according to
the center’s analysis of federal personal financial
“The median wealth for a first-year House of
Representatives member is about $570,000,
while the median wealth for a Senate freshman is almost $4 million, the research group
said on its website, Sen. Richard Blumenthal (D-Conn.) is worth $95 million,
making him the richest freshman Congressman,
according to the center.
“ ‘Some are Democrats, some are Republicans,
many are Tea Party conservatives while others
are unabashedly liberal,’ Dan Auble, who manages the center’s personal-financial-disclosure
database, said in a statement. ‘What unites these
freshmen is that, on balance, they’re rich.’
“Popular stock investments among new members of Congress include Citigroup (C) and Wells
Fargo (WFC), both of which received federal bailout money, as well as health-care companies such
as Merck (MRK), Pfizer (PFE) and CVS Caremark
(CVS).”—Daily Finance, March 9, 2011.
After they have been in Congress awhile,
their wealth increases.
“The 50 richest members of Congress remain financially flush—each with a minimum
net worth of nearly $5.5 million . . The combined wealth of the 50 richest members tallied
approximately $1.3 billion in 2008.”—Roll Call,
September 4, 2009.
There seems to be something of a mystery
about the inner workings of our federal government. Money keeps being printed by Treasury,
It keeps pouring out of Congress and the White
House. The country keeps getting into worse and
worse shape. Neither Congress nor the White
House appear to have any idea how to solve
these immense problems—including the great
mystery of how the banks, Wall Street, and the
finance industry was able to get rid of so much
of our money, gain great wealth for themselves,
without even a slap on the wrist from government, much less applying solutions so it will never
happen again.
Think not that this matter of lobbyists
running around our city, county, state, and national capitals influencing legislators is small
Lobbying in the United States targets the U.S.
Senate, the U.S. House of Representatives, and
state legislatures. Lobbyists may also represent
their clients’ or organizations’ interests in dealings with federal, state, or local executive branch
agencies or the courts. Lobby groups and their
members sometimes also write legislation and
whip bills (use money to legislators to enact
them). As of 2007 there are over 17,000 federal lobbyists based in Washington, D.C. alone.
Just one (one) lobbyists’ information source,
the Bureau of National Affairs (BNA) has 350
newsletters on topics like tax, health care, and
labor. They provide basic data such as these to
the army of lobbyists in America:
“An appeals-court judge’s ruling on a patent
dispute; when the House Appropriations Committee will mark up an EPA funding bill; and how
telecom giants will benefit from a moratorium on
wireless taxes. Which means every lawyer, lobbyist, and law-maker in the capital depends on
BNA’s proprietary data to do his or her job and
gain an edge over competitors.”—Newsweek,
November 28, 2011.
In August, 2011, Michael Bloomberg bought
BNA for $990 million.
“Bloomberg had recently launched two new
subscription services online, BLaw and BGov,
each with the company’s trademark approach
of seducing professionals with a fire hose of
data, custom-built analytic tools, and proprietary
news until they feel unable to make key decisions without consulting Bloomberg. But in the
crowded market for insider Beltway news, BGov
and BLaw were still finding their footing when
BNA put itself up for sale.
“Now Bloomberg can feed BNA’s sought-after
data directly to BLaw and BGov subscribers. The
result: a one-stop shop for lobbyists to game
the system.
“Let’s say a lobbyist for a coal company
wants to squash any legislation that affects
his employer’s mining operations. He logs
onto (the cost is $5,700 per year) and
is automatically alerted to breaking news of a
just-introduced energy bill. The data drill-down
begins. BGov shows the lobbyist how similar legislation has fared, what subcommittee the new
bill will face and when, who the key congressmen are, and how they have voted in the past.
The lobbyist calls up information on the swing
vote’s upcoming election contest: it’s competitive,
and the congressman is behind in fundraising.
“Lists of major donors—who might be induced to contribute or, better yet, place a
call to the officeholder himself—are a click
away. These political pressure points and a
thousand more are how lobbyists make their
When Michael Bloomberg spends $990 million for just one of several firms that provide news
to lobbyists—lobbying in America must be pretty
big business!
Few Americans had any idea that lobbyists were such a big business in America.
But now we know. This is why politicians cannot properly govern the nation! They are being
continually bought (“influenced” is the word used)
by lobbyists representing special interests all over
America and overseas! Remember that cougar
that was all tied up.
First, we must eliminate this massive, ongoing bribery scandal that changes public officials into bond servants. Doing this will require
the enactment of several different things which
dovetail together.
Regarding the bribery problem, a federal
law could be enacted, but an amendment to
the Constitution would be better. First, an
amendment could not easily be replaced later by
another law. Second, there are aspects to what is
involved that could be considered by the courts
as violations of First Amendment “free speech
rights”. Third, it is very possible that portions
of the needed reforms (if in the form of laws)
would otherwise later be overthrown by the Supreme Court as violations of First Amendment
free speech rights. (Changes to the US constitution must be passed by a two-thirds vote of each
chamber of Congress and then ratified by threequarters of states—either by the state legislatures
or state-based constitutional conventions.)
But it should be mentioned here that this
legislation would not curtail free speech; only
political contributions.
It is here suggested that this law would include the following provisions:
• First, terminate all political contributions
to any candidate for public office, or to someone already in public office.
By definition here, “lobbying” includes asking
for political favors based on present or past donations. While all lobbying would be illegal, individu-
als, large and small, could still visit Congressmen,
but no lobbying. (You might wonder how under
the table passing of checks can be stopped? Yet
it is better to try and stop it, than to let it run
rampant as at the present time.)
At this juncture, you will correctly ask, “How
could this be done since it costs money to get
The answer is the enactment of another provision of this law or amendment. Here is how this
would be done:
• Second, keeping intact the separation of
church and state, require all non-religious
media outlets (Newspapers, magazines, radio
stations, and TV stations) to provide a certain
amount of space in each issue for candidates to
state their positions, how they wish to improve
the country, and how they intend to do it. While
in public speeches they could speak negatively
about their opponents, they could not do it on
supplied free space and air time. It would be reserved for stated positions on different issues, and
how they would improve the country if elected.
This free time/space should not consist of
30 second/single paragraph ads, but 30 minute
presentations and full articles. Only one such
presentation by a candidate would be needed
monthly. It would be best if all the candidates’
statements were presented in the same issue, so
the public could compare them.
It might be that the govenment could partially
subsidize this free media space/air time.
• Third, help subsidize travel expenses
while stumping for federal government offices,
since those candidates must make appearances
over wide areas.
• Fourth, open up a large, central website
on the internet, where every citizen can go
and consider what every candidate in the nation—high and law—has to say about his plans
and objectives when elected, and what he is
doing while in office. Everything on that website
would be organized by cities, counties, states, and
federal offices, so anyone could quickly find the
local, state, and Congressional candidates he is
looking for.
This main website would also lead to a
secondary website where, in simple language,
all proposed and pending legislation (county,
state, and federal) would be provided for citizens
to read and, if they wished, contact their legislators about.
The main website would also lead to a third
website which would list all potential “pork
barrel” bills, so the public could respond to them.
• Fifth, forbid all contributions to the elections of judges and city/county councilmen in
America, and provide them with a small part of
free local media space. More on this when we discuss the shocking facts about jailing Americans
at great expense in order to please bailbond
agents who bought local officials. Doing so fills
jails with people who do not need to be there
while costing taxpayers millions in prison costs.
These would be the primary aspects of a law
or amendment which would eliminate the need
for large political contributions during elections
and lobbyists afterward.
Campaign finance is a controversial issue,
pitting concerns about free speech against
concerns about corruption and inequality on
the part of those who favor existing or further
Correct handling of political finance greatly
affects a country’s ability to effectively maintain free and fair elections, effective governance, democratic government and regulation
of corruption
At the federal level, the primary sources of
campaign funds are individual contributions
and political action committees. Contributions
from both are somewhat limited, and direct contributions from corporations and labor unions
are prohibited.
On January 21, 2010, the Supreme Court
overturned a 20-year-old ruling that had previously permitted state laws that prohibit corporations and unions from using money from their
general treasuries to produce and run their own
campaign ads.
How can we find where the money came
from, where it went, and how it was used?
The phrase “money trail” is a catch phrase,
used to describe the source of funding for a politician or interest group. Such funding sources are
not always obvious and is often only discovered
through investigation by journalists, government
agencies, or opposition groups. Often, the target
of such investigations is a conflict of interest
in the form of a recursive, self-reinforcing, circular money loop, benefiting candidates and
contributors, to the detriment of taxpayers.
“Front groups” are organizations established by other larger organizations to influence public opinion or bring about a desired
objective that the parent organization may not
be able to do under its own aegis for various
reasons. But they can have their relationship
with the parent group revealed by “following
the money trail.”
The phrase may also refer to the correlation
between a legislator’s votes on a particular issue,
and campaign contributions he or she may have
received from organizations which favor the way
the legislator voted. Such money trails can be
discovered by reports of contributions that
candidates, lobbyists and political action committees, among others, may be required to file
with regulators.
Here is but one example from past history:
In 1971, the Associated Milk Producers
Incorporated, or AMPI, pledged $2 million to
Richard Nixon’s reelection campaign. In return,
Nixon jacked up the federal subsidy for milk.
“It was a simple trade,” says Richard Reeves,
who covered the scandal as a reporter and later
wrote about it in his book, Richard Nixon, Alone
in the White House. “Nixon got $2 million for
charging American consumers $100 million.”
The deal was sealed on May 23, 1971. In the
morning, Nixon met with AMPI leaders in the
Cabinet Room. Then he left, as his aides worked
out the details. “After the deal was worked out,
at midnight, the Nixon people met with the milk
producers. And that’s where the money passed
hands.” The Nixon tapes revealed that, before
they left the room, someone said, “We better go
out and buy some milk before the price goes up.”
Everyone laughed.
The new rules of campaign finance provide
a way to do what was illegal in 1971. AMPI
would have to avoid a candidate’s campaign committee. But it could give any amount it wanted
to a presidential super PAC, something new in
the 2012 elections.
These are organizations which collect
money and distribute it to political candidates
during elections. (The contributions of lobbyists
between elections is in addition to this.)
In the United States, a political action committee, or PAC, is the name commonly given to
a private group, regardless of size, organized
to elect political candidates or to advance the
outcome of a political issue or legislation.
Legally, what constitutes a “PAC” for purposes
of regulation is a matter of state and federal law.
Under the Federal Election Campaign Act, an
organization becomes a “political committee” by
receiving contributions or making expenditures
in excess of $1,000 for the purpose of influencing
a federal election.
Federal multi-candidate PACs are limited in
the amount of money they can contribute to candidate campaigns or other organizations: At the
most $5,000 per candidate per election. Elections
such as primaries, general elections and special
elections are counted separately; or at most
$15,000 per political party per year.
It is the Super Pacs which are the most
dangerous—because they are able to contribute vast amounts to candidates.
The 2010 election marked the rise of a new
political committee, dubbed “super PACs.”
These are officially known as “independentexpenditure only committees,” and can raise
unlimited sums from corporations, unions
and other groups, as well as individuals. The
super PACs were made possible by two judicial
decisions. First the Citizens United v. Federal
Election Commission decision by the Supreme
Court, which lifted spending limits. Second the
Speechnow v. FEC decision by the D.C. Circuit
Court, which invoked the logic of Citizens United
to dispense with contribution limits on independent-expenditure committees. The groups can
also mount the kind of direct attacks on candidates that were not allowed in the past. Super
PACs are not allowed to coordinate directly with
candidates or political parties and are required
to disclose their donors.
The arrival of Super Pacs has brought vast
amounts of bribery money into the hands of
political candidates. If elected officials were
owned by special interests before, they are now
bound and gagged by them. They do what they
are told to do—and very little else!
Dozens and even thousands of organizations
and individuals pay money into a Super Pac, and
it passes they money on to candidates.
In the 2008 election, the largest Super Pac
contributor syndicate was a labor union. The
third largest—yes, you guessed it—was the
American Bankers Association. The liquor Pac
was the fourth largest. The eighth largest was
the American Association for Justice which
provided contributions of the election of judges
in America. Will those judges hand down fair
sentences when major Super Pacs, such as the
homosexuals, drug, and liquor interests, helped
them get into office?
Races for non-federal offices are governed
by state and local law. Over half the states allow
some level of corporate and union contributions.
Some states have limits on contributions from
individuals that are lower than the national limits,
while six states (Illinois, Missouri, New Mexico,
Oregon, Utah and Virginia) have no limits at all.
Some of them have tried to have, what is
termed, “Clean Elections.” Also called, “Clean
Money,” “Voter-Owned Elections,” or “Fair Elections”), this describes a special system of government financing of political campaigns, in which
the government provides a grant to candidates
who agree to limit their and private fundraising efforts and limit their campaign-spending.
Clean Election initiatives are used in a small
number of states and local political jurisdictions in the United States. Some form of Clean
Elections legislation has been adopted by ballot
initiative in Maine, Arizona, North Carolina, New
Mexico, Vermont, Wisconsin, and Massachusetts.
It was also adopted by legislative action in Connecticut and at the municipal level in Albuquerque, New Mexico, and Portland, OR. However, the
systems in Massachusetts and Portland were later
repealed, while Vermont’s was struck down by
the U.S. Supreme Court on First Amendment
grounds. These laws have increasingly run into
constitutional problems in the Courts. It is
claimed that they violate the “free speech rights”
of those handing money to the politicians.
Unlike traditional campaign finance laws
that focus primarily on placing caps on campaign donations, Clean Election laws provide a
government grant to candidates who agree to
limit their spending and private fundraising.
Candidates participating in a Clean Elections
system are required to meet certain qualification criteria, which usually includes collecting a
number of signatures and small contributions
(generally determined by statute and set at $5 in
both Maine and Arizona) before the candidate can
receive public support. In most Clean Elections
programs, these qualifying contributions must
be given by constituents (people living within
that state). To receive the government campaign
grant, “Clean Candidates” must agree to forgo
all other fundraising and accept no other private or personal funds. Candidates who choose
not to participate are subject to limits on their
fundraising, typically in the form of limits on the
size of contributions they may accept and the
sources of those contributions (such as limits on
corporate or union contributions), and detailed
reporting requirements.
Much can be learned from how the Clean
Election and Clean Candidate laws are mandated.
A county judge looks through arrest reports
and make sure he keeps the dangerous people
in jail and, prior to trial and sentencing, lets the
people who are not dangerous out.
He can release defendants on their own recognizance, which he does for small crimes like
driving with a suspended license. Or he can grant
them bail. Many won’t be able to afford the bail
Hurley sets, so they will pay a bail bondsman a
nonrefundable fee—usually about 10 percent—to
do it for them.
The third option is pretrial release, a countyfunded program that gets people out of jail and
keeps track of them using things like ankle bracelets, phone calls or drug testing.
This is the best because it does not disrupt
people’s lives and they can continue to work,
support their families, and care for their children.—And it saves the county an immense
amount of money!
In Broward County, Florida, the pretrial
program costs about $7 a day per inmate. Jail
costs the county $115 a day,
“It costs a quarter of every county tax dollar to run our jail system in Broward County,”
Gulick says. “It’s the largest single expense to any
county taxpayer.”
Conditions at the County Jail were so overcrowded that the decision had been made to
build a new $70 million jail.
But, instead of doing it, The County Commissioners voted to expand pretrial release, letting
more inmates out on supervised release. Within
a year, the jail population plunged, so much so
that the sheriff closed an entire wing. It saved
taxpayers $20 million a year.
After a steady increase in Broward County’s
jail inmate population, the average population
started to decline in 2007. That is the year that
the County Commissioners doubled funding
for Broward’s pretrial release program.
Commissioners called the program a success. But then a year ago—two years after commissioners voted to double the program’s
funding—the same commissioners voted at
an otherwise mundane meeting to essentially
eliminate it.
The new ordinance strictly limits who can
qualify for pretrial release and heavily reduces
the program back by several hundred defendants.
What had happened?
Upon investigation, it was found that the 135
bail bandsmen in Broward County had taken
action to stop the reduction in their income that
the pretrial release program had brought them.
“Bondsmen Wayne Spath makes no apologies
for leading the charge against pretrial . . “Spath
argues that pretrial release costs taxpayers too
much money. And, he says, it was hurting his
business. “So he and the other bondsmen did
what any self-respecting private business group
would do: They hired a lobbyist, Rob Book . .
“According to campaign records, Book, Spath
and the rest of Broward’s bondsmen spread
almost $23,000 across the council in the year
before the bill was passed. Fifteen bondsmen cut
checks worth more than $5,000 to commissioner
(and now-county) Mayor Ken Keechl just five days
before the vote.”—National Public Radio, January 22, 2010.
Because large numbers of poor defendants
cannot afford the bail bond, they are placed in
jail. it costs the county a lot of money to house
and feed indigent defendants in jail because they
can’t afford a bondsman’s fees.
But what happened in Broward County, Florida, is taking place all across America.
“Bondsmen have lobbied to cut back local
pretrial programs from Texas to California,
pushed for legislation in four states limiting
pretrial’s resources, and lobbied Congress so
that they won’t have to pay the bond if the defendant commits a new crime.
“Behind them, the bondsmen have powerful
special interest group and millions of dollars.
Pretrial release agencies have a smattering of
public employees and the remnants of their oncethriving programs.”—Ibid.
—We deeply appreciate the work of NPR and
other investigative groups! They are trying to
protect America!
“News release, December 14, 2011—A tiny
percentage of very wealthy Americans funded
a relatively large chunk of the 2010 congressional midterm races, continuing a trend that
has been growing for two decades, according to
a new analysis of political contributions.
“The Sunlight Foundation, which advocates
for transparency in politics and government,
found that fewer than 27,000 individuals (out
of a population of 307 million Americans)
each gave at least $10,000 to federal political
campaigns in 2010.
“Sunlight’s report, ‘The Political One Percent
of the One Percent,’ said ‘these donors combined
spent $774 million—24.3 percent of all money
from individuals that went to candidates,
PACS, political parties and independent expenditure groups in aign contributions,’ says Lee
Drutman, a data fellow with Sunlight.
“Looking at the absolute top tier, Drutman says just 17 individuals gave more than
$500,000 each.
“Drutman found that over the past 20 years,
the $10,000-plus donors have accounted for an
ever bigger share of political contributions. He
says not just candidates but everybody leans
harder on the wealthy as campaign spending
“ ‘Parties want to be able to tap into donor networks of people who can give $10,000, $20,000
to the party. And both parties and candidates,
both, want to be able to tap into networks who
can give unlimited sums of money to independent expenditure groups,’ says Drutman.
“Independent expenditure groups, more
commonly known as super PACs, are approved
by the Federal Elections Commission. These
groups have an unprecedented ability to raise
large amounts of cash in order to bombard the
opposition with attack ads, such as American
Crossroads does on the right and Patriot Majority does on the left.
“The Sunlight Foundation’s analysis also
shows that the donor elite of both parties tend
to live in big cities—especially New York,
Washington, Chicago and Los Angeles. And
they break down into three categories of donors.
“The Sunlight Foundation report finds that
most of the largest donors live in major metropolitan areas.
“The bigger category, corporations, gave donations to Republicans.
“The much smaller categories, ideological givers and lawyer-lobbyists, tilted Democratic.
“While the Obama campaign and others em-
phasize their success with small givers, Drutman
says there’s no mistaking the economic class of
the group he looked at.
“ ‘Each of these elite donors on average give
$29,000 per electoral cycle. That’s more than
what half of Americans earn in a single year,’
Drutman explains.
“Others analyzing political giving patterns
have seen similar trends. ‘Bear in mind that
wealth is concentrated. And this donation
pattern, of course, reflects the concentration
of wealth in this country,’ says Jim Gimpel, a
political scientist at the University of Maryland.
“Gimpel cautions against jumping to conclusions about the donors and their motives.
“ ‘It’s easy to suspect that they’re the ones
behind the scenes pulling the strings, or distorting public policy in some way,’ says Gimpel.”
WHAT THE 2007-2008 CRASH
“I place economy among the first and most
important virtues, and public debt as the
greatest of dangers to be feared. To preserve
our independence, we must not let our rulers
load us with perpetual debt. If we run into such
debts, we must be taxed in our meat and drink,
in our necessities and in our comforts, in our
labor and in our amusements. If we can prevent
the government from wasting the labor of the
people, under the pretense of caring for them,
they will be happy.”—Thomas Jefferson
“The principle of spending money to be paid
by posterity, under the name of funding, is but
swindling futurity on a large scale.”—Thomas
“I hope a tax will be preferred [to a loan
which threatens to saddle us with a perpetual
debt], because it will awaken the attention of the
people and make reformation and economy the
principle of the next election. The frequent recurrence of this chastening operation can alone
restrain the propensity of governments to enlarge
expense beyond income.”—Thomas Jefferson to
Albert Gallatin, 1820.
“I believe that banking institutions are
more dangerous to our liberties than standing
armies. Already they have raised up a monied
aristocracy that has set the government at defiance. The issuing power [of money] should be
taken away from the banks and restored to the
people to whom it properly belongs.”—Thomas
“It’s never paid to bet against America. We
come through things, but its not always a smooth
ride.”—Warren Buffett
Today we did what we had to do. They counted on America to be passive. They counted
wrong.”—Ronald Reagan
“They that can give up essential liberty to
obtain a little temporary safety, deserve neither
liberty nor safety.”—Benjamin Franklin
“Timid men prefer the calm of despotism
to the tempestuous sea of Liberty.”—Thomas
“To compel a man to furnish funds for the
propagation of ideas he disbelieves and abhors is
sinful and tyrannical.”—Thomas Jefferson
“I think we have more machinery of government than is necessary, too many parasites
living on the labor of the industrious.”—Thomas
Jefferson, Letter to William Ludlow, September
6, 1824
“A nation of well informed men who have
been taught to know and prize the rights which
God has given them cannot be enslaved. It is
in the region of ignorance that tyranny begins.”—
Benjamin Franklin
“In the beginning of a change, the patriot
is a brave and scarce man, hated and scorned.
When the cause succeeds, however, the timid
join him . . for then it costs nothing to be a patriot.”—Mark Twain
“A democracy cannot exist as a permanent
form of government. It can only exist until the
voters discover that they can vote themselves
largess from the public treasury. From that time
on the majority always votes for the candidates
promising the most benefits from the public
treasury, with the results that a democracy always collapses over loose fiscal policy, always
followed by a dictatorship.”—John Adams
“The American Republic will endure, until
politicians realize they can bribe the people
with their own money.”—Alexis de Tocqueville
“Man is not free unless government is limited .
. As government expands, liberty contracts.”—
Ronald Reagan
“It’s not an endlessly expanding list of
rights—the “right” to education, the “right” to
health care, the “right” to food and housing. That’s
not freedom, that’s dependency. Those aren’t
rights, those are the rations of slavery—hay and
a barn for human cattle.”—Alexis De Tocquiville
“The American people will never knowingly
adopt socialism, but under the name of liberalism, they will adopt every fragment of the
socialist program until one day America will
be a socialist nation without ever knowing how
it happened.”—Norman Thomas, U.S. Socialist
Party Candidate 1940, 1944, 1948
“In the absence of the gold standard, there
is no way to protect savings from confiscation
through inflation . . This is the shabby secret
of the welfare statistician’s tirades against gold.
Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of
this insidious process. It stands as a protector
of property rights. If one grasps this, one has
no difficulty in understanding the statistician’s
antagonism toward the gold standard.”—Alan
“Government’s view of the economy could be
summed up in a few short phrases: If it moves,
tax it. If it keeps moving, regulate it. And if it
stops moving, subsidize it.”—Ronald Reagan
“America will never be destroyed from the outside. If we falter and lose our freedoms, it will
be because we destroyed ourselves.”—Abraham
“Far better it is to dare mighty things, to
win glorious triumphs, even though checkered
with failure, than to take rank with those poor
spirits who neither enjoy much nor suffer much
because they live in the gray twilight that knows
not victory nor defeat.”—Theodore Roosevelt
“The reward for work well done is the opportunity to do more.”—Jonas Salk
“The world stands aside to let anyone pass
who knows where he is going.”—David Starr
The more I want to get something done, the
less I call it work.”—Richard Bach
“Sarasate, the greatest Spanish violinist of the
nineteenth century, was once called a genius by a
famous critic. In reply to this, Sarasate declared,
“Genius! For thirty-seven years I’ve practiced
fourteen hours a day, and now they call me a
genius.”—John Maxwell
“Energy and persistence conquer all things.”—
Ben Franklin
“Always bear in mind that your own resolution to succeed is more important than any
other.”—Abraham Lincoln
“Destiny is not a matter of chance, it is a
matter of choice. It is not a thing to be waited
for, it is a thing to be achieved.”—William Jennings Bryant
“Opportunity is missed by most people
because it is dressed in overalls and looks like
work.”—Thomas Edison
“Many of life’s failures are people who did not
realize how close they were to success when they
gave up.”—Thomas Edison
“What you are afraid to do is a clear indicator of the next thing you need to do.”—Unknown
“Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to
do so whenever he may choose to say he deems
it necessary for such a purpose—and you allow
him to make war at pleasure.”—Abraham Lincoln
“If we could first know where we are, and
whither we are tending, we could then better
judge what to do, and how to do it.”—Abraham
“Knavery and flattery are blood relations.”—
Abraham Lincoln
“The people will save their government, if the
government itself will allow them.”—Abraham
“If ye love wealth better than liberty, the
tranquility of servitude better than the animating contest of freedom, go home from us in
peace. We ask not your counsels or arms. Crouch
down and lick the hands which feed you. May your
chains set lightly upon you, and may posterity
forget that ye were our countrymen.”—Samuel
“No people will tamely surrender their Liberties, nor can any be easily subdued, when
knowledge is diffused and virtue is preserved.
On the Contrary, when People are universally
ignorant, and debauched in their Manners, they
will sink under their own weight without the Aid
of foreign Invaders.”—Samuel Adams
“All might be free if they valued freedom, and
defended it as they should.”—Samuel Adams
“The liberties of our country, the freedoms of
our civil Constitution are worth defending at all
hazards; it is our duty to defend them against all
attacks. We have received them as a fair inheritance from our worthy ancestors. They purchased
them for us with toil and danger and expense
of treasure and blood. It will bring a mark of
everlasting infamy on the present generation—
enlightened as it is—if we should suffer them
to be wrested from us by violence without a
struggle, or to be cheated out of them by the
artifices of designing men.”—Samuel Adams
“A general dissolution of principles and
manners will more surely overthrow the liberties of America than the whole force of the
common enemy. While the people are virtuous
they cannot be subdued; but when once they lose
their virtue then will be ready to surrender their
liberties to the first external or internal invader.”—
Samuel Adams
“If ever a time should come, when vain and
aspiring men shall possess the highest seats in
Government, our country will stand in need of
its experienced patriots to prevent its ruin.”—
Samuel Adams
“Nothing is more essential to the establishment of manners in a State than that all persons
employed in places of power and trust must be
men of unexceptionable characters.”—Samuel
“The right to freedom is the gift of God Almighty . . The rights of the Colonists as Christians
may be best understood by reading, and carefully
studying the institutes of the great Lawgiver and
head of the Christian Church: which are to be
found clearly written and promuligated in the
New Testament.”—Samuel Adams
“The saddest epitaph which can be carved in
memory of a vanished liberty is that it was lost
because its possessors failed to stretch forth a
saving hand while yet there was time.”—George
Sutherland, 1862-1942 US Supreme Court
It is remarkable how many aspects of the
1929 Crash are mirrored in conditions which
led to our present recession. Will the coming
years also mirror what happened from 1929
to 1940?
The Wall Street Stock Market Crash of October 1929 was the most devastating stock market crash in the history of the United States,
taking into consideration the full extent and
duration of its fallout.
The crash marked the beginning of the 12year Great Depression that affected all Western
industrialized countries. It did not end in the
United States until the beginning of American
entry into World War II at the end of 1941.
The similarities between the causes of that
crash and our own massive recession today are
striking. For some reason, we did not learn from
the past,—and so repeated it.
The Great Depression was foreshadowed
by the irresponsible monetary and fiscal policies of the U.S. government in the late 1920s
and early 1930s. Murray Rothbard, in his book,
America’s Great Depression, revealed how the
federal government bloated the money supply by more than 60 percent from mid 1921
to 1929,—and how this easily available credit
drove interest rates down, pushing the stock
market higher and higher, and giving us the
“Roaring Twenties”—a period of decadency and
loose morals (Murray Rothbard, America’s Great
Depression, p. 89).
This led to an immense contraction of the
money supply. Between August 1929 and March
1933, the money supply in America shrank to
one-third its former value.
The Roaring Twenties, the decade that led
up to the Crash, was a time of wealth and
excess. Massive amounts of financial speculation occurred, yet no one was concerned that
the good times would ever end. Many believed
that the stock market would continue to rise
When President Calvin Coolidge delivered his
1928 State of the Union address, he noted that
America had never “met with a more pleasing
prospect than that which appears at the present time.” Although the disparity between the
rich and the poor had widened within the past
decade, yet Americans could now buy goods on
installment plans (a relatively new concept), and
everyone was buying on credit.
The Dow Jones Industrial Average quadrupled. At that time, it was the longest bull
market ever recorded; some thought it would
last forever. The market had been on a six-year
run that saw the Dow Jones Industrial Average
increase in value fivefold peaking at 381.17 on
September 3, 1929. Shortly before the crash,
economist Irving Fisher famously proclaimed,
“Stock prices have reached what looks like a
permanently high plateau.”
This exuberance lured more investors to
the market, investing on margin with borrowed
money. By 1929, 2 out of every 5 dollars a bank
loaned were used to purchase stocks.
The market peaked on September 3, 1929.
Steel production was down, several banks had
failed, and fewer homes were being built, but
few paid attention—the Dow stood at 381.17, up
27% from the previous year. Over the next few
weeks, however, prices began to move downward.
And the lower they fell, the faster they picked up
In the last hour of trading at the New York
Stock Exchange (NYSE) on “Black Thursday”,
Oct. 24, 1929, stock prices suddenly plummeted. The market lost 11% of its value at the
opening bell on very heavy trading. When the
closing bell rang at 3 p.m. people were shaken.
No one was sure what had just happened, but that
evening provided enough time to think about
it—and fear and panic to set in. They had reason
to be concerned since so much of that stock had
been purchased with borrowed money.
When the market opened again the next day,
share prices plunged with renewed violence.
Stock transactions in those days were printed on
ticker tape, which could only produce 285 words
a minute. Thirteen million shares changed
hands—the highest daily volume in the exchange’s
history at that point—and the tape didn’t stop running until four hours after the market closed. The
following day, President Herbert Hoover went on
the radio to reassure the American people, saying
“The fundamental business of the country . . is
on a sound and prosperous basis.”
Several leading Wall Street bankers met
to find a solution to the panic and chaos on
the trading floor. The meeting included Thomas
W. Lamont, acting head of Morgan Bank; Albert
Wiggin, head of the Chase National Bank; and
Charles E. Mitchell, president of the National City
Bank of New York. They chose Richard Whitney,
vice president of the Exchange, to act on their
behalf. With the bankers’ financial resources behind him, Whitney placed a bid to purchase a
large block of shares in U.S. Steel at a price well
above the current market. As traders watched,
Whitney then placed similar bids on other “blue
chip” stocks. This tactic was similar to one that
ended the Panic of 1907. It succeeded in halting the slide. The Dow Jones Industrial Average
recovered, closing with it down only 6.38 points
for the day; however, unlike 1907, the respite was
only temporary.
And then came October 28, “Black Monday”. As soon as the opening bell rang, prices
began to drop. Huge blocks of shares changed
hands, as previously impregnable companies like
U.S. Steel and General Electric began to tumble.
The slide continued with a record loss in the
Dow for the day of 38 points, or 13%. So many
shares changed hands that day that traders didn’t
have time to record them all. They worked into
the night, sleeping in their offices or on the floor,
trying to catch up to be ready for October 29.
It is said that the opening bell was never
heard on Black Tuesday because the shouts of
“Sell! Sell! Sell!” drowned it out.
In the first thirty minutes, 3 million shares
changed hands. This amounted to $2 million that had totally disappeared. Phone lines
clogged. The volume of Western Union telegrams
traveling across the country to New York City
tripled. The ticker tape ran so far behind the
actual transactions that some traders simply let
it run out. Trades happened so quickly that
although people knew they were losing money,
they didn’t know how much.
Rumors of investors jumping out of buildings spread through Wall Street; although some
of the stories were not true. But this drove the
prices down further. Brokers called in margins
(that is, the actual money represented by stock
holdings). If stockholders couldn’t pay up, their
stocks were sold, wiping out many an investor’s life savings in an instant. So many trades
were made—each recorded on a slip of paper—
that traders didn’t know where to store them,
and ended up stuffing them into trash cans. One
trader fainted from exhaustion, was revived and
put back to work.
The next day, “Black Tuesday”, October 29,
1929, about 16 million shares were traded,
and the Dow lost an additional 30 points, or
12%. The volume on stocks traded on October
29, 1929 was a record that was not broken for
nearly 40 years.
There were rumors that U.S. President Herbert Hoover would not veto the pending HawleySmoot Tariff bill—and stock prices shot down
even faster.
The New York Stock Exchange’s board of
governors considered closing the market, but decided against it, lest the move increase the panic.
Instead, William C. Durant joined with members
of the Rockefeller family and other financial giants to buy large quantities of stocks in order to
demonstrate to the public their confidence in the
market, but their efforts failed to stop the large
decline in prices. The ticker did not stop running
until about 7:45 that evening. The market had
lost over $30 billion in the space of two days.
When the market closed at 3 p.m. that
Tuesday, more than 16.4 million shares had
changed hands, using 15,000 miles of ticker
tape paper. The Dow had dropped another 12%.
Surveying the wreckage afterward, a total
of $25 billion—some $319 billion in today’s
dollars—was lost in the U.S. alone, during the
1929 crash.
Significantly, The falls in share prices on
October 24 and 29, 1929 were practically instantaneous in all financial markets, except Japan.
Stocks continued to fall over subsequent
weeks, and did not bottom out on November
13, 1929 (with the Dow closing at 198.60).
The market recovered for several months and
then began sliding again, gaining momentum as
it went, heading steadily downward, reaching a
secondary closing peak (i.e., bear market rally)
of 294.07 on April 17, 1930 before embarking on
another, much longer, slide from April 1931 to
July 1932 when the Dow closed at 41.22—its
lowest level of the 20th century. It would not
return to the peak of September 1929 until November 1954.
The Great Depression had arrived. Companies incurred huge layoffs, unemployment skyrocketed, wages plummeted and the economy
went into a tailspin. While World War II helped
pull the country out of a Depression by the early
1940s, the stock market did not return to its precrash numbers until 1954.
Together, the 1929 stock market crash and
the Great Depression formed “the biggest financial crisis of the 20th century”.
After the 1929 Stock Market Crash occurred,
according to the clearly stated view of Ben
Bernanke in November 8, 2002 (at that time a
Federal Reserve Governor, now its Chairman),
it was none other than the Federal Reserve
that caused the Great Depression which followed—and the horrific suffering, deprivation
and dislocation America and the world experienced in its wake.
The worldwide economic downturn called the
Great Depression, which persisted from 1929
until about 1939, was the longest and worst depression ever experienced by the industrialized
Western world. While originating in the U.S., it
ended up causing drastic declines in output,
severe unemployment, and acute deflation in
virtually every country on earth. According to
the Encyclopedia Britannica, “the Great Depression ranks second only to the Civil War as the
gravest crisis in American history.”
The economic collapse of 1929-33 was the
product of the nation’s monetary mechanism
gone wrong. At the time of that crisis, those in
charge of the Fed believed that money and
its loss was not important in working toward
nationwide fiscal recovery. “The contraction is
in fact a tragic testimonial to the importance of
monetary forces” (see Milton Friedman and Anna
J. Schwartz, Monetary History).
In that 2002 speech, Bernanke explained that
while it was in large part to improve the management of banking panics that the Federal Reserve
was created in 1913, yet in the early 1930s the
Federal Reserve did not serve that function.
The problem was that those in charge of the
Fed had accepted the theory of Treasury Secretary Andrew Mellon that weeding out “weak”
banks was a harsh but necessary prerequisite
to the recovery of the banking system. Thus
the Fed saw no particular need to try to stem the
panics. At the same time, the large banks–which
would have intervened before the founding of the
Fed–felt that protecting their smaller brethren
was no longer their responsibility. Indeed, since
the large banks felt confident that the Fed would
protect them if necessary, the weeding out of small
competitors was a positive good, from their point
of view.
As a result, a very large number of banks
failed, taking with them the savings of millions
of Americans.—and the banking panics of the
Great Depression were much more severe and
widespread than would have normally occurred
during a downturn.
The Fed failed to use policies that might
have stopped a recession from turning into a
depression. People wanted to hold more money
than the Federal Reserve was supplying. As a result people hoarded money by consuming less.
This caused a contraction in employment and
production since prices were not flexible enough
to immediately fall. The Fed’s failure was in not
realizing what was happening and not taking corrective action. In addition, the potential for a run
on the banks caused local bankers to be more
conservative in lending out their reserves.
Weaknesses in the rural economy made local banks highly vulnerable. Farmers, already
deeply in debt, saw farm prices plummet in
the late 1920s and their implicit real interest
rates on loans skyrocket; their land was already
over-mortgaged (as a result of the 1919 bubble
in land prices), and crop prices were too low
to allow them to pay off what they owed. Small
banks, especially those tied to the agricultural
economy, were in constant crisis in the 1920s
with their customers defaulting on loans because
of the sudden rise in real interest rates; there was
a steady stream of failures among these smaller
banks throughout the decade.
Some of the nation’s largest banks were
failing to maintain adequate reserves and were
investing heavily in the stock market or making risky loans. Among the riskiest were loans
to Germany and Latin America by New York City
banks. In other words, the banking system was
not well prepared to absorb the shock of a major
The magnitude of the shock to expectations of
future prosperity was high. Most analysts believe
the market in 1928-29 was a “bubble” with
prices far higher than justified by fundamentals.
Could such a deepening recession happen again right now? Here is the sequence of
events back then:
Under pressure from the Coolidge administration and from business, the Federal Reserve
Board kept the discount rate low, encouraging
high (and excessive) investment. By the end of
the 1920s, however, capital investments had created more plant space than could be profitably
used, and factories were producing more than
consumers could purchase.
During the Crash of 1929 preceding the Great
Depression, margin requirements were only 10%.
In other words, at the beginning of the crash,
brokerage firms would lend $9 for every $1 an
investor had deposited.
1 - When the market fell, brokers called in
these loans, which could not be paid back.
Banks began to fail as debtors defaulted on
debt and massive numbers of depositors attempted to withdraw their deposits. This triggered multiple bank runs.
2 - Government guarantees and Federal
Reserve banking regulations to prevent such
panics were not properly used.
3 - Bank failures led to the loss of billions of
dollars in assets. Outstanding debts became
heavier, because prices and incomes fell by
20–50% but the debts remained at the same
dollar amount.
After the panic of 1929, and during the first
10 months of 1930, 744 US banks failed. (In all,
9,000 banks failed during the 1930s). By April
1933, around $7 billion in deposits had been
frozen in failed banks or those left unlicensed
after the March 1933 Bank Holiday.
4 - Bank failures snowballed as desperate
bankers called in loans, which the borrowers
did not have time or money to repay.
5 - With future profits looking poor, capital
investment and construction slowed or completely ceased.
In the face of bad loans and worsening future
prospects, the surviving banks became even
more conservative in their lending. Banks built
up their capital reserves and made fewer loans,
which intensified deflationary pressures. A vicious cycle developed and the downward spiral
6 - The liquidation of debt could not keep
up with the fall of prices it caused.
7 - The mass effect of the stampede to liquidate increased the value of each dollar owed,
relative to the value of declining asset holdings.
Thus, the very effort of individuals to lessen their
burden of debt effectively increased it. Paradoxically, the more the debtors paid, the more they
This self-aggravating process transformed a
1930 recession into a 1933 great depression.
Another aspect of the Great Depression years
was caused by the enactment of the SmootHawley Tariff in 1930, which Congress enacted
after the 1920 Crash and before President Herbert
Hoover left office. This harsh anti-foreign trade
law, signed into law on June 17, 1930, which
raised U.S. tariffs on over 20,000 imported goods
to record levels, closed U.S. borders to foreign
goods. In retaliation, a vicious international trade
war resulted, as foreign nations refused to accept
our products. This greatly injured our industries
(including automobiles) and food. We could not
import needed equipment and supplies or sell
anything overseas. In May 1930, a petition had
been signed by 1,928 economists in the U.S. asking President Hoover to veto the legislation, but
he signed it anyway.
It was not until the Bretton Woods Agreement, in 1944, that a great lessening of global
tariffs began in December 1945, and the General
Agreement on Tariffs and Trade, was signed by
the nations in the 1950s.
The general misery in America was only added
to by Congressional enactment of an immense
increase of taxes on everyone. The Revenue Act
of 1932 caused tax rates (personal, corporate,
gasoline, and postal rates) paid by all Ameri-
cans to the federal government to be greatly
The next problem was the National Labor
Relations Act of 1935 which gave organized
labor great power against employers. It took
labor disputes out of courts of law and brought
them under a new federal agency, which tended
to favor the labor unions. This weakened business even more.
It is of interest that just after the 1929
Crash, unemployment in America was only 9
percent (what it is today). It climbed slowly to
11 percent. But foolish government decisions
of the 1930s kept raising it—until when World
War II began in 1941, it was 17 percent!
Henry M. Morgenthau was the U.S. Secretary
of the Treasury during the entire administration
of Franklin D. Roosevelt (1933-1945). He played
a major role in designing and financing the New
Deal. More than any other man, he knew the
problems it faced, and how it failed. He wrote
this in his diary:
“We have tried spending money. We [the federal government] are spending more than we
have ever spent before and it does not work .
. We have never made good on our promises . .
I saw after eight years of this Administration [by
1940] we have just as much unemployment as
when we started . . and an enormous debt to
boot.”—H. M. Morgenthau, quoted in J.M. Blum,
From the Morgenthau diaries: Years of Crisis,
1928-1938, pp. 24-25.
And he added that the rich should be paying
more in taxes, but that was not done—and this
was part of the stalled economic recovery.
“We have never begun to tax the people in
this country the way they should be . . I don’t
pay what I should. People in my class don’t.
People who have it should pay.”—Ibid.
Reagan’s tax shifts—Before considering
the disastrous changes which occurred after the
turn of the century, it should be mentioned that,
in October 1986, President Reagan signed the
Tax Reform Act of 1986. This bipartisan reform
shifted a large part of the tax burden from individuals to corporations and also exempted
millions of low-income households from federal
income taxes.
Reagan also agreed to raise the capital gains
tax rate from 20 percent to 28 percent, because
he said that capital gains and ordinary income
ought to be taxed at the same rate.
Both of Reagan’s tax changes tended to be
helpful, because they tended toward higher tax
payments by the rich.
Gingrich and Clinton’s tax shifts—In the
1994 campaign season, Newt Gingrich and
several other Republicans came up with a Contract with America, which laid out ten policies
that Republicans promised to bring to a vote on
the House floor during the first hundred days of
the new Congress, if they won the election.
Among the first pieces of legislation passed
by the new Congress under Gingrich was the
Congressional Accountability Act of 1995, which
subjected members of Congress to the same
laws that apply to U.S. businesses and their
employees. That was a startling improvement.
A key aspect of the Contract with America
was the promise of a balanced federal budget;
and a working toward the elimination of all
federal debt! By May 1997, Republican congressional leaders reached a compromise with the
Democrats and President Clinton on the federal
budget. The agreement called for a federal spending plan designed to reduce the federal deficit and
achieve a balanced budget by 2002.
President Clinton signed the budget legislation in August 1997. At the signing, Gingrich
gave credit to ordinary Americans stating, “It was
their political will that brought the two parties
In early 1998, with the economy performing
better than expected, increased tax revenues
helped reduce the federal budget deficit to
below $25 billion. Gingrich then called upon
President Clinton to submit a balanced budget
for 1999—three years ahead of schedule—which
Clinton did, making it the first time the federal
budget had been balanced since 1969.
Gingrich has been credited with creating the
agenda for the reduction in capital gains tax, especially in his Contract with America, which set out
to balance the budget and implement decreases
in estate and capital gains tax.
In the year 2000, the economy was doing well,
tax revenues were rolling in. Expenses for war
were none. And there was a $200 billion surplus.
(But keep in mind that a “balanced budget”
only means that the government has not overspent
that year; there is no “deficit” that year. It does
not mean that all previously amassed federal debt
has been paid. A “balanced budget” year, does not
add to the federal debt and does not reduce it.)
The Clinton tax reductions for the rich—
Then Clinton started us on the path of protecting
the rich from taxation:
In 1997 President Clinton signed into effect
the Taxpayer Relief Act of 1997, which included
the largest capital gains tax cut in U.S. history.
This greatly helped the wealthy in America.
There were also reductions in a number of
other taxes on investment gains. Additionally,
the act raised the value of inherited estates
and gifts that could be sheltered from taxation.
The Bush tax cuts—George W. Bush said
his first order of business was giving back the
surplus by cutting taxes. Then came Sept. 11,
the war in Afghanistan and a large increase in
government spending on domestic security.
In 2002, the economy slid into a recession
so President Bush and Congress supported
another tax cut—this one to stimulate spending by businesses. By the end of that year, the
surplus was gone and the government began
going heavily in debt.
In President Bush’s State of the Union address
in early 2003, he warned of rising unemployment,
and he said the best way to get people working
was to reduce taxes still more.
The center of this added, proposed tax cut
was a reduction in capital gains taxes, and a
lower rate for investment income. This meant
that rich Americans would be much wealthier.
Congress was already spending more money
than it was taking in. Cutting taxes again would
make that worse. And the Bush administration
appeared to be on the brink of invading Iraq—a
second war to fund.
Every economic forecast from the Congressional Budget Office on down showed that it
would lead to an immense, ongoing loss of federal revenues, and deficits larger than anything
we had ever seen.
The Obama massive spending increases—
As if they were not already high under Bush,
when Obama came into office, he dramatically
increased the amount of money that the federal
government spent.
Then came the collapse in 2007. Read this!
“In the first 19 months of the Obama adminstration, the federal debt held by the public
increased by $2.5260 trillion, which is more
than the cumulative total of the national debt held
by the public that was amassed by all U.S. presidents from George Washington through Ronald
Reagan.”—CNS News, September 1, 2010.
That is 2,526,000,000 dollars. You could not
count that high in a lifetime.
1- The housing crisis—The immediate
cause that triggered our present crisis into a
bursting bombshell—was the popping of the
United States housing bubble which peaked in
approximately 2005–2006.
—But first, some readers need to better understand the basics underlying this:
The main difference between prime and
subprime mortgages is the credit score requirements for the borrower. In most cases, a borrower with a credit score below 580 (indicating
that the loan has a higher risk of not being repaid.)
can only qualify for a subprime mortgage.
Subprime mortgages carry more of a risk
for lenders, therefore, the interest rate charged to
the borrower is significantly higher than a prime
Making late bill payments or declaring personal bankruptcy could very well place borrowers in
a situation where they can only qualify for a subprime mortgage. Therefore, it is often useful for
people with low credit scores to wait for a period
of time and build up their scores before applying for mortgages to ensure they are eligible for a
conventional mortgage. It is in the borrower’s best
interest to have the highest credit score possible
when applying for a mortgage debt. On the other
hand, a subprime mortgage gives a borrower
with lower credit scores the opportunity to own
a home and begin to work on building his credit
score up enough to qualify for a prime mortgage
refinance in a few years.
Both subprime and prime mortgages offer the
same basic loan terms, with length of the debt
ranging from 10 to 40 years with fixed and variable rate options.
Beware: Many lenders will sneak an “adjustable rate mortgage” into the contract. This
gives them permission to raise the interest rate
whenever and as often as they wish—so they can
later evict you for non-payment. Other subprime
lenders are known for predatory lending. They
are well aware that the borrower has limited options due to his credit score and will raise the
rates accordingly. The borrower should shop
around to try to procure the lowest possible rate,
even for a subprime mortgage.
Frankly, it is highly dangerous to purchase
a house on a subprime basis, because you are
so likely to lose the house and all you have in-
vested in it. Unfortunately, many Americans have
recently discovered that fact!
Now back to our closer examination of the
causes of the present recession in the U.S.:
When this housing bubble which burst in
approximately 2005–2006, high default rates
on subprime and adjustable rate mortgages
(ARM), began to increase quickly thereafter. An
increase in loan incentives (such as easy initial
terms) and a long-term trend of rising housing
prices had encouraged borrowers to sign into
difficult mortgages in the belief they would be
able to refinance soon at more favorable terms.
Additionally, the economic incentives provided
to the originators of subprime mortgages, along
with outright fraud, increased the number of
subprime mortgages provided to consumers who
would have otherwise qualified for conforming
loans. However, once interest rates began to rise
and housing prices started to drop moderately
in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and
foreclosure activity increased dramatically as
easy initial terms expired, home prices failed
to go up as anticipated, and ARM (adjustable
rate mortgages) interest rates reset higher.
Add to this falling home prices, and it all resulted in 23% of U.S. homes worth less than the
mortgage loan by September 2010, providing
a financial incentive for borrowers to enter foreclosure. The ongoing foreclosure epidemic, of
which subprime loans are one part, that began
in late 2006 in the U.S. continues to be a key
factor in the global economic crisis, because
it drains wealth from consumers and erodes the
financial strength of banking institutions.
2 - Easy credit conditions—In the years
leading up to the crisis, significant amounts of
foreign money flowed into the U.S. from fastgrowing economies in Asia and oil-producing
countries. This inflow of funds combined
with low U.S. interest rates from 2002–2004
contributed to easy credit conditions, which
fueled both housing and credit bubbles. Loans
of various types (e.g., mortgage, credit card, and
auto) were easy to obtain and consumers assumed an unprecedented debt load. As part of
the housing and credit booms, the amount of
financial agreements called mortgage-backed
securities (MBS), which derive their value from
mortgage payments and housing prices, greatly
increased. Such financial innovation enabled
institutions and investors around the world to
invest in the U.S. housing market.
As housing prices declined, major global
financial institutions that had borrowed and invested heavily in MBS reported significant losses.
Defaults and losses on other loan types also
increased significantly as the crisis expanded
from the housing market to other parts of the
economy. Total losses are estimated in the trillions of U.S. dollars globally.
Weakened financial system—At the same
time that the housing and credit bubbles were
growing, a series of factors caused the financial
system to become increasingly fragile.
Policymakers did not recognize the increasingly important role played by financial
institutions such as investment banks and
hedge funds, also known as the shadow banking
system. Some experts believe these institutions
had become as important as commercial (regular
depository) banks in providing credit to the U.S.
economy,—yet they were not subject to the same
These institutions as well as certain regulated
banks had also assumed significant debt burdens while providing the loans described above.
Because of this, they did not have a financial
cushion sufficient to absorb large loan defaults
or MBS losses. These losses impacted the ability of financial institutions to lend money. This
greatly slowed economic activity.
Because of concerns regarding the stability
of key financial institutions, central banks took
action to provide funds to encourage lending
and to restore faith in the commercial paper
markets, which are integral to funding business operations. (Yet even then, banks were
afraid to lend out the money, so it piled up in
the banks.) Governments also bailed out key
financial institutions, which increased their own
government debts.
The risks to the broader economy created by
the housing market downturn and subsequent
financial market crisis were primary factors in
several decisions by central banks around the
world to cut interest rates and governments to
implement economic stimulus packages.
Effects on global stock markets due to the
crisis have been dramatic.
Between January 1 and October 11, 2008,
owners of stocks in U.S. corporations had
suffered about $8 trillion in losses, as their
holdings declined in value from $20 trillion
to $12 trillion. Losses in other countries have
averaged about 40%.
Losses in the stock markets and housing
value declines have caused consumers to be
fearful of spending money, a key economic
Leaders of the larger developed and emerging
nations met in November 2008 and March 2009
to formulate strategies for addressing the crisis. A
variety of solutions have been proposed by government officials, central bankers, economists, and
business executives. In the U.S., the Dodd–Frank
Wall Street Reform and Consumer Protection
Act was signed into law in July 2010 to address
some of the causes of the crisis. But that has not
solved the immensity of the problems which
now exist. This is because Congress which
receives so much in lobbyist money from the
Financial Industry is fearful to properly regulate the banks and stock markets.
Massive profits to a few in the finance
industry—In 2007, at the peak of the economic
bubble, the financial services sector had become
a wealth-creation machine, ballooning to more
than 40 percent of total corporate profits in
the U.S. Financial products—including a new
array of securities so complex that even many
CEOs and boards of directors did not understand
them—accelerated the intake of riches by these
The mortgage industry was an especially
important component of this system, providing loans that served as the raw material for Wall
Street’s elaborate creations, repackaging and then
reselling them around the globe.
With all the profits that were being generated,
Wall Street was amassing a new generation of
wealth not seen since the debt-fueled 1980s.
Those who worked in the finance industry earned an astounding $53 billion in total
compensation in 2007. Ranked at the top of the
five leading brokerages at the onset of the crisis
was Goldman Sachs which accounted for 420
billion of that total. This worked out to more
than $661,000 per employee. The company’s
chief executive office, Lloyd Blankfein, alone
took home $68 million.
The big brokerage firms had been bolstering
their bets (for that is what they were) with enormous quantities of debt. Wall Street firms had
debt to capital ratios of 32 to 1. That means
that for every dollar on hand, they had 32 dollars
which they owed someone. What a way to live!
But while those wealthy gamblers walked away
with massive amounts of money, what they had
been doing greatly damaged the lives of millions.
Cheap money brought catastrophe—The
Wall Street powerhouse which emerged from
the collapse of the bubble and the
post-9/11 downturn was in large part due to
cheap money. Federal Reserve chairman Alan
Greenspan had purposely driven the interest rates
down to an extremely low level, and then held
them there. This was done to stimulate growth
following the 2001 recession. But these unusually low interest rates began to flood the world
with money.
Subprime lending added to the intensity of
the crash—The crowning example of lquidity
run amok was the subprime mortgage market.
At the height of the housing bubble, banks were
eager to make home loans to nearly anyone
capable of signing on the dotted line. With no
documentation a prospective buyer could claim
a six-figure salary and walk out of a bank with a
$500,000 mortgage, topping it off a month later
with a home equity line of credit. Home prices
skyrocketed as a result. Some even placed a
second mortgage on their now higher-valued
home, and used that to purchase SUVs and power
Wall Street then took these mortgages and
split them up into little pieces and resold them
for even more profit. As a result, every financial
firm was dependent on every other. If one fell, it
could bring down many others.
By August 2007, the $2 trillion subprime
market had collapsed, unleasing a global contagion. Two major Bear Stearns hedge funds that
made major subprime bets failed, losing $1.6
billion of their investor’s money.
Bear Stearns, the weakest and most highly
leveraged of the Big Five was the first to fall. But
everyone knew that even the strongest of banks
could not withstand a full-blown investor panic,
which meant that no one felt safe and o one was
ure who else on the Street could be next.
Instead of giving birth to a brave new world
of riskless investments, the banks actually created a risk to the entire financial system.
During the critical months after Monday,
March 17, 2008, when JP Morgan agreed to
absorb Bear Searns, U.S. government officials
eventually determined that it was necessary to undertake the largest public intervention in the nation’s economic history. Our government poured
over a trillion into the financial industry, all
the while letting the men responsible for what
happened—walk away with their profits.
WHAT THE 2007-2008 CRASH
The 2007-2008 financial crisis resulted
in the collapse of large financial institutions,
the bailout of banks by national governments,
and downturns in stock markets around the
world. In many areas, the housing market had
also suffered, resulting in numerous evictions,
foreclosures and prolonged unemployment.
It contributed to the failure of key businesses,
declines in consumer wealth estimated in the
trillions of U.S. dollars, and a significant decline
in economic activity, leading to a severe global
economic recession in 2008.
The financial crisis was triggered by a complex
interplay of valuation and liquidity problems in
the United States banking system in 2008. The
collapse of the U.S. housing bubble, which
peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet,
damaging financial institutions globally.
Questions regarding bank solvency, declines
in credit availability and damaged investor confidence had an impact on global stock markets,
where securities suffered large losses during
2008 and early 2009. Economies worldwide
slowed during this period, as credit tightened
and international trade declined.
Governments and central banks responded
with unprecedented fiscal stimulus, monetary
policy expansion and institutional bailouts.
While many causes for the financial crisis
have been suggested, with varying weight assigned
by experts, the United States Senate issuing the
Levin–Coburn Report which found “that the crisis was not a natural disaster, but the result
of high risk, complex financial products; undisclosed conflicts of interest; and the failure
of regulators, the credit rating agencies, and
the market itself to rein in the excesses of Wall
Critics argued that credit rating agencies and
investors failed to accurately price the risk involved with mortgage-related financial products,
and that governments did not adjust their regulatory practices to address 21st-century financial
markets. The 1999 repeal of the Glass–Steagall
Act of 1933 effectively removed the separation
that previously existed between Wall Street
investment banks and depository banks. You
may want to read that sentence again.
We are now entering 2012, and our leaders
in Washington D.C. still do not know (or want
to know) how to solve the banking/finance/Wall
Street problem.
Later in this report we will learn that they actually do—for, to please their lobbyist friends,
between 1999 and 2004, our government leaders made three crucial changes which enabled
the high-paid gamblers in the finance industry
to accumulate millions for themselves in the
process of destroying the U.S. economy.
As a result, the number of Americans living
in poverty has climbed to 14.3 percent, “with the
ranks of working-age poor reaching the highest
level since at least 1965” (Washington Post, September 16, 2010).
A careful reevaluation of the housing market by HUD (Department of Housing and
Urban Development) in 1999 resulted in new,
stricter rules which banned risky, high-cost
loans from being used for the purchase of housing by individuals and families.
But in 2004, under the pressure from special interests on Congress and the White House,
these rules were dropped. Once again, high-risk
loans were used to provide housing.
Borrowers were offered a range of loans that
included layered teaser rates, interest-only,
negative amortization and payment options
and low-documentation requirements on top of
floating-rate loans. All these were traps to catch
innocent people.
Large numbers of people began purchasing
homes with these high-risk requirements hidden
in the mortgage documents. Borrowers were taking high-risk loans which it would be impossible to repay.
Looking at this housing crisis more closely,
we find this:
Steadily decreasing interest rates backed
by the U.S Federal Reserve from 1982 onward
and large inflows of foreign funds created easy
credit conditions for a number of years prior to
the crisis, fueling a housing construction boom
and encouraging debt-financed consumption.
The combination of easy credit and money
inflow contributed to the United States housing
bubble. Loans of various types (e.g., mortgage,
credit card, and auto) were easy to obtain and
consumers assumed an unprecedented debt load.
As part of the housing and credit booms,
the number of financial agreements called
mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which
derived their value from mortgage payments
and housing prices, greatly increased. Such
financial innovation enabled institutions and
investors around the world to invest in the U.S.
housing market.
The immediate cause or trigger of the national and international financial crisis was the
bursting of the United States housing bubble
which peaked in approximately 2005–2006.
Already-rising default rates on “subprime” and
adjustable rate mortgages (ARM) began to increase quickly thereafter. As banks began to give
out more loans to potential home owners, housing
prices began to rise.
Because interest rates were initally quite low,
banks encouraged home owners to take on
considerably large loans in the hope that they
would be able to pay them back more quickly
because of the low interest.
But as soon as the interest rates began to
rise in mid 2007, housing prices (the value
of the houses) dropped significantly. In many
states like California, refinancing became increasingly difficult. As a result, the number of
foreclosed homes also began to rise.
As housing prices declined, major global financial institutions throughout the world, which
had borrowed and invested heavily in subprime
MBS (mortgage-backed securities) reported significant losses.
Falling prices also resulted in homes worth
less than the mortgage loan, providing a financial incentive to enter foreclosure.
The ongoing foreclosure epidemic that
began in late 2006 in the U.S. still continues
to drain wealth from consumers and erodes
the financial strength of banking institutions.
Defaults and losses on other loan types also increased significantly as the crisis expanded from
the housing market to other parts of the economy.
Total losses are estimated in the trillions of
U.S. dollars globally.
U.S. Government policy from the 1970s onward has emphasized deregulation (supposedly
“to encourage business,” but probably to please
lobbyists), which resulted in less oversight of
activities and less disclosure of information
about new activities undertaken by banks and
other evolving financial institutions.
Because of this, policymakers did not immediately recognize the increasingly important role
played by financial institutions such as investment banks and hedge funds, also known as the
shadow banking system. Some experts believe
these institutions had become as important as
commercial (depository) banks in providing
credit to the U.S. economy, but they were not
subject to the same regulations.
Frankly, the almost total lack of regulation of
these non-depository financial institutions had
made them something like the Wild West in the
mid-19th century. They were a law unto themselves.
These losses damaged the ability of financial institutions to lend, slowing economic
activity. Concerns regarding the stability of key
financial institutions drove central banks to
provide funds to encourage lending and restore
faith in the commercial paper markets, which are
integral to funding business operations. Governments also bailed out key financial institutions
and implemented economic stimulus programs,
assuming significant additional financial commitments.
Between the years 1997 to 2006, the price
of an average American house increased by
124%. Between 1981 to 2001, the national median home price ranged from 2.9 to 3.1 times that
of the median household income. But after 2001,
the market value of homes increased dramatically. This ratio rose to 4.0 in 2004, and 4.6 in
2006. This housing bubble resulted in quite
a few homeowners refinancing their homes
at lower interest rates, or taking out second
mortgages so they could use the extra money
to buy other things.
In summary, American household debt as a
percentage of annual disposable personal income,
which had been 77% in 1990, had become 127%
by the end of 2007.
During the time that housing prices were increasing, consumers were saving less and both
borrowing and spending more. Household debt
grew enormously: from $705 billion at year-end
1974, 60% of disposable personal income, to $7.4
trillion at year-end 2000, and finally to $14.5
trillion in mid-year 2008, 134% of disposable
personal income.
During 2008, the typical USA household
owned 13 credit cards, with 40% of households
carrying a balance, up from 6% in 1970. The
extra money extracted from second mortgages
on higher-valued homes were used by consumers doubled from $627 billion in 2001 to $1,428
billion in 2005 as the housing bubble built,—a
total increase of nearly $5 trillion dollars over
that four-year period.
U.S. home mortgage debt relative to GDP
increased from an average of 46% during the
1990s to 73% during 2008, reaching $10.5
trillion. From 2001 to 2007, U.S. mortgage debt
almost doubled, and the amount of mortgage debt
per household rose more than 63%, from $91,500
to $149,500, with essentially stagnant wages.
This credit and house price explosion led to
a building boom and eventually to a surplus of
unsold homes, which caused U.S. housing prices to peak and begin declining in mid-2006.
And then there were the subprime borrowers “adjustable-rate” mortgages. Easy credit,
and a belief that house prices would continue
to appreciate (go up), had encouraged many
subprime borrowers to obtain adjustable-rate
mortgages. These mortgages enticed borrowers
with the hope of a below market interest rate for
some predetermined period, followed by market
interest rates for the remainder of the mortgage’s
term. Borrowers who would not be able to make
the higher payments once the initial grace
period ended, were planning to refinance their
mortgages after a year or two of appreciation. But
refinancing became more difficult, as soon as
house prices began to decline in many parts of
the U.S. Borrowers who found themselves unable
to escape higher monthly payments by refinancing
began to default.
As more borrowers stopped paying their
mortgage payments (and this is continuing today), foreclosures and the supply of homes for
sale increases.
This has placed downward pressure on
housing prices, which have further lowered
homeowners’ equity. The decline in mortgage
payments has also reduced the value of mortgage-backed securities, which erodes the net
worth and financial health of banks. This vicious cycle is at the heart of the crisis.
By September 2008, average U.S. housing
prices had declined by over 20% from their mid2006 peak. This major and unexpected decline in
house prices means that many borrowers have
zero or negative equity in their homes, meaning their homes were worth less than their
mortgages. As of March 2008, an estimated 8.8
million borrowers—10.8% of all homeowners—
had negative equity in their homes, a number
that is believed to have risen to 12 million by
November 2008. By September 2010, 23% of all
U.S. homes were worth less than the mortgage
loan. Borrowers in this situation have an incentive to default on their mortgages as a mortgage
is typically nonrecourse debt secured against the
property. Economist Stan Leibowitz argued in
the Wall Street Journal that although only 12%
of homes had negative equity, they comprised
47% of foreclosures during the second half of
2008. He concluded that the extent of equity in
the home was the key factor in foreclosure, rather
than the type of loan, credit worthiness of the
borrower, or ability to pay.
Increasing foreclosure rates has increased
the inventory, or number, of houses offered for
sale. The number of new homes sold in 2007 was
26.4% less than in the preceding year. By January 2008, the inventory of unsold new homes was
9.8 times the December 2007 sales volume, the
highest value of this ratio since 1981.
By the beginning of 2008, nearly four million existing homes were for sale, of which
almost 2.9 million were vacant. This overhang
of unsold homes lowered house prices. As prices
declined, more homeowners were at risk of default or foreclosure. House prices are expected to
continue declining until this inventory of unsold
homes (an instance of excess supply) declines to
normal levels. A January 2011 report stated
that U.S. home values dropped by 26 percent
from their peak in June 2006 to November
2010,—which is more than the 25.9 percent
drop between 1928 to 1933 when the Great
Depression occurred.
Predatory lending refers to the practice of
unscrupulous lenders, enticing borrowers to
enter into unsafe secured loans for inappropriate purposes. A classic bait-and-switch method
was used by Countrywide Financial, advertising low interest rates for home refinancing. Such
loans were written into extensively detailed
contracts, and swapped for more expensive
loan products on the day of closing. Whereas
the advertisement might state that 1% or 1.5%
interest would be charged, the consumer would
be put into an adjustable rate mortgage (ARM)
in which the interest charged would be greater
than the amount of interest paid. This created
negative amortization, which the credit consumer
might not notice until long after the loan transaction had been consummated.
Countrywide was sued by California Attorney General Jerry Brown for “unfair business
practices and false advertising,” because it was
making high cost mortgages “to homeowners
with weak credit, adjustable rate mortgages
(ARMs) that allowed homeowners to make
interest-only payments.” When housing prices
decreased, homeowners in ARMs then had little
incentive to pay their monthly payments, since
their home equity had disappeared. This caused
Countrywide’s financial condition to deteriorate,
ultimately resulting in a decision by California
State to seize the lender.
The U.S. Financial Crisis Inquiry Commis-
sion reported its findings in January 2011.
Testimony given to the Financial Crisis Inquiry Commission by Richard M. Bowen, III on
events during his tenure as CitiBank’s Business
Chief Underwriter for Correspondent Lending
in the Consumer Lending Group (where he was
responsible for over 220 professional underwriters) suggests that by the final years of the US
housing bubble (2006–2007), the collapse of
mortgage underwriting standards was endemic.
His testimony stated that by 2006, 60% of
mortgages purchased by Citi from some 1,600
mortgage companies were “defective” (were
not underwritten to policy, or did not contain all
policy-required documents). This, despite the
fact that each of these 1,600 originators were
contractually responsible (certified via representations and warrantees) that their mortgage
originations met Citi’s standards. Moreover,
during 2007, “defective mortgages (from mortgage originators contractually bound to perform
underwriting to Citi’s standards) increased . . to
over 80% of production.”
In separate testimony to the Financial Crisis
Inquiry Commission, officers of Clayton Holdings—the largest residential loan due diligence
and securitization surveillance company in the
United States and Europe—testified that Clayton’s review of over 900,000 mortgages issued
from January 2006 to June 2007 revealed that
scarcely 54% of the loans met their originators’
underwriting standards. The analysis (conducted on behalf of 23 investment and commercial
banks, including seven “Too Big To Fail” banks)
additionally showed that 28% of the sampled
loans did not meet the minimal standards of
any issuer. Clayton’s analysis further showed
that 39% of these loans (i.e. those not meeting
any issuer’s minimal underwriting standards)
were subsequently securitized and sold to investors—who then lost immense amounts of money.
Here is the concluding statement by this
“The crisis was avoidable and was caused
by: Widespread failures in financial regulation, including the Federal Reserve’s failure
to stem the tide of toxic mortgages; Dramatic
breakdowns in corporate governance including
too many financial firms acting recklessly and
taking on too much risk. An explosive mix of
excessive borrowing and risk by households
and Wall Street that put the financial system on
a collision course with crisis. Key policy makers
were not prepared as they should be for the
crisis. They lacking a full understanding of
the financial system they oversaw. There were
systemic breaches in accountability and ethics at
all levels.”—U.S. Financial Crisis Inquiry Commission Report, January 2011.
My friend, it is urgent that we face reality in
regard to our present condition as a nation. The
U.S. is essentially bankrupt. Neither spending
more nor taxing less will help the country pay
its bills.
What can our government leaders do to solve
the problem? They must radically simplify
our national tax, health-care, retirement and
financial systems. Over the years, each of these
has become heavily damaged because legislators and the White House have been pleasing
lobbyists, representing corporate and financial
interests, who arrive at their doors with money
in their hands.
But, fortunately, there may still be time in
which the above-mentioned financial structures
can be redesigned to achieve their legitimate
purposes at much lower cost and, in the process,
revitalize the economy. But in order to do it, our
legislators must close the doors to the clammering lobbyists and get down to work.
In July 2010, the International Monetary
Fund released its annual review of U.S. economic policy. Its summary contained these
bland words about U.S. fiscal policy: “Directors
welcomed the authorities’ commitment to fiscal
stabilization, but noted that a larger than budgeted adjustment would be required to stabilize
debt-to-GDP.” In those few words, they were saying that we are in big trouble.
The Selected Issues Paper of the International Monetary Fund (IMF) for the month of July
2010, made this statement:
“The U.S. fiscal gap associated with today’s
federal fiscal policy is huge for plausible discount rates . . Closing the fiscal gap requires a
permanent annual fiscal adjustment equal to
about 14 percent of U.S. GDP.”—IMF, July 2010
Selected Issues Paper, Section 6.
What is this “fiscal gap”? It is the difference
between where America is financially now, and
our projected revenue in all future years.
Our U.S. current federal revenue totals 14.9
percent of our gross domestic product (GDP).
In order to close the U.S. fiscal gap, in relation
to revenue (federal income), an immediate and
permanent doubling of our personal income
taxes, corporate taxes, and federal taxes must
be made!
Such a tax hike would leave the U.S. running
a surplus equal to 5 percent of GDP this year,
rather than a 9 percent deficit. So the IMF is really
saying the U.S. needs to run a huge surplus now
and for many years to come—in order to pay for
the spending that is scheduled.
The longer the country waits to make these
difficult fiscal adjustments, the more painful they
will be to all of us.
Next, let us consider the Congressional
Budget Office (CBO) whose Long-Term Budget
Outlook, released in June 2010, revealed an
even larger problem.
You see, we not only have admitted liabilities,
but we also have ‘unofficial’ liabilities. In common
language, this means that our nation has a massively larger debt than it admits to the public
or the investors.
Based on the data in that CBO analysis, there
is a fiscal gap of $202 trillion, which is more
than 15 times the official debt. (After reading that fact, pause for a moment to catch your
This absolutely huge discrepancy between our
“official” debt and our actual net indebtedness
should not be surprising. It reflects what economists call the “labeling problem”. Congress has
been very careful over the years to label most
of its liabilities “unofficial” to keep them off
the books and far in the future. It does this so
that the public will not realize what a poor job
Congress is doing,—especially so they will continue to reelect those same politicians. This is
more than just “kicking the can” of solving our
financial problems down the road for the next
generation to worry about. It is not disclosing
the full extent of what those problems are!
Here is one example of how this is done: Our
Social Security FICA contributions (Social Security payroll payments) are called taxes and our
future Social Security benefits are called transfer
payments. The government could equally well
have labeled our contributions “loans” and called
our future benefits “repayment of these loans less
an old age tax,” with the old age tax making up
for any difference between the benefits promised
and principal plus interest on the contributions.
But it did not do that.
The actual (very real) fiscal gap is not affected
by fiscal labeling. The amount owed by our government is very real and in need of payment,
regardless of what we call it or how much the
government tries to hide it.
Our fiscal gap is the only correct measure
of our long-run fiscal condition—because it
considers all spending, no matter how it is
labeled, and includes both long-term and shortterm policy.
Well then, how can this $4 trillion fiscal
gap be so massive in size? The answer is the
baby boomers.
By definition, a “baby boomer” is a person that
was born in or after January 1, 1946. A massive
number of people were born after that date. As of
January 1, 2011, the first of them turned 65
and (whether or not they stopped working then)
began receiving Social Security.
Stating the problem in simple words: We
have 78 million baby boomers who, when
fully retired, will collect benefits from Social
Security, Medicare, and Medicaid that, on
average, exceed per-capita GDP. The annual
costs of these entitlements will total about
$4 trillion in today’s dollars. Even though our
economy may be bigger in 20 years (and it may
be smaller),—it will not be big enough to handle
this size load, year after year.
Some have called Social Security a massive
Ponzi scheme. Although it was not supposed to
be that way, in some respects that is what it is.
Instead of placing the Social Security payments
received into a “locked box” (a special protected
fund), the government used that money for other
things. For 60 years, the government took ever
larger amounts of money from the young, and
gave them to the old; all the while promising the
younger ones their eventual turn at passing the
generational buck on to their children.
As one person put it: Our country is broke
and can no longer afford no-pain, all-gain “solutions.”
Herb Stein, chairman of the Council of Economic Advisers under President Richard Nixon,
had a favorite phrase he would tell others. “Something that can’t go on, will stop.”
Frankly, we are in deep trouble. Uncle Sam’s
Ponzi scheme will eventually stop. But when it
comes to an end, it will have stopped too late.
That brings us to a worrisome question:
What willl happen when it does stop?
• One possibility will be massive benefit cuts
visited on the baby boomers in retirement.
• The second will be enormously high tax
increases that, tragically, leave the young with
little incentive to work and save.
• The third is the government will simply
print vast quantities of money to cover its bills
(even more than it is now doing). You will recall
that Germany did just that in the 1920s, and
people walked the streets with wheelbarrows full
of German marks, since it would take that many
of them just to buy one loaf of bread.
• A combination of all three methods will
probably be done. This will result in dramatic
increases in poverty, taxes, interest rates, and
consumer prices.
Actually, we are already on that road! But it
is going to get much steeper.
At some point in the downhill slide, the bond
traders (who are so heavily invested in U.S. government bonds) will wake up to the facts of where
we are headed—and there will be a run on the
bond market, in order to sell off their U.S. bonds.
And then? I guess I won’t talk about it.
Our U.S. fiscal gap is our government’s
credit-card bill. Each year’s 14 percent of GDP
is the interest on that bill. If it does not pay this
year’s interest, it will be added to the balance.
Each year the total will become larger, until—.
If we could look behind the curtain, we would
probably find that it has been ongoing pressure
from the banks, exerted through reelection and
lobbyist contributions to members of Congress
which were responsible for the following series
of changes. Frankly, such foolish decisions could
have no other cause!
Economist Paul Krugman and U.S. Treasury
Secretary Timothy Geithner have argued that
the U.S. Government regulatory framework
did not keep pace with financial innovation,
such as the increasing importance of the shadow
banking system, derivatives and off-balance sheet
financing. In other cases, laws were changed or
enforcement weakened in parts of the financial
system. Key examples include:
Jimmy Carter’s Depository Institutions Deregulation and Monetary Control Act of 1980
(DIDMCA) phased out a number of restrictions
on banks’ financial practices, broadened their
lending powers, and raised the deposit insurance
limit from $40,000 to $100,000 (raising the problem of moral hazard). Banks rushed into real
estate lending, speculative lending, and other
ventures just as the economy soured.
In October 1982, U.S. President Ronald
Reagan signed into law the Garn–St. Germain
Depository Institutions Act, which provided for
adjustable-rate mortgage loans, and began
the process of banking deregulation, and contributed to the savings and loan crisis of the late
1980s/early 1990s.
In November 1999, Clinton signed into law the
Gramm–Leach–Bliley Act, which repealed part
of the Glass–Steagall Act of 1933. This repeal
reduced the separation between commercial
banks (which traditionally had fiscally conservative policies) and investment banks (which
had a more risk-taking culture).
In 2004, the U.S. Securities and Exchange
Commission relaxed the net capital rule, which
enabled investment banks to substantially increase the level of debt they were taking on,
fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC
has conceded that self-regulation of investment
banks contributed to the crisis.
As early as 1997, Federal Reserve Chairman
Alan Greenspan fought to keep the derivatives
market unregulated. With the advice of the President’s Working Group on Financial Markets, the
U.S. Congress and President Clinton allowed the
self-regulation of the over-the-counter derivatives market when they enacted the Commodity
Futures Modernization Act of 2000. From then
on, derivatives such as credit default swaps
(CDS) could be used to hedge or speculate
against particular credit risks. The volume of
CDS outstanding increased 100-fold from 1998
to 2008, with estimates of the debt covered by
CDS contracts, as of November 2008, ranging
from US$33 trillion to $47 trillion. Total current
over-the-counter (OTC) value of these derivatives
rose to $683 trillion by June 2008. Warren Buffett famously referred to derivatives as “financial
weapons of mass destruction” in early 2003.
The present writer questions whether
Congress will ever get around to re-regulating
the banking and investment houses. Have you
noticed that it has not done it yet!—in spite of
the fact that we are already several years into a
deepening recession. The special interests keep
sending their lobbyists to check on the possibility
that this might begin—and make sure that it will
not. The mice are playing on Wall Street, and there
is no cat to check on what is going on.
The only sure way to avoid another Wall
Street meltdown and ensure financial institutions act in ways that serve the economy—is to
separate the utility function of banking (which
serves savers and borrowers), from the investment function (investing in stocks, bonds, and
securities)—which had turned significant portions of the banking industry into a financial
market casino.
The banking system needs to restructured
to limit banks to their basic functions. Doing
this would allow market forces to make the next
financial crisis less likely and less severe.
Unless this is done, the U.S. will not be able
to continue to generate new businesses, growth,
and jobs, without repeatedly having to bail out
our big banks.
We must change the present appalling state
of affairs, in which highly leveraged “too big to
fail” institutions expect taxpayers to pick up
the multi-trillion-dollar tab when their gambling tricks go wrong.
Congress has permitted today’s financial institutions to become tax-payer subsidized casinos
increasingly divorced from the basic loan and
savings activities society expects them to perform.
While our present financial system puts us
all at risk, it does not have to be this way. We
can have all the benefits of a modern economy
without having crises like the this latest one.
But if changes are not made, it will continue to
happen again—and the next one may be worse.
One example of how the needed correctional
change should be made has been proposed by
Laurence Kotlikoff, an economics professor and
writer at Boston University.
He suggests an extremely simple set of reforms
of the U.S. financial system, tax system, health
care system, and retirement income system.
His proposed set of corrections of the financial
system, called “Limited Purpose Banking,”
transforms all financial companies with limited liability, including incorporated banks,
insurance companies, financial exchanges, and
hedge funds, into pass-through mutual funds,
which do not borrow to invest in risky assets.
Instead, the public is allowed to directly choose
what risks it wishes to bear by purchasing more
or less risky mutual funds.
Limited Purpose Banking keeps banks,
insurance companies, hedge funds and other
financial corporations from borrowing short
and lending long and leaving the public to pick
up the pieces when things go south. Instead, it
forces financial intermediaries to limit their activities to their sole legitimate purpose—financial
Limited Purpose Banking substitutes the
vast array of extant federal and state financial
regulatory bodies with a single financial regulator called the Federal Financial Authority (FFA).
The FFA would have a narrow purpose namely
to verify, disclosure, and oversee the independent
rating and custody of all securities purchased and
sold by mutual funds.
Similar to Kotlikoff’s plan would be the one
that Paul Volcker would recommend. He was an
economic advisor to President Barack Obama,
heading the President’s Economic Recovery Advisory Board. During the financial crisis, Volcker
has been extremely critical of banks, saying that
their response to the financial crisis has been
inadequate, and that more regulation of banks is
called for. Specifically, Volcker has called for a
breakup of the nation’s largest banks, prohibiting deposit-taking institutions from engaging
in riskier activities such as proprietary trading,
private equity, and hedge fund investments.
Volcker left the board when its charter expired
on February 6, 2011, without being included in
discussions on how the board would be reconstituted.
On January 21, 2010, President Barack
Obama proposed bank regulations which he
dubbed “The Volcker Rule”, in reference to Volcker’s aggressive pursuit of these regulations.
Volcker appeared with the president at the announcement. The proposed rules would prevent
commercial banks from owning and investing
in hedge funds and private equity, and limit the
trading they do for their own accounts.
• We must make major banking/financing/
investment changes. There are definite flaws that
need to be corrected.
• Short selling—One of these is short selling. This should either be closely monitored or
banned entirely.
The short seller hopes to profit from a decline
in the price of the assets between the sale and the
repurchase, as the seller will pay less to buy the
assets than it received on selling them.
The stock market crash of 1929 began as
speculators drove down the price of a stock by
continuing to sell stock below the market price.
Short selling may be used to illegally manipulate stock prices. Stock manipulators
produce a bear raid, and steal money from
other people.
Unrestricted short selling can intensify a
declining market in a security by increasing
pressure from the sell-side, eliminating bids,
and causing a further reduction in the price of
a security by creating an appearance that the
security price is falling for fundamental reasons,
when the decline, or the speed of the decline, is
in fact being driven by other factors.
Along with this, the manipulator may inject
inaccurate information into the market or created a false impression of market activity.
Related problems are wash sales, matched
orders, or rigged prices, that are intended to
mislead investors by artificially affecting market
Regulations should provide an uptick
rule—that is, a price test to restrict short selling—and a pre-borrow requirement to curtail
the abusive potential of naked short selling.
• Leverage—Leverage is the debt-to-equity
ratio. This is the amount that investment banks
were using to increase their profits must be
managed better. In other words, business firms
would go heavily in debt in order to purchase
securities or other firms.
An example would be how, at the time of the
2008 crash, Lehman Brothers was leveraged 30.7
to 1 (it had one dollar cash for every $30.70 it
owed). Merrill Lynch had 26.9 to 1. Yet somehow they could not stop their headlong leverage
buyouts, in an attempt to recoup their lost funds.
What the Federal Reserve’s policy makers
recognized at the time, but did not acknowledge
publicly, was that credit markets were beginning
to suffer as the housing bubble began slowly
collapsing. Cheap credit (at low interest rates)
had been the economy’s “rocket fuel,” so to
speak, encouraging consumes to pile on debt
(for second homes, new cars, home renovations,
etc.). It had also intensified a deal-making frenzy
greater than ever before seen. Leveraged buyouts
got larger and larger as private-equity firms
funded takeovers with mountains of loans. As
a result, transactions became ever riskier. This
caused normally conservative institutional investors (endowments, pension funds. etc.) to chase
higher returns by investing in hedge funds and
private-equity funds.
• Leveraged buyouts—Leveraged buyouts
should be strictly controlled or banned entirely.
(The word “leverage” means “to borrow.”)
A leveraged buyout (LBO, or highly leveraged
transaction (HLT), or “bootstrap” transaction)
occurs when an investor, typically a financial
sponsor, acquires a controlling interest in
a company’s equity and where a significant
percentage of the purchase price is financed
through leverage (borrowed money). The assets
of the acquired company are used as collateral
for the borrowed capital, sometimes with assets
of the acquiring company. Typically, leveraged
buyout uses a combination of various debt instruments from bank and debt capital markets. The
bonds or other paper issued for leveraged buyouts
are commonly considered not to be investment
grade because of the significant risks involved.
If the company subsequently defaults on its
debts, the LBO transaction will frequently be
challenged by creditors or a bankruptcy trustee
under a theory of fraudulent transfer.
• Capital ratios—Common requirements
for capital ratios are needed. This is the
amount of money a firm needs to keep on hand,
compared to the amount it can lend. Leverage
and liquidity standards should be required by law,
otherwise a company can become over-extended
and its investors can lose everything they have
invested. (To say it another way, debt to capital
ratios are a measurement of a company’s financial
leverage, calculated as the company’s debt divided
by its total capital. Debt includes all short-term
and long-term obligations.)
The problem at this time is that the banks
are hoarding money, fearful to lend it lest
conditions in America become even worse. Yet
small business firms urgently need loans in order
to hire workers and expand their business.
This indeed is a tragedy. Not only are most of
the politicians controlled through political contributions, while running for office, and by lobbyists,
after getting in;—but once they are settled into
their new job, some are making lots of money
on the side from insider stock trading!
In the Spring of 2010, Peter Schweizer,
a researcher at the Hoover Institute, began
checking public databases, hunting for the financial secrets of Washington’s most powerful
politicians. He knew that members of Congress
are free to buy and sell stocks in the very companies whose up and down course on the stock
market can be deeply influenced, or even determined, by Washington policy. The question was
whether these ultimate insiders act on what
they know. He found that it appears that some
of them do profit—and regularly—on this advance information. The data revealed that some
of Congress’s most prominent members are in
a position to routinely engage in what amounts
to a legal form of insider trading, profiting from
investment activity that, he says, “would send the
rest of us to prison.”
For example, Senator Max Baucus (R-AL)
played a central role in devising Obama’s medical
care bill. At the same time that he was negotiating with pharmaceutical companies about
which rules should be included, he was busily
buying and selling medical and drug stocks.
One year, he reported a capital gain in excess of
$150,000 from his trading activities.
At the time of the impending financial crash,
he learned in confidential briefings with Treasury Secretary Henry Paulson and Fed chairman Ben Bernake about what was just ahead.
On September 19, 2008, after attending two
such briefings, Bauchus bought options in an
index fund OroShares UltraShort QQQ) that effectively amounted to a bet that the market would
fall. Four days later, after the fall occurred, he
received a large check in the mail from that
short transaction.
Senator John Kerry (D-MA) and his wife
made numerous trades in medical care stocks
(almost $750,000 in Teva Pharmaceuticals in
November 2009 alone) during the time that, as
a member of the subcommittee overseeing it, he
was involved in helping to craft Obama’s medical
care bill.
After the first such briefing with Paulson and
Bernanke, Rep. Jim Moran (D-VA) and his wife
immediately sold their shares in 90 companies,
thus avoiding the losses that ordinary Americans experienced.
Another example of such “insider trading” was
Rep. Shelley Capito (D-WV) who sold between
$100,000 and $250,000 of Citigroup stock
the day after the first meeting with Bernanke.
While he was still Speaker of the House, Rep.
Dennis Hastert (D-NV) inserted a $207 million
earmark into a federal highway bill for a parkway near land he owned in rural Illinois. When
he first went to Congress in 1986, Hastert’s net
worth was less than $300,000. By 2007, it was
close to $11 million. He made more money as a
Congressman than he could have made playing
the slots back home.
During the debate over Obama’s medical care
reform package, John Boehner, then the House
minority leader, was, according to Schweizer, investing “tens of thousands of dollars” in medical insurance company stocks, which made
sizable gains when the proposed public option
in the reform deal was killed.
When Peter Schweizer began his investigative
research project, he was told by a former securities regulator, that investigators always look for
two thing in order to determine whether a stock
action is the result of insider trading (which is
illegal): First, whether the person had access
to definite information about what was about
to happen. Second, whether he engaged in
unusual trading.
No one on earth has better access to inside
and advance information than members of
Congress! Indeed, there is such a rich amount
of advance information overload—that the lobbyists who walk back and forth through the halls
of Congress, poking their heads in here and then
there, obtaining pledges of cooperation and handing out checks;—also ferret out information on
forthcoming enactments of legislation. This news
is quickly passed on to friends who also make
profitable stock trades.
But think not that Congressal “insider trading”
is wrong. No, no. You see, Congress has never
declared that it would be illegal for its members
to do this. Therefore, it is not illegal for them to
do this. They are able to live above some of the
laws that govern the rest of us.
An early November 2011 research study of
the net worth of members of Congress revealed
that it had grown by 25 percent since 2008.
During that same time, nearly everyone else’s
had gone down by as much as 20 percent.
For more on this, you may wish to read
Schwizer’s book, Throw Them All Out. The book
also tells how President Obama’s friends in the
White House have profited immensely from
various stock transactions—especially dealing
with medical, pharmaceutical, petroleum, an
alternative energy;—all areas which Obama was
promoting in his various proposals to Congress.
A full $16.4 billion of $20.5 billion in loans
Obama pushed through Congress—went to
companies with Obama connections.
It works this way: Taxpayer “bailout” or “in-
vestment” money is handed out to various companies. A young, unprofitable company (which
cannot succeed) is suddenly said to have a
glowing future. The plan is simple, Invest some
money, secure taxpayer grants and loans, go
public, and then cash out. On just one of these
(Amyris Biotechnologies), a Department of Energy $24 million grant (paid for by taxpayers)
resulted in immense gain for certain individuals.
“Kleiner Perkins, a firm whose partners are
Obama Financier John Doerr and former vice
president Al Gore, found its $16 million investment was now worth $69 million.”—Peter
Schwizer, Throw Them All Out.
So it is all a matter of who you know, prior
to public announcement of Congressional
and White House decisions. In those few hours
before the news reaches the public, you run out
and buy or sell stocks.
In order to solve our national problems,
more taxes must be paid. But the increase
should not come from the poor.
Let us consider the three primary methods
of taxation:
One way to do this is to raise taxes heavily
on everyone. But when the government did this
in the Revenue Act of 1932, it only intensified
the Great Depression. The poor classes should
moderate taxes, but not high taxes.
Another suggestion is a flat tax, meaning a
fixed percentage of income tax levied on everyone.
That may sound fair, but it is not.
A third possibility is to increase the taxes
which the rich should pay. It is necessary that
the rich pay taxes,—and they should pay far
greater amounts in taxes of all kinds than
poorer people. That, of course, is only fair! No
one needs millions upon millions of dollars in the
bank. A significant part of the reason that the
very wealthy are being protected is because
they are donating to politicians.
Several types of taxes are involved here:
1 - Salary taxes. The experts declare that the
wealthy now pay far less than they should.
2 - Capital gains taxes. The rich pay much
less on these massive profits.
3 - Investment income. Here is the third way
that the wealthy avoid paying their proper share
of taxes.
It is of interest that 68 percent of millionaires
say they support a tax increase for those earning $1 million or more, according to a survey by
The Spectrum Group. In addition, a group calling
themselves the Patriotic Millionaires has been
urging lawmakers for months to boost taxes on
people like themselves. Famed investor Warren
Buffett wrote in a New York Times op-ed article
that lawmakers should stop “coddling” the superrich by giving them tax breaks.
It’s not just millionaires that support a tax
increase on the super-rich; ordinary Americans
would also like to see the government raise
taxes on the wealthy. Nearly three-quarters of
Americans said in a Daily Kos poll recently that
they support the Buffett rule. In a CBS News
poll, 64 percent of Americans said that they
believe that lawmakers should raise taxes on
millionaires to reduce the nation’s budget
deficit. People recognize that doing so is only
common sense.
Many prominent economists agree that boosting taxes on millionaires would help to close the
budget gap. It is time to let the earlier tax cuts for
the wealthy expire.
It is a known fact that a significant part of
the financial crisis which developed between
2000 and 2007 was the removal of most taxes
on the rich.
Multimillionares cannot possibly use all their
accumulated wealth. A large part of it should be
used to helping our nation recover. They should
pay high income taxes and capital gains taxes.
In March 2011, Democratic Rep. Jan Scha­
kowsky of Illinois introduced the Fairness in
Taxation Act, which would create the following
new tax rates for millionaires and billionaires:
• $1-10 million: 45%
• $10-20 million: 46%
• $20-100 million: 47%
• $100 million to $1 billion: 48%
• $1 billion and over: 49%
There are individuals who, after having
made hundreds of millions of dollars in the
financial scandals which brought on the 2007
crash, then moved to Britain or France. They
not only took U.S. taxpayer money, but then they
fled overseas to avoid paying any taxes on it. In
such cases, their U.S. citizenship should be annuled.
“The $30 billion in handouts [to millionaires] amounts to twice as much as the government spends on NASA, and three times
the budget of the Environmental Protection
Agency . . Tax records show that more than
three fourths of high earners collecting farm-
ing money list their primary residence in a
city—land unsuitable for farming. Top earners,
surprisingly, also get significant amounts of unemployment insurance and disaster payments.
“Since 2004, people with seven-figure salaries have accepted more than $9 billion in
Social Security. A small band of GOP senators,
led by Sen. Lindsey Graham (Rep-SC), have proposed ‘means testing’ to shrink Social security
payments for people who probably don’t need
“The biggest money comes—or goes, rather—
through unpaid taxes. More than 1,500 millionaires paid no income tax last year, according
to federal records, mainly due to tax loopholes
and savvy accountants. Tax breaks taken by
millionaires on things like mortgage interest
($27.7 billion), rental expenses ($64.2 billion)
and electric vehicles ($12.5 million) keep cash
from entering the federal coffers.”—Newsweek,
November 21, 2011.
According to David Frum, the total tax rate
in America at the present time is 14%—the
same as it was during the Truman Administration.
Here is what Warren Buffet, one of the two
wealthiest men in America, wrote in the New
York Times article in August 14, 2011. (About a
month later, the other one, Bill Gates, commented
publicly that Buffet is right.) In this article, he
explains all you need to know about whether
the wealthy should be taxed more heavily:
“While most Americans struggle to make ends
meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment
managers who earn billions from our daily labors
but are allowed to classify our income as ‘carried
interest,’ thereby getting a bargain 15 percent
tax rate. Others own stock index futures for
10 minutes and have 60 percent of their gain
taxed at 15 percent, as if they’d been long-term
“These and other blessings are showered upon
us by legislators in Washington who feel compelled to protect us, much as if we were spotted
owls or some other endangered species. It’s nice
to have friends in high places.
“Last year my federal tax bill—the income tax
I paid, as well as payroll taxes paid by me and
on my behalf—was $6,938,744. That sounds like
a lot of money. But what I paid was only 17.4
percent of my taxable income—and that’s actually a lower percentage than was paid by any
of the other 20 people in our office. Their tax
burdens ranged from 33 percent to 41 percent
and averaged 36 percent.
“You need to examine the sources of government revenue. Last year about 80 percent of these
revenues came from personal income taxes and
payroll taxes. The mega-rich pay income taxes
at a rate of 15 percent on most of their earnings but pay practically nothing in payroll
taxes. It’s a different story for the middle class:
typically, they fall into the 15 percent and 25
percent income tax brackets, and then are hit
with heavy payroll taxes to boot . .
“I have worked with investors for 60 years
and I have yet to see anyone—not even when
capital gains rates were 39.9 percent in 197677—shy away from a sensible investment
because of the tax rate on the potential gain.
People invest to make money, and potential
taxes have never scared them off. And to those
who argue that higher rates hurt job creation, I
would note that a net of nearly 40 million jobs
were added between 1980 and 2000 [when
the wealthy were paying higher taxes]. You know
what’s happened since then: lower tax rates and
far lower job creation.
“Since 1992, the I.R.S. has compiled data from
the returns of the 400 Americans reporting the
largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and
paid federal taxes of 29.2 percent on that sum.
In 2008, the aggregate income of the highest
400 had soared to $90.9 billion — a staggering
$227.4 million on average — but the rate paid
had fallen to 21.5 percent.
“The taxes I refer to here include only federal
income tax, but you can be sure that any payroll
tax for the 400 was inconsequential compared to
income. In fact, 88 of the 400 in 2008 reported
no wages at all, though every one of them reported capital gains.
“I would leave rates for 99.7 percent of taxpayers unchanged and continue the current
2-percentage-point reduction in the employee
contribution to the payroll tax. This cut helps
the poor and the middle class, who need every
break they can get.
“But for those making more than $1 million—there were 236,883 such households in
2009—I would raise rates immediately on taxable income in excess of $1 million, including,
of course, dividends and capital gains. And for
those who make $10 million or more—there
were 8,274 in 2009—I would suggest an additional increase in rate.
“My friends and I have been coddled long
enough by a billionaire-friendly Congress. It’s
time for our government to get serious about
shared sacrifice.”—Warren Buffet, New York
Times, August 14, 2011.
For a number of years now, I have thought
more highly of Tom Coburn than of any other
elected official in Washington D.C. On November 13, 2011, U.S. Senator Tom Coburn, M.D.
(R-OK) released a new report “Subsidies of
the Rich and Famous” illustrating how, under
the current tax code, the federal government is
giving billions of dollars to individuals with
an Annual Gross Income (AGI) of at least $1
million, subsidizing their lavish lifestyles with
the taxes of the less fortunate.
“All Americans are facing tough times, with
many working two jobs just to make ends meet
and more families turning to the government
for financial assistance. From tax write-offs
for gambling losses, vacation homes, and
luxury yachts to subsidies for their ranches
and estates, the government is subsidizing
the lifestyles of the rich and famous. Multimillionaires are even receiving government
checks for not working.
“This welfare for the well-off—costing billions of dollars a year—is being paid for with the
taxes of the less fortunate, many who are working
two jobs just to make ends meet, and IOUs to be
paid off by future generations. We should never
demonize those who are successful. Nor should
we pamper them with unnecessary welfare to
create an appearance everyone is benefiting from
federal programs.”—U.S. Senator Tom Coburn,
M.D., “Subsidies of the Rich and Famous”, November 13, 2011.
The complete report, which is rather lengthy,
states that these billions of dollars for millionaires
include $74 million of unemployment checks
(this going to 2,840 individuals), $316 million
in farm subsidies, $89 million for preservation
of ranches and estates, $9 billion of retirement
checks, $75.6 million in residential energy tax
credits, and $7.5 million to compensate for
damages caused by emergencies to property
that should have been insured.
All and all, over $9.5 billion in government
benefits have been paid to millionaires since
2003. Additionally, millionaires borrowed $16
million in government backed education loans
to attend college. On average, each year, this
report found that millionaires enjoy benefits
from tax giveaways and federal grant programs
totaling $30 billion. As a result, almost 1,500
millionaires paid no federal income tax in
Millionaries deducted over $20 billion in
gambling losses from 2006-09. From 2006-09,
millionaires deducted over $607 million in
business entertainment expenses.
At a time when almost half of all American
households are now receiving some form of government assistance (Bloomberg News, October
28, 2011),—the extremely wealthy are receiving
vast amounts of government aid, in one form
or another.
“The government’s social safety net, which has
long existed to catch those who are down and
help them get back up, is now being used as a
hammock by some millionaires, some who are
paying less taxes than average middle class
“Comprehensive information on the full range
of government benefits enjoyed by millionaires
has never been collected previously. This report provides the first such compilation. What
it reveals is sheer Washington stupidity with
government policies pampering the wealthy
[while] costing taxpayers billions of dollars
every year . .
“Government policies intended to mainstream
wealth redistribution are undermining these
principles. The tragic irony is the wealth in
these cases is trickling up rather than down
the economic ladder. The cost of this largess
will thus be shared by those struggling today
and the next generation who will inherit $15
trillion of debt that threatens the future of the
American Dream. These consequences are the
results of shortsighted spending and tax policies
like those outlined in this report that should be
Here are the titles of the 12 chapters in Coburn’s report:
Retirement Payments for Millionaires, Health
Coverage for Millionaires, Jobless Benefits to
Those Earning Millions, Farm and Conservation Payments for Millionaires, Paying to Send
Millionaires to School and Take Care of Their
Children, Subsidizing Millionaires’ Mansions,
Yachts, and Vacation Homes, Paying Energy
Costs for Millionaires, Helping Millionaires Succeed in Business, Arts and Entertainment for
Millionaires, Other Agencies, Recommendations,
Process for Collecting Information.
Here are some highlights from this 36-page
Social Security—
“The Social Security retirement program is
the federal government’s largest program . .
Social Security is financed by payroll taxes paid
by covered workers and their employers . .
“The 2011 Annual Report of the Social Secu-
rity Board of Trustees (“Trustees Report”) stated
that at the end of 2010, about 54 million people
were receiving Social Security benefits, including
37 million retired workers and dependents of
retired workers, 6 million survivors of deceased
workers, and 10 million disabled workers and
dependents of disabled workers . .
“The Trustees Report made clear that “the
combined . . trust funds are projected to increase
through 2022, and then to decline and become
exhausted and unable to pay scheduled benefits
in full on a timely basis in 2036 . .
“Millionaires, who have paid into the program
and therefore receive benefits, add to the strain
on the Trust Funds. In fact, the Internal Revenue
Service (“IRS”) found that in 2009, 38,217 individuals with an AGI of $1 million or more
received more than $1.142 billion in Social
Security benefits. Moreover, the IRS reports that
in 2009, 1,430 individuals with an AGI of $10
million or more received a total of $47.23 million in Social Security benefits.”
“Since its creation, however, Medicare’s coverage has expanded. In 2011, Medicare will cover
an estimated 48 million individuals (40 million
aged and 8 million disabled). The Congressional Budget Office estimates that total Medicare
spending for 2011 will be about $569 billion .
. While initially over 98 percent of the population
voluntarily enrolled in Part B, in recent years that
percentage has fallen to 93 percent. The program
generally pays 80 percent of the approved
amount for covered services in excess of the
annual deductible. The beneficiary is liable for
the remaining 20 percent . .
“The SSA Chief Actuary, directly accessing SSA
data, found that approximately 60,000 Medicare Part B enrollees had reported modified
adjusted gross incomes of $1,000,000 or more.
“Congress should reduce subsidies for
health care for those with more than enough
means to pay for themselves. Wealthy individuals should be required to pay the full cost of
their Medicare Part B and Part D coverage.
Unemployment Benefits—
“In September 2011, the Department of Labor,
the federal agency responsible for managing the
program, reported that last year, states improperly paid $17.5 billion in UI [unemployment
insurance; i.e., unemployment benefitis] to
ineligible recipients, including both underpayments and overpayments. The majority of
overpayments went to individuals that were
working, but continued to claim UI checks (30
percent) and individuals not actively looking for
a job, as required by program rules (30 percent).
“A spokesman for the Labor Department made
clear recently the ‘first priority in 2010 was
to get money out the door . . integrity efforts
became a distinct second.’ As such, the Labor
Department did not aggressively recover the overpayments, getting back only $474 million (or less
than 3 percent) of the $16.5 billion overpaid . .
“From 2005-09, millionaires collected over
$74 million in unemployment benefits . . In
2009 alone, the Internal Revenue Service reported that 2,362 millionaires collected a total
of $20,799,000 in UI.
“Eighteen individuals reporting an adjusted
gross income of $10,000,000 or more also
received $12,333 on average in UI in 2009,
for a total of $222,000.29.
Farm Program Benefits—
“Millionaires received over $316 million in
farm program payments from 2003 to 2009 . .
“Over the past two years, USDA waived the $1
million AGI cap for the programs discussed below
and paid a total of $89,032,263 to individuals
or entities with an AGI of $1 million or more.”
Many, many examples of waste follow! Here
are just a very few:
“In 2009, the USDA waived program requirements and paid two millionaires a total of
$10,234,520, which consisted mainly of a $10
million payment to an investment company in
California for restoring wetlands to protect the
Riparian Brush Rabbit . .
“USDA paid millionaires $749,509 to protect the Sage Grouse . .
Last year, USDA paid four millionaires a
total of $592,097 through EQIP, $299,847 of
which was aimed at protecting the Sage Grouse
by a ranch in California. In addition, $50,000
went to a farm. That farm is owned by the W.C.
Bradley Company, which is best known for
producing Char-Broil outdoor grills and Zebco
fishing supplies. Remaining amounts of $35,250
and $210,000 went to two family trusts.
Wildlife Habitat Incentive Program (“WHIP”).
USDA seeks to protect land for certain wildlife
through WHIP by providing up to 75 percent costshare assistance to improve habitats for fish and
wildlife. Over the past two years, WHIP doled
out $737,000 to three millionaire recipients,
with the majority of the funds ($449,662) going to protect the Sage Grouse by a family trust
in California. A farm in Georgia also received
$100,000 through WHIP for ‘promotion of atrisk species’.
College Education Grants—
“The cost of a college education is increasing
much faster than inflation. While tuition and
fees at public universities have increased approximately 130 percent over the past 20 years,
middle class incomes have remained the same . .
“For 2012, ED estimates that it will loan
$124.3 billion to 25.1 million students and
parents through the DL program, making it
the largest federal program providing direct
aid for postsecondary education. Under the
DL program, low interest loans are made with
capital provided by taxpayers . . Since income is
not a factor in determining student aid eligibility for unsubsidized Stafford Loans under these
programs, millionaires are eligible for these
loans. Nor is income a factor in determining
aid eligibility. The number and amount of
loans to millionaires through the DL program
has continued to increase over the past four
years. The average amount loaned [each year]
to millionaires through the DL program was
$19,405.78 per student.
Property Interest Deductions—
“Allowing taxpayers to deduct interest paid
through a home mortgage is one of the most
popular and expensive tax deductions. According to the Joint Committee on Taxation, federal
tax benefits for homeowners cost an estimated
$140.1 billion each year between 2010 and
2014. Of this amount, the mortgage interest
deduction costs the federal government $96.8
A homeowner can deduct the interest paid on a
mortgage covering a primary or secondary home,
which, in turn, reduces that taxpayer’s income
tax . . The amount of an individual’s mortgage
interest deduction generally increases as that
individual’s income increase . .
While most assume the mortgage interest deduction largely benefits middle and lower income
earners, economist Martin Sullivan points out
this is actually not the case. Sullivan asserts,
‘The tax benefit provided by the mortgage
interest deduction flows overwhelmingly to
rich families.’
“In 2008 alone, millionaires across the country took advantage of more than $7 billion
in mortgage interest deduction tax breaks.
Sullivan explains [the reasons for] the disparity,
‘First, the rich have larger houses and larger
mortgages than the poor. Second, the deduction
is available only to itemizers. While almost all
high-income taxpayers itemize deductions on
their returns, very few of the poor do. Finally,
the rich have much higher marginal income
tax rates than the poor.’
Mortgage Interest Deductions for Second
“The provision of the mortgage interest deduction relating to second homes further highlights that those benefitting from this tax break
are among the most well off. Even a yacht can
be considered a second residence (!), as long
as the luxury boat has a sleeping, cooking, and
toilet facility and an individual lives in it for at
least two weeks a year.
Since there is no AGI limit on who can take advantage of the mortgage interest deduction, millionaires also use the deduction to reduce their
taxable income. From 2006 to 2009, millionaires
deducted over $27 billion in mortgage interest
paid on primary and secondary homes.”—Ibid.
Disaster and Flood Insurance—
“From FY2007 through FY2010, FEMA paid
over $7.5 million in disaster assistance to individuals that self-certified they had an AGI of $1
million or more through FEMA’s housing and
other needs programs.
“Congress has also created the National Flood
Insurance Program to cover homes that are
not covered by insurance. Congress created
the program because individuals did not want
to buy flood insurance ‘because greedy private
companies charged too much.’ Therefore, taxpayers may foot the bill if a flood destroys mansion
in Florida.”
John Stossel details his own experience in
receiving funds from the program:
‘Eventually, a storm swept away my first floor.
But I didn’t lose a penny. Thanks! I never invited
you there, but you paid for my new first floor.
A few years later, the whole house went. Again,
government flood insurance covered my entire
loss. Rich people freeload off taxpayers all the
time, because the over-promisers in Washington make deals for politically favored groups.
Those groups tend to be the affluent, because
the rich can afford lobbyists to persuade
Congress to give them special tax credits—
like the one for electric cars. Because of that tax
credit, I got a free golf cart. Buy a cart for $6,000
and get a $6,000 tax credit. I also put solar panels on the roof of my new home.’—John Stossel,
Huntington News, March 27, 2011; quoted in
Here are Senator Coburn’s recommendations:
“With a national debt at $15 trillion,124 the
federal government must contain its spending.
Ending the federal safety net Congress has
created for millionaires would save billions
each year.
“Reduce or Eliminate Payments Made to
Millionaires. While millionaires have paid into
certain programs, such as Social Security and
Unemployment Insurance (UI), their dependency on these programs is questionable, at
best. Therefore, as the United States Senate
voted unanimously, UI benefits for millionaires
should be terminated. Further, as part of comprehensive Social Security reforms, retirement
payments for higher income earners should
be restrained.
“End Farm Program and Conservation Payments to Millionaires. Farm program payments
were designed to encourage individuals to engage
in agricultural pursuits. Farmers that are millionaires no longer need this encouragement.
Further, a millionaire land owner should not be
paid by the government to preserve his land.
Payments by the USDA to millionaires through
its farm and conservation programs, as voted
on by the Senate, should cease.
“Means-Testing Should Be Considered for
Other Government Programs. Some programs
are essential for individuals without adequate financial means. Individuals with adequate means
should not be taking from the federal government
just because the money or benefit is available.
Congress should consider means-testing these
types of programs to ensure the payments go
to the Americans that need them most.
“Reduce or End Certain Tax Deductions and
Credits For Millionaires. The incentives created
by certain tax deductions, such as the mortgage
interest deduction that encourages home ownership, are lost on millionaires. Congress should
take a hard look at the tax code and reduce or
eliminate a number of confusing and misplaced tax breaks, including those utilized
by millionaires.”—Excerpts from U.S. Senator
Tom Coburn, M.D., “Subsidies of the Rich and
Famous”, November 13, 2011, 36 pages.
Process for Collecting Information—
In the concluding chapter of his report, Sen.
Coburn details the difficulties he experienced in
his efforts to obtain needed information from various federal departments on government handouts
to the wealthy. There is a strong effort to keep this
information hidden from the public.
On February 3, 2011, the Congressional
Budget Office projected that the fiscal year
2011 deficit had risen to $1.5 trillion. The
deficit has not been less than $1 trillion since
2008. This accumulation of debt is simply
The interest payments alone will crowd out
spending on defense and other public goods.
The only ways to pay off the debt will be very
heavy reduction in government expenses, or
tax increases, or both—to the detriment of the
economy. And while the bond markets may be
accommodating at the moment, America cannot
count on low bond interest rates for very much
“The arithmetic is, unfortunately, quite clear,”
Bernanke said. “To avoid large and unsustainable
budget deficits, the nation will ultimately have
to choose among higher taxes, modifications to
entitlement programs such as Social Security
and Medicare, less spending on everything else
from education to defense, or some combination of these.”
Alarm bells are ringing over the size of the
national debt, now equal to 84 percent of the
country’s gross national product—the highest
level since after World War II. The credit-rating
agencies are hinting that the federal treasury’s
bond rating is in jeopardy, and Fed Chairman
Ben Bernanke is warning that China, the United
States’ largest foreign creditor, may start charging higher interest rates.
Decades of overspending and overpromising by the federal government, combined with
a plunge in tax revenues, are pushing America
to the brink of fiscal crisis.
Medicare was signed into law on July 30,
1965, by President Lyndon B. Johnson.
Medicare is a social insurance program
administered by the United States government, providing medical insurance coverage
to people who are aged 65 and over; to those
who are under 65 and are permanently physically
disabled or who have a congenital physical disability; or to those who meet other special criteria.
We know of few people who are not in favor
of that law, yet it must be admitted that this
was the beginning of massive government payments on behalf of the American people.
Whether or not we wish to have it repealed,
we must agree that it provides an amount of
immense medical and hospitalization help for
the elderly which neither they nor the government can afford.
Medicare, Social Security, Medicaid, and
interest on the national debt are gobbling up
the gross domestic product (GDP).
—And now the aging Baby Boomers are
beginning to arrive! The first of the Baby
Boomers turned 65 in January 2011. These
were the group of Americans born after soldiers
returned home from World War II, who started or
expanded their families. It reversed a long decline
in the U.S. birth rate. There are now 79 million
Baby Boomers, making up a full quarter of the
US population, according to the Pew Research
America is on the verge of a massive crisis
seemingly beyond control or solution!
Right now, the federal government guarantees
certain levels of service. One suggested solution
has been to put control over the programs for
Medicaid (medical coverage for the poor) into the
hands of the states to be in charge of. —Yet we
all recognize that the states could not possibly
pay for Medicaid. As for Medicare, it would go
to a vouchers program, with the portion of the
expenses that the federal government would pay
becoming much smaller. Whatever decision is
made, the actual medical care costs are going
to continue to rapidly spiral upward.
Bob Greenstein, president of the Center on
Budget and Policy Priorities says that, because
of these massive problems:
“Over the course of a few decades, the
debt is going rise to over 100% and then over
200% of GDP and then keep rising. That’s
not sustainable.”
Everyone agrees that our nation is pretty deep
in debt—about $10 trillion in debt. And they agree
that within a decade or two, if nothing is done,
debt is going to be a much bigger problem than
it is today.
This is because, over the next few decades,
Social Security, Medicare and Medicaid will
consume a bigger and bigger share of government spending. And if something is not done,
these programs will eventually bankrupt us.
The two crucial factors are (1) the aging of
the population and (2) the increase in medical
care costs throughout the entire U.S. medical
care system. Those two factors are the factors
which will rapidly drive upwards the projected
cost of Medicare and Medicaid and to, a much
lesser extent, that of Social Security.
Because of this, our debt is growing faster
than our economy as a whole.
Thus we are confronted with the fact that the
first step to reining in the debt means coming
up with $4 trillion in deficit reductions over
the next 10 years. The super­committee was
aiming for cuts of $1.2 trillion over 10 years,—a
goal that was obviously too small to stop the debt
from growing.
—And yet the committee members could not
even agree to do the lower goal!
A large share of our debt is held by other
nations in the world. The US now owes over
$14tn (trillion). As of April this year (2011),
US Treasury bonds owned overseas accounted
for $4.7tn of the national debt, which is up 8%
on last year.
China is the biggest owner of US Trasury
bonds, with over $1.14tn by September this year
(down -0.3% from last year). Japan has $957.8
Bonds bought in the UK (mainly private investors and pension funds) are third on the list
at $421.6bn (up 120.7%, which is the biggest
• Russia saw the biggest decrease, down
45.3% since last year to $94.6bn
It reflects a US national debt which has grown
starkly, from $7.8tn in 2005 to busting through
the US debt ceiling $14.294tn earlier this year
Laurence J. Kotlikoff served as a senior economist on President Reagan’s Council of Economic
Advisers. He says the U.S. national debt, which
according to the U.S. Treasury is about $14
trillion, “is just the tip of the iceberg.”
In reality, America has so many “unofficial
debts” which are massive compared to the official
debt. Kotlikoff says, “We have focused just on
the official debt, so we’re trying to balance the
wrong books.”
America’s “unofficial” payment obligations, the
largest of which are Social Security, Medicare
and Medicaid benefits, immensely increase the
total amount of debt.
What does Kitlikoff mean by this? Here is his
“If you add up all the promises that have
been made for spending obligations, including
defense expenditures, and you subtract all the
taxes that we expect to collect, the difference
is $211 trillion. That is the fiscal gap; that is
our true indebtedness.”
He adds that we not told this actual amount
of debt because politicians would rather that we
not be told of the full extent of the problem.
It is not just a matter of “balancing the
budget” (not spending more than we take in
during a given year);—it is a matter of paying
down our total indebtedness!
And, I assure you, it does appear that
these two problems are going to completely
break us! Unless U.S. citizens take persuasive
(not fanatical or revolutionary) action in demanding changes by Congress—we will head into a
terrible future!
One of the biggest fiscal problems Congress
should focus on is America’s obligation to
provide Social Security payments and medical
care to future generations of the elderly.
Laurence J. Kotlikoff is a Professor of Economics at Boston University, and an expert in
the field. This is what he says:
“We’ve got 78 million baby boomers who
are poised to collect, in about 15 to 20 years,
about $40,000 per person. Multiply 78 million by $40,000—and you are talking about
more than $3 trillion a year just to give to a
portion of the population. That is an enormous
bill that’s overhanging our heads, and Congress
isn’t focused on it.”
And that is for social security alone. What
about medical care for elderly Baby Boomers?
A recent federal report found that more than
3 million baby boomers, and others below 65,
will soon be getting coverage under Medicaid,
the government’s insurance program for the poor.
The new federal medical law greatly expands
Medicaid to include nearly all low-income
adults. Prior to enactment of this new medical
insurance law, recipients had to have dependent
children or be disabled to qualify.
In addition, approximately 3.5 million more
boomers, the report estimates, will qualify for
govern­­ment subsidies to buy private medical
Alison Fraser, director of economic policy
studies at the Heritage Foundation, puts it this
“We are on the wave—the leading edge—of
78 million baby boomers retiring into entitlement programs [social security and medical
care]. So going forward, spending in the future
is unsustainable.”
“We have consistently done too little too late,
we have looked too short-term, we have said the
future would take care of itself, and we’ll deal
with that tomorrow, Well, guess what? You can’t
keep putting off these problems.”
To eliminate the fiscal gap, Kotlikoff says,
the U.S. would have to have tax increases and
spending reductions far beyond what is being
talked about in Washington.
And now, Kotlikoff, an expert economist tells
us the bottom line; the only way our U.S. economic problem can be solved:
“What you have to do is either immediately
and permanently raise taxes by about twothirds, or immediately and permanently cut
every dollar of spending by 40 percent forever.
The [Congressional Budget Office’s] numbers
say we have an absolutely enormous problem
facing us.”
Major federal costs in 2008:
21 percent—Medicare and Medicaid.
20 percent—Social Security.
20 percent—Defense.
17 percent—Other mandatory spending (for
example, veterans’ compensation, unemployment
insurance, and food stamps).
6 percent—Interest on the debt.
16 percent—Everything else, including veteran’s health care, homeland security and law
enforcement, education and student aid, roads
and bridges, food and drug inspection, energy
and the environment, and so on. Clearly, there
are no easy answers to the debt crisis.
Federal medical coverage, which President
Johnson started in July 1965, marked the beginning of the end. It is impossible for Americans
to expect taxpayers to pay nearly all of their
medical costs later on. I say that knowing there
will hardly be one person reading this who will
like what I am saying. Yet it is true, whether we like
it or not, unless drastic changes are made,—we
cannot afford Medicaid and Medicare.
The following recommendations by the
Bipartisan Policy Center’s Debt Reduction
Task Force are an attempt to solve this problem, without eliminating most of Medicaid
and Medicare:
Restrain Rising Health Care Costs (Savings
through 2020: $756 billion, excluding interest)
• Incentivize employers and employees to
select more cost-effective health plans:
• Cap the exclusion of employer-provided
health benefits in 2018, and then phase it out
over 10 years.
• Control Medicare costs in the short term:
Gradually raise Medicare Part B premiums from
25 to 35 percent of total program costs (over five
• Use Medicare’s buying power to increase
rebates from pharmaceutical companies.
• Modernize Medicare’s benefits package,
including the copayment structure.
• Bundle Medicare’s payments for post-acute
care to reduce costs.
Preserve Medicare for the long term:
• Transition Medicare, starting in 2018, to a
“premium support” program that limits growth
in per-beneficiary federal support (to GDPplus-1 percent, as compared to current projections of GDP-plus-1.7 percent). The new system
maintains traditional Medicare as the default,
but will charge higher premiums if costs rise
faster than the established limits. Alternatively,
beneficiaries can opt to purchase a private plan
on a health insurance exchange. Competition
among plans will improve the quality of care and
increase efficiency.
Control Medicaid costs in the short term:
• Apply managed care principles in all states
to aged Supplemental Security Income (SSI)
Control Medicaid costs in the long term:
• Beginning in 2018, reduce the amount
by which Medicaid is growing faster than the
economy (that is, reduce annual per-beneficiary
cost growth by 1 percentage point).
• There are various approaches to achieving
these savings. One option would be to reform
the shared financing arrangement between the
federal and state governments, which has led
to gaming of the matching payment system and
rising health care costs. Through a federal-state
negotiation, allocate program responsibilities
between the federal government and the states,
so that each will fully finance and administer its
selected components of the Medicaid program.
This will restore incentives for cost containment,
and slow future program spending growth.
Reform medical malpractice laws:
• Cap awards for noneconomic and punitive
damages for medical malpractice.
• Start large-scale testing of systemic reforms, including safe harbors for practices that
conform to accepted guidelines, specialized malpractice courts, and administrative proceedings
to resolve disputes.
• Help reduce long-term health care spending to treat obesity-related illnesses – including
diabetes, heart disease, cancer, and stroke – by
imposing an excise tax on the manufacture and
importation of beverages sweetened with sugar
or high-fructose corn syrup.
• The Task Force plan accommodates a permanent fix to the sustainable growth rate (SGR)
mechanism that currently requires unrealistic
automatic cuts in physician payments (which
Congress has been annually delaying).
The Governmental Accountability Office
(GAO) is the only truly sane governmental organization in Washington D.C.!
In 2011 alone, it identified hundreds of billions of dollars of duplicative and overlapping
programs that, if (if) addressed by Congress,
could both save money and improve services
for taxpayers.
Yet, instead of adopting these good government reforms, the Senate Appropriations
Committee (SAC) has responded by proposing dramatic budget cuts to the GAO budget!
Significantly, it is the SAC that decides where to
send much of that torrent of extra money which
the Treasury Department keeps printing.
It appears that the SAC does not want the
GAO looking over its shoulder and pointing out
the waste in Congress. Aside from Senator
Tom Coburn, the GAO is the only whistle
blower in our federal government!
Quite frankly, the reason the guidance of
GAO is so important at this time is because
Congress has increasingly ignored its own duties to oversee the functions of government.
Even with a shrinking budget, GAO has continued to produce nearly 1,000 reports a year
recommending billions of dollars in savings.
By way of comparison, there has been a precipitous decline in congressional hearings despite
steady spending increases for both the House
of Representatives and the Senate.
As the overall federal budget increased 100
percent between 1992 and 2007, GAO’s budget
was slashed by more than 20 percent.
For every $1 spent on GAO, the agency
provides $90 in savings recommendations.
No other government agency can make such a
claim. —Yet now some men in Congress want
to reduce the number of workers and reports
at GAO. WHY?
I will suggest a reason why: The lobbyists
have brought word from the big interests and
the wealthy—that GAO is interferring with the
lucrative deals that Congress and the Adminstration departments (such as FDA) have been giving
What other reason could there be for trying to get rid of the only government agency
that is able to save America millions of dollars
every year?
In an appearance before Congress earlier this
year, Comptroller General Gene Dodaro (the one
in charge of the GAO) explained:
“On return on investment, as you mentioned,
Mr. Chairman, we returned last year $87 for
every dollar spent on GAO in financial benefits,
in terms of cost savings or opportunities to gain
revenues or better use of Federal resources.
Actually, our rolling 4-year average has been
$94 to $1.
“GAO serves every standing committee of
the Congress, and, in recent years, 70 percent
of the subcommittees have submitted requests
. . We have more requests for our services than
we can get to in a timely manner, but we work
with requesters to address their highest priorities.”—Hearing of the House Committee on
Appropriations, Subcommittee on Legislative
Branch, “Legislative Branch Appropriations for
2012,” March 11, 2011.
“On average, we receive between 900 and
1,000 requests a year from Congress. We work
to prioritize those. Once we have our budget for
this year, we will be able to size our staffing levels
Since 2001, GAO has received 10,477
requests from Congress as well as another
1,198 “mandates” for work required by law. This
amounts to 11,675—or more than 1,000 a year
over the past decade.
Over the last ten years, the return on investment for GAO audits and investigations has gone
up. In 2008 alone, which had the highest level
of return over the past decade, GAO used its
$527 million budget to help the government
achieve $61 billion in financial benefits, adjusted for inflation.
As we seek solutions to our nation’s fiscal
crisis, GAO’s nonpartisan expertise has never
been more valuable. In fiscal year 2009, GAO
documented about $43 billion in financial
benefits, in non-inflation adjusted dollars—a
return of $80 for every dollar spent by GAO.
The $41.7 million cut to GAO’s budget
could, therefore, result in $3.3 billion in federal funds that will be lost to waste, fraud,
abuse, and inefficiency.
While GAO must face the same fiscal realities being applied to every other federal agency
and program, the cut to the agency’s budget
represents more than ten percent of the entire
reduction proposed within legislative branch
spending, measured in total dollars cut. To say
it again, Congress is more willing to heavily
reduce the GAO than any other agency of the
federal government!
And in this era of trillion dollar deficits, Congress desperately needs this rate of return to get
us out of the fiscal mess that we have created and
so far have demonstrated little ability or willingness to solve.
Congress should first cut spending where
it is unnecessary, unused, or mismanaged. We
can start with more dramatic cuts in its own office
budgets. Half of the Senate’s committees have
held fewer hearings this year and one committee has yet to hold a single hearing. Likewise,
the Senate has voted on fewer amendments
to bills this year and has passed very few bills
that have been signed into law.
More than 100 presidential nominees have
lagged in committees, awaiting hearings and
All in all, Congress is doing less at a time
when our nation desperately needs vibrant
leadership. It should come as no surprise then
that congressional approval ratings have dropped
to 9 percent, the lowest level ever recorded. Americans are growingly concerned that our debt,
which will soon top $15 trillion, imperils our
economic recovery, our national security, and
the future of American civilization.
Congress has proved incapable of finding
answers to the debt crisis and now it is threatening to muzzle those who can. It has failed to
pass a budget. It has ignored the recommendations of the president’s deficit commission,
and now it is considering cuts that could very
well hobble the one agency that members of both
parties have long trusted for thoughtful recommendations. There is no question savings can
be found within every agency and program,
but without the guidance of GAO it is far less
likely these savings will be identified.
Congress has come to rely on the agency for
oversight. Thousands of times a year, GAO releases reports, testifies at hearings and issues
recommendations which serve as the basis for
congressional oversight and legislation. With few
exceptions, GAO has produced an average of
more than 1,000 oversight reports for Congress
each year since 2000.
In March 2011, GAO released a landmark
report helping to identify 81 areas of possible
duplication and overlap within the federal
government. That March 2011 GAO report is
entitled, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax
Dollars, and Enhance Revenue.
This one report alone, totalling 345 pages
and resulting from the effort of dozens of GAO
employees, shed light on possible savings
worth hundreds of billions of dollars.
More than just issuing reports, though, GAO
experts regularly testify in front of congressional committees, averaging more appearances
than there are days Congress is in session. Over
the past five years, GAO experts have averaged
nearly 225 appearances each year before Congress. And in 2008, the agency supplied witnesses
nearly 300 times.
The Congressional reduction plan appears to be to gut GAO. Many of the services
provided by the GAO will be curtailed due to
reductions in staff and resources. The GAO will
have to implement severe measures including a
significant and historic reduction in staff to below
3,000 workers, through a hiring freeze, attrition
and early retirement.
Ironically, the GAO has been given a new
assignment: It has been told to add a productivity-crippling “cost analysis to every report”
detailing the process for completing the report.
This will slow the work of the GAO in producing reports; so much so that, along with its heavy
reduction in staff, will greatly reduce its output.
Many in Congress need to resign so we can
put some competent men and women in there
who are not afraid to eliminate the waste and
mismanagement routinely done by that august
Dodaro has expressed determination to make
the best of the situation, but was forced to admit
GAO “might end up producing fewer reports, or
fewer testimonies, or experience longer delays
before starting our jobs . . but we will not sacrifice quality” (Comptroller General Gene Dodaro,
statement to GAO employees, October 19, 2011).
In the last decade, the congressional budget
has increased by nearly 50 percent, yet GAO
has barely seen any increase at all over the
same time. Rather, the 15 year period between
1992 and 2007, GAO’s staff was reduced by
more than 2,100 people and its budget cut by
more than 20 percent.
Cuts are nothing new for the GAO. For the
better part of two decades, GAO has seen its
resources steadily dwindle, which invariably
reduces the amount of work it has been able to
The budget proposals being put forward today
in Congress would cut the agency even further,
reducing it even below 2002 in inflation-adjusted
numbers. The House of Representatives would
reduce 2012 levels by nearly 6.4 percent from
2011, while the Senate Appropriations Committee has proposed cutting further by 7.6
As stated above, between 1992 and 2007 GAO
saw a sharp decline as its staff was reduced by
more than 2,100 people and its budget cut by
more than 20 percent, in inflation-adjusted dollars.
Over the same time, the overall federal budget grew by 100 percent, and the total public
debt rose from $5.6 trillion to $13.6 trillion.
Looking at federal spending over an even shorter
period of time, 1999-2010, federal spending more
than doubled, increasing from $1.7 trillion to
nearly $3.5 trillion.
GAO’s staff of investigators, accountants
and auditors is being required to do much
more with much less. In 1992, GAO had 5,325
employees, far outnumbering its current total of
3,212. If the current budget proposal is enacted,
GAO has announced that it will likely take its
staffing levels down below 3,000 for the first
time in its history.
(In times past, however, GAO was much larger
even though the federal government was much
smaller. At its peak, the agency employed more
than 14,000 people to help Congress oversee the
huge surge in government spending during WWII.)
In contrast with the slash in GAO workers,
let us consider the fat personal office budgets
for each member of Congress:
The Senate supplies each member with an
Official Personnel and Office Expense Account, which currently allows each office to
spend between $3 million and $4.5 million
a year, adjusted for the population of the state
represented by each senator. In 2001, the total
amount available for all Senate offices was $252
million, but in 2011 it was more than $409 million. This represents an increase of more than
62 percent over that time.
In the House, each office is provided with a
Members’ Representational Allowance (MRA),
which today is between $1.4 million and $1.7
million per year. In 2011, the total amount of
funding available for MRAs was $613 million
Interestingly, for both the House and Senate, the only category of congressional staff it
has cut—is those on its committees which
are primarily responsible for congressional
oversight! It would appear that they do not want
anyone watching the way they are wasting money.
In summary, Congress urgently needs the
help of GAO in order to solve the massive budget crisis now confronting our nation. But to do
so would infuriate the campaign contributors
and special interests which send those lobbyists into its offices with requests and checks
day after day.
There are four things Congress should do.
• First, restore GAO’s budget to prior levels and eliminate any planned cuts for 2012.
GAO’s budget was cut in 2011, and further cuts
in 2012 would do significant harm to the agency’s
ability to conduct proper oversight of federal
• Second, look for cuts within Congress’
own budget to achieve needed savings. Congress has given itself significant increases through
recent years and can make additional cuts to
offset the restoration of GAO’s budget.
• Third, require agencies to reimburse
GAO for audits that uncover significant waste
and inefficiencies. Agencies that are found by
GAO to have wasted significant funds above an
established threshold should be required to pay
for such audits. Similar practices are common at
a variety of regulatory agencies, which perform
fee-for-service oversight of the industries they
On December 20, 2010, Senator Tom Coburn
released a new oversight report entitled, Wastebook 2010: A Guide to Some of the Most Wasteful
Government Spending of 2010. Keep in mind that
the following ridiculous spending by the U.S.
Government occurred after the country had
fully entered the present grinding depression, with millions of people out of work and
trillions of dollars in national debt:
Here are a few excerpts from his report:
“As 2010 ends, millions of Americans are
still struggling to find work. Even those lucky
enough to have jobs have had to tighten their
belts. Yet, Congress continues to find new and
extravagant ways to waste tax dollars. In today’s
economy, we can’t afford to spend nearly $2 million to showcase neon signs no longer in use at
Las Vegas Casinos, nor can Congress and federal
agencies afford to spend nearly $1 billion a year
on unnecessary printing costs,
“Our national debt is the greatest threat
to our national security according to our own
military leaders. ‘Well-intentioned people across
the political spectrum will argue about the best
way to get us back on track. But we can all agree
that cutting wasteful and low priority spending
from the budget is not only sensible, but essential.
“ I hope this report will give taxpayers and
concerned citizens the information they need to
hold Washington accountable. As dysfunctional
as our politics can seem, our system still
works when ordinary citizens get informed
and engaged.
“Examples of wasteful spending highlighted in
Wastebook 2010 include:
“• The city of Las Vegas has received a $5.2
million federal grant to build the Neon Boneyard Park and Museum, including $1.8 million
in 2010. For over the last decade, Museum supporters have gathered and displayed over 150 old
Las Vegas neon signs, such as the Golden Nugget
and Silver Slipper casinos.
• The National Science Foundation provided
more than to $200,000 to study of why political candidates make vague statements.
“• The Department of Veterans Affairs (VA)
spends $175 million every year to maintain
hundreds of buildings it does not use, including
a pink, octagonal monkey house in Dayton, Ohio.
“• Medicare paid out over $35 million to a
vast network of 118 “phantom” medical clinics, allegedly established by members of a criminal gang to submit phony reimbursement claims.
“• The Government Printing Office (GPO) is
using a “video game space mouse” (at nearly
$60,000 in taxpayer funds) to teach children
the history of printing.
“• In July, nearly half a million taxpayer dollars went to the XVIII International AIDS Conference in Vienna, where wine tasting and castle
tours were among the events planned for the
conference participants.
“• The Internal Revenue Service paid out
$112 million in undeserved tax refunds to prisoners who filed fraudulent returns, according
to the Treasury Department’s Inspector General
for Tax Administration (TIGTA).
“• The National Science Foundation directed
nearly a quarter million dollars to a Stanford
University professor’s study of how Americans
use the Internet to find love.
“• The Bureau of Alcohol, Tobacco, Firearms
and Explosives (ATF) took the term “cold case”
to a new level in 2010. The agency spent over
$20,000 in taxpayer money “to unravel the
anonymity of a 2,500-year-old mummy.”
“• The National Institutes of Health (NIH)
spent nearly $442,340 million to study the
number of male prostitutes in Vietnam and
their social setting.
“• This year, taxpayers forked over $60,000
for the “first-of-its kind” promotion of the Vidalia onion in conjunction with the movie, Shrek
Forever After. ”
“• The National Science Foundation (NSF)
awarded over $600,000 to the Minnesota Zoo
to create a wolf “avatar” video game called
“• A $700,000 federal grant paid for researchers to examine “greenhouse gas emission from organic dairies, which are caused by
cow burps, among other things.”—Senator Tom
Coburn, Oversight report entitled, Wastebook
2010: A Guide to Some of the Most Wasteful
Government Spending of 2010, released December 20, 2010.
Here is more data on how our government
wastes money.
Tragically, Congress, however, has largely
abandoned its constitutional duty of overseeing the executive branch and has steadfastly
refused to check on, much less eliminate the
runaway federal spending that is simply waste,
fraud, and abuse
In 2003, an attempt by House Budget Committee Chairman Jim Nussle (R-IA) to address
wasteful spending was rejected by the House of
Representatives, and similar calls in 2004 by
then-Senate Budget Committee Chairman Don
Nickles (R-OK) were rejected by the Senate. A
small group of House lawmakers has formed the
Washington Waste Watchers, but their agenda
has not been embraced by the whole House.
It is not a lack of information that is the
problem. Year after year, government waste
investigations and recommendations can be
found in hundreds of reports. Here are a few
• Studies published by the Government Accountability Office (GAO) (formerly known as the
General Accounting Office).
• The Congressional Budget Office’s Budget
Options book,
• Inspector general reports of each agency,
• Government Performance and Results Act
reports of each agency,
• The White House’s Program Assessment
Rating Tool (PART) program reviews, and
• The Senate Governmental Affairs Com­
mittee’s 2001 Government at the Brink reports.
With so much information available, why
are lawmakers so resistant to reducing waste?
With Congress in session just 80 days annually, reducing waste would take precious time
away from most lawmakers’ higher priorities of
increasing spending on popular programs and
bringing pork-barrel projects home.
Frankly, some of the most wasteful programs
are also the most popular, including Medicaid and
Medicare. This is partly to their high cost, but
also the way that the government pays medical
costs which are fraudulent.
It is estimated that if Congress would really
try to eliminate government waste, it could
easily save over $100 billion annually without
harming the legitimate operations and benefits of
government programs. As a first step, lawmakers should address the 10 following examples of
egregious waste.
One example of government waste is in the
Department of the Treasury’s Financial Report,
which is issued every so often. This short section
is entitled, Unreconciled Transactions Affecting the Change in Net Position. In a typical
year, these unreconciled transactions total
about $25 billion.
These are funds which auditors cannot account for: The government knows that $25 billion
was spent by someone, somewhere, on something,
but auditors do not know who spent it, where it
was spent, or on what it was spent. Although these
unreconciled transactions are officially blamed
on the failure of federal agencies to report their
expenditures adequately; we could actually be
viewing fraud at work, the theft of massive
amounts of money for personal purchases. The
Treasury report declared that locating the money
is “a priority.” But Congress does nothing about
it. Perhaps an investigation could lead to their
own personal use of government funds. This $25
billion could have funded the entire operations of
the Department of Justice for a full year.
An audit revealed that employees of the Department of Agriculture (USDA) diverted millions of dollars to personal purchases through
their government-issued credit cards. Sampling
300 employees’ purchases over six months, investigators estimated that 15 percent embezzled
funds with their government credit cards at a
cost of $5.8 million. Taxpayer-funded purchases
included Ozzy Osbourne concert tickets, tattoos,
lingerie, bartender school tuition, car payments,
and cash advances (U.S. Department of Agriculture, Office of Inspector General, Headquarters
Audit Report, “Adequacy of Internal Controls
over the Individually Billed Travel Card Program,” Report No. 50601-05-HQ, June 19, 2003).
The USDA has promised a thorough investigation, but it will have a huge task: 55,000 USDA
credit cards are in circulation, including 1,549
that are still held by people who no longer work
at the USDA.
As of 2005, more than $21.8 billion worth
of student loans were already in default, and
too many cases of fraud have been found to be
left undetected (Walker, Ibid.). Tracking students
across federal programs, verifying loan application data with IRS income data, and implementing
controls to prevent the disbursement of loans to
fraudulent applicants could save taxpayers billions of dollars.
The Army Corps of Engineers (ACE) spends
$5 billion annually constructing dams and
other water projects. Yet, in a massive conflict of
interest, it is also deciding what projects should
be undertaken. The Corps’ ‘strategic vision’
calls on managers to increase their budgets as
rapidly as possible, which requires approving
as many proposed projects as possible. They
are manipulating data to encourage spending, for
they do not want to lose any government money
for the ACE. Consequently, the Corps has repeatedly been accused of deliberately manipulating
its economic studies to justify unworthy projects.
Investigations by the GAO, the Washington
Post, and several private organizations have found
that Corps studies routinely contain dozens of
basic arithmetic errors, computer errors, and
ridiculous economic assumptions that artificially inflate the benefits of water projects by
as much as 300 percent (GAO Details Errors in
Army Corps Project, The Washington Post, June
11, 2002).
But, by the time that outside investigations
reveal these errors, the unnecessary and wasteful projects are often underway and cannot be
These errors appear to reflect more deception than sloppy planning. The Washington
Post investigation uncovered managers ordering
analysts to ‘get creative,’ to ‘look for ways to get to
yes as fast as possible,’ and ‘not to take no for an
answer.’ After a public outcry, in 2002, the Corps
suspended work on 150 projects to review the
economics used to justify them.
Unfortunately, we have here a combination
of Congress’s thirst for pork-barrel projects
and the Corps’ built-in incentives to approve
projects that will increase its budget. So no real
corrections will be made.
The earned income tax credit (EITC)
provides $31 billion in refundable tax credits
to 19 million low-income families. Yet the IRS
estimates that $8.5 billion to $9.9 billion of
this amount—nearly one-third—is wasted in
The complexity of the EITC law leads to many
of these mistakes. Calculating the credits is more
complex than calculating regular income taxes.
While the credit amount depends on the number
of children in a household, the tax code does
not clearly define how a child qualifies for the
credit. In addition, fraud and underreporting
of income are common, and the IRS lacks the
resources to verify the qualifications of all EITC
Efforts are being made to address this problem, but Congress can do more by requiring better
verification of incomes and by clearly defining the
standards by which a child qualifies for the EITC
(Walker, Ibid.).
Government’s layering of new programs on
top of old ones inherently creates duplication. It
produces redundancy piled on redundancy. Having several agencies perform similar duties is
wasteful and confuses program beneficiaries who
must navigate each program’s distinct rules and
Some overlap is inevitable because some
agencies are defined by whom they serve (e.g.,
veterans, Native Americans, urbanites, and rural
families), while others are defined by what they
provide (e.g., housing, education, health care, and
economic development). When these agencies’
constituencies overlap, each relevant agency will
often have its own program. With 342 separate
economic development programs, the federal
government needs to make consolidation a
Consolidating duplicative programs will save
money and improve government service. In addition to those programs that should be eliminated
completely, Congress should consolidate the
following eighteen sets of programs:
• 342 economic development programs.
• 130 programs serving the disabled.
• 130 programs serving at-risk youth.
• 90 early childhood development programs.
• 75 programs funding international education, cultural, and training exchange activities.
• 72 federal programs dedicated to assuring
safe water.
• 50 homeless assistance programs.
• 45 federal agencies conducting federal criminal investigations.
• 40 separate employment and training programs.
• 28 rural development programs.
• 27 teen pregnancy programs.
• 26 small, extraneous K-12 school grant
• 23 agencies providing aid to the former
Soviet republics.
• 19 programs fighting substance abuse.
• 17 rural water and waste-water programs
in eight agencies.
• 17 trade agencies monitoring 400 international trade agreements;
• 12 food safety agencies.
• 11 principal statistics agencies.
• 4 overlapping land management agencies.
The previous 18 examples of overlapping
are the result of careful analysis by the following
• Committee on Governmental Affairs, U.S.
Senate, Government at the Brink, Volume I.
• Urgent Federal Government Management
Problems Facing the Bush Administration, and
Government at the Brink, Volume II.
• An Agency by Agency Examination of Federal Government Management Problems Facing
the Bush Administration, June 2001.
• U.S. Government Accountability Office,
Managing for Results: Using the Results Act to
Address Mission Fragmentation and Program
Solving this massive amount of waste is
crucial if America is going to survive in the
years to come. This will have to be done eventually; why not start now?
We should stop our foreign wars and bring
our troops home. Our present yearly military
expenses is 20 percent of our entire U.S. budget. (Social Security is another 20 percent, and
Medicaid and Medicare are 23 percent.)
For the 2010 fiscal year, the president’s base
budget of the Department of spending on “overseas contingency operations” brings the sum to
$663.84 billion. (They are not wars; they are
“contingency operations.”)
When the budget was signed into law on October 28, 2009, the final size of the Department
of Defense’s budget was $680 billion, $16 billion
more than President Obama had requested. An
additional $37 billion supplemental bill to support the wars in Iraq and Afghanistan.
By the end of 2008, the U.S. had spent approximately $900 billion in direct costs on the
Iraq and Afghanistan Wars. Indirect costs such
as interest on the additional debt and incremental costs of caring for the more than 33,000
wounded borne by the Veterans Administration
are additional. Some experts estimate these indirect costs will eventually exceed the direct costs.
The US Government Accountability Office
was unable to provide an audit opinion on the
2010 financial statements of the US Government because of “widespread material internal
control weaknesses, significant uncertainties,
and other limitations”. The GAO cited as the
principal obstacle to its provision of an audit opinion “serious financial management problems at
the Department of Defense (DOD) that made its
financial statements unauditable”.
Chief Financial Officer and Under Secretary of
Defense Robert F. Hale acknowledged enterprisewide problems with systems and processes,
while the DoD’s Inspector General reported “material internal control weaknesses . . that affect
the safeguarding of assets, proper use of funds,
and impair the prevention and identification
of fraud, waste, and abuse”.
Further management discussion in the FY
[fiscal year] 2010 DOD Financial Report states “it
is not feasible to deploy a vast number of accountants to manually reconcile our books” and
concludes that “although the financial statements
are not auditable for FY 2010, the Department’s
financial managers are meeting warfighter needs”.
It is well-known that millions of dollars have gone
into the hands of terrorists in Afghanistan.
The U.S. military budget for 2012 will total
$1.030–$1.415 trillion.
The amount the U.S. military spends annually on air conditioning in Iraq and Afghanistan
is $20.2 billion. (Daytime heat there is 125o F.)
The 2009 U.S. military budget accounts for
approximately 40% of all military spending
throughout the world.
in terms of tonnage, the U.S. battle fleet is still
larger than the next 13 navies combined—and
11 of those 13 navies are U.S. allies or partners.
The official count of U.S. wounded in the
Iraq War is 33,183, but it has been estimated
that the actual number is over 100,000. Over
4483 U.S. troops have died. U.S. miltary deaths
in Afganistan totals 1845. In addition, from Iraq
alone, more than 320,000 U.S. veterans have
brain injuries. These concussion injuries are
often overlooked.
US policy for protecting our troops, for better or worse, is focused on the idea of Value of
a Statistical Life. Typically a policy that reduces
risks of death will be approved if the cost per life
saved is below $5 million, and not otherwise.
The various U.S. wars of choice have cost
around $250 billion a year for the last decade.
Here is another detail: $100 million spent by
the Defense Department for flight tickets which
were never used! Between 1997 and 2003, the
Defense Department purchased and then left
unused approximately 270,000 commercial
airline tickets at a total cost of $100 million.
Even worse, the Pentagon never bothered to get a
refund for these fully refundable tickets! The GAO
blamed a system that relied on department personnel to notify the travel office when purchased
tickets went unused (U.S. General Accounting Office, DOD Travel Cards: Control Weaknesses Led
to Millions of Dollars in Unused Airline Tickets,
GAO-03-398, March 2004).
Auditors also found 27,000 transactions
between 2001 and 2002 alone in which the
Pentagon paid twice for the same ticket. These
additional transactions cost taxpayers $8 million. The department would purchase the ticket
directly and then inexplicably reimburse the employee for the cost of the ticket. (In one case, an
employee who allegedly made seven false claims
for airline tickets professed not to have noticed
that $9,700 was deposited into his/her account).
This $108 million could have purchased seven
Blackhawk helicopters, 17 M1 Abrams tanks, or
a large supply of additional body armor for U.S.
troops in Afghanistan and Iraq.
Here is yet another scandal at the Defense
Department: Over one recent 18-month period, Air Force and Navy personnel used
government-funded credit cards to charge at
least $102,400 for admission to entertainment
events, $48,250 for gambling, $69,300 for
cruises, and $73,950 for exotic dance clubs
and prostitutes (U.S. General Accounting Office,
Travel Cards: Air Force Management Focus Has
Reduced Delinquencies, But Improvements in
Controls Are Needed, GAO-03-298, December
20, 2002, p. 4, and “Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and
Abuse,” testimony before Committee on Government Reform, U.S. House of Representatives,
GAO-03-148T, October 8, 2002, p. 8.).
Over the past decade, we have all heard
that there is a vast amount of useless nonmilitary spending by our government in Iraq
and Afghanistan.
A recently published book by one of the
men involved in the wasteful spending in Iraq
has been released.
The book is entitled, We Meant Well: How I
Helped Lose the Battle for the Hearts and Minds
of the Iraqi People, by Peter Van Buren, a veteran State Department officer who spent a year
working in the notoriously inept, $63 billion
Iraqi reconstruction program. Nearly all of that
money was wasted on ridiculous projects for
the purpose of getting rid of money as an end
in itself, and calling this “helping the Iraqis.”
Order a copy for yourself and read it.
Then we have the most fraudulent-laden
program of all: The Medicare program wastes
more money than any other federal program,
yet its strong public support leaves lawmakers
hesitant to address program efficiencies, which
cost taxpayers and Medicare recipients billions
of dollars annually.
For example, Medicare pays as much as
eight times what other federal agencies pay for
the same drugs and medical supplies (Janet
Rehnquist, Inspector General, U.S. Department
of Health and Human Services, testimony before
the Subcommittee on Labor, Health and Human
Services, and Education, Committee on Appropriations, U.S. Senate, June 12, 2002).
The Department of Health and Human Services (HHS) recently compared the prices paid by
Medicare and the Department of Veterans Affairs
(VA) health care program for 16 types of medical
equipment and supplies, which account for onequarter of Medicare’s equipment and supplies
purchases. The evidence showed that Medicare
paid an average of more than double what the
VA paid for the same items. The largest difference was for saline solution, with Medicare
paying $8.26 per liter compared to the $1.02
paid by the VA (Ibid.).
But all this wasted money means more
costly co-payments by Medicare recipients. In
2002, senior citizens’ co-payments accounted for
20 percent of the $9.4 billion in allowed claims for
medical equipment and supplies. Higher prices
mean higher co-payments.
Medicare also overpays for drugs. In 2000,
Medicare’s payments for 24 leading drugs were
$1.9 billion higher than they would have been
under the prices paid by the VA or other federal agencies. Although Medicare is supposed to
pay wholesale prices for drugs, it relies on drug
manufacturers to define the prices, and manufacturers have strong incentives to inflate their
prices. They, of course, are protected because
they give so much in bribes through lobbyists that
they know Congress will never penalize them for
overcharging the government.
In addition to inflated prices for drugs and
supplies, inaccurate payment errors which were
the results of deliberate fraud and administrative errors have cost the taxpayers $12.3 billion annually.
In addition, as much as $7 billion owed
to the program has gone uncollected or has
been written off (David M. Walker, Comptroller
General of the United States, “Federal Budget:
Opportunities for Oversight and Improved Use
of Taxpayer Funds,” testimony before the Committee on the Budget, U.S. House of Representatives, June 18, 2003).
As if that is not enough, while Medicare contracts out its claims processing and administration to several private companies, in recently
years, 19 cases of contractor fraud have been
settled with a maximum settlement of $76
million (Dara Corrigan, Acting Principal Deputy
Inspector General, U.S. Department of Health
and Human Services, testimony before the Committee on the Budget, U.S. House of Representatives, July 9, 2003.).
In summary, Medicare reform could save
taxpayers and program beneficiaries $20 billion to $30 billion annually without reducing
benefits. That would be enough to fund a $3,000
refundable health care tax credit for nearly 10
million uninsured low-income households.
Finally, we will mention state abue of Medicaid
funding formulas.
Significant waste, fraud, and abuse pervade
Medicaid, which provides medical services to
44 million low-income Americans.
While states run their own Medicaid programs, the federal government reimburses an
average of 57 percent of each state’s costs. Unfortunately, this system gives states an incentive to overreport their Medicaid expenditures
in order to receive larger federal reimbursements.
Not surprisingly, the GAO has even identified
state schemes that shift money between state
accounts to create an illusion of higher Medicaid expenditures.
As if that was not all, some states have spent
their federal Medicaid dollars on non-Medicaid
purposes. Tight state budgets like those experienced by most states today have increased the
pressure to use such deceptive tactics.
The GAO and the Health and Human Services
(HHS) Inspector General have also uncovered
some states’ practice of recovering improper
payments, retaining the funds, and then spending them on unrelated programs—a practice
that costs the federal government well over $2
billion per year. Congress could enact legislation
to prohibit these actions more effectively.
Minor reforms enacted by HHS in 2001 and
2002 are expected to save Medicaid $70 billion
over the next decade. A small sample of financing
schemes uncovered in a few states suggests that,
if Congress acts, even larger savings are available.
Before sharing with you the experts’ solutions, let me tell you my suggested plan of
action, which you can add along with those of
economists who have carefully thought through
these problems for several years.
They will tell you what needs to be done. My
suggestion, just below, is about how to go
about getting it done:
• Remain alert to what is happening and
contact Congress (and the White House, state and
local legislators, etc.)—and tell them specifically
what you want them to do (defeat this or pass
that); do not just complain.
• In order to effectively do this, a central information group should be set up which gathers data on what is taking place and regularly
notifies the U.S. public. This should include
special alerts when citizens must immediately
contact Congress or other officials. Afterward,
the public should be notified of results. There
are several steps which Congressional bills regularly take before the item is enacted into law. The
public needs to be notified as to what is about
to happen, and told what to do. They need to
be provided with phone numbers and email
In the lists, just below, you will find web sight
information on names, addresses, and pending
legislation. But be aware that most of the problems needing solution are not included in pending legislation. Working with your central alert
center, you need to coordinate your petitions
to urged congressional consideration of many
items which legislators would not otherwise be
likely to consider:
• This is where to obtain names, addresses, phone numbers, email addresses and, in
some cases, pending bills:
The website will enable
you to find congressmen, committees, subcommittees, and schedules. (This site is obviously
for lobbyists.)
Or go to and click on “Member Information”—and you will have the phone
number and office room number of each congressional representative.
Or go to and then click on “Senate”—and you will find the name, address, phone
number, and email of each U.S. senator. Click on
“Legislation and Records” and “Committes,” to
obtain additional information.
Or go to and click on
“Contact Info for all Congress” and you will find
an alphabetical list of all congressmen (both
senators and representatives): Names, area represented, phone numbers, D.C. addresses. You
can also click on “Recent Senate Votes,” “Recent
House Votes,” “Voting Records,” “Your Members
of Congress.”
Go to for contact information for members of Congress, as well as state
governors and state representatives.
• Require that the funding and authority of
the Congressional Accountability Office be
increased, so it can not only locate problems in
Congress and Administrative Departments, but
also have the authority to demand that they
be dealt with. It should also be provided with a
website where you can find the latest data on its
findings and efforts to produce needed changes.
• It is extremely important that we avoid the
calling of a Constitutional Convention! If that
were to happen, anything that the liberals wished
could be added, changed, or removed from our
Constitution and its Amendments!
• The elimination of political contributions
and lobbying, and providing for stiff sentences
for bribing public officials is best done through
an Amendment to the Constitution (otherwise
the courts would rule that such a law violated
First Amendment free speech rights). But, beyond this, it is best to leave the Constitution and
Amendments alone. (Changes to the US constitution must be passed by a two-thirds vote of each
chamber of Congress and then ratified by three-
quarters of states—either by the state legislatures
or state-based constitutional conventions.)
• In regard to anti-bribing laws or amendment, give consideration to the provisions of
the “Clean Elections” and “Clean Candidates”
laws in various States.
Clean Election initiatives are used in a small
number of states and local political jurisdictions
in the United States. Some form of Clean Elections
legislation has been adopted by ballot initiative in
Maine, Arizona, North Carolina, New Mexico,
Vermont, Wisconsin, and Massachusetts. It was
also adopted by legislative action in Connecticut
and at the municipal level in Albuq uerque, NM,
and Portland, OR. However, the systems in Massachusetts and Portland were later repealed, while
Vermont’s was struck down by the U.S. Supreme
Court on First Amendment grounds.
Now let us consider the recommendations
of the experts. But keep in mind that unless
there is a unified response by the public to
demand that changes be made, many of them
are unlikely to ever be done. Do not forget
the hog-tied couger in that crate! Too many of
our political leaders are controlled by special
interests, which send a continual flow of money
in. In response, laws and regulations are made
which send a flow of money back to those special
The Congressional Progressive Caucus (CPC)
consists of 75 members of the House of Representatives and one senator. It proposed “The People’s
Budget” in April 2011, which included the following recommendations, which it claims would
balance the budget by 2021 while maintaining
debt as a % GDP under 65%: Notice that these
would enable the federal government to begin
taxing the rich again, and reducing money for
overseas miltary operations.
• Reversing most of the Bush tax cuts.
• Reinstating historical marginal income tax
rates of approximately 50% on income earners
over $1 million.
• Taxing capital gains and qualified dividends as ordinary income.
• Raising the income tax cap ($106,800) on
the Social Security payroll tax.
• Restoring the estate tax.
• Reducing tax subsidies paid to corporations, and especially the oil and gas industries.
• Ending overseas contingency defense
spending for the wars in Iraq and Afghanistan.
• Reducing defense spending overall and
reducing the U.S. global defense footprint.
• Investing in a jobs program.
• Implementing a public option to reduce
healthcare costs.
Economist Paul Krugman wrote in April 2011:
“It’s worth pointing out that if you want to balance
the budget in 10 years, you must do it largely
by cutting defense and raising taxes; you can’t
make huge cuts in the rest of the budget without
inflicting extreme pain on millions of Americans.”
The Congressional Budget Office reported
in September 2011 that: “Given the aging of the
population and rising costs for health care, attaining a sustainable federal budget will require the
United States to deviate from the policies of the
past 40 years in at least one of the following ways:
“• Raise federal revenues [income sources]
significantly above their average share of GDP;
“• Make major changes to the sorts of benefits provided for Americans when they become
older; or
“• Substantially reduce the role of the rest
of the federal government relative to the size of
the economy.”
How urgently should the U.S. put plans in
place to address it’s budget challenges? Fed
Chair Ben Bernanke stated in January 2007:
“The longer we wait, the more severe, the more
draconian, the more difficult the objectives are
going to be. I think the right time to start was
about 10 years ago.”
The Bipartisan Policy Center sponsored
a Debt Reduction Task Force, co-chaired by
Pete V. Domenici and Alice M. Rivlin. This panel
created a report called “Restoring America’s Future,” which was published in November 2010.
The plan claimed to stabilize the debt to GDP
ratio at 60%, with up to $6 trillion in debt reduction over the 2011-2020 period. Specific
plan elements included:
• Freeze defense spending for 5 years, after
which defense spending would be held to the rate
of GDP growth;
• Freeze non-defense discretionary spending for 4 years, after which it would be capped
at the rate of GDP growth;
• Reduce the current six income tax rates
to just two (15% and 27%). It would reduce the
corporate tax rate to 27% from 35% today. The
panel would also eliminate most tax expenditures
(roughly $1 trillion per year), with the exception of
the mortgage interest and charitable deductions.
• Implement a national sales tax or valueadded tax (VAT), starting at 3% in 2012 and rising
to 6.5% by 2013.
• Reform Social Security, by raising the cap
on the payroll tax, reducing the annual cost of
living adjustment, and reducing benefits for those
who retire early.
The following helpful recommendations
are most of those by the Bipartisan Policy
Center’s Debt Reduction Task Force (DRTF).
Payroll taxes—Raise the amount of wages
subject to payroll taxes (currently $106,800)
to reach the 1977 target of covering 90 percent
of all wages.
Increase the minimum benefit for long-term,
lower-wage earners, and protect the most vulnerable elderly with a modest benefit increase.
The former is particularly targeted to address
the needs of long-time laborers who are unable
to remain in the workforce due to the demanding
nature of their work.
Domestic discretionary spending—Freeze
domestic (i.e., non-defense) discretionary
spending for four years and cap at GDP thereafter. Implementing the freeze will require policymakers to terminate ineffective programs and set
priorities across the broad range of government
programs. Enforce the freeze through statutory
spending caps, which, if exceeded, trigger automatic across-the-board cuts in all domestic
discretionary programs.
Farm program payments—Reduce farm
program spending by eliminating all farm payments to producers with adjusted gross incomes greater than $250,000, imposing limits
on direct payments to producers, consolidating
and capping 16 conservation programs, and
reforming federal crop insurance.
Defense spending—Freeze non-war defense
discretionary spending for five years and cap
at GDP thereafter (baseline assumes reduction
of troop levels deployed in combat to 45,000
by 2015). Among the options for achieving the
required savings are streamlining military end
strength, prioritizing defense investment, maintaining intelligence capabilities at a reduced cost,
reforming military health care, and applying the
savings from Secretary Gates’ efficiency measures
to deficit reduction. Implement the freeze through
statutory spending caps, enforceable through
automatic across-the-board cuts in all defense
Retirement ages of government workers—
Reform civilian retirement by calculating benefits
based on a retiree’s annual salary from his or
her highest five years of government service; and
reform the age at which career military can retire
to be consistent with federal civilian retirement.
Tax reform—Cut tax rates; broaden the
tax base; boost incentives to work, save, and invest; and ensure, by 2018, that nearly 90 million
households (about half of potential tax filers) no
longer have to file tax returns.
Cut individual income tax rates and establish just two rates—15 and 27 percent—replacing the current six rates that go up to 35 percent.
Cut the top corporate tax rate to 27 percent
from its current 35 percent, making the United
States a more attractive place to invest.
Eliminate most deductions and credits and
simplify those that remain while making them
better targeted and more effective.
Replace the deductions for mortgage interest and charitable contributions with 15 percent
refundable credits that anyone who owns a home
or gives to charity can claim.
Restructure provisions that benefit lowincome taxpayers and families with children
by making them simpler, more progressive, and
enabling most recipients to receive them without
filing tax returns.
Establish a new 6.5 percent national Debt
Reduction Sales Tax (DRST) that, along with the
spending cuts outlined in this plan, will reduce
the debt and secure America’s economic future.
Once debt is stabilized below 60 percent of GDP,
the DRST could be slowly phased down so long as
debt as a percent of GDP remains on a declining
path. These reforms, taken together, will make
the tax system more progressive
Budget process reforms—Prevent new tax
cuts or new entitlement spending from worsening
the fiscal situation by enacting a strict, statutory
“pay-as-you-go” (PAYGO) requirement:
• Require policymakers to fully offset new tax
cuts, expansions of existing mandatory spending,
or new mandatory spending with increases in
revenues or reductions in mandatory spending.
• Trigger fully offsetting automatic cuts in
predetermined mandatory programs or increases in revenue if policymakers violate the
• Convert the federal budget process from
annual to biennial [every two years] budgeting
if the president and the Congress cannot agree on
a comprehensive package of reforms upfront, create a new budget process mechanism—Saveas-you-Go (“SAVEGO”)—to mandate specific
amounts of annual budget savings in different
categories of the budget.
Specifically, SAVEGO would create: Appropriations spending caps for the next 10 years
(Congress may choose to subdivide appropriations into separate categories, such as security
and nonsecurity).
SAVEGO rule with required year-by-year
amounts of deficit reduction in the rest of the
budget (entitlement programs and taxes). We recommend that the Congress create two separate
categories: healthcare and other.
Conclusion by DRTF—There are no easy
answers, no quick fixes. Policymakers cannot
solve the debt crisis simply by eliminating congressional earmarks or foreign aid.
Nor can policymakers significantly reduce the
debt by eliminating “waste, fraud, and abuse.”
Nor can policymakers realistically solve the
problem simply by cutting domestic discretionary
spending. Stabilizing the debt by 2020 through
domestic discretionary cuts alone would require eliminating all such spending—everything
from law enforcement and border security to
education and food and drug inspection.
Nor can policymakers rely on hopes of a
strong economy to “grow our way out of the
Just to stabilize the debt at 60 percent of GDP,
the economy would have to grow at a sustained
rate of more than 6 percent per year for at
least the next 10 years. The economy has never
grown by more than 4.4 percent in any decade
since World War II.
Nor can policymakers solve the problem
only by raising taxes on wealthy Americans.
Reducing deficits to manageable levels by the end
of the decade though tax increases alone on the
most well-to-do Americans would require raising the top two bracket rates to 86 percent and
91 percent (from the current 33 and 35 percent
This overall bipartisan, fair, and reasonable
plan [presented by DRTF] makes tough choices
and requires sacrifice from all. Nothing less has
a hope of restoring America’s future for our children and grandchildren.
The following suggestions are from the
Center for American Progress:
Personal income tax—This plan makes the
personal income tax simpler and fairer. It introduces a flat 15 percent rate for couples with
incomes under $100,000. Many loopholes,
deductions, and exemptions are eliminated but
the ones middle-class families most rely on are
replaced by better-targeted credits.
There will be a large flat “Alternative Credit”
that taxpayers can choose instead of the itemized credits. This Alternative Credit works similarly to the current standard deduction. For 90
percent of Americans, choosing the Alternative
Credit instead of the itemized credits will both
lower their overall tax bill, and make filing simple
and easy.
Most middle-class taxpayers will pay lower
income taxes under our proposal. Tax rates are
lower at most levels of taxable income.
For the wealthy, loopholes are closed and
the top tax rate is restored to the [higher] level
it was at under President Clinton during the
1990s economic expansion. A temporary surtax
of 5 percent is added for ordinary income over
$1 million. The surtax expires once the federal
budget is balanced. The top rate will still be lower
than during most of the post-war period, including the country’s greatest period of economic
growth. The top rate for capital gains is set at
the level signed into law by President Reagan.
The reforms make taxes simpler for the rich as
well as the middle class by obviating the need
for the Alternative Minimum Tax and various
high-income phaseouts. After years of successive
tax cuts and rapidly increasing income (even as
the income of typical Americans has stagnated or
fallen) the wealthiest Americans can afford to
pay more. Under our plan, the average after-tax
income of the richest 1 percent of Americans will
still be over 40% higher than it was in 2001. The
richest 5 percent will still have over 30 percent
higher income.
Other tax changes—There are a number of
other tax changes in the CAP plan. Among them:
• Remove the cap on the employer side of
the payroll tax as described in the CAP Social
Security plan. Currently the payroll tax to fund
Social Security is only applied to earned income
up to $106,800. Our proposal removes that cap,
but only on the part of the Social Security tax
paid by the employer—not the part paid by the
• Restore the estate tax to approximately
pre-Bush-tax-cut levels, but indexed for inflation.
• Adopt several revenue proposals in President Obama’s 2011 and 2012 budgets.
• Eliminate some industry-specific tax expenditures, including those for the oil industry.
• Other revenue measures including an internet gambling tax and superfund excise tax.
Overall, our plan raises revenues in 2030
by less than 2 percent of GDP compared to
the baseline. That drops to 23.8 percent of GDP
by 2035, just half a percentage point above the
Budgets reflect values. A family budget that
puts money away for the parents’ retirement and
the children’s education, makes donations to the
family’s church and favorite charities, and buys
insurance against future risks, reflects different
values than a family budget that prioritizes fancy
clothes and flashy cars over saving and planning.
Similarly, a business that strives to update to
the latest technology and upgrade the skills of
its workforce is approaching its business very
differently from one that forgoes research and
development in favor of short-term profits.
The long-term budget plan outlined here
reflects the values of the Center for American
We believe that investments are critical for
our national well-being, that we have obligations we must meet, and that we have to pay
for what we spend. The country can, of course,
choose a different path—the seemingly simple
path of lower taxes, underinvestment, and abandoning our obligations. But the thrill of lower
taxes would be a transitory one as, one way or
another, the bills come due,—which are lost
competitiveness, broken promises, bad jobs, a
weak economy.
The financial crisis which began in 2007,
corporate bailouts, and concerns over the Fed’s
secrecy have brought renewed concern regarding ability of the Fed to effectively manage the
national monetary system. A July 2009 Gallup
Poll found only 30% Americans thought the Fed
was doing a good or excellent job, a rating even
lower than that for the Internal Revenue Service,
which drew praise from 40%.
On July 18, 2011, Senator Tom Coburn
() released an 614-page plan which would
eliminate $9 trillion dollars over the next 10
years—IF Congress will enact his reforms. To
date, they have done next to nothing to doing this.
The entire report is entitled Back in Black.
Senator Coburn’s plan to reduce our nation’s
long-term deficit would save roughly $3 trillion
from entitlements, $3 trillion from discretionary and other accounts, $1 trillion in defense,
$1 trillion from ending some spending in the
tax code, and about $1 trillion in interest costs.
This plan would gradually reduce the size of
government by about 25 percent and balance
the budget within ten years.
Here are the first three paragraphs of this
new report:
“U.S. Senator Tom Coburn, M.D. (R-OK) today
released a new report Back in Black that outlines
how the federal government can reduce the
deficit by $9 trillion over the next ten years
and balance the federal budget. The 614-page
plan was the result of a thorough and exhaustive
review of thousands of federal programs.
“ ‘The American people are tired of Washington waiting until the last minute to avoid
a crisis, particularly when it is a crisis Washington itself created. The crisis, though, is not
the debt limit deadline. The crisis is Congress’
refusal to make hard choices and reduce a debt
that has become our greatest national security
threat. The plan I am offering today gives Washington 9 trillion reasons to stop making excuses
and start solving the problem,’ Dr. Coburn said.
“ ‘Both parties will no doubt criticize portions
of this plan and I welcome that debate. My goal
is not to replace the work of the budget committees but to show the American people what
is possible and necessary. What is not acceptable, however, is not having a plan and delaying
reform until some perfect political moment that
will never arrive. The fact is doing nothing is a
tax increase, a benefit cut for seniors and the
poor, and a betrayal of the core values both parties hold dear,’ Dr. Coburn said.
Here is a brief list of the some of the savings
which would occur if Sen. Coburn’s recommenations are enacted into law:
General Government Reforms $974.08 billion (Examples: Reduces the number of limos
owned by federal agencies. Savings: $10.4 million a year. Eliminates agency Hollywood liaison
offices. Savings: $3.2 million a year. Reduces
agency travel, advertising, printing, and conferences budgets: $4.9 billion a year.)
Congress: $4.28 billion (Examples: Reduce
the Senate and House of Representatives accounts by 15 percent: $3.8 billion. Freeze pay
for Members of Congress for three years: $6 million. Achieve savings by reducing printing costs
of congressional documents: $312.28 million.)
Executive Branch: $5.40 billion (Examples:
15 percent reduction in the White House budget.
Eliminate the Office of National Drug Control Policy (ONDCP) - $4.7 billion. Eliminate the Council
of Environmental Quality (CEQ) - $33 million.
Eliminate the Office of Science and Technology
Policy (OSTP) - $77 million.)
Department of Agriculture: $346.4 billion.
(Examples: Ends duplicative market export programs that fund profitable companies and large
trade associations. Savings: $2 billion. Reduces
the Rural Development agency’s funding for nonrural or non-economically distressed recipients,
such as $54 million for the Mohegan Sun Casino,
$2.5 million for a Smithsonian style country
music museum, and various grants to wineries
and breweries. Savings: $26.9 billion. Ends payments to private landowners for allowing individuals to access their land for hunting, fishing, bird
watching and other recreational activities that
landowners are financially incentivized to offer
without federal support. Savings: $555 million.)
Department of Commerce: $26.84 billion
(Examples: Ends NOAA’s management of two
weather satellite systems that have incurred cost
overruns of more than $7.5 billion (a 59 percent
cost overrun) even though the amount of satellites
being purchased has been reduced. Resulting savings are $2.2 billion. Ends a taxpayer subsidized
business consulting program that costs taxpayers
$125 million annually, resulting in $1.25 billion
in savings. Eliminates billions of dollars in taxpayer liability in government-backed investments
in other countries. Ends taxpayer support for a
duplicative agency that is seen as a Congressional
“Cookie Jar” for special projects and relies on
self-reported data from the recipients of funding
to determine the effectiveness of the program.
This saves taxpayers $2.93 billion. Eliminates
a program that has been used as a slush fund for
NOAA instead of for seafood promotion efforts.
Resulting savings are $1.05 billion.
Department of Defense: $1.006 trillion
(Examples: Reduces spending at the Defense Department on lower priority programs but makes
no reductions or estimates regarding combat
operations in Afghanistan or Iraq. Gets Pentagon out of nondefense missions such as grocery
stores, schools and duplicative medical research.
Reforms and modernizes military health care for
retired veterans that were not injured by their
military service. Adopts certain Fiscal Commission recommendations on weapon systems, troop
levels, and military personnel reforms,)
Department of Education: $409.10 billion (Examples: Saves state and local education
systems millions of dollars they spend each year
complying with requirements of the Elementary
and Secondary Education Act. States and school
districts work 7.8 million hours each year collecting and disseminating information required
under Title I of federal education law, and those
hours cost more than $235 million. Prevents the
Department of Education from becoming one of
the world’s largest banks by getting bureaucrats
out of the student loan business. Ends the mandatory portion of the Pell Grant program which is
helping to drive up program costs, saving $78.3
Department of Energy: $101.77 billion (Examples: Reduces funding for the 900 conferences
and symposia held where taxpayer dollars were
spent on entertaining guests at yacht clubs with
extravagant meals, cigars, and wine. Savings: over
$428 million. Ends ineffective appliance labeling
program found riddled with fraud, leading consumers to believe they were purchasing efficient
products. Savings: $627 million. Ends duplicative weatherization program that was found to be
poorly managed. Savings: $2 billion.)
Department of Health & Human Services:
$106.70 billion (Examples: Replace outdated
technology systems with cutting-edge technologies. Foster a cooperative culture of data-sharing
and timely analysis in public-private partnerships. Encourage the widespread adoption of
industry standards. Incentivize the identification
and prosecution of waste, fraud, and abuse. Better
monitor and enforce drug policies to curb overutilization and abuse. Better protect beneficiary
and provider identification numbers from being
defrauded by implementing safeguards. Increase
penalties for the theft and resale of beneficiary
and provider identification numbers. Leverage a
range of technologies to examine payments and
billing patterns before reimbursement claims are
paid, Reform CMS management of its program
integrity contractors by increasing accountability
and oversight, and adopt transformative coverage
and payment models with proven records of lower
costs, better care, and reduced levels of abuse
and fraud. (Discretionary) Key points: Repeals
the worst parts of the Affordable Care Act and
other federal programs that dictate the practice of
medicine and interfere with the patient-physician
relationship. Prioritizes funding for basic research and life-saving drugs instead of wasteful
programs that don’t deliver results and are run by
organizations propped up on government grants.
Annual funding increases in medical research at
NIH continue.
Department of Homeland Security: $23.29
Dept. of Housing and Urban Development:
$88.73 billion (Examples: Directing more resources to housing assistance by consolidating
duplicative programs. Ending federal housing
payments to slum lords. prohibiting the repayment of HUD loans with HUD grants. Preventing
bailouts of risky government-backed mortgages.
Bailouts of Fannie Mae and Freddie Mac are estimated to cost taxpayers $317 billion.
Eliminating unnecessary, iInefficient, and
wasteful programs. Requiring modest rent contributions of tenants receiving housing assistance.
CBO projects this reform would save a total of
$26.4 billion.
Reducing excessive overhead costs and unnecessary bureaucracy. HUD spends approximately
$537 million on salaries and expenses for administration, operations and management, including
funds for advertising and promotional activities.
This amount should be reduced by 15 percent,
which would be a savings of $80 million. Directing AIDS housing to those with the greatest need.
Over the past decade, scandals involving tens of
millions of dollars of misspent federal AIDS housing have come to light across the country. HUD
awards hundreds of millions of dollars to slum
lords for dangerous and unsanitary housing. HUD
pays the rent of hundreds of dead people. HUD’s
largest affordable housing block grant program
squandered $650 million on over 1,000 stalled
or abandoned projects. HUD has lost 39 cents
on the dollar for every home it resold. A wealthy
international architecture firm, a “doggie day
care,” and upgrades to Victorian cottages among
the recipients of HUD community development
program that steers millions of dollars to dubious projects.
Department of the Interior: $26.44 billion
(Examples: Ends hundreds of millions of dollars
in coal cleanup payments to states and tribes
who have long completed cleanup efforts. Saves
$1.23 billion. Prohibits funding for next phase
of renovations on the Department of the Interior’s
“limestone and granite clad” headquarters in
Washington, D.C. The makeover has now lasted
a decade, with more years and millions of dollars more planned. (Administration request for
FY [fiscal year] 2012 is $50.4 million for more
Department of Justice: $34.54 billion (Examples: Ends the Parole Commission, which
was eliminated by Congress along with federal
parole in 1984. Savings: $12.9 million per year.
Eliminates duplication between the ATF and
FBI’s separate explosives training facilities that
are located in the same place, Redstone Arsenal
in Huntsville, Alabama. Savings: $4.625 million
per year. Rescinds $1 million from ATF’s Violent
Crime Reduction Program that the agency does
not have the authority to spend and has unsuccessfully asked Congress to rescind on several
previous occasions. Eliminates DEA’s Mobile
Enforcement Teams which, as the president
stated, have “a narrow focus, are duplicative of
other Federal, State, and local law enforcement
efforts and their effectiveness in reducing crime
has not been demonstrated.” Savings: $31 million per year. Eliminates funding for the Juvenile
Justice and Delinquency Prevention program,
which is fraught with mismanagement, fraud, and
duplication and is not a federal responsibility. In
one egregious example of fraud, the DOJ Office of
Inspector General found over $14,000 of grant
funds were spent on food and beverage costs for
24 people for a 3-day conference in New Orleans,
LA, which “exceeded allowable expenditures by
$9620.” Savings: $280 million per year.
Department of Labor: $268.04 billion (Examples: Saves $11 million annually by terminating OSHA’s Susan Harwood Grants, a program
that is inefficient and duplicative of other federal
efforts. For example, one grantee received nearly
$200,000 to develop and translate five training
modules, and four years later American taxpayers
received as a final product a 21 page PowerPoint
presentation on “slips, trips, and falls,” at a cost
of $9,512 per slide. Ends unemployment benefits
for the super-millionaires of the world. As many
as 2,840 households who reported an income of
$1 million or more on their tax returns were paid
a total of $18.6 million in UI [unemployment
insurance] benefits in 2008, according to the Internal Revenue Service. This included more than
800 earning over $2 million and 17 with incomes
exceeding $10 million. In all, multi-millionaires
were paid $5.2 million in jobless benefits in 2008.
Limits administrative dollars wasted by states
administering the unemployment program. While
basic office needs may be a reasonable expenditure, other expenditures are questionable. For
example, Maine was recently found to have spent
$60,000 of federal UI funds on a 36-foot mural
containing images of labor unions strikes.
Department of State and Foreign Aid:
$192.12 billion (Examples: Reduces foreign
aid spending on countries that own billions of
interest-paying US debt. Reduces programs for
art and architecture exhibitions in Venice, Italy,
education of foreign film directors, and music
tours overseas.
Department of Transportation: $192.22 billion (Examples: Eliminates the requirement for
states to spend around $600 million annually on
bike paths, pedestrian walkways, highway beautification, and transportation museum projects,
resulting in savings of $6 billion over ten years
for taxpayers.Eliminates a program that uses
highway dollars for historic covered bridge preservation projects to increase tourism in a select
few states. Savings are $80 million over ten years.
Eliminates a program that uses highway dollars
for states to develop and maintain recreational
trails and trail-related facilities. Savings are $850
million over ten years. Ends taxpayer support
for subsidized food service on Amtrak. Savings
are $850 million over ten years. Ends a $230
per month subsidy for federal employees’ mass
transit use that dramatically increased in costs as
a result of a recent increase of $110 per month.
Savings would total $4.32 billion over ten years.
Department of Treasury & GSEs: $39.72
Department of Veteran A­ffairs: $13.57
billion (Examples: Maintains full support for
disabled veterans and education benefits for all
combat veterans through the Post 9/11 GI Bill.
ľ Adopts common-sense recommendations for
the VA to jointly purchase prescription drugs with
the Department of Defense in order to reduce
costs. Introduces cost-saving measures, such as
copayments and annual fees, in VA health care for
veterans well above the federal poverty line that
are not injured or disabled from their military
U.S. Army of Corps Engineers: $5.28 billion (Examples: Terminate low-priority Corps
construction projects. Savings: $2.3 billion.
Eliminate water and wastewater treatment projects Savings: $1.4 billion. End federal funding
for beach replenishment projects Savings: $702
million. Rescind $2 billion in unobligated balances Savings: $500 million. Reducing excessive
overhead costs and unnecessary bureaucracy
Savings: $2.66 million.
Environmental Protection Agency: $33.67
billion (Examples: Reins in EPA multi-million
dollar conference travel that has resulted in trips
to vacation hotspots, including a dinner cruises
on the River Seine in Paris. Savings: $25 million
over next five years. Ends a program in which
only one state, California, qualifies, and another
program in which only one state, California,
receives the majority of funds. This will ensure
that all states are treated equitably and fairly.
Savings: $200 million. Terminates a duplicative and unnecessary outside research program
that has funded extraneous items like research
into “sustainable” fashion and apparel, including
shoes made of chicken feathers, flaxseed and
soybean oil, and a smart-lock for shared bicycles.
Savings: $600 million.
NASA: $51.15 billion (Examples: Because
the United States no longer has a manned space
program, NASA will pay $56 million per seat
to send astronauts on voyages aboard Russian
spaceships. Only a third of NASA’s budget is
spent for space operations and aeronautics.
NASA researchers are working to improve the
quality of California wines and helped developed
the swimsuit worn by Michael Phelps at the 2008
Summer Olympics. NASA projects are notoriously
over budget, behind, schedule, or both, and just
nine projects account for cost overruns in excess
of $1.2 billion. The NASA Inspector General has
failed to prevent or identify waste, saving only 36
cents for every dollar spent compared to an average of $9.49 saved per dollar spent by the IGs of
other agencies.
National Science Foundation: $14.20 billion
(Examples: Eliminate NSF’s Social, Behavioral
and Economics (SBE) Directorate. Savings: $2.8
billion. Rescind unspent, expired funds NSF currently holds. Savings: $1.7 billion.
Small Business Administration: $3.22
billion (Examples: Under current standards,
the SBA typically defines a “small business” as
those with less than $7 million in revenues and
fewer than 500 employees. The definition is so
broad, however, that it encompass 99.7 percent
of all U.S. businesses. As a result, regular claims
are made, by no less than GAO and the agency’s
own inspector general, that large businesses are
abusing the programs to the exclusion of small
ones. Improper payment problems: The inspector general reports that improper payments for
the 7(a) business loan program were 27 percent
in 2009, while they were 46 percent for disaster
loans. Combined, this represented more than
$2.3 billion in government loans. The need for
small business loan guarantee programs has di-
minished greatly in recent years. First, the 7(a)
program is intended for creditworthy borrowers, but billions of dollars in losses since 2008
demonstrate that the agency has a poor track
record in administering taxpayer dollars for this
purpose. Second, there was more than $609 billion in outstanding small business loans during
the first quarter of 2011.
Other Independent Agencies: $48.89 billion.
Entitlements (Examples: Medicare and Medicaid $2.64 trillion. Social Security 75+ Years
Solvent. SSI & SSDI $17.17 billion (Examples:
Places Social Security, with its current $6.5 trillion unfunded obligation, on a solvent path over
the 75-year window—eliminating the program’s
current 2.22 percent actuarial deficit.
Helps fulfill the mission of Social Security to
combat poverty-ridden old age by modernizing the
program, strengthening work incentives, enriching benefits for lower income earners dependent
on the system, and slowing benefit growth of
workers who can afford to save more for retirement on their own—and without increasing taxes.
Modernizes the Social Security disability programs and strengthens safeguards to deter waste,
fraud and abuse. Refocuses the Social Security
Administration’s current culture of solely paying benefits to balancing the equally important
responsibilities of managing entitlements and
performing program integrity. Saves $17 billion
over 10 years in the SSI program.
Alters the retirement age to reflect life expectancy. This Normal Retirement Age (NRA) would
gradually increase—one month every two years.
This means individuals who turn age 62 in 2046
will have a NRA of 68, and those who turn age
62 in 2070 will have an NRA of 69. The Earliest
Eligibility Age would also gradually increase in
tandem with the Normal Retirement Age.
Switches to a more accurate measure of inflation for Social Security cost-of-living-adjustments
(COLAs) by using “chained-CPI” to measure inflation.
Alters the progressive benefit formula of current law, slowing benefit growth, especially for
higher earners. Under the changes in the benefit
formula, benefits are enriched so that workers
below the 40th percentile are “held harmless”
from changes and experience a slight benefit
increase under the formula. Above the 40th percentile, benefit growth is restrained by lowering
the amount the current system replaces.
Alters the spousal benefit to better reflect costs
of a two-person household, while also strengthening the connection between taxes paid and
benefits received.
Modernizes the Social Security disability programs and strengthens safeguards to deter waste,
fraud and abuse.
Social Security Disability Insurance:
Encourages a shift in the culture of SSA from
solely paying benefits to a strong balance between
the equally important responsibilities of managing
the disability programs and enforcing program
rules through program integrity functions.
Updates the disability application and appellate process to ensure only the truly disabled that
cannot work any job in the national economy are
accepted into the program and able Americans are
encouraged to be productive and return to work.
Encourages state involvement in helping adults
on SSI find gainful employment and children on
SSI receive the educational help they need to grow
into independent adults.
Revenue Reform Tax Expenditures: $962.02
Other Government Revenue: $30.34 billion
(Examples: Immediately ends dozens of special interest giveaways and eliminates spending
through tax code, which will generate revenue, but
without increasing tax rates. Examples: Ends tax
breaks for Hollywood movie producers. Savings
for this item alone: $1 trillion.
Eliminate IRS Tax Exemptions for Bailout
Interest saved by all the above reductions:
$1.360 trillion.
Grand total of all cost cut savings in
Senator Tom Coburn’s carefully researched
recommendatons: $9.032 trillion.
See his book, Back to Black, for full details.
Tragically, to date, nothing has been done to
implement hardly any of these recommendations.
Go to:
In March 2011, another excellent analytic report detailing ways to eliminate duplication and
waste in the federal government was released by
the Governmental Accountability Office (GAO).
This 338-page report is entitled Opportunities
to Reduce Potential Duplication in Government
Programs, Save Tax Dollars, and Enhance Revenue. Go to and search for the March
2011 report.
The National Science Foundation: Under
the Microscope.
In April 2011, Senator Coburn released another oversight report; this one on the National
Science Foundation, which identified billions lost
to waste, mismanagement and duplication. The
title of the report is Under the Microscope.
Help Wanted: How Federal Job Training
Programs are Failing Workers.
In February 2011, Senator Coburn, M.D. released this oversight report, “Help Wanted” that
highlights examples of waste, fraud and mismanagement in federal job training programs. This
report accompanies a Government Accountability
Office (GAO) report which shows in fiscal year
2009 nine federal agencies spent approximately
$18 billion to administer 47 separate employment
and job training programs, all but three of which
are duplicative.
Federal Programs to Die For: American tax
dollars sent six feet under.
In October 2010, Senator Coburn released
an oversight report that exposes more than $1
billion that has been sent to the deceased in the
past decade. Washington paid for dead people’s
prescriptions and wheelchairs, subsidized their
farms, helped pay their rent, and even chipped in
for their heating and air conditioning bills.
Grim Diagnosis: a check-up on the federal
health law
In their second report since the enactment
of the federal health law, U.S. Senators and doctors Tom Coburn (R-OK) and John Barrasso
(R-WY) released, “Grim Diagnosis—A check-up
on the federal health law” detailing how many of
the consequences of the new law are worse than
Pork 101: How Education Earmarks School
In September 2010, Senator Coburn released
an oversight report on education earmarks. The
report shows how Congress’ impracticl education
projects are harming students, delaying reform
and undermining our future.
Party at the D.O.J.
In July 2010, Senator Coburn has released
a new oversight report “Party at the DOJ” that
describes how DOJ is wasting millions of taxpayer dollars on recreational activities that are
undermining DOJ’s core mission to enforce the
law, prevent crime and administer justice.
Bad Medicine: A Check-Up On The New
Federal Health Law
In July 2010, Senators Tom Coburn and John
Barrasso released this report on July 7, 2010.
The intention of this report is to highlight some
of problems with the law and its consequences.
After 100 days after passage, the report reveals
new information and goes through a litany of
problems with this flawed legislation.
Stimulus Checkup: A Closer look at 100
projects funded by the American Recovery and
Reinvestment Act
In December 2009, Senators Tom Coburn,
M.D. and John McCain released this joint report
which highlights 100 wasteful projects in the first
$200 billion spent in the $787 billion stimulus
bill passed in February 2009.
Out of Gas: Congress Raids the Highway
Trust Fund for Pet Projects While Bridges and
Roads Crumble
In July 2009, Senators Tom Coburn, M.D.
and John McCain released this joint report which
examines the $78 billion from the Highway Trust
Fund not being spent on bridges or roads, but instead on projects such as bike paths, pedestrian
walkways, “scenic beautification,” and road-kill
prevention tunnels.
100 Stimulus Projects: A Second Opinion
This June 2009 report discloses 100 of the
worst examples of waste in the American Recovery
and Reinvestment Act, or stimulus bill. The projects included in the report – worth $5.5 billion
– range from Maine to California, and even two
from the state of Oklahoma. Among the worst are
a tunnel for turtles, a guardrail for a non-existent
lake and repairs for bridges that are barely used.
Washed Out to Sea - How Congress Prioritizes Beach Pork Over National Needs
Billions of dollars worth of sand projects
go out with the tide. In this May 2009 oversight
report, Senator Tom Coburn details just how
beachfront communities, D.C. lobbyists, and
Members of Congress have teamed up to “save”
beaches with federally funded sand – an effort
that always results in additional requests for sand
projects in the future.
2008: Worst Waste of the Year
With billions of taxpayer dollars spent on lowpriority and questionable projects, 2008 was a
banner year for wasteful Washington spending.
This December 2008 report by Senator Coburn
highlights more than $1 billion in taxpayer funding that Washington bureaucrats and politicians
wasted on more than 60 examples of waste: everything from an inflatable alligator to training
for casino workers to an unsuccessful search for
Alaskan ice worms and extraterrestrial life forms.
Justice Denied: Waste and Mismanagement
at the Department of Justice
This October 2008 Coburn report reveals
extensive waste and mismanagement at the Department of Justice, costing taxpayers more than
$10 billion. Examples include excessive junkets
to conferences, bureaucrats skipping work for
hundreds of weeks without leave, misplacing
and losing hundreds of laptops and dangerous
weapons, supporting groups with terrorist ties,
hobnobbing with Hollywood producers, funding
duplicative and unproven recreational activities,
and improperly managing thousands of grants.
Missing in Action: AWOL in the Federal
This August 2008 Coburn report details workers who skip out during work hours. AWOL is
the general term given to hours during which an
employee is absent from his or her job without
permission. This can range from simply being late
to work, to not showing for months at a time. Between 2001 and 2007, the number of work hours
lost to AWOL employees rose steadily. In total,
there were nearly 20 million AWOL hours in just
seven years across 18 departments and agencies.
The XVII International AIDS Conference
This July 2008 Coburn report is about wasted money at HIV/AIDS conferences They have
become very popular on the federal employee
“conference circuit.” Uncle Sam planned to spend
almost half of a million dollars to send over 100
federal employees to the XVII International AIDS
Conference in Mexico City, Mexico, which ran
from August 3 through August 8, 2008. According
to new reports, conference organizers expected
the event to cost $25 million and attract 22,000
delegates and conference goers.
For the Farmers or for Fun: USDA Spends
Over $90 Million in conference Costs
This May 2008 Coburn report reveals how
Federal agencies have increasingly come under
scrutiny for their lavish spending on conferences,
and the Department of Agriculture (USDA) is not
an exception. USDA recently reported to Congress that it spent $19.4 million on conferences
in 2006—almost tripling the amount it spent in
2000. There are approximately 112,000 employees at USDA, and in 2006, the Agency sent 20,959
employees to 6,719 conferences and training
events across the nation and around the world.
CDC Off Center
This is a June 2007, 115-page Coburn oversight report examining how the Centers for Dis-
ease Control and Prevention has tilted off center.
The report makes recommendations about how
the CDC might get back on track. The American
people expect CDC to spend its $10 billion budget
treating and preventing disease and dealing with
public safety threats, including the threat of bioterrorism. Instead, CDC has spent hundreds of
millions of tax dollars for failed prevention efforts,
international junkets, and lavish facilities, while
failing to demonstrate it is controlling disease.
For more information on these reports, go to
You have just read about the massive number
of corrections and changes which Congress needs
to make—in order to keep our beloved nation
from falling flat on its face.
Yet it has steadily produced less and less in
useable output!
With just a few short weeks remaining before
the end of the 2011 session, Congress has passed
its fewest number of bills in at least the last 10
non-election years. According to the Washington
Post, the 326 bills passed by the House of Representatives is roughly one-third of the number
they passed in 2009 (970) and nearly a quarter of
the number passed in 2007 (1,127.) The Senate
has approved 368 bills, also well below its typical off-year numbers, and the fewest since 1995.
The House has passed just six of the 11 appropriations bills needed for next year and the
Senate has ignored most of the legislation sent
to them by the lower chamber. Relatively few bills
are sent to President Obama to sign.
Instead, our representives and senators will
frequently just sit through a roll call and then
adjourn for the day. This consists of a calling of
their names, one after another. Doing this assures
that they were “in session” that day, even though
they did nothing.
In addition to a monthly vacation, usually in August, for several years each house
of Congress tries to have only a four day work
week, and leaving on Thursday afternoon and not
returning till Monday morning.
In addition to the lobbyist money that each
regularly receives, the current salary (2011)
for rank-and-file members of the House and
Senate is $174,000 per year.
We have already discussed these two problems
in detail. Together with the other immense perplexities that confront us, these two may ultimately sink us, first, because of their immense
yearly cost and, second, because of the massive
number of baby boomers which are becoming
eligable for Medicare, starting in January 2011.
But keep in mind that a significant underlying cause is a broken government which,
because of massive, ongoing bribery is unable
to face difficulties realistically and solve them.
However, there are other problems confronting us which seemingly have no workable solution:
We are experiencing the worst unemployment
in 60 years, and large amounts of children’s toys
and other products made in China are being
recalled for toxic levels of lead (primarily in the
paint). Chinese manufacturers do not seem to
care enough to change their processes to protect the health of people in our country. The
answer to both of these problems is to bring
manufacturing jobs back to America.
And to some extent, this is being done. The revival in manufacturing in America’s heartland
has been driven in part by the increasing costs
associated with importing goods from China,
India and other Asian nations where labor has
traditionally been cheap.
With the cost of oil rising and a weak dollar eating into profits, many manufacturers are
finding the U.S. a more attractive place to make
things—not just sell them.
Beyond mere economics, attitudes are also
changing. Some U.S. manufacturers are bring-
ing business back to America to ensure consistent, high quality products, a outcome that
some business owners find is increasingly difficult
to achieve in China.
The global industrial landscape certainly appears to be in the early stages of a realignment.
The euro’s breathtaking rise against the dollar
has spurred European makers of cars, steel,
aircraft, and more to shift production to the
U.S. Now the soaring cost of fuel is making it
cost less to produce goods in America. Consider
Japan’s steel industry, which depends on imported iron ore and coal to create high-end metal
for Japanese automakers in the U.S. In 2003 it
cost $15 to ship a ton of iron ore costing $30
from Brazil to Japan. By last fall, while the ore
had jumped to $80 per ton, shipping costs had
risen to $90. Shipping of raw materials now accounts for 13% of the price of rolled steel used in
car bodies, estimates CLSA Asia-Pacific Markets.
The finished steel must then be sent to factories
in the U.S., increasing the price even further. The
high cost of fuel is going to radically transform
the way people look at where to manufacture.
Examples of production shifts abound. Chinese steel exports to America are down 20%
in the past year, while U.S. steel output has
jumped 10% despite the slowdown in construction.
Big electronics manufacturers are expanding
assembly of high-end telecommunications, computer, and medical equipment in Mexico and some
parts of the U.S. for greater proximity to corporate
buyers. Tesla Motors, which has just begun production of its $109,000, electric-powered sports
car, transferred assembly of battery packs from
Thailand to a plant next to its San Carlos (Calif.) headquarters. Thailand’s low factory wages
were more than offset by the costs of shipping
thousand-pound battery packs across the Pacific.
How has China been able to keep its edge
in the face of soaring costs? One factor that is
widely overlooked is rising productivity. For
the past decade, U.S. manufacturing productivity
growth has averaged 4.8%. That’s impressive for
an industrialized nation, and bodes well for U.S.
industry when the economy recovers. But productivity at medium and large Chinese manufacturers—the backbone of country’s export boom—has
averaged nearly 19% over the same period.
While American manufacturers have been
tightening their belts, producers in China have
been plowing money into bigger and more
advanced facilities that are ahead of their U.S.
A decade ago the U.S. accounted for one-third
of global circuit-board output. Today that’s down
to 10%, with China making 80%. Chinese boards
are still 40% to 50% cheaper than the ones made
Expecting the U.S. to recapture industries that
have already gone to China may not be realistic.
But the new cost equation likely will influence
many decisions about where to locate production in the future. America remains the world’s
biggest manufacturer, after all, because it’s still
the largest market for everything from drugs
and packaged foods to high-end medical equipment. The U.S. may have as good a chance as anyone of being a strong player in nascent industries,
whether next-generation wind turbines, medical
devices with nano-scale sensors, or electric cars.
The challenge will be to persuade reluctant
venture capitalists and corporations to invest
again in modern U.S. production facilities.
Another challenge is to get U.S. banks to
loan to businesses again!
Labor shortages and corner-cutting by the
Chinese factories are impacting quality, and it is
costing as much to have a cabinets put right
in the U.S., as what sellers are paying for the
original product in China.
Theoretically, U.S. companies pay some of
the highest corporate taxes in the industrialized world, and some members of Congress say
cutting them is a sure way to jump-start the ailing economy.
But the truth is far different!
The federal corporate tax rate is now 35
percent, and when state and local taxes are included, it rises to nearly 40 percent, according
to the Organization for Economic Cooperation
and Development (OECD). That’s higher than any
other industrialized country but Japan.
But Steve Wamhoff, legislative director at Citizens for Tax Justice, says the tax burden on U.S.
companies has been greatly exaggerated.
While the statutory tax rate is 35 percent, corporations benefit from numerous tax breaks,
exemptions and deductions that bring their
effective rate down to about 29 percent, Wamhoff says. That’s about the median for OECD
countries, he says.
Here is what has happened:
In the 1960s, the United States had some
of the lowest corporate tax rates in the world.
But gradually, more and more foreign countries
cut business taxes as a way of helping their
companies compete in a global economy, says
Douglas Shackelford, professor of accounting
and taxation at the University of North Carolina.
Judd Gregg (R-NH) explains it this way:
“If you want to create jobs here by attracting
companies from overseas to invest here, and we
want our American companies to expand here,
then we should have a tax law that incentivizes
them to do that.”
He has sponsored a bill to reduce the U.S.
corporate tax rate to 25 percent.
But there is more to this problem. Companies
already get a very large deduction for domestic
manufacturing expenses. It is used for things
like producing hamburgers for fast-food restaurants, writing software, and extracting oil. But
none of that is really “manufacturing.”
Viewing the situation as a whole, U.S. multinational companies had decided to use many
new opportunities to cut their taxes: One is
to set up offshore subsidiaries to shift profits
into low-tax countries. They borrow money in
the U.S., take a tax deduction and then shift
the money they borrow to a foreign division.
Then sign up advisers and structure a Cayman
Islands entity and do all sorts of different things
Thus we see that the current U.S. tax system
is broken. Those with accountants or lawyers
to work the system can end up paying no taxes
at all. But all the rest are hit with one of the highest corporate tax rates in the world. The situation
needs to change.
Consider the tax rate paid by two of America’s
biggest companies: Wal-Mart and General Electric. Wal-Mart paid 34 cents in taxes for every
dollar of profit it made in the past three years.
General Electric paid just 3.6 cents on the dollar.
The maze of IRS exemptions and deductions
has been built into the tax code over many years
by Congress. If you are in a certain type of business, you feel you have a unique situation, you
send your lobbyists to Congress, make your
case, and if you are successful the tax laws are
often adjusted to reflect your position. The little
people cannot do this so they can reduce their
taxes. But the big people can.
Tax expert Len Burman at Syracuse University puts it this way: “There are big companies
that consider their tax departments to be profit
centers,” Instead of focusing on making products,
they use the U.S. tax system to boost their profits.
Burman says it helps to be large and have lots
of overseas subsidiaries. He explains:
“They make money by moving income overseas
or in different kinds of activities or adjusting their
accounting in such a way that they can pay less
taxes than their competitors do.”
Companies that have the lowest effective
U.S. tax rates are those that produce pharmaceutical drugs and computer equipment, such
as General Electric, Merck, Pfizer, and HewlettPackard. But other industries that are more
dependent on domestic customers and services,
cannot get as many of their taxes reduced. These
include Target, Disney, Home Depot, Aetna, and
The companies say their behavior is driven
by the fact that corporate taxes in United States
are among the highest in the world.
According to the U.S. statutory tax rate of
35 percent, we are among the highest among
industrialized countries. But if you look at the effective tax rate—the actual tax rate that companies
pay after all the adjustments they make—we’re
much closer to the center of all the nations, which
is about 25 percent.
Tragically, when companies work aggressively to minimize their U.S. taxes, they leave
billions of dollars in profits kept in banks
But, in addition, when they move their
production plant overseas in order to save
taxes,—they hire overseas workers, and their
former U.S. employees are out of work. As mentioned earlier, it si the pharmaceutical and biotech
companies which pay some of the lowest U.S. tax
rates—usually less than 10 percent, according to
research by New York University.
In contast, most retailers, including Wal-Mart,
pay the full 35 percent corporate tax rate.
Congress should change the tax code so
that it no longer rewards moving production
overseas. The National Retail Federation says
the way to do this is to lower the rates, broaden
the base, and thus encourage businesses to
return to America.
As it is now, retailers and many companies
that do not do much business overseas tend to
get very few write-offs. They are penalized because
they remain in America!
The Chinese government, which just produced its first national audit of local finances,
announced this week that local governments
could owe as much as 30% of China’s GDP.
That’s a good deal more than the government’s
official debt load of less than 20% of GDP. And
some analysts are putting China’s real debt
levels at three to four times those levels.
“If you take a very broad view of the Chinese
government’s contingent liabilities rather than
explicit debt on the books then the number
comes to well over 150 percent of China’s GDP
in 2010,—Victor Shih, a political economist at
Northwestern University in the U.S., quoted in
Financial Times.
The Economist’s Ryan Avent estimates China’s debt-to-GDP ratio is roughly 80%, which, if
coupled with China’s expected 5% and 9% over the
next few years and fairly conservative spending,
would greatly help it. But for China to keep up
its growth rate, its consumers must continue
to spend. That is difficult if inflation continues
to rise.
Chinese consumers would need to spend more
than they already do, which is the key component
to China’s growth. Meanwhile, China’s biggest
consumers, Europe and the U.S., are gradually
reducing purchases.
Having a malfunctioning banking system
could also slow China’s economic growth sharply.
China’s banking system is riddled with loans
made on optimistic assumptions; many of
which have turned bad.
As the West embarked on reduction in quantities of imports, China ordered its banks to lend
a huge amount of money. Much of this went to
local governments, who spent it on infrastructure
projects, many of which did not turn out well.
Local Chinese governments have stacked up a
lot of debt. The People’s Bank of China reckons
that local governments now owe in the region
of ¥14 trillion (around $2 trillion). In total, says
Minxin Pei in The Diplomat, if you factor in these
debts, then China’s debt-to-GDP ratio clocks in
at around 80%. That’s in the same region as
the US or the UK.
As long as these infrastructure projects are
necessary, and will generate a decent return, the
debt will be serviced, and the loans repaid. But
that’s the problem. How many of these projects
can genuinely pay for themselves?
About half of local government bank loans will
fall due in the next two years. Chinese state-owned
banks will do what everyone is doing these days:
they’ll “extend and pretend”. They’ll roll over the
debts and pretend everything is fine.
Bad debt held by Chinese local governments
is a much larger problem than previously anticipated, Moody’s Investors Service claims.
A statement issued by that ratings agency adds
the credit outlook for the country could turn
negative if its government fails to deal with the
potential scale of problem loans held to local
Northwestern professor Victor Shih tallied
up the potential exposure to this one type of
loan, arguing that China’s official figures for
public debt understated the government’s real
obligations. The banking sector’s exposure to
other types of risky loans—mortgages, real estate
development loans, emergency working capital
loans to keep failing exporters from going under,
business loans diverted to stock and real estate
speculation, business loans collateralized by land
at inflated valuations, bonds issued to finance
China’s ambitious high-speed rail build-out—is
far more extensive.
There has been an inexorable increase in
Chinese credit, primarily funnelled through local
government financing vehicles (LGFV’s); that is
local banks financing local construction projects.
Even within the LGFV category, RMB 2-3 trillion is only a fraction of the potential losses
China’s banks may end up facing. (The RMB is
the Renminbi, which is the official currency of the
People’s Republic of China (PRC).
The RMB 2-3 trillion corresponds (roughly)
to the 23% of local bank loans regulators believe are beyond all hope of repayment. However, only 28% of those loans can be reliably
repaid through cash flow. That may leave 50%
(roughly RMB 5 trillion) in problematic LGFV
loans that remain to be worked out.
Thus we see that the debt problem in China
seems to be bigger than anticipated. China has
undisclosed bad debt under write-offs. Moody’s
have found that out of $ 1.6 trillion debt of
local governments in China, $1.3 trillion
were funded by banks. Not only this, 10% of
China’s $5.8 Trillion GDP is bad debt which
unaccounted for. This could have been money
siphoned off by local governments into slush
funds for leaders.
For the past decade, Chinese banks have been
striving—with varying degrees of success—to turn
themselves into viable commercial entities, which
lent on the basis of earning a return. Sadly, with
the stimulus, they reverted to being money pots
for government officials. Going forward, China
desperately needs to develop a banking system
that allocates capital efficiently, making positive
returns on investment.
As mentioned earlier in this report, our
national debt is now equal to 84 percent of the
country’s gross national product—the highest
level since after World War II. The credit-rating
agencies are hinting that the federal treasury’s
bond rating is in jeopardy, and Fed Chairman
Ben Bernanke is warning that China, the United
States’ largest foreign creditor, may start charging higher interest rates.
As of May 2011 the largest single holder of
U.S. government debt was China, with 26 percent
of all foreign-held U.S. Treasury securities (8% of
total US public debt).
As of September, 2011, China holds
$1148.3 billion in U.S. Treasury Securities,
387.3 billion in Treasury Bills, and 2874.5
billion in T Bonds and Notes. It is by far the
largest holder of our national debt. So what will
happen when, due to its own internal financial
problems, China decides to get rid of those
China, the biggest foreign owner of U.S. government debt, trimmed its holdings of Treasuries
for a fifth straight month in March . . China’s
concern that U.S. government securities may
become more risky because of the nation’s
deficits and debt burden prompted its call this
month for President Barack Obama’s administration to lay “a solid fiscal foundation” for long- term
growth. Former Chinese central bank adviser
Yu Yongding said last month that China should
stop buying Treasuries because of the risk that
the U.S. may eventually default.
“China may ‘gradually cut its U.S. Treasuries
as it seeks to diversify its foreign-exchange holdings,’ said Yao Wei, a Hong Kong-based economist
with Societe Generale SA . .
“ ‘We have lent a massive amount of capital
to the United States, and of course we are concerned about the security of our assets,’ Chinese Premier Wen Jiabao said in March 2009.”—
Bloomberg News, May 17, 2011.
Referring to the possibility that foreign
holders of U.S. debt may start selling them
heavily, an international financial authority
stated June 2008:
“Foreign investors in U.S. dollar assets have
seen big losses measured in dollars, and still bigger ones measured in their own currency. While
unlikely, . . a sudden rush for the exits cannot be
ruled out completely.”—Bank of International
Settlements, June 2008 report.
China has largely succeeded in exporting its
way to economic growth by means of low labor
costs. The rise of China has been spectacular.
Since 1980, the Chinese GDP has averaged
9.8% annual growth. More people were lifted out
of poverty in the last half of the 20th century in
China than ever before in human history, and in
fact almost all people lifted out of poverty in the
20th century have been Chinese.
Many factors can be given at least partial
credit for this success including Chinese savings (now running at 50 percent), direct foreign investment in Chinese export industries,
a controlled currency, Chinese willingness to
adapt their ideology to pragmatic conditions,
highly educated labor and equally highly-educated
leadership. Yet, underpinning them all has been
cheap but productive labor to their American
and European markets.
Chinese exports have grown as high as 50
percent annually and it is a poor year that has
seen export growth of less than 25 percent.
Much of the exports have been products assembled in China but parts of which have been
produced in Taiwan, Japan, Korea, Europe or
the United States. WalMart, depending almost
entirely on Chinese produced goods for its sales,
points out that these products lower costs to the
American consumer and restrains inflation.
Endlessly rising exports, however, have
both limitations and costs. The limitation is
that no country can depend indefinitely on low
cost labor. The very success of such a strategy
will increase both wages and inflation, requiring
still more wage increases, until ultimately a new
low-labor producer will enter the market.
However, there is another powerful drive
for China as the assembly-exporting country:
to move up the value chain by producing the
parts that go into the final assembly. China is, in
fact, very quietly doing just this, a very important
factor which is largely ignored. China is gradually “hollowing out” the original producers of
those products—which were America and other
non-Chinese industrial nations.
Our U.S. addiction to personal over-consumption (that is, consumption well beyond
our incomes) is well known. One estimate is
that we have been consuming 106 percent of
our annual GDP. Such a debt is not necessarily
a problem at the level at which the accounts of
countries are balanced. If America wants to buy
more from China than it sells, there are a number of ways of running such a deficit, such as
selling financial investments (our U.S. debt,
via Federal Reserve Bonds) in the American
economy to foreigners, especially to Chinese.
As long as there is a strong U.S. economy, and
a willingness on the part of foreign governments
to continually finance yet more of our debt, we
will not collapse. And the Chinese, in the interest of feeding their export habit, must do so.
They must keep buying our U.S. bonds. SinoAmerican trade depend on both parties’ willingness to enter into this implied contract.
Yet, our over-consumption has tended to
be consumer driven. But U.S. consumers has
proven to be the flaw in this structure. It was
assumed that the income and property holdings
of U.S. consumers would continually increase,
allowing greater and greater amounts of debt.
And most equity for Americans is in their homes.
The growth required in home values to ultimately fund the over-consumption, because
of a variety of reasons, amounts to more than
6.5 percent. Real growth in GDP plus service
costs must be added in as well. This gives the
American consumer the burden of somehow financing over-consumption of about 10 percent
annually out of rising home equity.
In the spring of 2006, this structure began
to collapse, accelerated by higher fuel costs,
generalized anxiety at endless wars, real doubts
about the future of the country, and stagnating
home values. The result was a cutback in spending, and the collapse of the rickety support system of complex derivative instruments that had
allowed banks to assuage their doubts about
the underlying assumption of ever-increasing
home equity. Values plummeted, liquidity (the
ability of banks to loan money on the assumptions that the loans they had out on homes were,
in fact, assets which would one day be on the plus
side of their balance sheets) dissolved.
China has taken our factories and our jobs.
Here are the statistics on this:
In 2009, the U.S. was a net importer and
China held at least a one-third share of those
imports for 91 NAICS categories (or one-fifth
of the total number of categories). The hefty
figure reflects the size and breadth of bilateral
trade and the value of examining vulnerability
to import interruption. These 91 categories
accounted for almost three-fourths of total
imports from China.
The six-digit North American Industry Classification System (NAICS) lists 454 meaningful
categories for bilateral trade data from soybeans
to second-hand merchandise. They divide into
91 primary categories, which can be broken
into the following five groups. By number of
categories, clothing and textiles is largest, by value
electronics is largest.
Clothing and textiles. For example, “men’s
and boy’s neckwear” accounts for 29 categories
and $50 billion in imports—much of it from
Electronics. For example, “audio and video
equipment” accounts for 11 categories and $99
billion in imports—much of it from China.
Home and office. For example, “plumbing
fixtures” accounts for 27 categories and $34 billion in imports—much of it from China.
Materials. For example, “miscellaneous wood
products” accounts for 14 categories and $15
billion in imports—much of it from China.
Miscellaneous. For example, “games and
toys” accounts for 10 categories and $30 billion
in imports—much of it from China.
In these 91 categories, China accounts for
33 percent or more of all U.S. imports.
In 47 of those 91 categories, China accounts
for 20 percent or more of U.S. consumption.
(1) We need to evaluate any areas of import
dependence on China in relation to our national security implications. (2) We need to identify
and cultivate alternate supply sources.
(3) Most of all, we need to bring manufacturing back to America! (4) As part of this, we need
to identify future needs for highly skilled labor
and construct education programs to train
workers for those jobs. This will require federal,
local, and private participation.
The United Nations completed an in-depth
study of land use and availability in November
2011. It found that 25 percent of world land
has been highly degraded.
This was the first-ever global assessment of
the state of the planet’s land resources. A full
quarter of all land is highly degraded, and the
warning is given that the trend must be reversed
if the world’s growing population is to be fed.
The U.N. Food and Agriculture Organization
(FAO) estimates that farmers will have to produce 70 percent more food by 2050 to meet the
needs of the world’s expected 9 billion-strong
population. That amounts to 1 billion tons more
wheat, rice and other cereals and 200 million
more tons of beef and other livestock.
But as it is, most available land is already
being farmed, and in ways that often decrease
its productivity through practices that lead to
soil erosion and wasting of water.
FAO’s director-general Jacques Diouf said
increased competition over land for growing
biofuels, coupled with climate change and poor
farming practices, had left key food-producing
systems at risk of being unable to meet human
needs in 2050.
“The consequences in terms of hunger and
poverty are unacceptable,” he told reporters at
FAO’s Rome headquarters. “Remedial actions
need to be taken now. We simply cannot continue
on a course of business as usual.”
The report was released Monday, as delegates
from around the world meet in Durban, South
Africa, for a two-week U.N. climate change conference aimed at breaking the deadlock on how
to curb emissions of carbon dioxide and other
The report found that climate change coupled with poor farming practices had contributed to a decrease in productivity of the world’s
farmland following the boon years of the Green
Revolution, when crop yields soared thanks to
new technologies, pesticides and the introduction
of high-yield crops.
Thanks to the Green Revolution, the world’s
cropland grew by just 12 percent between 1961
and 2009, but food productivity increased by
150 percent.
But the U.N. report found that rates of growth
have been slowing down in many areas and today
are only half of what they were at the peak of the
Green Revolution.
It found that 25 percent of the world’s land is
now “highly degraded,” with soil erosion, water
degradation and biodiversity loss. Another 8 percent is moderately degraded, while 36 percent
is stable or slightly degraded and 10 percent is
ranked as “‘improving.”
The rest of the Earth’s surface is either bare
or covered by inland water bodies.
Soil erosion has been coupled with an increased intensity of floods. In southeast and
eastern Asia’s rice-based food systems, land has
been abandoned.
The report found that water around the world
is becoming ever more scarce and salinated,
while groundwater is becoming more polluted
by agricultural runoff and other toxins.
In order to meet the world’s water needs in
2050, more efficient irrigation will be necessary
since currently most irrigation systems perform
well below their capacity, FAO said.
The price tag deemed necessary for investments through 2050: $1 trillion in irrigation water management alone for developing
countries, with another $160 billion for soil
conservation and flood control.
It is estimated that 12.8 million Americans,
about 6 percent of the household population
aged twelve and older, use illegal drugs on a
current basis (within the past thirty days).
More than a third of all Americans twelve
and older have tried an illicit drug. Ninety percent of those who have taken illegal drugs used
marijuana or hashish. Approximately a third
used cocaine or took a prescription type drug
for nonmedical reasons. About a fifth used LSD.
An estimated 9.8 million Americans (77
percent of all current illicit drug users) were
smokers of marijuana—making it the most-commonly-used illicit drug. Approximately 57 percent
of current illicit drug users limit consumption
exclusively to marijuana.
The most alarming trend is the increasing use of illegal drugs, tobacco, and alcohol
among youth. Children who use these substances
increase the chance of acquiring life-long dependency problems. They also incur greater health
risks. Every day, three thousand children begin smoking cigarettes regularly; as a result,
most of these youngsters will have their lives
A majority of Americans believe that drug use
and drug-related crime are among our nation’s
most pressing social problems. Approximately
45 percent of Americans know someone with a
substance abuse problem.
Neighborhoods where illegal drug markets
flourish are plagued by attendant crime and
Early drug use often leads to other forms of
unhealthy, unproductive behavior. Illegal drugs
are associated with premature sexual activity
(with attendant risks of unwanted pregnancy
and exposure to sexually-transmitted diseases
like HIV/AIDS), delinquency, and involvement
in the criminal justice system.
The social and health costs to society of illicit
drug use are staggering. Drug-related illness,
death, and crime cost the nation approximately
$66.9 billion. Every man, woman, and child in
America pays nearly $1,000 annually to cover
the expense of unnecessary health care, extra
law enforcement, auto accidents, crime, and lost
productivity resulting from substance abuse.
Illicit drug use hurts families, businesses,
and neighborhoods; impedes education; and
chokes criminal justice, health, and social
service systems.
An estimated 10 percent of federal prisoners
and 17 percent of state prisoners reported committing offenses in order to pay for drugs.
Underage use of alcohol and tobacco can
lead to premature death. Eighty-two percent
of all people who try cigarettes do so by age
eighteen. Approximately 4.5 million American
children under eighteen now smoke, and every
day another three thousand adolescents become
regular smokers. Seventy percent of adolescent
smokers say they would not have started if
they could choose again. In excess of 400,000
people die every year from smoking-related
diseases—more than from alcohol, crack, heroin,
murder, suicide, car accidents, and AIDS combined.
Alcohol has a devastating impact on young
people. Eight young people a day die in alcoholrelated car crashes. The younger an individual
starts drinking and the greater the intensity and
frequency of alcohol consumption, the greater the
risk of using other drugs. Two and-a-half million
teenagers reported they did not know that a
person can die from alcohol overdose.
Develop ways to protect against EMP
bursts. Nothing is being done in regard to this
very real and increasing danger.
An electromagnetic pulse (EMP) produced
by the detonation of a nuclear weapon at high
altitude or as the result of unusually powerful
solar activity (often called severe space weather)
could produce catastrophic destruction in the
United States.
An EMP is a high-intensity burst of electromagnetic energy caused by the rapid acceleration of charged particles. A wave of EMP creates
three chaotic effects. First, the electromagnetic
shock can disrupt electrical devices. The second
effect is similar to lightning—a power surge that
would burn circuits and immobilize electronic
components and systems. The third is a pulse
effect that flows through electricity trans­mission
lines, damaging distribution centers and fusing
power lines. Any of these can cause irreversible
damage to an electronic system.
EMPs can be generated in various manners,
but the cause of greatest concern is a high-altitude
burst of a nuclear weapon.
The result of a massive EMP event could be
devastating. Communications would collapse,
transportation would halt, and electrical power
would simply be nonexistent. Not even a global
humanitarian effort would be enough to keep
hundreds of millions of Americans from death
by starvation, exposure, or lack of medicine. Nor
would the catastrophe stop at U.S. borders. Most
of Canada would be devastated, too, as its infrastructure is integrated with the U.S. power grid.
Without the American economic engine, the world
economy would quickly collapse.
Despite the fact that six national commissions
and major independent U.S. government studies
have independently concurred with the significance of the danger, Congress has yet to act in
a substantive manner. For the most part, U.S.
government agencies have not taken planning
for their response to an EMP attack out of the
theoretical stages.
A comprehensive missile defense system is
needed so the U.S. could to intercept and destroy
a missile bound for the United States, regardless
of the launch point or the objective—whether the
attack is aimed at destroying a city or engaging
in an EMP attack.
Historical note: On September 1, 1859, British astronomer Richard Carrington observed an
unusually large solar flare. Minutes later, the flare
reached Earth. Telegraph operators were shocked
unconscious. Their machines caught on fire as
the EMP effect from the flare surged through the
lines. When this event occurred, only a small portion of the world was electrified. A solar flare of
this magnitude today might have a much more
devastating impact. “An event that could incapacitate the network for a long time,” stated one
participant in a U.S. National Academies of Science study, “could be one of the largest natural
disasters that we could face.”
Over a period of time, our nation has put
itself into a corner in several respects. Here
are several additional factors which need
Small businesses need bank loans so they can
purchase equipment and hire more workers, but
banks refuse to loan to them. Here is a statement
that nicely summarizes the problem:
“Why are banks sitting on so much cash? The
banks have about $2 trillion in cash uncommitted
to loans. They could loan in theory, at conservative ratios of 10 to 1, $20 trillion. Obviously, if
that happened, the recession would be over in
15 seconds. Pepperdine [University in California]
did a study showing that 40% of the small busnesses said they would expand their operations
and hire more people of they could get credit
[borrow money from banks], but they can’t get
credit. We’ve got to clean those bank books up.
Right now, everybody’s frozen. And by far the biggest thing we could do is to have a more aggressive
move on the home-mortgage problem.”—Time
magazine, November 21, 2011.
We share with a majority of Americans a
deep aversion to being required to accept
any medical insurance program, government
or otherwise. We demand the right to think for
ourselves. It is common knowledge that almost
no one knows hardly anything about Obama’s
medical care law, and that includes nearly all of
the representatives and senators which enacted it!
“In announcing that the Supreme Court will
take up the 2010 health care reform law in March
2012, the Justices allotted five and a half hours
over two days for oral arguments, the most in
nearly half a century. The generous timing (as of
1970, most cases get just an hour) is a recognition
of the intricacies of the issues the court will weigh,
including the central question of the individual
mandate’s constitutionality.”—Time magazine,
November 28, 2011
Back in 1959, I met Pop Pickel in northern
Californa. He was al elderly man who told me how
he did bootlegging during the 1920’s prohibition
years. He said he got into it because, as a young
man, he started going to bars and, he added, he
still does today.
I asked him why he goes there and he said
there is no other place for single men to usually
go in most U.S. communities.
We need a community recreation center in
every town in America so people of all ages can
visit with friends, teach one another gardening,
sewing, crocheting, and other useful activities.
Here is a stunning fact: As the 2000 U.S.
census, the category of “family” was no longer
in the census count!
Each year, over 1 million American children
suffer the divorce of their parents; moreover,
half of the children born this year to parents
who are married will see their parents divorce
before they turn 18. Mounting evidence in social
science journals demonstrates that the devastating physical, emotional, and financial effects that
divorce is having on these children will last well
into adulthood and affect future generations.
Children whose parents have divorced are
increasingly the victims of abuse. They exhibit
more health, behavioral, and emotional problems,
are involved more frequently in and drug abuse,
and have higher rates of suicide.
Children of divorced parents perform more
poorly in reading, spelling, and math. They
also are more likely to repeat a grade and to have
higher drop-out rates and lower rates of college
Families with children that were not poor
before the divorce see their income drop as
much as 50 percent. Almost 50 percent of the
parents with children that are going through a
divorce move into poverty after the divorce.
Religious worship, which has been linked
to better health, longer marriages, and better
Family life, drops after the parents divorce.
The divorce of parents, even if it is amicable,
tears apart the fundamental unit of American
society. Today, according to the Federal Reserve
Board’s 1995 Survey of Consumer Finance, only
42 percent of children aged 14 to 18 live in a
“first marriage” family—an intact two-parent
married family.
Add to this the growing number of homosexual
unions and parenting.
Tragically, in America, the word “partner” has
taken the place of “spouse,” “husband,” or “wife.”
Child labor laws should be modified so that
children can work for neighbors at odd jobs.
Let them learn to enjoy working while they are
young; let them learn skills—and then they
will not want to avoid work when they become
Recently, Tea Party activists and some others
have urged a weakening of state child labor laws,
and, ultimately, of the federal law. They agree with
Supreme Court Justice Clarence Thomas that the
child labor laws are unconstitutional for a variety
of legal reasons. They have begun trying to change
these state laws in Maine and Missouri.
A bill in Maine would allow employers to
pay anyone under 20 a six-month “training
wage” that would be more than $2 an hour
below the minimum wage. They’d also eliminate
rules setting a maximum number of hours kids
16 and older can work during school days and
allow those under 16 to work up to four hours
on school days and up to 11 p.m.
The Missouri bill would lift provisions in
the current state law that bar children under
14 from employment, They’d be allowed to work
all hours of the day.
There are families in America which are caring for their aged parents or invalid children. It
would cost the nation far more if they were placed
in nursing facilities. It would be well for financial
help, possibly in tax breaks, be given to families
which care for their own.
Tax cuts should also be made for mothers who
are in the home caring for the children, while the
husband is working. This is the way it was done
before World War II. When both parents are out
working, the children do not do as well.
The government should do what it takes to
help families move out to small 5-10-20 acre
farms in the country.
With the possible exception of grain production (which requires large fields and expensive
planting and harvesting equipment), small vegetable and fruit growers could work hard and
partially or fully support their families with a
small farm.
People want to work. They want their children to learn to work. They would prefer to
live in the country.
Because children are not taught to work—and
enjoy work—when they are young, by the time
they are 18, they frequently have little interest in
Various locations, especially in the western
states, should be opened up for homesteading by settlers who will live on the land and do
something with it.
Every community should have a farmers’
market, where local farmers can bring produce
and sell it directly to the public.
Local grocery stores, including big box stores,
should be encouraged to purchase produce from
local farmers.
Farmers should be able to park their pickup
truck on the road near grocery outlets, and sell
off the truck to the public.
—Let us encourage small farming!
Family farms are a bedrock of a prosperous
nation. They greatly add to its economic—and
But the dramatic expansion of industrial
agriculture (or factory farming) has made it
increasingly difficult for small family farmers
in the U.S to stay in business. Instead, the food
industry has become dominated by a handful of
giant corporations which benefit from government
policies that favor large-scale production.
Family farmers are being forced out of business at an alarming rate. According to Farm
Aid, every week 330 farmers leave their land.i
As a result, there are now nearly five million
fewer farms in the U.S. than there were in the
1930’s. Of the two million remaining farms, only
565,000 are family operations. As established
family farms are shut down, they are not being
replaced by new farms and young farmers. Very
few young people become farmers today, and half
of all U.S. farmers are between the ages of 45 and
65, while only 6% of all farmers are under the age
of 35. Here are more facts:
• 82% of Americans are somewhat or very
concerned about the decreasing number of American farms.
• 85% of Americans trust smaller scale family
farms to produce safe, nutritious food.
• In the US, the average principal farm operator is 55.3 years old.
• Between 2005 and 2006, the US lost 8,900
farms (a little more than 1 farm per hour).
In addition to producing fresh, nutritious,
high-quality foods, small family farms provide
a wealth of benefits for their local communities
and regions.
Unlike industrial agriculture operations,
which pollute communities with chemical pesticides, noxious fumes and excess manure, small
family farmers live on or near their farms and
strive to preserve the surrounding environment
for future generations.
The existence of family farms also guarantees the preservation of green space within the
community. Unfortunately, once a family farm is
forced out of business, the farmland is often sold
for development, and the quality land and soil for
farming are lost.
Independent family farms also play a vital
role in rural economies. In addition to providing jobs to local people, family farmers also
help support small businesses by purchasing
goods and services within their communities.
Meanwhile, industrial agriculture operations
employ as few workers as possible and typically
purchase supplies, equipment, and building materials from outside the local community. Rural
areas are then left with high rates of unemployment and very little opportunity for economic
The loss of small family farms has dramatically reduced our supply of safe, fresh,
sustainably-grown foods. It has contributed to
the economic and social disintegration of rural
communities; and it is eliminating an important
aspect of our national heritage. If we lose our
family farmers, we’ll lose the diversity in our
food supply, and what we eat will be dictated
to us by a few large corporations.
Federal and state laws protecting fish, birds,
and insects should be subordinate to the needs
of food farms of all types. We need to protect
farms more than fish!
Prices for fruits, vegetables and nuts throughout America have increased—because the federal
government, using the Endangered Species Act
(ESA), wants to protect obscure three-inch-long
fish, called the Delta smelt.
In California’s Central Valley, for decades
one of the world’s most productive agricultural
regions, an estimated 250,000 acres of prime
farm land are lying fallow or dying. The parched
area bears all the signs of a prolonged drought,
but the acute water shortage confronting farmers
and growers is largely manmade, the result of
the Interior Department’s rigorous enforcement
of the ESA.
Responding to a lawsuit brought by the
Natural Resources Defense Council and other
environmental groups, the Bush administration,
in December 2008, agreed to divert more than
150 billion gallons of water each year, starting in 2009, from the fertile Central Valley to
the San Joaquin Delta in an effort to protect
the endangered Delta smelt. With the federal
government withholding water from farmers, it
didn’t take long for economic devastation to grip
the Central Valley. Unemployment in the areas
ranges from 20 percent to a staggering 40 percent
in some agricultural communities. The Central
Valley’s agricultural output is expected to decline
by between $1 billion and $3 billion this year
compared with 2008.
“Instead of stimulating jobs, federal environmental officials are turning recession into
depression, and stimulating economic hardship for business, farms and families.”—Rob
Rivett, president of the Pacific Legal Foundation,
quoted in Washington Times, August 18, 2009.
To date, the Obama administration has shown
little interest in reversing a policy that favors fish
over farmers.
Similar water restrictions have been made
to increase salmon production. But, once again,
we dare not destroy Central Valley California
agriculture in order to increase the number of
salmon in the ocean.
“There are 130 animal species in California on
the federal endangered list, including five salmon
species, five steelhead species, and the North
American green sturgeon, To date, not a single
fish within the California water system has been
removed from the Endangered Species list over
the past 36 years. Despite massive amounts of
water diverted to help them, the ‘protected
smelt, sturgeon and salmon populations have
continued to decline. It is hardly unreasonable
to ask why farmers should continue to suffer if di-
verting water hasn’t even helped the fish.”—Rep.
Devin Nunes (R-CA) in the Wall Street Journal,
August 15, 2009.
Many Americans will not be able to afford
college, for costs keep rising dramatically. Soon
it will take half a lifetime to pay off the loans. We
need to provide more useful instruction in our
high schools.
Drop Latin and other impractical subjects
in high school. In their place, teach basic cooking
skills to our youth.
Provide optional classes in geometry, calculus, and advanced science for those able to
learn these skills. (One math teacher in a minority Los Angeles school taught special classes in
calculus, and many of his students later obtained
Teach optional business and management
skills classes. Teach vocational and industrial
skills, such as carpentry, bricklaying, stonework, car repair, etc. Vocational schools cost
money and are useful. But the basic industrial
skills can and should be taught in high schools.
Provide optional classes for girls in crocheting, quilt making, and other crafts. Later in
life, these can provide happiness as well as extra
Sewing is another important subject. Learning how to efficiently use a sewing machine and
make clothes will help some in later life.
Establish prison farms where prisoners can
be taught how to farm vegetables, small fruits,
and fruit and nut orchards. Give them reduced
sentences if they do well on the program. Some
will be more likely to move out of the city and start
a farm when they are released, instead of committing another crime and being incarcerated again.
Prisons are called “correctional institutions.” That is what they are supposed to be.
The need is to help the men and women become
good citizens upon release.
Some state prisons provide outstanding opportunities for sharing Bibles, religious books,
and evangelism. These prisons consistently
have lower recidivism rates (incarceration again
after release). Many men and women are converted, and help bring other prisoners to Christ.
Such prisons often have excellent jobtraining educational program for the inmates,
including literacy, carpentry, culinary arts, horticulture, welding, Auto repair, air conditioning,
electrical, industrial painting, eye glass repair, etc.
There are hundreds of legal firms in America which prey on individuals and business
firms. Offers are made to receive no payment
unless the suit is won—but if it is, they collect
10 percent or more of the awards. Because the
lawyers’ syndicates contribute large amounts to
candidates and office holders that their activities
are rarely interferred with.
Here is one example:
“In Florida, some of the attorneys hired
by the state in their suit against the tobacco
companies in August 1997 demanded 25% of
the $11.3 billion settlement the state negotiated
with Big Tobacco. They rejected arbitration.
“Circuit Judge Harold J. Cohen, overseeing
the settlement, calculated that would amount to
$7,716 an hour if the lawyers worked on the
case every hour of every day since the case
began in July 1994. Cohen called that ‘clearly
excessive.’ So the lawyers are suing to have the
state judge removed.
“Ultimately, the tobacco fee arbitration
awards, gave $950 million each to two Florida
“As stated by constitutional expert, Robert
Levy, about the Florida tobacco fee arbitration
award, ‘Incredibly, the arbitrators ignored
[Judge] Cohen’s warning, disregarded the law,
abandoned common sense and upped the lawyers’ award by $600 million for a total windfall
of $3.4 billion’ [$1.7 billion for each lawyer].
Indeed, these lawyers were awarded even more
than the absurd sum they demanded.
“This money is being diverted away from
treating the millions of sick and dying people
that suffer from tobacco related illnesses. In
the case of Florida alone, this $3.4 billion would
have provided a thousand dollars of treatment
for each of 3.4 million Floridians, a state with
a population of 15 million people. The simple
fact is many thousands of Floridians as well as
people across the country will suffer or die so
a few lawyers can live in great luxury.”—USA
Today, December 9, 1997.
Most economists are agreed that federal
subsidies to help the petroleum industry locate
more oil should be terminated. The wealthiest
industry in the nation does not need more of our
money given to it.
An examination of the American tax code indicates that oil production is among the most
heavily subsidized businesses, with tax breaks
available at virtually every stage of the exploration and extraction process.
According to a study by the Congressional
Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent,
significantly lower than the overall rate of 25
percent for businesses in general and lower
than virtually any other industry.
And for many small and midsize oil companies, the tax on capital investments is so
low that it is more than eliminated by various
credits. These companies’ returns on those investments are often higher after taxes than before.
The Arctic National Wildlife Refuge (ANWR)
comprises 19,000,000 acres of the north Alaskan
coast. There is nothing there but a few caribou
and polar bears.
The government-imposed oil exploration
ban on drilling for petroleum in the North
Slope should be repealed.
The North Slope oil fields in Alaska are
important because the U.S. dependency on
petroleum imports has risen considerably
in the past decades. The shocks of 1973 and
1980, and the 1978 Khomeini revolution in Iran
had serious repercussions in The United States,
where Americans had to wait in line for hours to
buy gasoline. The Persian Gulf War in 1991 put
the U.S.’s access to two-thirds of the world’s oil
reserves in great danger.
Opening oil fields in Alaska would decrease
U.S. dependency on petroleum imports from
the Middle East and Latin America, boost the
revenue of American oil companies, would
create many American jobs, would lower the
price of oil for American oil consumers, would
increase federal, state, and local tax revenues,
and lower our trade deficit. Alaska’s Northern
Slope may hold large quantities of oil, but it is
impossible to say for sure because exploration
is banned by the ANWR. There may also may be
large quantities of petroleum reserves in other
parts of Alaska. Guesses as the extent of the richness of the oil reserves in Alaska are varied. According to three government studies since 1980,
anywhere from 1.69 to 14.77 billion barrels of
recoverable oil may be located at the protected
A primary objection to lifting the ban is
the fact that it is the calving ground of the
Porcupine caribou. But the drilling areas will
only be in very small, coastal parts of that vast
area. The caribou are unlikely to be disturbed.
(They have enough trouble, guarding their young
against polar bears.)
We should heavily tax corporations that
leave us and send their manufacturing overseas.
U.S. government policies have encouraged
globalization, which translates into shipping jobs
overseas. Programs such as NAFTA have lowered
the cost of shipping jobs south of the border,
and there’s no economic penalty facing U.S.
companies that decide to ship jobs overseas.
Those at the apex of the corporate ladder have
done a fabulous job of lobbying for policies
that favor globalization at the expense of the
American worker.
These policies have shifted manufacturing
jobs to places with lower wages. Foxconn, a
Chinese computer, cell phone and electronics
manufacturer, employs 800,000 people, while
Silicon Valley unemployment remains higher than
the national average. Foxconn, which has made
headlines after a spate of worker suicides, has
250,000 employees making Apple (AAPL) iMacs,
iPods and iPhones alone. For every Apple worker
in the U.S., 10 people in China are manufacturing the company’s products.
Moreover, all these unemployed have helped
create the two-tier economy. According to Harvard Magazine, 66% of income growth in 2001
to 2007 went to the top 1% of Americans, while
the other 99% got the rest. That is a 60% average
income boost for the superwealthy -- and a very
low 6% increase over six years for everyone else.
Unemployment is hurting the bottom more
than the top. While the U.S. jobless rate is now
9.5%, the bottom 40% of the labor force suffers from a 17% rate, while for the top 30% it’s
just 4%, also according to Harvard Magazine.
Meanwhile, Wall Street, which includes a solid
share of that top 1%, paid itself near-record
bonuses—up 17% in 2009 to $20.3 billion—
and is on a hiring binge.
Here is evidence that U.S. tax breaks for exporting jobs overseas is being done! We should
not pay our business firms to make their goods
for the American market in foreign countries!
This is yet another example of the power of lobbyists.
In its 1990 annual report, the Hewlett-Packard
company made this astounding statement:
“As a result of certain employment and capital
investment actions undertaken by the company,
income from manufacturing activities [by
U.S. companies] in certain foreign countries
is subject to reduced tax rates by the U.S. federal government, and in some cases is wholly
exempt from taxes, for years through 2002 . .
The income tax benefits attributable to the tax
status of these subsidiaries are estimated to be
$116 million, $88 million and $57 million for
1990, 1989 and 1988, respectively.”
—The lobbyists win again! No wonder they are
paid so much! Through their ongoing bribery
of Congress, many U.S. firms are given greatly
reduced tax breaks—because they do their
manufacturing overseas!
An offshore bank is a bank located outside
America, typically in a low tax jurisdiction (tax
haven) that provides financial and legal advantages which include: greater privacy, low or no
taxation (i.e. tax havens), easy access to deposits,
and protection against local political or financial
This is another problem which should be
corrected, since wealthy Americans are able to
hide their profits from both proper and fraudulent transactions overseas.
Many unions have won higher wages and better working conditions for their members. In doing so, however, they have reduced the number
of jobs available in unionized companies. That
second effect occurs because of the basic law of
demand: if unions successfully raise the price of
labor, employers will purchase less of it. Thus,
unions are a major anticompetitive force in labor
markets. Their gains come at the expense of
consumers, nonunion workers, the jobless,
taxpayers, and owners of corporations.
According to Harvard economists Richard
Freeman and James Medoff, who look favorably on unions, “Most, if not all, unions have
monopoly power, which they can use to raise
wages above competitive levels.” Unions’ power
to fix high prices for their members’ labor rests on
legal privileges and immunities that they get from
government, both by statute and by nonenforcement of other laws. The purpose of these legal
privileges is to restrict others from working
for lower wages.
In addition, labor unions require large membership dues, much of which are given to political
parties—regardless of the wishes of the union
U.S. unions enjoy many legal privileges.
Unions are immune from taxation and from antitrust laws. Companies are legally compelled
to bargain with unions. Unions also can force
companies to make their property available
for union use.
Once the government ratifies a union’s position as representing a group of workers, the union
represents them exclusively, whether or not particular employees want collective representation.
In 2002, unions represented about 1.7 million
waged and salaried employees who were not
union members.
In addition, union officials can force compulsory union dues from employees—members
and nonmembers alike—as a condition for
keeping their jobs.
Unions often use these funds for political
purposes—political campaigns and voter registration, for example—unrelated to collective
bargaining or to employee grievances, despite
the illegality of this under federal law. Unions are
relatively immune from payment of tort damages
for injuries inflicted in labor disputes, from federal court injunctions, and from many state laws
under the “federal preemption” doctrine.
Labor unions cannot prosper in a competitive
environment. Like other successful cartels, they
depend on government patronage and protection.
What have been the economic consequences
of unions? In 2002, full-time nonunion workers
had usual weekly earnings of $587, 21 percent
lower than the $740 earned by union members.
H. Gregg Lewis’s 1985 survey of two hundred
economic studies concluded that unions caused
their members’ wages to be, on average, 14–15
percent higher than wages of similarly skilled
nonunion workers. Other economists—Harvard’s
Freeman and Medoff, and Peter Linneman and
Michael Wachter of the University of Pennsylvania—claimed that the union premium was 20–30
percent or higher during the 1980s.
Unions have blocked the economic advance
of blacks, women, and other minorities. That is
because another of their functions, once they have
raised wages above competitive levels, is to ration
the jobs that remain. The union can discriminate
on the basis of blood relationships or skin color
rather than auctioning off (openly selling) the
valuable jobs to the highest-bidding applicants.
In recent decades, union representation of
workers has declined in all private industries
in the United States. A major reason is that
employees do not like unions. According to a
Louis Harris poll commissioned by the AFLCIO
in 1984, only one in three U.S. employees would
vote for union representation in a secret ballot
election. The Harris poll found, as have other surveys, that nonunion employees are more satisfied
than union workers with job security, recognition
of job performance, and participation in decisions
that affect their jobs.
Asked in the 1920s what organized labor
wanted, union leader Samuel Gompers allegedly
answered, “More.”
When Chris Christie became New Jersey’s
governor in January, he wasted no time in
identifying the chief perpetrators of his state’s
fiscal catastrophe. Facing a nearly $11 billion
budget gap—as well as voters fed up with the
sky-high taxes imposed on them to finance the
state government’s profligacy—Christie moved
swiftly to take on the unions representing New
Jersey’s roughly 400,000 public employees.
On his first day in office, the governor signed
an executive order preventing state-workers’
unions from making political contributions—
subjecting them to the same limits that had long
applied to corporations. More recently, he has
waged a protracted battle against state teachers’
unions, which are seeking pay increases and free
lifetime health care for their members. Recognizing the burden that such benefits would place
on New Jersey’s long-term finances, Christie has
sought instead to impose a one-year wage freeze,
to change pension rules to limit future benefits,
and to require that teachers contribute a tiny
fraction of their salaries to cover the costs of their
health insurance—measures that, for privatesector workers, would be mostly uncontroversial.
The firestorm that these proposals have
sparked demonstrates the political clout of
state-workers’ unions. Christie’s executive or-
der met with vicious condemnation from union
leaders and the politicians aligned with them; his
fight with the public-school teachers prompted
the New Jersey Education Association to spend
$6 million (drawn from members’ dues) on antiChristie attack ads over a two-month period.
Clearly, the lesson for reform-minded politicians
has been: Confront public-sector unions at your
New Jersey has drawn national attention as
a case study, but the same battle is playing out
in state capitals from coast to coast. New York,
Michigan, Wisconsin, California, Washington,
and many other states also find themselves
heavily indebted, with public-sector unions at
the root of their problems. In exchange, taxpayers in these states are rewarded with larger and
more expensive, yet less effective, government,
and with elected officials who are afraid to cross
the politically powerful unions.
Government unions may also be the biggest
challenge facing state and local officials—a
challenge that, unless economic conditions dramatically improve, will dominate the politics of
the decade to come. On average, 39% of stateand local-government employees belong to
Courts across the nation also generally held
that collective bargaining by government workers should be forbidden on the legal grounds of
sovereign immunity and unconstitutional delegation of government powers. In 1943, a New York
Supreme Court judge held:
“To tolerate or recognize any combination of
civil service employees of the government as a
labor organization or union is not only incompatible with the spirit of democracy, but inconsistent
with every principle upon which our government
is founded. Nothing is more dangerous to public
welfare than to admit that hired servants of the
State can dictate to the government the hours,
the wages and conditions under which they will
carry on essential services vital to the welfare,
safety, and security of the citizen. To admit as true
that government employees have power to halt or
check the functions of government unless their
demands are satisfied, is to transfer to them all
legislative, executive and judicial power. Nothing
would be more ridiculous.”
This is one of those subjects which is certain to produce controversy, whichever side
you take. I will here state the facts.
Illegal immigration into the United States
is massive in scale. More than 10 million undocumented aliens currently reside in the U.S.,
and that population is growing by 700,000
per year (Congressal Budget Office, November
2005). This is an indication of how dangerously
open our borders are.
When three out of every 100 people in
America are undocumented, there is a profound security problem. Even though they pose
no direct security threat, the presence of millions
of undocumented migrants effectively creates a
cover for terrorists and criminals.
In other words, the underlying problem presented by illegal immigration is security, not the
supposed threat to the economy. Indeed, efforts
to curtail the economic influx of migrants actually
worsen the security dilemma by driving many migrant workers underground, thereby encouraging
the culture of illegality.
The primary problem with undocumented
immigrant workers is that flouting the law has
become the norm, which makes the job of terrorists and drug traffickers infinitely easier.
The economic costs of terrorism can be very high
and very real, quite apart from the otherwise positive economic impact of immigration. In order to
separate the good from the bad, there is no substitute for a nationwide system that identifies
all foreign persons present within the U.S. It is
not sufficient to identify visitors upon entry and
exit; rather, all foreign visitors must be quickly
This entire problem is becoming extremely
political because, as of 2012, it now requires
40% of Hispanic vote for a person to be elected
president of the U.S.
This is another controversial point which
I will present to you:
The American people favor a proposal to
build a 2,000-mile security fence by a 51-to-37
percent margin.
So far border authorities have built 650 miles
of hard fence along the southwest border, including about 299 miles of vehicle barriers.
It is estimated that $22.4 billion would be
required for a single fence across the 1,400
miles remaining today.
As of February, 2008, 302 miles of barrier
have been constructed mostly on federal land in
Arizona, New Mexico, and California.
In the 120-mile swath of the US-Mexican bor-
der known as the Yuma sector, since the triple
fence was finished in October, there has been a 72
percent decline in illegal migrant apprehensions
Eight hundred people used to be apprehended
trying to cross the border here every day.
Here is a third related controversial point:
The question is whether to change the 14th
amendment to the US Constitution, which
grants citizenship to anyone born in America.
The amendment was adopted in the wake
of the civil war, as a political debate raged over
whether slaves imported from Africa, and their
children, could be considered US citizens.
More than 150 years later, politicians are debating the amendment again. This time, they are
wondering whether children born in the US to
tourists and undocumented immigrants should
be considered citizens simply by virtue of their
birth in our land.
The crux of the issue are mothers of so-called
“anchor babies”—women who are said to come
to the US specifically to have children, some
of them who enter the country illegally, others
as tourists. This is done in the hope that they
themselves will be able to remain and live here.
Changes to the US constitution must be
passed by a two-thirds vote of each chamber
of Congress and then ratified by three-quarters
of states—either by the state legislatures or statebased constitutional conventions.
The Pew Hispanic Center estimates there are
about four million American-born children of
illegal immigrants under the age of 18 currently in the U.S.
Pew estimates that last year 7-8% of births in
America (or around 350,000) were to undocumented mothers.
This would include casinos, state lotteries,
slots, and online gambling.
Like all other gambling in America, online
gambling is progressively on the rise and should
be made completely illegal.
Gambling is bad for your health and the truly
addicted can suffer depression, insomnia, intestinal disorders, migraine and other stress
related problems, according to a new study reported in the British Medical Journal.
Gambling also presents great potential for
criminal abuse and has become a growing prob-
lem on college campuses. Compulsive gambling
is a serious addiction that affects many people.
While it may seem abrasive to consider it a serious
disease, one must realize that the consequences
of compulsive gambling can dwarf that of any
other addiction.
Gambling potentially leads to prostitution,
alcoholism, drug use and other personal sufferings. Gambling is very costly because of the
destructive effect it has on families, and the
families fall apart.
Those who place online gambling bets are
in violation of the Wire Act of 1961 which was
originally aimed at organized crime and sought
to prevent gambling businesses from operating
by phone in states where it was otherwise illegal
to gamble.
Online gambling is now a $12 billion dollar industry. Fully 95 percent of all Americans
now live within a three or four hour drive of a
casino. Tragically, 51% of American adults find
casino gambling acceptable for anyone. If American adults believe that gambling is acceptable,
that means their children are going to grow up
thinking that it is just something you go out and
do everyday.
People have been known to lose their entire
life’s savings. Financial ruin is only one of the
serious events that ruin a gambling addict’s life.
Serious crimes occur, including embezzlement,
employee theft, and other illegal activities, and
leave the person jobless and possibly jailed.
Once they start they cannot stop, and, like any
other addiction, they build up a tolerance and
experience symptoms of withdrawal when trying to abstain from gambling. With the option of
online gambling, compulsive gamblers can easily
gamble at home and are even more unlikely to
control their obsession.
According to John Kindt’s testimony before
a hearing of the U.S. House of Representatives
Committee on Small Business, “For every $1 the
state receives in gambling revenues, it costs the
state at least $3 in increased criminal-justice,
social-welfare and other expenses.”
Legalized gambling is a messy business! It
brings addiction, family devastation, crime,
poverty, government corruption and economic
burdens. It increases welfare costs, produces human desperation and produces a wrong attitude
toward work.
Gambling is stealing. “The gains of the
winners are paid at the expense of the losers.
In winning, one receives the wages that another
person has earned without giving anything in exchange” (Gambling, Kober; p. 8). Just because
it is robbery by consent does not make it right.
Gambling is nothing more than sophisticated
stealing. Ephesians 4:28 says “Let him that stole
steal no more: but rather let him labour, working
with his hands the thing which is good, that he
may have to give to him that needeth.”
Proverbs 13:11 says “Wealth gotten by vanity shall be diminished: but he that gathereth by
labour shall increase.” Wealth from gambling
quickly disappears; wealth from hard work
A U.S. News & World Report analysis found
crime rates in casino communities to be 84%
higher than the national average.
Domestic violence and child abuse increase
dramatically when gambling comes to an area.
University of Illinois economist Earl Grinols
has calculated that 52% of casino revenues
come from compulsive gamblers.
Teens are three times as likely as adults to
become addicted to gambling once exposed and
at least 1 in 10 teens engages in illegal activity
(stealing, shoplifting, selling drugs, or prostitution) to finance their gambling.
The National Council on Problem Gambling
reports that one in five pathological gamblers
attempts suicide—a higher rate than that of any
other addictive disorder.
Gambling is a bad bet.
Mandatory Minimum Drug Sentences are
unfair and extremely costly, both to the one
sentenced and to the nation that has to pay to
keep him in prison for an extended length of time.
Such laws require that a judge impose a
sentence of at least a specified length if certain
criteria are met. For example, a person convicted
by a federal court of possessing half a kilogram
or more of cocaine powder must be sentenced to
at least five years in prison.
It is said that the severity of such sentences,
will keep people out of jail. But evidence indicates that such lengthy sentences are not a
Mandatory minimums prohibit a judge from
making a discretionary judgment where it may
most be needed. These laws result in instances
of unjust punishment.
Mandatory minimums associated with drug
crimes may also be viewed as a means of achieving
the nation’s drug control objectives. But do they
actually decrease the nation’s drug consumption
and related consequences—at a cost that compares favorably with other approaches?
A special research project focused on cocaine, which many view as the most problematic
drug in America today. They took two approaches
to mathematically model the market for cocaine
and arrived at the same basic conclusion: Mandatory minimum sentences are not justifiable
on the basis of cost-effectiveness at reducing
cocaine consumption or drug-related crime.
Mandatory minimums reduce cocaine consumption less per million taxpayer dollars
spent than spending the same amount on
enforcement under the previous sentencing
regime of far-shorter jail terms.
And either enforcement approach reduces
drug consumption less, per million dollars
spent, than putting heavy users through treatment programs.
Mandatory minimums are also less costeffective than either alternative at reducing
cocaine-related crime. A principal reason for
these findings is the high cost of incarceration.
Why is treatment so much better? Most drugrelated crime is economically motivated—
undertaken, for example, to procure money to
support a habit or to settle scores between rival
dealers. The level of economically motivated crime
is related to the amount of money flowing through
the cocaine market.
Long sentences for serious crimes have intuitive appeal. They respond to deeply held beliefs
about punishment for evil actions, and in many
cases they ensure that, by removing a criminal
from the streets, further crimes that would have
been committed will not be. But in the case of
black-market crimes like drug dealing, a jailed
supplier is often replaced quickly by another
Limited cocaine control resources can, however, be profitably directed toward other important objectives—reducing cocaine consumption
and the violence and theft that accompany the
cocaine market. If those are the goals, more can
be achieved by spending additional money arresting, prosecuting, and sentencing dealers
to standard prison terms than by spending it
sentencing fewer dealers to longer, mandatory
Long prison sentences for possessing street
drugs costs America hundreds of millions of
dollars. We fully agree that the drug trafficing
should be stopped. But lengthy prison sentences is not part of the solution.
Minority races who are imprisoned, often on
minor charges, are often placed with Muslims
who work to indoctrinate them into radical Islam.
To whatever degree that this is possible, by separating Muslims from non-Muslims in the nation’s
prisons, will be advantageous to the Muslims, for
they can more easily worship by themselves.
A well-known leader in prison ministry wrote
the following:
“The Muslim religion is the fastest growing
religion per capita in the United States, especially in the minority races!
“Last month I attended my annual training
session that’s required for maintaining my state
prison security clearance.
“During the training session there was a presentation by three speakers representing the
Roman Catholic, Protestant and Muslim faiths,
who each explained their beliefs.
“I was particularly interested in what the Islamic had to say. The Muslim gave an interesting
presentation of the basics of Islam, complete
with a video. After the presentations, time was
provided for questions and answers.
“When it was my turn, I directed my question
to the Muslim and asked:
“Please, correct me if I’m wrong,but I understand that most Imams and clerics of Islam
have declared a holy jihad [Holy war] against
the infidels of the world and, that by killing an
infidel, (which is a command to all Muslims)
they are assured of a place in heaven. If that’s
the case, can you give me the definition of an
“There was no disagreement with my statements and, without hesitation, he replied,
‘Non-believers!’ I responded, ‘So, let me make
sure I have this straight. All followers of Allah
have been commanded to kill everyone who
is not of your faith so they can have a place
in heaven.
“Is that correct?’
“The expression on his face changed from one
of authority and command to that of a little boy
who had just been caught with his hand in the
cookie jar. He sheepishly replied, ‘Yes.’
“I then stated, ‘Well, sir, I have a real problem trying to imagine the pope commanding all
Catholics to kill those of your faith or Protestant
ministers ordering all Protestants to do the same
in order to guarantee them a place in heaven!’
“The Muslim was speechless! I continued, ‘I
also have a problem with being your friend when
you and your brother clerics are telling your followers to kill me! Let me ask you a question:
“Would you rather have your Allah, who tells
you to kill me in order for you to go to heaven,
or my Jesus who tells me to love you because I
am going to heaven and He wants you to be there
with me?’
“You could have heard a pin drop as the Imam
hung his head in shame.
“Needless to say, the organizers and/or promoters of the ‘Diversification’ training seminar
were not happy with my way of dealing with the
Islamic Imam, and exposing the truth about the
Muslims’ beliefs.
“Because of the number of Muslims who
are immigrating here, and the indoctrination
that is taking place, especially in prisons,—in
twenty years there will be enough Muslim voters in the U.S. to elect the President!
It is common knowledge that eating junk
food from stores and fast food restaurants is
leading to overweight, diabetes, and eventual
heart attacks.
Processed foods are becoming almost as
dangerous as tobacco! Both are causing massive sickness and death, which costs millions
in government-funded medical care before the
patients die.
Increasing taxes on unhealthy foods, including fast-food restaurants, would encourage
people to eat good food—vegetables, fruits, and
nuts. Here is one example:
“Help reduce long-term health care spending to treat obesity-related illnesses—including
diabetes, heart disease, cancer, and stroke—by
imposing an excise tax on the manufacture and
importation of beverages sweetened with sugar
or high-fructose corn syrup.”—Bipolicy Partisan
Center Recommendations.
Remove the junk food and drink dispensers in the hallways of our public schools. The
county school board makes money on these, but
they should be removed anyway.
The present thinking is that because we live
in a “democracy,” we need to throw everyone together into the same classes. But doing so is not
wise. The slower ones, whoever they may be, need
special attention, especially in the rudimentary
skills—especially reading and basic math.
By separating the students according the
needs and abilities all the students will be better helped and make faster progress. Those who
are average learners will not be slowed in their
learning because the teacher had to give their attention to the slower students. (Or if the teacher
focuses on the average in that class, the slower
ones will be disadvantaged.)
According to apptitude and skills tests, the
sharper students should have the opportunity
to take special classes which provide advance
instruction in the sciences, math, and history.
According to the tests, those who place best
in technical (“hands-on”) interests, should be
permitted to focus more on industrial skills,
such as carpentry, masonry, auto repair, etc.
Let us prepare our high school students for
success in adult life.
Let some students do apprentice work on
certain afternoons under skilled instructors in
the community. These can be specialties such as
farming, dairy work, violin making, eye glass or
watch repair, etc. Such training could get some
students started on a lifetime business.
But care must be taken that they are not working in hazardous locations so accidents could
bring lawsuits to the schools. A contractual agreement should be entered into that the school is
not responsible for accidents incurred during the
hours of instruction during school release time.
The U.S. Commission on International Religious Freedom (USCIRF) provides valuable
reporting and recommendations while drawing
public attention to many violations of religious
freedom worldwide that are not publicized by the
mainstream media or other government agencies.
But some people want to shut it down. For
example, the U.S. Commission on International Religious Freedom (USCIRF) will lose
government funding and shut its doors if Congress doesn’t act by mid-December 2011. The
House already passed a bill to reauthorize the
Commission, and now the Senate is holding it up
because of one senator. Dick Durbin (D-IL) who
is attempting to close it down, by putting a proce-
dural “hold” on the bill, allowable under Senate
rules, until its funding renewal date expires.
This research report has become the size of
a book. As stated back at the beginning, the
reason I wrote it is because I recognize that
the magnitude of the problems confronting our
precious nation, coupled with the inability of
our legislators to solve it—will inevitably lead
to an immense groundswell of demands by the
public for change.
If we do not demand that changes be made
through legislative processes, dangerously
radical attempts could be made to change our
basic form of government.
More and more, the public is recognizing
that corrections must be made. The subservient
favoritism shown to a few—the wealthy, the
richest corporations, and the largest banks and
investment firms, must be changed. Proper decisions and proper government regulations must
once again oversee the activities of the businesses
in America.
More and more, the citizens of our nation are
discovering that, because of the ongoing bribery
scandal, our political leaders are unable to enact any meaningful changes which can solve
our massive problems. From the acceptance of
their first politcal contributions, onward, they
have become locked into helpless subservience
to those repeatedly plying them with money.
We must free our political leaders from the
shackles of political contributions. How to do
this in a proper manner was carefully explained
earlier in this report.
Some may say that it is impossible for
such a law or amendment to be enacted. If so,
American will continue on its present downward spiral.
But IF Americans will rise up and demand
that these changes be made—then they will
be made!
Just as surely as Americans demanded that
nutritional supplements be declared to be “food,”
in spite of the opposition of extremely powerful
drug and food cartels, so changes can be made
now using the same methods.
And keep two facts in mind: First, the urgency
of the situation demands that our legislators
be freed from political bribery. Only in this way
can good men and women be elected, and only in
this way will they be willing to legislate properly.
Second, it will require an amendment to the
Constitution to accomplish this. Otherwise the
opponents of a free legislature will declare, and
the Supreme Court will probably agree, that “free
speech rights” are being trampled on if the big
interests, and their contributions and lobbyists,
are prevented from controlling Capital Hill.
There is a corrolary between immorality
and America’s downward trend. And it is a
close corrolary.
Those of us who have given careful study
to history know that the normal pattern is for
a nation to arise, become strong, and then as a
result of its overabundance, gradually drift into
immorality and decadence. Then it is eventually
conquered by one of its enemies.
This is the way it was in ancient Egypt, Babylonia, Persia, Greece, and Rome. The United States
is following in the same pattern.
Ancient Rome, for example, had overextension of credit, “bread and circuses” for the
people, great wealth and extragance for a few
(including the rulers), abortion, prostitution,
and unnatural sex and dressing. Eventually rioting occurred in the streets, and foreign nations
conquered and destroyed the empire.
For our part, America was a family oriented
nation until before World War I. Then came the
“roaring twenties,” movies, and stock market
manipulations. This brought on the depression,
and with it a return to liquor.
Television arrived in the early 1950s, and the
first generation raised on it were the confused
hippies of the mid-1960s. Riots in the streets by
minorities began later in that decade.
Roe v. Wade, 410 U.S. 113, was the controversial landmark decision in 1973 by our U.S.
Supreme Court on the issue of abortion. Since
then, we have been a divided nation over that issue, and more babies have died than have men
in all our wars.
In the mid-1970s, men and women demanding “civil rights” for unnatural sex and dressing
began and eventually became legalized.
Gambling spread like a cancer, beginning
in the later 1970s, through Indian reservations,
riverboad casinos, state lotteries, state casinos,
cruseliner casinos, and online gambling.
Prostitution dramatically increased through
new modes of advertising.
Pornography, as another “civil right,” spread
like a cancer in magazines and later online pornography.
Overextension of credit by citizens and immense debt by the government burst upon us.
By the turn of the millennium, we had essentially divorced ourselves from the moral
standards we were founded on—and Heaven let
the dark forces begin to undermine our nation:
foreign and homeland terrorists, manufacturing
and industry departure to overseas, excessive
deregulation of business and banks, and a blizzard of bribery payments which is captivating
our governments on most levels.
I have not mentioned the half of it. You can
fill in the details.
In brief, we have abandoned obedience to
basic morality. Every nation that does this is
eventually destroyed. For it destroys itself.
We have turned away from being humble, bleiving obedient children of God. Far too many of
us live only to pamper ourselves with junk food
and drink, wasted entertainment, wild music,
hard drugs, and sex.
Few of us live to seek God and obey Him. Few
read the Bible and are determined make our Creator first in our lives.
In order to regain our former strength, we
must return to our former level of morality. But in
doing this, we must guarantee religious freedom
to every citizen.
So far in our journey through this report, we
have tried to locate the ways in which we could
save America, our precious homeland. And then
we sought for ways to improve it.
Now we want to consider ways to guard
that most precious treasure that we have: our
religious freedoms. We must protect them from
all encrouchments!
Opposition to the ratification of the Constitution was partly based on the Constitution’s lack of
adequate guarantees for civil liberties. To provide
such guarantees, the First Amendment, along with
the rest of the first ten (called the Bill of Rights),
was submitted to the states for ratification on
September 25, 1789, and adopted on December
15, 1791.
Here are all ten of these basic “Bill of Rights”
First Amendment [Religion, Speech, Press, Assembly,
Second Amendment [Right to Bear Arms]
Third Amendment [Quartering of Troops]
Fourth Amendment [Search and Seizure]
Fifth Amendment [Grand Jury, Double Jeopardy, SelfIncrimination, Due Process]
Sixth Amendment [Criminal Prosecutions - Jury Trial,
Right to Confront and to Counsel]
Seventh Amendment [Common Law Suits - Jury Trial]
Eighth Amendment [Excess Bail or Fines, Cruel and
Unusual Punishment]
Ninth Amendment [Non-Enumerated Rights]
Tenth Amendment [Rights Reserved to States]
Here is the First Amendment:
“Congress shall make no law respecting an
establishment of religion, or prohibiting the
free exercise thereof; or abridging the freedom
of speech, or of the press; or the right of the
people peaceably to assemble, and to petition
the government for a redress of grievances.”
Here is the Tenth Amendment:
“The powers not delegated to the United States
[federal government] by the Constitution, nor
prohibited by it to the states, are reserved to the
states respectively, or to the people.”
The “Establishment Clause” is this phrase
in the First Amendment:
“Congress shall make no law respecting an
establishment of religion, or prohibiting the
free exercise thereof.”
Legally, this means that “the First Amendment provision prohibits the federal and state
governments from establishing an official
religion, or from favoring or disfavoring one
view of religion over another.” (Black’s Law
Dictionary, 9th ed.).
Originally, the First Amendment applied
only to the federal government. A number of
the states effectively had established churches
when the First Amendment was ratified, with
some remaining into the early nineteenth century.
Subsequently, Everson v. Board of Education (1947) also applied the Establishment
Clause to the states as well as to the federal
However, it was not until the middle to late
twentieth century that the Supreme Court began
to interpret the Establishment and Free Exercise
Clauses in such a manner as to restrict the promotion of religion by the states. In the Board of
Education of Kiryas Joel Village School District
v. Grumet, 512 U.S. 687 (1994), Justice David
Souter, writing for the majority, concluded that
“government should not prefer one religion to
another, or religion to irreligion.”
The Everson decision used the metaphor of
a wall of separation between church and state,
derived from the correspondence of President
Thomas Jefferson. It had been long established
in the decisions of the Supreme Court, beginning with Reynolds v. United States from 1879,
when the Court reviewed the history of the early
Republic in deciding the extent of the liberties
of Mormons. Chief Justice Morrison Waite, who
consulted the historian George Bancroft, also
discussed at some length the Memorial against
Religious Assessments by James Madison, who
drafted the First Amendment; Madison used
the metaphor of a “great barrier” (Edward Mannino: Shaping America: the Supreme Court and
American society, University of South Carolina
Press, 2000; p. 149).
Justice Hugo Black adopted Jefferson’s words
in the voice of the Court, and concluded that “government must be neutral among religions and
nonreligion: it cannot promote, endorse, or fund
religion or religious institutions.” “In the words of
[Thomas] Jefferson, the clause against establishment of religion by law was intended to erect ‘a
wall of separation between church and State.’ ”
The United States of America is the only
sizable nation in history which was started by
Christians, and its basic legal documents, the
Declaration of Independence and Constitution with its fundamental Amendments were
prepared by Christian men.
While the rights of other religions should be
guarded, the rights of Christians should be especially protected. Christians are being heavily
persecuted by many other nations and religions
around the world. They should be protected here,
and their Bible-based religious beliefs should be
respected. Our government should not seek to
restrict the practice of their religion. This right
was guaranteed in the First Amendment.
“Congress shall make no law respecting an
establishment of religion, or prohibiting the
free exercise thereof; or abridging the freedom
of speech, or of the press; or the right of the
people peaceably to assemble, and to petition the
Government for a redress of grievances.”—First
For example, some Christians practice
baptism by immersion which is what the Bible
teaches, while others practice infant sprinkling.
Their right to baptize should not be restricted.
Another example: A large number of Christians, plus many Jews, obey the Bible command to keep the Seventh day of the week
holy as the Bible Sabbath. While others attend
church on Sunday, the first day of the week, there
are those who worship on Saturday, the Bible
Sabbath. Their rights should be protected.
Amid all of the changes which must—and
will—inevitably come to America in the next
few years, the religious rights of the people
must be respected.
Court Tests Applied to Legislation Affecting Religion.—Before considering the development of the two religion clauses by the Supreme
Court, one should notice briefly the tests developed by which religion cases are adjudicated by
the Court. While later cases rely on a series of
rather well–defined, if difficult–to–apply, tests, the
language of earlier cases “may have [contained]
too sweeping utterances on aspects of these
clauses that seemed clear in relation to the particular cases but have limited meaning as general
It is well to recall that “the purpose [of the
religion clauses] was to state an objective, not to
write a statute.”14
In 1802, President Jefferson wrote a letter to
a group of Baptists in Danbury, Connecticut, in
which he declared that it was the purpose of the
First Amendment to build “a wall of separation
between Church and State.”15 In Reynolds v.
United States,16
Chief Justice Waite for the Court characterized
the phrase as “almost an authoritative declaration
of the scope and effect of the amendment.” In its
first encounters with religion–based challenges
to state programs, the Court looked to Jefferson’s metaphor for substantial guidance.17 But
a metaphor may obscure as well as illuminate,
and the Court soon began to emphasize neutrality
and voluntarism as the standard of restraint on
governmental action.18
The concept of neutrality itself is “a coat of
many colors,”19 and three standards that could
be stated in objective fashion emerged as tests of
Establishment Clause validity. The first two standards were part of the same formulation. “The
test may be stated as follows: what are the purpose and the primary effect of the enactment? If
either is the advancement or inhibition of religion
then the enactment exceeds the scope of legislative power as circumscribed by the Constitution.
That is to say that to withstand the strictures of
the Establishment Clause there must be a secular legislative purpose and a primary effect that
neither advances nor inhibits religion.”20
The third test is whether the governmental
program results in “an excessive government entanglement with religion. The test is inescapably
one of degree . . . [T]he questions are whether
the involvement is excessive, and whether it is a
continuing one calling for official and continuing
surveillance leading to an impermissible degree
of entanglement.”21
In 1971 these three tests were combined and
restated in Chief Justice Burger’s opinion for
the Court in Lemon v. Kurtzman,22 and are frequently referred to by reference to that case name.
Although at one time accepted in principle by
all of the Justices,23 the tests have sometimes
been difficult to apply,24 have recently come under direct attack by some Justices,25
Supplement: [Pp. 973–74, change text following n.25 to read:]
and in several instances have not been applied
at all by the Court.
and in two in[p.974]stances have not been
applied at all by the Court. 26
Supplement: [P. 974, change text following
n.26 to read:]
Nonetheless, the Court employed the Lemon
tests in its most recent Establishment Clause
decisions,1 and it remains the case that those
tests have served as the primary standard of
Establishment Clause validity for the past three
decades. However, other tests have also been formulated and used. Justice Kennedy has proffered
“coercion” as an alternative test for violations of
the Establishment Clause,2 and the Court has
used that test as the basis for decision from time
to time.3
But that test has been criticized on the grounds
it would eliminate a principal distinction between
the Establishment Clause and the Free Exercise
Clause and make the former a “virtual nullity.” 4
Justice O’Connor has suggested “endorsement”
as a clarification of the Lemon test, i.e., that the
Establishment Clause is violated if the government intends its action to endorse or disapprove
of religion or if a “reasonable observer” would
perceive the government’s action as such an endorsement or disapproval 5; and the Court also
has used this test for some of its decisions.6 But
others have criticized the endorsement test as too
amorphous to provide certain guidance.7
Justice O’Connor has also suggested that it
may be inappropriate to try to shoehorn all Establishment Clause cases into one test and has called
instead for recognition that different contexts may
call for different approaches.8
In its two most recent Establishment Clause
decisions, it might be noted, the Court employed
all three tests in one decision 9 and relied primarily on the Lemon tests in the other.10
In interpreting and applying the Free Exercise
Clause, the Court has consistently held religious
beliefs to be absolutely immune from governmental interference.11 But it has used a number of
standards to review government action restrictive
of religiously motivated conduct, ranging from
formal neutrality 12 to clear and present danger
13 to strict scrutiny.14 For cases of intentional
governmental discrimination against religion, the
Court still employs strict scrutiny.15 But for most
other free exercise cases it has now reverted to a
standard of formal neutrality. “[T]he right of free
exercise,” it recently stated, “does not relieve an
individual of the obligation to comply with a ‘valid
and neutral law of general applicability on the
ground the law proscribes (or prescribes) conduct
that his religion prescribes (or proscribes).’ ” 16
While continued application is uncertain, the
Lemon tests nonetheless have served for twenty
years as the standard measure of Establishment
Clause validity and explain most of the Court’s decisions in the area.27 As of the end of the Court’s
1991–92 Term, there was not yet a consensus
among Lemon critics as to what substitute test
should be favored.28 Reliance on “coercion” for
that purpose would eliminate a principal distinction between establishment cases and free exercise cases and render the Establishment Clause
largely duplicative of the Free Exercise Clause.29
Government Neutrality in Religious Disputes.—One value that both clauses of the religion section serve is to enforce governmental
neutrality in deciding controversies arising out
of religious disputes. Schism sometimes develops within churches or between a local church
and the general church, resulting in secession or
expulsion of one faction or of the local church. A
dispute over which body is to have control of the
property of the church will then often be taken
into the courts. It is now established that both
religion clauses prevent governmental inquiry
into religious doctrine in settling such disputes,
and instead require courts simply to look to the
decision–making body or process in the church
and to give effect to whatever decision is officially
and properly made.
The first such case was Watson v. Jones,30
which was decided on common–law grounds in
a diversity action without explicit reliance on the
First Amendment. A constitutionalization of the
rule was made in Kedroff v. St. Nicholas Cathedral,31 in which the Court held unconstitutional
a state statute that recognized the autonomy and
authority of those North American branches of
the Russian Orthodox Church which had declared
their independence from the general church. Recognizing that Watson v. Jones had been decided
on nonconstitutional grounds, the Court thought
nonetheless that the opinion “radiates . . . a spirit
of freedom for religious organizations, and independence from secular control or manipulation—
in short, power to decide for themselves, free from
state interference, matters of church government
as well as those of faith and doctrine.”32 The
power of civil courts to resolve church property
disputes was severely circumscribed, the Court
held, because to permit resolution of doctrinal
disputes in court was to jeopardize First Amendment values. What a court must do, it was held,
is to look at the church rules: if the church is a
hierarchical one which reposes determination
of ecclesiastical issues in a certain body, the
resolution by that body is determinative, while
if the church is a congregational one prescribing
action by a majority vote, that determination will
On the other hand, a court confronted with
a church property dispute could apply “neutral
principles of law, developed for use in all property
disputes,” when to do so would not require resolution of doctrinal issues.34 In a later case the
Court elaborated on the limits of proper inquiry,
holding that an argument over a matter of internal
church government, the power to reorganize the
dioceses of a hierarchical church in this country,
was “at the core of ecclesiastical affairs” and a
court could not interpret the church constitution
to make an independent determination of the
power but must defer to the interpretation of the
body authorized to decide.35
In Jones v. Wolf,36 however, a divided Court,
while formally adhering to these principles, appeared to depart in substance from their application. A schism had developed in a local church
which was a member of a hierarchical church,
and the majority voted to withdraw from the general church. The proper authority of the general
church determined that the minority constituted
the “true congregation” of the local church and
awarded them authority over it. The Court approved the approach of the state court in applying
neutral principles by examining the deeds to the
church property, state statutes, and provisions
of the general church’s constitution concerning
ownership and control of church property in
order to determine that no language of trust in
favor of the general church was contained in any
of them and that the property thus belonged to
the local congregation.37
Further, the Court held, the First Amendment
did not prevent the state court from applying a
presumption of majority rule to award control to
the majority of the local congregation, provided
that it permitted defeasance of the presumption
upon a showing that the identity of the local
church is to be determined by some other means
as expressed perhaps in the general church charter.38 The dissent argued that to permit a court
narrowly to view only the church documents relating to property ownership permitted the ignoring
of the fact that the dispute was over ecclesiastical
matters and that the general church had decided
which faction of the congregation was the local
Thus, it is unclear where the Court is on this
issue. Jones v. Wolf restated the rule that it is
improper to review an ecclesiastical dispute and
that deference is required in those cases, but by
approving a neutral principles inquiry which in
effect can filter out the doctrinal issues underlying a church dispute, the Court seems[p.977]to
have approved at least an indirect limitation of
the authority of hierarchical churches.40
Establishment of Religion
“For the men who wrote the Religion Clauses
of the First Amendment the ‘establishment’ of
a religion connoted sponsorship, financial support, and active involvement of the sovereign in
religious activity.”41 However, the Court’s reading
of the clause has never resulted in the barring of
all assistance which aids, however incidentally, a
religious institution. Outside this area, the decisions generally have more rigorously prohibited
what may be deemed governmental promotion of
religious doctrine.
13 Walz v. Tax Comm’n, 397 U.S. 664, 668
(1970) .
14 Id.
15 16 The Writings of Thomas Jefferson 281
(A. Libscomb ed., 1904).
16 98 U.S. 145, 164 (1879) .
17 Everson v. Board of Education, 330 U.S.
1, 16 (1947) ; Illinois ex rel. McCollum v. Board
of Education, 333 U.S. 203, 211, 212 (1948) ;
cf. Zorach v. Clauson, 343 U.S. 306, 317 (1952)
(Justice Black dissenting). In Lemon v. Kurtzman,
403 U.S. 602, 614 (1971) , Chief Justice Burger
remarked that “the line of separation, far from
being a ‘wall,’ is a blurred, indistinct and variable
barrier depending on all the circumstances of a
particular relationship.” Similar observations
were repeated by the Chief Justice in his opinion
for the Court in Lynch v. Donnelly, 465 U.S. 668,
673 (1984) (the metaphor is not “wholly accurate”; the Constitution does not “require complete
separation of church and state [but] affirmatively
mandates accommodation, not merely tolerance,
of all religions, and forbids hostility toward any”).
18 Zorach v. Clauson, 343 U.S. 306, 314
(1952) ; Engel v. Vitale, 370 U.S. 421 (1962) ;
Sherbert v. Verner, 374 U.S. 398 (1963) ; Abington
School District v. Schempp, 374 U.S. 203, 305
(1963) (Justice Goldberg concurring); Walz v. Tax
Comm’n, 397 U.S. 664, 694–97 (1970) (Justice
Harlan concurring). In the opinion of the Court
in the latter case, Chief Justice Burger wrote:
“The course of constitutional neutrality in this
area cannot be an absolutely straight line; rigidity could well defeat the basic purpose of these
provisions, which is to insure that no religion be
sponsored or favored, none commanded, and
none inhibited. The general principle deducible
from the First Amendment and all that has been
said by the Court is this: that we will not tolerate either governmentally established religion or
governmental interference with religion. Short
of those expressly proscribed governmental acts
there is room for play in the joints productive of
a benevolent neutrality which will permit religious
exercise to exist without sponsorship and without
interference.” Id. at 669.
19 Board of Education v. Allen, 392 U.S. 236,
249 (1968) (Justice Harlan concurring).
20 Abington School District v. Schempp, 374
U.S. 203, 222 (1963) .
21 Walz v. Tax Comm’n, 397 U.S. 664, 674–75
(1970) .
22 403 U.S. 602, 612–13 (1971) .
23 E.g., Committee for Public Educ. & Religious Liberty v. Regan, 444 U.S. 646, 653 (1980)
, and id. at 665 (dissenting opinion); Stone v.
Graham, 449 U.S. 39, 40 (1980) , and id. at 43
(dissenting opinion).
24 The tests provide “helpful signposts,” Hunt
v. McNair, 413 U.S. 734, 741 (1973) , and are at
best “guidelines” rather than a “constitutional
caliper;” they must be used to consider “the cumulative criteria developed over many years and
applying to a wide range of governmental action.”
Inevitably, “no ‘bright line’ guidance is afforded.”
Tilton v. Richardson, 403 U.S. 672, 677–78
(1971) . See also Committee for Public Educ. &
Religious Liberty v. Nyquist, 413 U.S. 756, 761
& n.5, 773 n.31 (1973); Committee for Public
Educ. & Religious Liberty v. Regan, 444 U.S. 646,
662 (1980) , and id. at 663 (Justice Blackmun
25 See, e.g., Edwards v. Aguillard, 482 U.S.
578, 636–40 (1987) (Justice Scalia, joined by
Chief Justice Rehnquist, dissenting) (advocating abandonment of the “purpose” test); Wallace
v. Jaffree, 472 U.S. 38, 108–12 (1985) (Justice
Rehnquist dissenting); Aguilar v. Felton, 473
U.S. 402, 426–30 (1985) (Justice O’Connor, dissenting) (addressing difficulties in applying the
entanglement prong); Roemer v. Maryland Bd.
of Public Works, 426 U.S. 736, 768–69 (Justice
White concurring in judgment) (objecting to entanglement test). Justice Kennedy has also acknowledged criticisms of the Lemon tests, while
at the samed time finding no need to reexamine
them. See, e.g., Allegheny County v. Greater
Pittsburgh ACLU, 492 U.S. 573, 655–56 (1989)
. At least with respect to public aid to religious
schools, Justice Stevens would abandon the tests
and simply adopt a “no–aid” position. Committee
for Public Educ. & Religious Liberty v. Regan, 444
U.S. 646, 671 (1980) .
26 See Marsh v. Chambers, 463 U.S. 783
(1983) (upholding legislative prayers on the basis
of historical practice); Lee v. Weisman, 112 Ct.
2649, 2655 (1992) (rejecting a request to reconsider Lemon because the practice of invocations at
public high school graduations was invalid under
established school prayer precedents). The Court
has also held that the tripartite test is not appli-
cable when law grants a denominational preference, distinguishing between religions; rather, the
distinction is to be subjected to the strict scrutiny
of a suspect classification. Larson v. Valente, 456
U.S. 228, 244–46 (1982) .
Supplement: [P. 974, add to n.26 following Lee
v. Weisman citation:]
Zobrest v. Catalina Foothills Sch. Dist., 509
U.S. 1 (1993) (upholding provision of sign–language interpreter to deaf student attending parochial school); Board of Educ. of Kiryas Joel Village
v. Grumet, 512 U.S. 687 (1994) (invalidating law
creating special school district for village composed exclusively of members of one religious
sect); Rosenberger v. University of Virginia, 515
U.S. 819 (1995) (upholding the extension of a
university subsidy of student publications to a
student religious publication).
27 Justice Blackmun, concurring in Lee,
contended that Marsh was the only one of 31 Establishment cases between 1971 and 1992 not to
be decided on the basis on the Lemon tests. 112
S. Ct. at 2663, n.4.
28 In 1990 Justice Kennedy, joined by Justice
Scalia, proposed that “neutral” accommodations
of religion should be permissible so long as they
do not establish a state religion, and so long as
there is no “coercion” to participate in religious
exercises. Westside Community Bd. of Educ. v.
Mergens, 496 U.S. 226, 260–61. The two Justices
parted company, however, over the permissiblity
of invocations at public high school graduation
ceremonies, Justice Scalia in dissent strongly
criticizing Justice Kennedy’s approach in the
opinion of the Court for its reliance on psychological coercion. Justice Scalia would not “expand[
] the concept of coercion beyond acts backed by
threat of penalty.” Lee v. Weisman, 112 Ct. 2649,
2684 (1992). Chief Justice Rehnquist has advocated limiting application to a prohibition on
establishing a national (or state) church or favoring one religious group over another. Wallace v.
Jaffree, 472 U.S. 38, 98, 106 (1985) (dissenting).
29 Abington School District v. Schempp, 374
U.S. 203, 222–23 (1963) . See also Board of Education v. Allen, 392 U.S. 236, 248–49 (1968) ; and
Tilton v. Richardson, 403 U.S. 672, 689 (1971) ;
Lee v. Weisman, 112 S. Ct. 2649, 2673 (Justice
Souter concurring) (“a literal application of the
coercion test would render the Establishment
Clause a virtual nullity”).
30 80 U.S. (13 Wall.) 679 (1872).
31 344 U.S. 94 (1952) . Kedroff was grounded
on the Free Exercise Clause. Id. at 116. But the
subsequent cases used a collective “First Amendment” designation.
32 Id. at 116. On remand, the state court
adopted the same ruling on the merits but relied
on a common–law rule rather than the statute.
This too was struck down. Kreshik v. St. Nicholas
Cathedral, 363 U.S. 190 (1960) .
33 Presbyterian Church v. Hull Memorial
Presbyterian Church, 393 U.S. 440, 447, 450–51
(1969) ; Maryland and Virginia Eldership of the
Churches of God v. Church of God at Sharpsburg, 396 U.S. 367 (1970) . For a similar rule of
neutrality in another context, see United States v.
Ballard, 322 U.S. 78 (1944) (denying defendant
charged with mail fraud through dissemination
of purported religious literature the right to present to the jury evidence of the truthfulness of the
religious views he urged).
34 Presbyterian Church v. Hull Memorial
Presbyterian Church, 393 U.S. 440, 449 (1969) ;
Maryland and Virginia Eldership of the Churches
of God v. Church of God of Sharpsburg, 396 U.S.
367, 368 (1970) . See also id. at 368–70 (Justice
Brennan concurring).
35 The Serbian Eastern Orthodox Diocese
v. Dionisije Milivojevich, 426 U.S. 697, 720–25
(1976) . In Gonzalez v. Archbishop, 280 U.S. 1
(1929) , the Court had permitted limited inquiry
into the legality of the actions taken under church
rules. The Serbian Eastern Court disapproved of
this inquiry with respect to concepts of “arbitrariness,” although it reserved decision on the “fraud”
and “collusion” exceptions. 426U.S. at 708–20
426U.S. at 708–20.
36 443 U.S. 595 (1979) . In the majority
were Justices Blackmun, Brennan, Marshall,
Rehnquist, and Stevens. Dissenting were Justices
Powell, Stewart, White, and Chief Justice Burger.
37 Id. at 602–06.
38 Id. at 606–10. Because it was unclear
whether the state court had applied such a rule
and applied it properly, the Court remanded.
39 Id. at 610.
40 The Court indicated that the general
church could always expressly provide in its
charter or in deeds to property the proper disposition of disputed property. But here the general
church had decided which faction was the “true
congregation,” and this would appear to constitute as definitive a ruling as the Court’s suggested
alternatives. Id. at 606.
41 Walz v. Tax Comm’n, 397 U.S. 664, 668
(1970) . “Two great drives are constantly in motion to abridge, in the name of education, the
complete division of religion and civil authority
which our forefathers made. One is to introduce
religious education and observances into the public schools. The other, to obtain public funds for
the aid and support of various private religious
schools. . . . In my opinion both avenues were
closed by the Constitution.” Everson v. Board of
Education, 330 U.S. 1, 63 (1947) (Justice Rutledge dissenting).
Supplement Footnotes
1 Agostini v. Felton, 521 U.S. 203 (1997) (upholding under the Lemon tests the provision of
remedial educational services by public school
teachers to sectarian elementary and secondary
schoolchildren on the premises of the sectarian
schools); Santa Fe Indep. Sch. Dist. v. Doe, 120S.
Ct. 2266 (2000) (holding unconstitutional under
the Lemon tests as well as under the coercion and
endorsement tests a school district policy permitting high school students to decide by majority
vote whether to have a student offer a prayer
over the public address system prior to home
football games); and Mitchell v. Helms, 120S. Ct.
2530 (2000) (upholding under the Lemon tests a
federally funded program providing instructional
materials and equipment to public and private
elementary and secondary schools, including
sectarian schools).
2 County of Allegheny v. Greater Pittsburgh
ACLU, 492 U.S. 573, 655 (1989) (Justice Kennedy
concurring in part and dissenting in part).
3 Lee v. Weisman, 505 U.S. 577 (1992) , and
Santa Fe Indep. Sch. Dist. v. Doe, 120S. Ct. 2216
4 Lee v. Weisman, 505 U.S. 577, 621 (Justice
Souter concurring). See also County of Allegheny
v. Greater Pittsburgh ACLU, 492 U.S. 573, 623
(1989) (Justice O’Connor concurring in part and
concurring in the judgment).
5 Lynch v. Donnelly, 465 U.S. 668, 688 (1984)
(Justice O’Connor concurring); Allegheny County
v. Greater Pittsburgh ACLU, 492 U.S. 573, 625
(1989) (Justice O’Connor concurring); Board of
Educ. of Kiryas Joel Village v. Grumet, 512 U.S.
687, 712 (1994) (Justice O’Connor concurring).
6 Wallace v. Jaffrey, 472 U.S. 38 (1985) ;
Grand Rapids School Dist. v. Ball, 473 U.S. 373
(1985) ; County of Allegheny v. American Civil
Liberties Union Greater Pittsburgh Chapter, 492
U.S. 573; Capitol Square Review and Advisory
Bd. v. Pinette, 515 U.S. 753 (1995) ; and Santa Fe
Indep. Sch. Dist. v. Doe, 120S. Ct. 2216 (2000).
7 County of Allegheny v. Greater Pittsburgh
ACLU, 492 U.S. 573, 655 (1989) (Justice Kennedy
concurring in the judgment in part and dissenting
in part); and Capitol Square Review and Advisory
Bd. v. Pinette, 515 U.S. 753, 768 n.3 (1995) (Justice Scalia concurring).
8 Board of Educ. of Kiryas Joel Village v.
Grumet, 512 U.S. 687, 718–723 (1994) (Justice
O’Connor concurring in part and concurring in
the judgment).
9 Santa Fe Indep. Sch. Dist. v. Doe, 120S. Ct.
2266 (2000).
10 Mitchell v. Helms, 120S. Ct. 2530 (2000).
11 Reynolds v. United States, 98 U.S. (8 Otto)
145 (1878); Cantwell v. Connecticut, 310 U.S. 296
(1940) ; Church of the Lukumi Babalu Aye v. City
of Hialeah, 508 U.S. 520 (1993) .
12 Reynolds v. United States, 98 U.S. (8 Otto)
145 (1878); Braunfeld v. Brown, 366 U.S. 599
(1961) .
13 Cantwell v. Connecticut, 310 U.S. 296
(1940) .
14 Sherbert v. Verner, 374 U.S. 398 (1963) ;
Wisconsin v. Yoder, 406 U.S. 205 (1972) .
15 Church of the Lukumi Babalu Aye v. City
of Hialeah, 508 U.S. 520 (1993) .
16 Employment Div. v. Smith, 494 U.S. 872,
879 (1990) , quoting United States v. Lee, 455 U.S.
252, 263, n.3 (1982) (Justice Stevens concurring
in the judgment).
“America will never be destroyed from the
outside. If we falter and lose our freedoms,
it will be because we destroyed ourselves.”—
Abraham Lincoln.
“History, in general, only informs us what bad
government is.”—Thomas Jefferson.
“A typical vice of American politics is the
avoidance of saying anything real on real issues.”—Theodore Roosevelt
“I was born an American; I will live an American; I shall die an American.”—Daniel Webster.
“Our properties within our own territories
should not be taxed or regulated by any power on
earth but our own.”—Thomas Jefferson.
“In questions of power then, let no more
be heard of confidence in man, but bind him
down from mischief by the chains of the Constitution.”—Thomas Jefferson.
“Happiness and moral duty are inseparably
connected.”—George Washington
“Where annual elections end slavery begins.”—John Quincy Adams
“Let not him who is houseless pull down the
house of another, but let him work diligently to
build one for himself, thus by example assuring
that his own shall be safe from violence.”—Abraham Lincoln
“I see one-third of a nation ill-housed, ill-clad,
ill-nourished.”—Franklin D. Roosevelt (January
20, 1937).
“The saddest epitaph which can be carved
in memory of a vanished liberty is that it was
lost because its possessors failed to stretch
forth a saving hand while yet there was time.”—
George Sutherland, 1862-1942, U.S. Supreme
Court Justice.
“Peace and abstinence from European interferences are our objects, and so will continue
while the present order of things in America remain uninterrupted.”—Thomas Jefferson.
“We demand that big business give the people a square deal; in return we must insist that
when any one engaged in big business honestly
endeavors to do right he shall himself be given a
square deal.”—Theodore Roosevelt (1913).
“Whenever a man has cast a longing eye on
them [political offices], a rottenness begins in his
conduct.”—Thomas Jefferson (1799).
“Let us have faith that right makes might; and
in that faith let us to the end, dare to do our duty
as we understand it.”—Abraham Lincoln.
“If Congress can employ money indefinitely
to the general welfare . . they may appoint teachers in every state . . The powers of Congress would
[then] subvert the very foundation, the very nature of the limited government established by the
people of America.”—James Madison.
“The first requisite of a good citizen in this
Republic of ours is that he shall be able and
willing to pull his weight.”—Theodore Roosevelt
(November 11, 1903).
“ ‘Thou shalt not covet’ means that it is sinful even to contemplate the seizure of another
man’s goods—which is something which Socialists, whether Christian or otherwise, have never
managed to explain away.”—John Chamberlain.
“Let me assert my firm belief that the only
thing we have to fear is fear itself.”—Franklin D.
Roosevelt (March 4, 1933).
“Always vote for principle, though you may
vote alone, and you may cherish the sweetest
reflection that your vote is never lost.”—John
Quincy Adams
“A man who has never gone to school may
steal from a freight car; but if he has a university
education, he may steal the whole railroad.”—
Theodore Roosevelt
“Experience teaches us that it is much
easier to prevent an enemy from posting themselves than it is to dislodge them after they
have got possession.”—George Washington.
“Peace, commerce, and honest friendship with
all nations—entangling alliances with none.”—
Thomas Jefferson.
“The Ten Commandments contain 297 words.
The Bill of Rights is stated in 463 words. Lincoln’s
Gettysburg Address contains 266 words. A recent
federal directive to regulate the price of cabbage
contains 26,911 words.”—The Atlanta Journal
“Laws are made for men of ordinary understanding and should, therefore, be construed
by the ordinary rules of common sense. Their
meaning is not to be sought for in metaphysical subtleties which may make anything mean
everything or nothing at pleasure.”—Thomas
“In the counsels of Government, we must
guard against the acquisition of unwarranted
influence, whether sought or unsought, by the
Military Industrial Complex. The potential for
the disastrous rise of misplaced power exists, and
will persist. We must never let the weight of this
combination endanger our liberties or democratic
processes. We should take nothing for granted.
Only an alert and knowledgeable citizenry can
compel the proper meshing of the huge industrial
and military machinery of defense with our peaceful methods and goals so that security and liberty
may prosper together.”—President Eisenhower,
Farewell address to the nation.
“If a due participation of office is a matter of
right, how are vacancies to be obtained? Those
by death are few, by resignation none.”—Thomas
“You need only reflect that one of the best
ways to get yourself a reputation as a dangerous citizen these days is to go about repeating
the very phrases which our founding fathers used
in the struggle for independence.”—Charles A.
Beard (American historian).
“We cannot expect the Americans to jump from
Capitalism to Communism, but we can assist
their elected leaders in giving Americans small
doses of Socialism, until they suddenly awake
to find they have Communism.”—Nikita Kruschev, Premiere of the former Soviet Union, 3-1/2
months before his first visit to the United States.
“If the principle were to prevail of a common
law [context: a single government] being in force
in the United States . . it would become the most
corrupt government on the earth.”—Thomas Jefferson (August 13, 1800).
“The American people will never knowingly adopt socialism. But, under the name
of ‘liberalism,’ they will adopt every fragment
of the socialist program, until one day America
will be a socialist nation, without knowing how it
happened.”—Norman Thomas, for many years
the U.S. Socialist Party presidential candidate.
“Few men have virtue to withstand the highest bidder.”—George Washington.
“Every reform movement has a lunatic
fringe.”—Theodore Roosevelt (1913, speaking
of the Progressive Party).
“The marvel of all history is the patience
with which men and women submit to burdens
unnecessarily laid upon them by their governments.”—George Washington.
“No duty the Executive had to perform was
so trying as to put the right man in the right
place.”—Thomas Jefferson.
“The time is near at hand which must determine whether Americans are to be free men or
slaves.”—George Washington.
“Worry is the interest paid by those who
borrow trouble.”—George Washington.
“Guard against the impostures of pretended
patriotism.”—George Washington.
“A radical is a man with both feet firmly planted in the air.”—Franklin D. Roosevelt (October
26, 1939).
“A man who is good enough to shed his blood
for the country is good enough to be given a square
deal afterwards.”—Theodore Roosevelt (June 4,
“There is homely adage which runs, ‘Speak
softly and carry a big stick.’ ”—Theodore Roosevelt (September 2, 1901).
“There can be no fifty-fifty Americanism in
this country. There is room here for only 100
percent Americanism, only for those who are
Americans and nothing else.”—Theodore Roosevelt.
“Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid
it, Almighty God! I know not what course others
may take, but as for me, give me liberty or give
me death!—Patrick Henry.
“In the future days, which we seek to make
secure, we look forward to a world founded
upon four essential human freedoms: The first
is freedom of speech and expression. The second
is freedom of every person to worship God in his
own way. The third is freedom from want. The
fourth is freedom from fear.”—Franklin D. Roosevelt (January 6, 1941).
“The tree of liberty must be refreshed from
time to time with the blood of patriots and tyrants.”—Thomas Jefferson (November 13, 1787).
“If you love wealth more than liberty, the
tranquility of servitude better than the animating contest of freedom, depart from us in peace.
We ask not your counsel nor your arms. Crouch
down and lick the hand that feeds you. May your
chains rest lightly upon you and may posterity
forget that you were our countrymen.”—Samuel
“Indeed I tremble for my country when I
reflect that God is just.”—Thomas Jefferson
“Before a standing army can rule, the people
must be disarmed; as they are in almost every
kingdom of Europe. The supreme power in
America cannot enforce unjust laws by the sword;
because the whole body of the people are armed,
and constitute a force superior to any band of
regular troops that can be, on any pretence, raised
in the United States.”—Noah Webster.
“This year will go down in history. For the
first time, a civilized nation has full gun registration. Our streets will be safer, our police more
efficient, and the world will follow our lead into
the future!”—Adolph Hitler [1935] The Weapons
Act of Nazi Germany.
“A house divided against itself cannot stand.”—
Abraham Lincoln (June 16, 1858).
“I take the official oath today with no mental
reservations, and with no purpose to construe the
Constition or laws by any hypercritical rules.”—
Abraham Lincoln (March 4, 1861).
“This country, with its institutions, belongs
to the people who inhabit it. Whenever they shall
grow weary of the existing goverment, they can
exercise their constitutional right of amending
it.”—Abraham Lincoln.
“I think the necessity fo being ready increases.”—Abraham Lincoln (the entirety of a letter
to Governor Andrew Curtin of Pennsylvania,
April 8, 1861).
“When peace has been broken anywhere, the
peace of all countries everywhere is in danger.”—
Franklin D. Roosevelt (September 3, 1939).
“We must be the great arsenal of democracy.”—Franklin D. Roosevelt (December 29, 1940).
“Suppose a nation in some distant region
should take the Bible for their only law book,
and every member should regulate his conduct by the precepts there exhibited . . What
a utopia, what a paradise would that region
be!”—John Adams
“The religion which has introduced civil liberty
is the religion of Christ and His apostles . . to this
we owe our free constitutions of government.”—
Noah Webster
“A thorough knowledge of the Bible is worth
more than a college education.”—Theodore
“The highest glory of the American Revolution
was this—that it connected, in one indissoluble
bond, the principles of civil government with the
principles of Christianity.”—John Quincy Adams
“The Bible is the cornerstone of liberty. A
student’s perusal of the sacred volume will make
him a better citizen, a better father, a better husband.”—Thomas Jefferson
“The Bible is the rock on which our Republic rests.”—Andrew Jackson
“In my view, the Christian religion is the most
important and one of the first things in which all
children, under a free government, ought to be
instructed.”—Noah Webster
“We have staked the future of American
civilization upon the capacity of each and all
of us to govern ourselves according to the Ten
Commandments of God.”—James Madison
“He who shall introduce into public affairs the
principles of primitive Christianity will change the
face of the world.”—Benjamin Franklin
“It can not be emphasized too strongly or too
often that this great nation was founded, not
by religionists, but by Christians, not on religions but on the gospel of Jesus Christ.”—Patrick
“Can the liberties of a nation be secure
when we have removed the conviction that
these liberties are the gift of God?”—Thomas
“It is the duty of all nations to acknowledge the
providence of Almight God, to obey His will, to
be grateful for His benefits, and humbly implore
His protection and favor.”—George Washington
“Our constitution was made only for a moral
and religious people. It is wholly inadequate
to the government of any other.”—John Adams
“It is impossible for the man of pious reflection not to perceive in [the Constitution]
a finger of that Almighty hand which has been
so frequently and signally extended to our relief
in the critical stages of the revolution.”—James
Madison, Father of the Constitution.
“The belief in a God All Powerful wise and
good, is so essential to the moral order of the
world and to the happiness of man, that arguments which enforce it cannot be drawn from
too many sources nor adapted with too much
solicitude to the different characters and capacities impressed with it.”—James Madison
“Within the covers of the Bible are the answers for all the problems men face.”—Ronald
“Without God, democracy will not and cannot
long endure.”—Ronald Reagan.
“If we ever forget that we are One Nation
Under God, then we will be a nation gone under.”—Ronald Reagan.
“We are never defeated unless we give up on
God.”—Ronald Reagan.
“As I would not be a slave, so I would not be a
master. This expresses my idea of democracy.”—
Abraham Lincoln.
“Ballots are the rightful and peaceful successors to bullets.”—Abraham Lincoln
“Be sure you put your feet in the right place,
then stand firm.”—Abraham Lincoln
“He has a right to criticize, who has a heart to
help.”—Abraham Lincoln.
“All that I am, or hope to be, I owe to my angel
mother.”—Abraham Lincoln
“I remember my mother’s prayers and they
have always followed me. They have clung to me
all my life.”—Abraham Lincoln
“He who molds the public sentiment . . makes
statutes and decisions possible or impossible to
make.”—Abraham Lincoln.
“I am a firm believer in the people. If given the
truth, they can be depended upon to meet any
national crisis. The great point is to bring them
the real facts.”—Abraham Lincoln.
“I am not bound to win, but I am bound to be
true. I am not bound to succeed, but I am bound
to live by the light that I have. I must stand with
anybody that stands right, and stand with him
while he is right, and part with him when he goes
wrong.”—Abraham Lincoln
I do not think much of a man who is not wiser
today than he was yesterday.”—Abraham Lincoln.
“I have always found that mercy bears richer
fruits than strict justice.”—Abraham Lincoln.
“I hope to stand firm enough to not go backward, and yet not go forward fast enough to wreck
the country’s cause.”—Abraham Lincoln.
“Important principles may, and must, be inflexible.”—Abraham Lincoln.
“It is better to remain silent and be thought
a fool than to open one’s mouth and remove all
doubt.”—Abraham Lincoln.
“Labor is prior to, and independent of, capital.
Capital is only the fruit of labor, and could never
have existed if labor had not first existed. Labor
is the superior of capital, and deserves much the
higher consideration.”—Abraham Lincoln.
“My dream is of a place and a time where
America will once again be seen as the last best
hope of earth.”—Abraham Lincoln.
“My great concern is not whether you have
failed, but whether you are content with your
failure.”—Abraham Lincoln.
“Nearly all men can stand adversity, but if you
want to test a man’s character, give him power.”—
Abraham Lincoln.
“Our defense is in the preservation of the spirit
which prizes liberty as a heritage of all men, in
all lands, everywhere. Destroy this spirit and you
have planted the seeds of despotism around your
own doors.”—Abraham Lincoln.
“Public sentiment is everything. With public
sentiment, nothing can fail. Without it, nothing
can succeed.”—Abraham Lincoln.
“That some achieve great success, is proof to
all that others can achieve it as well.”—Abraham
“No man is good enough to govern another
man without that other’s consent.”—Abraham
The philosophy of the school room in one
generation will be the philosophy of government
in the next.”—Abraham Lincoln.
“The probability that we may fail in the struggle ought not to deter us from the support of a
cause we believe to be just.”—Abraham Lincoln.
“These capitalists generally act harmoniously
and in concert, to fleece the people.”—Abraham
“Those who deny freedom to others deserve it
not for themselves.”—Abraham Lincoln.
“To sin by silence when they should protest
makes cowards of men.”—Abraham Lincoln.
“Towering genius disdains a beaten path. It
seeks regions hitherto unexplored.”—Abraham
“We should be too big to take offense and too
noble to give it.”—Abraham Lincoln.
“We the people are the rightful masters of
both Congress and the courts, not to overthrow
the Constitution but to overthrow the men who
pervert the Constitution.”—Abraham Lincoln.
“Whenever I hear anyone arguing for slavery,
I feel a strong impulse to see it tried on him personally.”—Abraham Lincoln.
“With Malice toward none, with charity for all,
with firmness in the right, as God gives us to see
the right, let us strive on to finish the work we are
in, to bind up the nation’s wounds.—Abraham
“You cannot build character and courage
by taking away a man’s initiative and independence.—Abraham Lincoln.
“Concentrated power has always been the
enemy of liberty.”—Ronald Reagan.
“Each generation goes further than the generation preceding it because it stands on the shoulders of that generation. You will have opportunities beyond anything we’ve ever known.”—Ronald
“Entrepreneurs and their small enterprises
are responsible for almost all the economic
growth in the United States.”—Ronald Reagan.
“Facts are stubborn things.”—Ronald Reagan.
“Freedom is never more than one generation
away from extinction. We didn’t pass it to our
children in the bloodstream. It must be fought
for, protected, and handed on for them to do the
same.”—Ronald Reagan.
“Freedom prospers when religion is vibrant
and the rule of law under God is acknowledged.”—Ronald Reagan.
“Government always finds a need for whatever
money it gets.”—Ronald Reagan.
“Government does not solve problems; it subsidizes them.”—Ronald Reagan.
“Government exists to protect us from each
other. Where government has gone beyond its limits is in deciding to protect us from ourselves.”—
Ronald Reagan.
“Government is like a baby. An alimentary
canal with a big appetite at one end and no sense
of responsibility at the other.”—Ronald Reagan.
“Government’s first duty is to protect the
people, not run their lives.”—Ronald Reagan.
“Government’s view of the economy could be
summed up in a few short phrases: If it moves,
tax it. If it keeps moving, regulate it. And if it stops
moving, subsidize it.”—Ronald Reagan.
“Governments tend not to solve problems,
only to rearrange them.”—Ronald Reagan.
“Above all, we must realize that no arsenal,
or no weapon in the arsenals of the world, is so
formidable as the will and moral courage of free
men and women. It is a weapon our adversaries
in today’s world do not have.”—Ronald Reagan.
“History teaches that war begins when governments believe the price of aggression is cheap.”—
Ronald Reagan.
“How do you tell a communist? Well, it’s
someone who reads Marx and Lenin. And how
do you tell an anti-Communist? It’s someone who
understands Marx and Lenin.”—Ronald Reagan.
“If the Soviet Union let another political party
come into existence, they would still be a oneparty state, because everybody would join the
other party.”—Ronald Reagan.
“I have wondered at times what the Ten Commandments would have looked like if Moses had
run them through the U.S. Congress.”—Ronald
“I’ve never been able to understand why a
Republican contributor is a ‘fat cat’ and a Democratic contributor of the same amount of money
is a ‘public-spirited philanthropist’.”—Ronald
“Information is the oxygen of the modern age.
It seeps through the walls topped by barbed wire,
it wafts across the electrified borders.”—Ronald
“My philosophy of life is that if we make up
our mind what we are going to make of our lives,
then work hard toward that goal, we never lose—
somehow we win out.”—Ronald Reagan.
“No government ever voluntarily reduces itself
in size. Government programs, once launched,
never disappear. Actually, a government bureau
is the nearest thing to eternal life we’ll ever see
on this earth!”—Ronald Reagan.
“No mother would ever willingly sacrifice her
sons for territorial gain, for economic advantage,
for ideology.”—Ronald Reagan.
“One way to make sure crime doesn’t pay
would be to let the government run it.”—Ronald
“Peace is not absence of conflict, it is the ability
to handle conflict by peaceful means.”—Ronald
“People do not make wars; governments do.”—
Ronald Reagan.
“Politics is not a bad profession. If you succeed
there are many rewards, if you disgrace yourself
you can always write a book.”—Ronald Reagan.
“Protecting the rights of even the least individual among us is basically the only excuse
the government has for even existing.”—Ronald
“Recession is when a neighbor loses his job.
Depression is when you lose yours.”—Ronald
“Surround yourself with the best people you
can find, delegate authority, and don’t interfere as
long as the policy you’ve decided upon is being
carried out.”—Ronald Reagan.
“Surround yourself with the best people you
can find, delegate authority, and don’t interfere as
long as the policy you’ve decided upon is being
carried out.”—Ronald Reagan.
“The best minds are not in government. If any
were, business would steal them away.”—Ronald
“The most terrifying words in the English
language are: I’m from the government and I’m
here to help.”—Ronald Reagan.
“The problem is not that people are taxed too
little, the problem is that government spends too
much.”—Ronald Reagan.
“The taxpayer: that’s someone who works for
the federal government but doesn’t have to take
the civil service examination.”—Ronald Reagan.
“To sit back hoping that someday, some way,
someone will make things right—is to go on feeding the crocodile, hoping he will eat you last - but
eat you he will.”—Ronald Reagan.
“Today we did what we had to do. They
counted on America to be passive. They counted
wrong.”—Ronald Reagan.
“Today, if you invent a better mousetrap, the
government comes along with a better mouse.”—
Ronald Reagan.
“Trust, but verify.”—Ronald Reagan.
“We can not play innocents abroad in a world
that is not innocent.”—Ronald Reagan.
“We can’t help everyone, but everyone can help
someone.”—Ronald Reagan.
“We have the duty to protect the life of an unborn child.”—Ronald Reagan.
“We might come closer to balancing the Budget
if all of us lived closer to the Commandments and
the Golden Rule.”—Ronald Reagan.
“We must reject the idea that every time a
law’s broken, society is guilty rather than the
lawbreaker. It is time to restore the American
precept that each individual is accountable for
his actions.”—Ronald Reagan.
“Welfare’s purpose should be to eliminate, as
far as possible, the need for its own existence.”—
Ronald Reagan.
“We should measure welfare’s success by
how many people leave welfare, not by how
many are added.”—Ronald Reagan.
“We will always remember. We will always
be proud. We will always be prepared, so we
will always be free.”—Ronald Reagan.