Contempo Magazine Blog

by Dr. Tony Magana

Americans are becoming increasingly concerned about the federal budget deficit. Now it appears that government overspending may not only be making the debt worse but also will result in inflation and high interest rates.

In the words of the Congressional Budget Office the federal budget is on an “unsustainable path” because the national debt will proceed to abound more explosively than even an economic recovery can abide. This same conclusion has been drawn by many economists and think tanks from both left and right of the political spectrum including the Brookings Institute, Heritage Foundation, and CATO Institute.

Despite these warnings President Obama and the liberal Democrats in Congress have persisted in wanting to affix new debts to the erstwhile mountainous deficit by creating a very expensive government health care program and the largest bureaucracy ever contemplated to monitor then tax carbon emissions. The Congressional Budget Office initially calculated that over 10 years the deficit will balloon up to $9.1 trillion under the most favorable scenario. This Democratic artifice includes a complete cessation of all Bush era tax cuts, not modifying the alternative minimum tax ( an automatic tax raise to middle class due to inflation and the increasing cost of living), moderate economic growth, and presumes new taxes to pay for the new health care program.

There was one consideration not taken into account which is currently developing. Increasing evidence is surfacing that rising interest rates and inflation may be coming sooner rather than later. The prominent Harvard economist, Martin Feldstein, wrote an opinion piece in the Financial Times warning of the potential of higher interest rates. Many who watch the financial world are now predicting inflation to occur as the economy recovers due to the large sums of money the government dumped into economy as a stimulus.

As a defense against inflation, the Federal Reserve has been buying back long-term Treasury bonds to keep the bond rate down. A recent decreased demand for Treasury bonds has forced the offering of higher interest rates to buyers and thus increase the amount of interest the government will have to pay on the national debt. The creeping unwillingness of foreign nations to buy these securities, China is the biggest customer, and the persistent lack of growth in the American economy are combining to drive these interest rates even higher still.

As if that is not bad enough, today the Congressional Budget Office released a report on what will happen if indeed as many fear inflation and high interest set in over the next ten years. If the interest rate goes to 6.4% the deficit will grow an additional $1.3 trillion more in just nine years but if the interest rate rises to a level similar to that seen during the Jimmy Carter Presidency of 10.5% then the deficit would be $5.6 trillion higher.

Unfortunately the risk of higher interest rates, inflation and the deficit are all interdependent upon one another. Increasing taxes to reduce the deficit would not help says Feldstein because it will weaken demand in the economy, thus in the long term we have no option but to cut government spending or face certain inflation and the consequences of out of control irresponsible spending.

Click here for copyright permissions!
Copyright 2009 Dr. Tony Magana

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

 by Dr. Tony Magana

A late night Friday vote before a Senate recess on the controversial Climate Change Energy Tax bill is beginning to see political backlash and political spin as public opinion against the legislation is surfacing.

The Democratic cap and trade legislation which was heavily backed by the President and the progressives passed the House by a vote of 219-212 late Friday. Since the Congressional tally there has already begun some political backlash for what assuredly was an unpopular move.

Although most Americans are concerned about the environment and conservation there have been many skeptics in the scientific world about whether even with an extreme sacrifice that would cripple the economy of the United States any real benefit would be gained. In March, a Gallup poll disclosed that a majority of Americans, 51% vs. 42%, said “economic growth should be given priority over the environment if the environment suffers to some extent”. At the same time, Americans were about evenly split, 47% vs. 46% on whether they should “favor protection of the environment at the risk of limiting energy supplies.”

Things have not been going well for the Obama administration as regards the economy. Albeit the rate of job loss has decreased and the stock market has reached over the 50% mark of recovery from the severe downturn, the economic outlook for the next few years remains somewhat pessimistic. Most proponents of Cap and Trade legislation have framed the discussion of the measures called for as being necessary sacrifices for the future.

Over the weekend following the Congressional vote an online poll has been carried out by MSNBC/Newsvine. Those familiar with the social media website recognize that Newsvine like its parent MSNBC is overwhelmingly imbued with progressive advocates.

However the results of the survey show a severe disapproval of the Congressional action. As of today over 14,000 responders to the survey had voted their sentiments. They were asked the question: Should Congress pass the climate and energy bill before it?

• 1.4% No, the bill has been weakened to the point where it does too little

• 17% Yes, its urgent that we curb warming emissions by moving towards cleaner energy

• 81.6% No, the bill is a huge energy tax and it would cost millions of jobs.

Though a 82% disapproval rating of the recent Congressional bill seems astounding, clearly the trends of disappointment if not outright disgusts are undeniably building. The most recent Gallup poll shows that only 33% of the public thinks Congress is doing a good job. Real Clear Politics reports that a majority of Americans now openly disapprove of not only the job Congress is performing but also state the country is going “the wrong direction”

President Obama was quick to acclaim the Congress for passage of the cap and trade bill which was conveniently done on a late Friday evening allowing the media to passively avoid the story. However, by Sunday morning he was already trying to do damage control by remarking that the anti-free trade measures put in place to force the government to tariff against countries which do not meet American standards for global warning might have been the wrong approach. He admitted to reporters that the bills in the current form approved the by the House could do severe damage to American manufacturers by starting reciprocal tariffs against them by foreign countries targeted by the new climate change regulations.

Mr. Obama’s quote in the New York Times “At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade … I think we have to be very careful about sending any signals out there” paradoxically makes the very point against the bill.

Once again, the President is trying to position himself as a centrist between the extreme left and the radical right but this time as before it will not work. Since the election his poll numbers have been consistently dropping from 80% to now just over 50% in a way that reminds one of the history of the Jimmy Carter debacle.

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin

by Dr. Tony Magana

Despite economic and scientific evidence mounting that a tremendous fiscal sacrifice requiring a maximal effort may in the end offer minimal reward the climate change juggernaut folly is advancing.

The Waxman-Markey cap and trade bill which has been beclouded multiple times, having gone from just over 900 pages to at least 1,200, now appears likely to pass the House of Representatives by a partisan vote. The articulated goal of the bill is to reduce carbon dioxide gas emissions by 17 percent over the next ten years by the government establishing a monitoring system for literally millions of businesses and then placing a tax on excess emissions.

Originally President Obama had prescribed there would be no free allotments and that all enterprises would have to pay for their emissions. Initial reports by the independent analysts as well as government entities like the Congressional Budget Office confirmed the measure in effect would be a large tax on not not solely the energy industry but inclusive to all businesses leading to the costs ultimately passing down to the consumer. In order to gain the favor of moderate Democrats from the “Rust Belt” many backdoor barters of free allotments for votes have been struck with rural electrical producers, mass transit authorities, some but not all biomass fuel manufacturers and others that lobbied intensely for special treatment.

The act assumes that there is technology ready to go which can step in to replace the 85% of energy produced by the fossil fuels in the United States. Howbeit President Obama and the Congress have allocated funds for further development of battery technology, smart grids, solar and wind technology the truth is that although these might result in less carbon dioxide emissions they will be much more expensive than fossil fuels. One need examine Europe where gasoline often costs three times as much or more than in the United States and there have been cap and trade laws in place yet essentially no one drives electric or hybrid cars. Electric cars or hybrid cars are not capable of beating conventional small internal combustion engine vehicles in cost or convenience. Although some areas of Europe rely on significant wind and solar power these are not the predominant forms of energy production.

Although the very liberal Center for American Progress claims the Democrats initiatives may, for an investment of $150 billion create 1.7 million jobs and lower household energy bills these claims are not shared by other more established and credentialed experts. In actuality there are real problems in conjecturing not just what will be the effects if any of the legislation as well as the real costs. Most of the scientists confirm even with a maximum effort should the emissions goals be fully achieved which is improbable and the global warming trend models are correct that only a 1 degree temperature difference will be achieved by 2050.

Experts at the moderate Brookings Institute forecast very negative effects on employment extending into the first five years of the program coupled with a severe rise in inflation at the same time while the economy has a whole is not likely to show recovery. During this period payments on the federal deficit as measured by the percentage of gross domestic product will actually increase over and above those historic levels that were present at the end of World War II.

The conservative Heritage Foundation’s Senior Policy Analyst for Energy and Environment, Ben Lieberman testified before Congress saying the 2035 electrical energy costs will go up by 90% with the agricultural and domestic manufacturing sectors being especially hard hit. Other experts at Heritage point out the recent report by the Congressional Budget Office (CBO) looking at the effects of the cap and trade legislation admitted “the resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap”. The CBO assumed that economic losses would be dealt with by a perfect redistribution of taxes from the government to areas or sectors severely hit which is beyond any realistic expectation. Never has any government program every returned dollar for dollar the money collected.

Even though Europe has had cap and trade rules in place, their rate of carbon dioxide emission growth is now actually faster then the United States. Reviews of Spain and other European countries reveals the good intentions of the program become transformed into systems of cronyism, political patronage, and power wielding. No positive economic achievement as has been imagined by the Center for American Progress has occurred in the European economy as a whole.

Finally this week two startling revelations have emerged about hidden agendas in the cap and trade legislation. The environmental lobbying groups want the United States to pay unrestricted billions to foreign countries who trade with the United States such as Brazil to convince their compliance with global warming even at time when the American deficit will reach historic highs. The new cap and trade initiative also provides an opportunity for liberals to put in place protectionist policies which mandate tariffs against nations which do not meet arbitrary American standards creating an inflammable world trade situation likely to spark trade wars and retaliation against American exports.

The United States already has less emissions than Europe, however, mutating our major industries from a capitalist driven market approach to an essentially socialist centrally controlled economy where the government has the power to decide winners and losers will have the same negative consequences as been in seen in Europe. Let us hope that the older and wiser body of the Senate will stop the folly if the measure passes the House.

Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin