6/6/12 Republican Leadership Press Conference

Published on Jun 6, 2012 by HouseConference

Crisis in Europe: Time for a Tough U.S. Response

By J.D. Foster, Ph.D. and Derek Scissors, Ph.D.
June 15, 2012

Three years on, through half measures and a fantastical faith in their own abilities, Europe’s leaders have led the continent into an extended economic crisis. Indeed, by delaying decisive action for so long, Europe has managed to make matters substantially worse for the continent first, and for the rest of the global economy.

While the U.S. economy could never entirely avoid the distresses emanating from Europe, the magnitude of the domestic injury early on appeared modest. The U.S. response was correspondingly muted, with expressions of concern, sympathy, and a desire to help except by contributing to further bailouts. As the European crisis deepens, the U.S. should acknowledge the growing threat and respond accordingly.

First, America’s national leaders, beginning with President Obama, need to set aside their political agendas and act to strengthen America’s economy for whatever shocks come from Europe. Second, it is time the U.S. demanded that Europe cease temporizing and take decisive, conclusive action to restore Europe’s economy and finances. This will likely require that Europe take painful and unpleasant steps.

Europe Goes from Bad to Worse

With roots going back to the adoption of the euro in 1999, the European crisis first broke into the open some 10 years later. In April 2009, the European Union told France, Spain, Ireland, and Greece to reduce their budget deficits in the wake of the credit crisis. What has since followed has been a steady stream of summits, conferences, grand announcements, protests, denials, finance mechanisms, and bailouts.

In short, what has followed has been damage control. The latest example is the drama surrounding the Spanish banking system. The cycle was a familiar one. First, the Spanish government insisted that its banks were fine and that it would never ask for nor accept a bailout. Then, the government acknowledged that some banks might need just a little help for a little while and tried to arrange to provide capital to Spanish banks through Spanish government borrowing.

That flopped. Then the government acknowledged that it would need a real bailout, and Europe responded with about 100 billion euros ($125 billion) cash. But some reports suggest that this is less than half of what will be needed to stabilize the Spanish banking system.[1]

Nor was the drama over with the announcement of the bailout. No doubt worried about Spanish sensibilities, Spanish Prime Minister Mariano Rajoy insisted that the bailout had “nothing to do” with the procedures imposed on Greece, Ireland, and Portugal when they were bailed out.

“Nicht wahr,” insisted Germany and the European Union (EU), who confirmed that the “troika” of the International Monetary Fund, the European Commission, and the European Central Bank would oversee the funds. “Of course there will be conditions” was the EU response. German Finance Minister Wolfgang Schaeuble pointed out, “The Spanish state is taking the loans, Spain will be responsible for them.… There will likewise be a troika.”[2]

The Spanish example of too-late half measures is, unfortunately, not unique. Consequently, since the crisis began Europe has clearly and substantially weakened its banking system, which is propped up only by the ephemeral elixirs of central bank cash and shaky bailouts. The periphery has sent their economies into a deflationary spiral. Many have paved a fiscal path of ever-higher debt to the point where default on sovereigns is a distinct possibility. And having long dismissed the need for fast growth in favor of public-sector intervention and distribution, governments have now discovered the need for fast growth, but they conveniently again see public-sector spending as the means.

The Threat to the U.S. from Europe

The obvious threat to the U.S. from Europe’s many crises is from a reduction in U.S. exports. According to the Department of Commerce, U.S. exports to Europe may have begun to slide as early as October 2011, as the widespread slowdown in Europe was only beginning to take hold.[3] In 2011, U.S. exports to Europe totaled $329 billion, representing about 22 percent of all U.S. exports.[4] While substantial, in a $15 trillion economy even a collapse in U.S. exports to Europe would have limited direct consequences.

The greater issue involves the effect of a deep recession and financial crisis in Europe on U.S. financial firms and markets. The 2008–2009 global financial crisis taught many important lessons about the state of modern finance. One lesson is that the global and interconnected nature of financial markets and firms means that financial shocks of a critical mass will spread far and wide.

This interconnectedness is made even more relevant because of a second lesson: No one—not the regulators, not the policymakers, and not those who run the firms themselves—fully knows the extent of the exposures and especially the structural weaknesses until the shockwave hits. In short, no one knows what no one knows—or how expensive that lack of knowledge will prove to be. Given the magnitude of the crisis in Europe, the potential threat to the U.S. is cause for real concern.

The U.S. Domestic Response: Politics Must Give Way to Growth

The U.S. domestic policy response to the building threat from Europe should be to make every possible effort to strengthen the U.S. economy and financial system in anticipation of whatever shockwaves may come from across the Atlantic.

To strengthen the economy, Congress and the President should immediately stop their posturing and politicking and disarm Taxmageddon. The threat of massively higher taxes in 2013 is already depressing economic activity and job growth. Facing the greater uncertainty about their own tax liability and about the state of the economy in 2013 if Taxmageddon strikes, firms are prudently holding back on the investments and other actions needed to propel the economy forward.[5]

The U.S. budget deficit is projected to exceed $1 trillion for the fourth straight year, adding to economic uncertainty. Congress and President Obama should defy conventional wisdom, set aside their political differences, and rein in federal spending immediately by choice rather than being eventually forced to do so, as countries across Europe have been.

Even more important, policymakers should adopt some common-sense steps that are necessary to rein in entitlement spending for the medium to long term.[6] The basic policies needed to stabilize the finances in the Medicare and Social Security programs in particular are well-understood, in many cases already tested in law, and entirely evolutionary.[7]

Finally, the uncertainty plaguing the U.S. economy is also due in part to the flood of regulations pouring or about to pour out of Washington from, among other causes, Obamacare and the Dodd–Frank financial market reforms. Even the threat of new regulations causes businesses to hesitate to make new investments, because those investments may be made obsolete or unprofitable by an unfavorable regulation.[8] Congress and President Obama should declare a regulatory cease-fire, at least until the European crisis passes and the U.S. unemployment rate approaches full employment.

The U.S. External Response: Europe Needs Credible Reform Now

Externally, the U.S. needs to change the tone and content of its message to Europe. President Obama has been urging European governments to spend more now, even as their borrowing costs and debt far exceed sustainable levels. That might save one of the continent’s tottering governments in the short run, but it would only exacerbate the economic crisis.

Europe needs structural reforms—most acutely in its labor markets—and credible plans to restore fiscal discipline. Past U.S. expressions of sympathy and goodwill should, in light of the continued, unaddressed economic threat, grow into strong urgings and demands that Europe undertake the fundamental reforms needed to restore confidence that growth can again be sustained.

Europe faces choices that are economically complex and politically difficult. It has for a decade operated under an unstable hybrid system whereby some economic and political elements have been unified across the continent, such as the euro, while others have not, such as fiscal and banking policy in addition to a patchwork political structure. This cannot continue, as European officials have come to recognize. As Europe considers its options, it is important for the U.S. to support national sovereignty and economic freedom in Europe, as these principles are ultimately in the best interests of Europe and the U.S.[9]

It is not for the U.S. to tell Europe what path to take. The people of Europe themselves, and not unelected technocrats, must decide their future. However, it is incumbent on America’s leaders to take the steps at home that are necessary to ensure that America is in as strong a position as possible to withstand any coming storm and to demand that Europe act decisively to put itself back on a path of sustainable economic growth.

J. D. Foster, PhD , is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in the Thomas A. Roe Institute for Economic Policy Studies, and Derek Scissors, PhD, is Senior Research Fellow in Asia Economic Policy in the Asian Studies Center at The Heritage Foundation.

Show references in this report

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back home they are going to Washington and cut government spending but once they get up there they just fall in line with  everyone else that keeps spending our money. I am glad that at least these 16 brave Senators voted against doing that. I wish we had some more brave Senators and Representatives up there in Washington.

Final Senate Vote on Farm Bill

Posted by Tad DeHaven

The Senate passed a nearly $1 trillion farm bill last week that would maintain the farming industry’s dependency on taxpayers and  keep food stamp spending at permanently elevated levels. Although the bill’s supporters claim that it amounts to major “reform,” the reality is that it’s just bipartisan big government business-as-usual.

The vote count was 64 to 35. All but five Democrats joined 16 Republicans in voting to pass the bill. However, it appears that many of the no votes had nothing to do with concerns about the legislation’s burden on taxpayers. Republican Senators John Boozman (AR), Saxby Chambliss (GA), Thad Cochran (MS), Johnny Isakson (GA), and Roger Wicker (MS) and Democratic Senator Mary Landrieu (LA) all issued a press release stating that they voted against the bill because it didn’t sufficiently benefit farmers in their state. It’s possible that others voted against it on grounds that the bill wasn’t big government enough.

Here are the 16 Senate Republicans (members of the so-called “Party of Limited Government”) who voted for the monstrosity:

Lamar Alexander (TN)

John Barrasso (WY)

Roy Blunt (MO)

Scott Brown (MA)

Dan Coats (IN)

Susan Collins (ME)

Mike Enzi (WY)

Chuck Grassley (IA)

John Hoeven (ND)

Kay Bailey Hutchison (TX)

Mike Johanns (NE)

Richard Lugar (IN)

Jerry Moran (KS)

Pat Roberts (KS)

Olympia Snowe (ME)

John Thune (SD)

A final note:

Farm subsidies are the quintessential example of special-interest spending. But a Washington Times article shows that even programs like food stamps have moneyed interests working behind the scenes to increase spending:

Coinciding with lobbying by convenience stores, the U.S. Department of Agriculture, which administers the program in conjunction with states, contends that disclosing how much each store authorized to accept benefits, known as the Supplemental Nutritional Assistance Program (SNAP), receives in taxpayer funds would amount to revealing trade secrets. As a result, fraud is hard to track and the efficacy of the massive program is impossible to evaluate…

Profiting from the poor’s taxpayer-funded purchases has become big business for a mix of major companies and corner bodegas, which have spent millions of dollars lobbying Congress and the USDA to keep the money flowing freely. The National Association of Convenience Store Operators alone spends millions of dollars on lobbying yearly, including $1 million in the first quarter of this year. In February, 7-Eleven hired a former aide to House Speaker John A. Boehner, Ohio Republican, to lobby on “issues related to the general application and approval process for qualified establishments serving SNAP-eligible recipients.”

My friend Steve Ellis from Taxpayers for Common Sense nails it:

“USDA hides behind a specious proprietary data argument: The public doesn’t want to know internal business decisions or information about specific individuals’ finances,” he said. “The USDA sees retailers, junk food manufacturers and the big ag lobby as their customers, rather than the taxpayer.”

Ditto the United States Senate.

Senator Mark Pryor wants our ideas on how to cut federal spending. Take a look at this video clip below:

I have faithfully sent spending cut suggestions to Senator Mark Pryor every Monday for almost a year now and at the same time I have posted all of them on www.thedailyhatch.org every monday after they have been sent electronically.

I have suggested cutting out the complete Dept of Education on several occasions.

Here are a few more I just emailed to him myself:

• Close down failed or outdated agencies, programs, and facilities, including:

1. The U.S. Geological Survey9 (2004 spending: $841 million, discretionary);10
2. The Maritime Administration ($633 million, discretionary);
3. The International Trade Commission ($61 million, discretionary);
4. The Economic Development Administration ($417 million, discretionary);
5. The Low-Income Home Energy Assistance Program ($1,892 million, discretionary);
6. The Technology Opportunities Program ($12 million, discretionary);
7. Obsolete military bases;
8. The Appalachian Regional Commission ($94 million, discretionary);
9. Obsolete Veterans Affairs facilities;
10. The Rural Utilities Service (-$1,493 million,11 mandatory); and
11. Repeal Public Law 480′s non-emergency international food programs ($127 million, discretionary)

This is how bad it is getting:

• Discretionary spending is the portion of the annual budget that Congress actually determines.
• Since 2000, discretionary outlays surged 79 percent faster than inflation, to $1,408 billion. The “stimulus” is responsible for $111 billion of 2010 discretionary spending.
• Between 1990 and 2000, $80 billion annually in new domestic spending was more than fully offset by a $100 billion cut in annual defense and homeland security spending, leaving (inflation-adjusted) discretionary spending slightly lower.
• Since 2000, all types of discretionary spending have grown rapidly.
• Overall, since 1990, domestic discretionary spending has risen 104 percent faster than inflation and defense/security discretionary spending has risen 51 percent.

Check out some of the links below: