Paul vs. Paul: Popular Economic Minds Debate on Bloomberg TV

Ok economic enthusiasts (I’m careful not to say "geeks" here), here is your Super Bowl. Famed libertarian Rep. Ron Paul against popular economist, author and left-leaner Paul Krugman on Bloomberg TV yesterday. In the comments section, let us know who you think wins this debate (and why) on the Federal Reserve and government’s role in the American economy.

Government Makes Money that Nobody Wants

Few days go by when one fails to hear something of significance when listening to NPR. But this story goes beyond the normal good work, highlighting the federal government’s wasteful production of $1 coins that primarily sit under heavy guard in Federal Reserve vaults.

Unused dollar coins have been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.

And even though the neglected mountain of money recently grew past the $1 billion mark, the U.S. Mint will keep making more and more of the coins under a congressional mandate.

The pile of idle coins, which so far cost $300 million to manufacture, could double by the time the program ends in 2016, the Federal Reserve told Congress last year.

A joint inquiry by NPR’s Planet Money and Investigations teams found that the coins are the wasteful byproducts of a third, failed congressional effort to get Americans to use one-dollar coins in everyday commerce.

In 2005, Congress decided that a new series of dollar coins should be minted to engage the public. These coins would bear the likeness of every former president, starting with George Washington. There would be a new one every quarter. So, far, the Mint has produced coins through the 18th president, Ulysses S. Grant.

Members of Congress reasoned that a coin series that changed frequently and had educational appeal would make dollar coins more popular. The idea came from the successful program that put each of the 50 states on the backs of quarters.

Farra: Thoughts on Recent Market Turmoil

While we can’t make a prediction with 100% certainty, we can assign probabilities to the next trend for the U.S. stock markets. The major U.S. market indexes (Dow Jones 30, S&P 500 and NASDAQ Composite) all reached new highs for the rally on or about April 28.  Additionally, technical indicators of the market’s underlying health were all strongly positive as well. The correction that has ensued since April 28 has erased between 9% and 11% of the averages’ value. In a less tumultuous time, this kind of performance would be seen as a normal correction and not the start of a new bear market.

There are two root causes for the stock markets’ performance since the end of April:

  1. The U.S. market had not experienced a 10% correction since the start of the new uptrend in March of 2009. We saw two corrections (in June 2009 and January 2010) that declined less than 9% on both occasions. The selling was less intense than of late and the markets quickly rebounded from their lows. This correction probably marks the end of the first stage of the new bull market, where nearly all stocks — regardless of size or quality — go up. The second stage will see more selectivity among investors and moderating returns compared to the past 14 months.
  2. The Greek debt crisis and fallout among other members of the Euro currency zone has reminded investors that risk still exists in the debt markets. The U.S. experienced a private debt crisis in 2007-2008 when the mortgage market imploded and caused several large financial institutions to fail or need significant government help to stay afloat.  The Euro crisis is a government debt issue with Greece being unable to sell new debt without the explicit guarantee of the European Central Bank (akin to the Federal Reserve). This rescue package was announced two weeks ago but has yet to allay fears that more trouble may be brewing for Greece, Portugal, Spain and Italy. We think the rescue package has been effective by bringing down interest rates for all four countries though significant work remains to be done to reduce their budget deficits without causing major recessions in those countries. (This is something all governments need to do!)

A silver lining to the decline of the past few weeks is oil prices have declined from almost $90 to $70 per barrel. Look for lower gas prices as a result. Interest rates have also declined as investors have fled to Treasuries as a safe haven.  Mortgage rates will likely decline as well. Finally, the U.S. economy may have finally entered a durable recovery and this momentum is hard to reverse in a short period of time.

Investors can expect that volatility could remain elevated over the next few weeks or months as more news coming out of Europe could influence opinions about the impact on U.S. economic growth.


George Farra is co-founder and principal of the investment firm Woodley Farra Manion Portfolio Management in Indianapolis.

Not Worth the Paper They’re Printed On?

Legislators take a beating (some of it deserved) at all levels for some of the bills and resolutions they consider that either have little to do with good government or have about as much of a chance at becoming law as I do of starring in the next James Bond movie., which reports on the developments and shenanigans in our nation’s capital, pointed out recently that more than 11,000 bills were filed in 2007-2008, with 460 signed into law. That’s a 23-1 ratio. It went on to compile a list of what it terms "10 hopeless bills." 

A few selections from its list:

Congressional alternates (Rep. Dana Rohrbacher, R-California). Since the terrorist attacks of Sept. 11, 2001, Rohrabacher has tried to address inadequacies in Congressional succession. Nine years later, the lawmaker continues to keep up the pressure. Rohrabacher’s bill would require the election of an alternative representative or senator during a regular Congressional election. Each candidate would chose his or her alternate, who would then discharge the duties of an acting Member in absence of a Congressional quorum for three days. An alternate could also become an Acting Member if an elected representative or senator died, resigned or was expelled from Congress.

Presidential succession (Rep. Brad Sherman, D-California). Since the 107th Congress, which spanned 2001 to 2002, Sherman has introduced bills to reform presidential succession. In Sherman’s last attempt in 2007, his bill would have modified the presidential succession list to include the Secretary of Homeland Security, the Ambassador to the United Nations, the Ambassador to Great Britain, the Ambassador to Russia, the Ambassador to China and the Ambassador to France.

Three-term presidents (Rep. Jose Serrano, D-New York). Since 1997, Serrano has introduced a joint resolution every Congress — a grand total of seven times — that would repeal the 22nd amendment, thereby removing the current limit of two terms that individual may serve as president. The 22nd amendment, which was ratified in 1951, restricts a president from seeking a third term in office.

Abolishing the Federal Reserve (Rep. Ron Paul, R-Texas). This bill would abolish the Federal Reserve’s board of governors and the 12 regional Federal Reserve Banks, all of which provide input to the central bank on federal monetary policy decisions. If enacted, the legislation would also repeal the Federal Reserve Act, which in 1913 set up the bank as the fiscal agent of the federal government. In effect, the legislation would restore the U.S. to a system of entirely private banking.

The Department of Peace (Rep. Dennis Kucinich, D-Ohio). This is Kucinich’s third attempt at establishing the Department of Peace as a Cabinet-level position which would pursue peace as a national policy objective and promote nonviolent conflict resolution. To that end, Kucinich’s bill would create eight separate offices within the Department of Peace, including the Office of Peace Education and Training and the Office of International Peace Activities.

In the event of violent conflict resolution, the department would consult with the secretaries of defense and state. Certain functions that already exist within the federal government would also be transferred to the new department, such as the State Department’s arms control operation. The department would be led by the Secretary of Peace who, in addition to leading the agency, would be responsible for creating and successfully implementing a "Peace Day" holiday.

In his 13 years in Congress, Kucinich has crafted his image by laying down the liberal gauntlet. Of the 97 bills that the lawmaker has introduced, only three have made it out of committee and gone onto become law.