Ron Paul’s budget cuts put U.S. on right track

Ron Paul’s budget cuts put U.S. on right track JACOB SULLUM jsullum@reason.com October 18, 2011 7:16PM Next month, the Joint Select Committee on Deficit Reduction, a 12-member subset of Congress that Congress created to make the hard fiscal choices Congress has failed to make, is expected to propose $1.2 trillion in cuts from projected spending during the next decade. This week, Rep. Ron Paul (R-Texas), who is seeking the Republican presidential nomination, unveiled a plan to cut nearly that much in 2013 alone, followed by similar cuts in the next two years, yielding a balanced budget by 2015.

The contrast between the so-called super committee’s goal and Paul’s plan shows how pathetic official Washington’s gestures of fiscal responsibility are. Paul’s detailed numbers refute the myth that the budget cannot be balanced without raising taxes while challenging his opponents to put up or shut up.

Paul’s plan not only extends the tax cuts enacted under the Bush administration; it reduces the corporate tax rate from 35 percent to 15 percent while abolishing taxes on inheritances, capital gains and personal savings. It nevertheless manages to eliminate the budget deficit within three years, largely by reducing military spending; capping most programs at 2006 levels, converting Medicaid and other welfare programs into block grants, and eliminating five departments: Commerce, Education, Energy, Housing and Urban Development and Interior.

As USA Today noted, Paul is “a longtime critic of federal spending not authorized by the Constitution” — a description that applies to sadly few members of Congress . Yet Paul’s plan would not return the country to the 1990s, let alone the 19th century. It calls for total outlays of $2.9 trillion in 2015, which is about as much as the federal government spent as recently as 2003, adjusted for inflation.

You may not agree with Paul’s priorities, but he has laid them out for all to see. Meanwhile, the vast majority of his fellow legislators continue to pretend there is no need to prioritize at all.

Consider military spending. Counting savings from ending the wars in Iraq and Afghanistan, Paul calls for $832 billion in cuts over four years, which would leave the Pentagon’s base budget in 2016 about 2 percent lower than it is now. Defense Secretary Leon Panetta, backed by both Republicans and Democrats, insists cuts of that magnitude would be “catastrophic.” Gen. Martin

E. Dempsey, chairman of the Joint Chiefs of Staff, warns that “indiscriminate cuts” would cause “potentially irrevocable wounds to our national security.”

Indiscriminate cuts may be undesirable, but so is indiscriminate spending, which is what we have now, with the United States accounting for more than two-fifths of the world’s military outlays. Budget choices should drive strategic choices, since we can no longer afford to squander defense dollars on projects that have little or nothing to do with defense, whether it’s launching optional wars or protecting rich allies that are perfectly capable of protecting themselves.

Paul’s proposed abolition of various departments, agencies and programs likewise should stimulate debate about the federal government’s priorities. Aside from carrying out the decennial “enumeration” mandated by Article I, Section 2, does the Commerce Department do anything that is constitutionally authorized, let alone essential? What about HUD? Is transportation security properly handled by the federal government or, as Paul argues, by the property owners whose interests are at stake?

These are the sort of questions presidential candidates would try to answer if they were truly determined to get our fiscal house in order.

Audit of Fed finds conflict-of-interest weakness

By Greg Robb and Ronald D. Orol, MarketWatch WASHINGTON (MarketWatch) — A long-awaited audit of the Federal Reserve’s emergency lending programs on Thursday urged several reforms, including an overhaul of the central bank’s conflict-of-interest policies.

The Government Accountability Office found that many employees and contractors of the New York Fed were allowed to keep investments in companies that received Fed assistance.

William Dudley, the current president of the New York Fed but at the time the head of its open-markets group, was granted a waiver to let him retain his shares in American International Group Inc. /quotes/zigman/557836/quotes/nls/aig AIG +1.60% and General Electric /quotes/zigman/227468/quotes/nls/ge GE -1.14% .

Emergency borrowing from Fed TOTAL (In billions) % of TOTAL Bank of America $67 6% Citigroup $58 5% Royal Bank of Scotland $58 5% Barclays $50 4% Morgan Stanley $45 4% UBS $35 3% J.P. Morgan Chase $31 3% Deutsche Bank $30 3% Wells Fargo $25 2% Dexia $23 2% Credit Suisse $21 2% Bank of Scotland* $20 2% Commerzbank $20 2% Goldman Sachs $20 2% Merrill Lynch* $19 2% BNP Paribas $19 2% Societe Generale $17 1% Wachovia* $16 1% AIG $15 1%

Norinchukin Bank $15 1% All others $537 47% Total $1,137 100% Source: Government Accountability Office report of six Fed emergency programs. Term-adjusted data. Merrill Lynch is now a unit of Bank of America, Wachovia is a unit of Wells Fargo, Bank of Scotland is a unit of Lloyds Banking Group The GAO report doesn’t specifically mention Dudley but it did provide his name to the office of Sen. Bernie Sanders of Vermont , according to the lawmaker’s spokesman, Michael Briggs.

Sanders had requested the GAO report.

In the Dudley case, the GAO said the New York Fed’s ethic’s office supported the waiver because selling the shares might have violated federal securities laws since Dudley had access to non-public information.

The GAO, a non-partisan, investigative arm of Congress, said the Dudley case highlighted the need for a comprehensive system to deal with conflicts of interest.

“Given the magnitude of the assistance and the public’s heightened attention to the appearance of conflict related to the Fed’s emergency actions, existing standards for managing employee conflicts may not be sufficient to avoid the appearance of a conflict in all situations,” the GAO said.

President Obama and House Speaker John Boehner were said to be zeroing in on a major deficit-reduction deal.

Granting waivers in a crisis “may not provide time for formal review of a potential conflict before key decisions must be made,” the report said.

A New York Fed spokesman said Dudley had purchased the shares before he joined the Fed. “Subsequent to the waiver and following his appointment as President of the New York Fed, Mr. Dudley volunteered to dispose of the shares at pre-determined dates, agreed to by the New York Fed’s ethics office. All shares have been disposed of,” the spokesman said. In another area of concern, the GAO said the Federal Reserve Board in Washington did not conduct a stress test of losses that could have occurred.

The watchdog agency also said the Fed blocked at least 30 institutions from auctions of discount-window loans, but did not always document these decisions and assure that the 12 Fed district banks applied these restrictions consistently.

Special restrictions put on two of the Fed’s 20 primary dealers were also made “on an ad-hoc” basis, the GAO found.

The Fed also extended credit on favorable terms to the London-based affiliates of a few primary dealers — Goldman Sachs /quotes/zigman/188479/quotes/nls/gs GS +0.31% Morgan Stanley /quotes/zigman/182639/quotes/nls/ms MS +0.06% , and Merrill Lynch — without ever documenting the reasons behind the decision.

ZEITGEIST ADDENDUM (FULL MOVIE!) THIS MOVIE EXPLAINS THE FEDERAL RESERVE SYSTEM VIDEO BELOW http://www.youtube.com/watch?v=1gKX9TWRyfs

END THE FED