To anyone who remembers the golden 90’s, one is struck by the differences with our currrent circumstances.  In the 90’s, we had the Peace Dividend with the fall of Communism and a general rightward tilt in terms of economic freedom worldwide, the elimination of the S&L Crisis, the development and dispersal of a wide variety revolutionary new technologies in the Internet, cell phones, computing and medicine, and conclusion of the Uruguay round of world trade talks which set the stage for globalization.  In other words, there were gale force tail winds which Clinton expertly sailed.  These tail winds allowed him to raise taxes without killing the golden goose.  In fact that was a prudent tightening of fiscal policy for the time as it helped reduce the level of growth that otherwise would have taken place and helped keep inflation from getting out of hand.

The economy, with such strong underpinnings, succeeded wildly DESPITE the tightening of policy that tax increases represented. Demunists like Hoyer for some reason believe that higher taxes CAUSED the prosperity of the 90’s.  A stunning misreading of history for one at the highest levels of policy making in our great country, and one that sadly pervades the Democratic worldview.

Now fast forward to today.  I will agree for the sake of argument with the left that the Iraq war, while it had the positive benfit of ridding the world of Saddam Hussein, was nevertheless ill-considered in that it enatngled us for years in the middle east with great cost and with an arguably deleterious effect on our standing with many friends and foes, with whom we now find ourselves at a loss of traction on subsequent issues ranging from sanctions on Iran to combatting terrorism and many others.  Economically the problem is that it just costs alot and thus increases pressure on the federal budget and hence on the need to raise taxes.  In so many other ways the current situation also differs from the 90’s.  Rather than Tail Winds we have gale force Head Winds.

First is obviously the epochal credit crisis and its aftermath.  Rather than being on the cusp of a great surge of global wealth creation, as we were in the 90’s, we have just witnessed spectacular wealth destruction.  Demographically we are on the cusp of a bubble of retirement and have promised the retirees massive state pension support in the form of social security and medicare.  Foolishly, as is usually the case with Washington, the age for retirement was not indexed to life expectancies, which have lengthened greatly since the programs were enacted.  So we now can expect to pay many more years of benefits to tretiress than was contemplated at program inception.  Other head winds include the fact that there are increasing numbers of religious fanatics who want to end the way of life of the West.  The general tilt of politics has been towrd less freedom rather than greater for the last 5 years globally.  It would take years to overcome these head winds under the best circumstances.

But of course America elected Barack Obama and a Democratic congress.  So we are not going to have the best circumstances for growth.  Instead we have people who believe that raising taxes will somehow spark risk taking.  It won’t.  We have people who believe that more regulation will spark risk-taking.  It won’t.  We have people who believe that it is a good idea to send 100s of Billions of Dollars to the third world to atone for climate changed caused by our past development and as if that wasnt bad enough, to double the cost of energy to our own economy and then try to tell us that there will be a net benefit in the form of “green jobs”.  There won’t.

Will raising taxes and returning to the glorious Clintonian past by tightening fiscal policy be the right prescription in the current circumstances where we have Head Winds rather than Tail Winds?  It won’t.

One of the main tenets of Commocratic health care is the mandate that ALL Americans purchase health insurance or face fines.  Whether you have purchased a qualifying plan or not and thus whether you must pay a fine or not will be tracked by the IRS.  Putting aside for a minute the outrageous invasion of privacy that will result from the IRS having godlike powers to inspect our personal lives,  this will mean for many people that they will be subject to tax penalties when they cannot afford the mandated insurance.  And of course, once they cannot pay these taxes, they will have usurious additional penalties piled on top of those.  The IRS makes credit card companies look like pussycats when it comes to tacking on fees and penalties for non-compliance.  And in the end, the IRS will put a lien on your house and you may lose your home.   Not a nice result.

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By now many people are familiar with the minor uproar caused when Rick Santelli of CNBC directed a bit of criticism (click for the video) directly at President Obama over his Homeowner Affordability and Stability Plan.   I have seen three members of the Administration come out to address this.  First was Jared Bernstein, who basically just said it would not help house speculators or flippers, but failed to address the nub of the issue.  Second was Robert Gibbs, the White House Press Secretary.  He used the imprimatur of the bully pulpit to imply that Mr. Santelli was uninformed about the plan.  Third I saw some pimply faced kid claiming to be the HUD Secretary who got even more snippy, saying things like “perhaps Mr. Santelli is not aware there is a crisis going on” and such.

What is the nub of the problem with the Presidents plan?  The real problem is that the government seems to be proferring, through the Homeowner Stability Initiative, help to people who used the most outrageous kinds of mortgages to reach for homes they could not really afford and thus helped drive prices out of reach for those who saw the wisdom in not signing up for things like negative amortization because they had some inkling that might not be a good idea.

Mr. Gibbs seems to say in his response (click here for video) (or click here) that the plan “won’t help somebody who has long ago known they are in a house they cannot afford”.  He also derisively chides Mr. Santelli for not reading the presidents plan, and suggests he “download it, hit print and begin to read it”.

Well I have read what the White house has made available.  In Section 2 of the Executive Summary (Section 2A of the Fact Sheet)

… millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly if they received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative operates through a shared partnership to temporarily help those who commit to make reasonable monthly mortgage payments to stay in their homes …

The plan will do this by either having the lender reduce the interest rate or the principal (for 5 years) until the monthly mortgage payment reaches 31% of the borrowers monthly income.  In addition, the homeowner can get $1,000 per year for 5 years as incentive to stay current.  There are also some cash incentives for lenders.

So let me add a couple of examples that did not appear in the Housing Example Sheet provided by the White House.  I bought a house in Chicago in 2004 that WAS within my means.  It has a nice southern view, but to the north my neighbor is a chicken plant that makes a lousy neighbor.  But my payment is comfortably below 31% so presumably I do not qualify for assistance under the President’s plan.

I COULD have bought a place down by Lake Michigan if I had taken full advantage of something like a negative amortization mortgage where I only had to make partial interest payments (or if I had a “friend” like Tony Rezko to help me “find” a great property at a reasonable price as President Obama did, but alas I did not).  If I had done that, I would now be in a really beautiful home, but I would be staring down the barrel of the foreclosure gun…or would I?  Hey I would qualify for the President’s Plan!!!

So what happens to someone else just like me who bought their family the big house down by the lake?  Well hey, their monthly payment is probably 45% of their monthly income now that that low interest only payment has started to include all of the interest and some principal!  But here comes President Obama’s Homeowner Stability Initiative to help them stay in their home and reduce their payment back to 31% of their income!!!    Yeah!!!  They get to keep their awesome house near the lake while I as a result of my “prudence (stupidity?)” have to live 5 miles away from the lake near a chicken plant!  Bwah-ha-ha-ha-ha, what a chump.

Perhaps Mr. Gibbs and his master have forgotten the principal that underlies the American system of justice.  That principal is a principal of fairness; it is that similarly situated people be treated similarly under the law.  What the President is proposing is to treat similarly situated people differently under the law.  Not only that, but he proposes to treat the irresponsible people more generously than the responsible people.

Robert Gibbs is thus just lying when he says that the President’s plan will not help people who long ago realized they were in a house they could not afford.  He is at best misleading when he says that the Homeowner’s Stability Initiative will only help people who played by the rules.   The plan will use my tax dollars to help people who, while they technically might be said to have played by the rules, should have known better.   It is right there in the documents he chided the (sneer) derivatives trader to read.  Rick Santelli (who is a reporter on derivatives traders, not a derivatives trader – actually he reports on the bond market, something with which el Presidente will become familiar as rates explode due to the idiotic American Recovery and Reinvestment Act or stimulus plan but thats another story) is right to be outraged.  The Homeowners Stability Initiative will be outrageously unfair.  President Obama, are you listening ?

The counter-counter argument is that by doing what the fed did yesterday, which commentators have described as the equivalent of not having a meeting at all, the dollar is again getting crushed and commodities are blowing the doors and windows out, so the general economy is going to actually be shot in the back of the head and toppled into the freshly dug hole.  That is, inflation and inflation expectations will now become firmly entrenched (they already have, but the boneheads at the fed have not admitted it yet).

Now consider the fact that we are on the verge of having federal promises to pay things like medicare and social security balloon out of control – even if assumptions of strong growth come true – which see,ms unlikely.  So either the government will have to lie to the body politic even more than it does now to even have a shot at meeting the social policy promises it has made, or it will have to break the promises.

It reminds me of Alan Guth’s cosmological theory of inflation, which posits that the early universe expanded by trillions and trillions of orders of magnitude in an infinitesimally short period of time.  If the government acknowledges the real rate of inflation, its obligations will also undergo an inflation that will boggle the mind and potentially destroy the great American experiment.