New Movie: Toothless In D.C. - Starring B Obama!

Obama just proposed a budget that bleeds red ink (an increase of about 2% of GDP) yet he and his party did not have the guts to do the heavy lifting so he appoints a commission and hopes Republican Alan Simpson will give him cover.

GW also touched the Social Security third rail and got burned. Obama reflects what we have come to expect from politicians - they will not do what it right to head off a problem if it creates controversy. Perhaps the mid-year elections will send a chilling message to the squeamish..

Politicians always need cover before they raise taxes. They simply do not know how to spell 'spending cuts.' Democrats control both houses and yet they cannot curb their profligate and epidemic spending. No wonder millions of voters are disgusted and are marching. One just flew his plane into an IRS office. (See 1, 1a and 1b below.)

Haiti, its past and possible future direction based on its history. (See 2 below.)

Obama has achieved his bi-partisan goal but he arrived at it because his partisanship effort failed. (See 3 below.)

Russia not deterred in supplying Iran with S-300's by Netanyahu and Obama. (See 4 below.)

The Economist blames Obama not the system for many of the current political problems. (See 5 below.)


Bailing out housing in states where Democrats are in trouble is a creative/novel use of TARP Funds. It is less obvious than bailing out Sen. Nelson. On a per vote buying basis it would be cheaper to just write a check to each who vote with Obama and the Democrats. (See 6 below.)

Toothless in D.C. - a new movie starring B Obama! (See 7 below.)

But there is a way for B Obama to 'bridge it.' (See 7a below.)

Another take on the financial crisis. (See 8 below.)

Iran: I attended a lecture by a former State Department Mid Level official who now teaches at a Southern University.

His take is that Iran is nowhere near achieving nuclear status, that it would be a huge mistake for Israel to attack, that Ahmadinejad's power is flimsy because he is tethered to the Ayatollahs who rule and that about 70% of the nation is opposed to the current rulers.

He does not believe Obama will attack either and that Russia might eventually sign on with respect to sanctions and that would leave China as the sole nation in opposition and China too, in time, might cave and support sanctions.

He agrees with the general State Department concern that an attack on Iran forces a rally round the flag move which is counterproductive.

The job of diplomats is to avoid conflicts. Without being overly critical of the learned professor, his 23 years at The State Department served its purpose.

I am more of a Jingoist and Hawk and thus I would have attacked Iran years ago. (See 9 below.)

Dick


1)Obama Sets Up Debt Panel
By JACKIE CALMES

President Obama officially created an 18-member commission to propose ways by Dec. 1 to reduce the growing national debt. He named its Republican and Democratic co-chairmen as Congressional Republican leaders agreed, reluctantly, to participate in the effort.

Mr. Obama signed an executive order establishing the panel on Thursday at the White House, flanked by his choices to head the effort — Alan K. Simpson, a former Republican Senate leader from Wyoming, and Erskine Bowles, a moderate Democrat from North Carolina who was President Bill Clinton’s White House chief of staff.

“There’s some on the left who believe that this issue can be deferred,” Mr. Obama said. “There are some on the right who won’t enter into serious discussions about deficits without preconditions. But those who preach fiscal discipline have to be willing to take the hard steps necessary to achieve it.”

The Republican minority leaders, Senator Mitch McConnell of Kentucky and Representative John A. Boehner of Ohio, said in separate statements that the commission should focus on cutting spending, not raising any taxes, though they did not make that a precondition of joining the effort. Each gets to name three lawmakers, but neither is expected to do so before Congress returns from a recess next week.


Republicans had objected that the administration, by naming the commission, was trying to buy time and appear to be doing something about high annual deficits, which have become a big issue especially for independent voters, before the midterm elections in November. But they felt they had little choice but to go along given the severity of the fiscal problem and poll findings that Republicans are increasingly seen as obstructionists.

Mr. McConnell told a local chamber of commerce in Kentucky on Wednesday that “the commission approach is the right way to go,” according to the Lexington, Ky., Herald Leader newspaper. He added that it should “come up with a way to deal with our large unfunded mandate problem: Medicare, Social Security, Medicaid. We have massive unfunded liabilities because we have promised way more than we can possibly deliver.”

Besides the Republicans’ six members, the National Commission on Fiscal Responsibility and Reform also will include six lawmakers to be named by Democratic leaders, House Speaker Nancy Pelosi of California and Senator Harry Reid of Nevada. Mr. Obama is expected to name another Republican and three more Democrats, none of whom will be current lawmakers or administration officials.

That would mean a total of 10 Democrats and eight Republicans, and Republicans have complained that it is not evenly split. But administration officials note that any recommendations would have to win support from 14 of the 18 commissioners, effectively giving Congressional Republicans a veto over the final product.

Mr. Obama set no conditions on the commission, including his campaign promise not to raise taxes on households making less than $250,000 a year. Economists across the political spectrum say the debt problem is so great that it demands both long-term revenue increases and reductions in the entitlement programs — Medicare, Medicaid and Social Security — whose escalating costs are the main drivers of long-range projections of unsustainable annual deficits.

“This is not a Republican or Democratic problem – this is a challenge for America,” Mr. Bowles said.

Mr. Simpson, whom Mr. Obama described as “a flinty truth-teller,” signaled in his statement the real possibility that the commission would not succeed given the politically charged nature of the issue and the polarization in Washington.

“Whatever the results of our work,” he said, “the American people are going to know about a lot more where we are headed with an honest appraisal of our situation and the courage to do something about it.”

Mr. Obama wants the commission to recommend proposals that will balance the budget by the fiscal year 2015, not counting the unavoidable interest on the national debt. Those growing costs by themselves are expected to mean a deficit that year of nearly 3 percent of the size of the economy; that is about the maximum level that economists consider acceptable.

Also, Mr. Obama directed the commission to propose additional steps to improve the longer-term fiscal outlook. As it stands, the debt is expected to accumulate to a size equal to 77 percent of the gross domestic product by 2020.


1a)What a Difference a Year Makes
By Victor Davis Hanson


A year ago the media resonated with the celebration of democracy, grassroots pushback against the existing order, the renewal of Congress, and the novel harmony between government and the people.

Now? Suddenly all this seems to be inoperative: Our institutions are supposedly broken and fossilized, rendered so by partisanship or inherent structural problems such as filibusters. The people themselves have almost magically gone from enlightened to dense, gullible, and undeserving of their one chance at progressive salvation.

So what changed? The Obama administration offered a statist agenda of massive deficits, and it blamed Bush for America's current problems. The people revolted, and even the combined power of large Democratic congressional majorities, a ministry-of-truth media, and an Ivy League technocracy could not push through hope and change — largely due to Democratic legislators' worries that they were walking out on a plank that would soon be sawed off by the next election.

The implosion of the Obama administration is newsworthy, but not as astonishing as this petulant liberal reappraisal of both popular political participation and the structure of American government.

Given that the people apparently don't want bigger deficits, more stimulus, statist health care, cap and trade, or "comprehensive" immigration reform, and given that the most influential members of the Obama administration think the people either do or should want those things, we are apparently left with blaming George Bush, or self-righteously blaming the people for their stupidity, selfishness, brainwashing, or racism. Yet all of those assumptions only exacerbate the problem, and if continually voiced will turn a mid-term correction into an abject disaster for Democrats.

1b)The VAT Commission: Desperately seeking cover for tax increases on the middle class

A couple of trillion dollars in new deficit spending later, President Obama yesterday signed an executive order creating a Bipartisan National Commission on Fiscal Responsibility and Reform.

Yes, that's really what he called it. And you wonder why Americans are cynical about politics?

Having proposed peacetime records for spending as a share of the economy—more than 25% of GDP this year and next—Mr. Obama now promises to make "the tough choices necessary to solve our fiscal problems." And what might those choices be? "Everything's on the table. That's how this thing's going to work," Mr. Obama said.

By "everything," Mr. Obama means in particular tax increases. The President vowed in 2008 that he wouldn't raise taxes on anyone earning less than $250,000 a year, but that's looking to be as forlorn a hope as peace in Palestine.

Mr. Obama's own recent budget proposal estimates that deficits will exceed $8.5 trillion over the next decade—even including revenues from the huge tax increases scheduled for next year and other new levies that aren't likely to pass. So the President and Democrats are desperately seeking political, and especially Republican, cover to go where the big money is by taxing the middle class. The commission is a bid for that cover.

His choices as co-chairmen are a pair of old Beltway hands who are likely to oblige. Erskine Bowles is a long-time investment banker who was Bill Clinton's White House chief of staff and sat on the board of GM from 2005 until it slid into bankruptcy last year. At least he has experience with rotten balance sheets.

Alan Simpson is a former Republican Senator from Wyoming who was among the bigger GOP skeptics of tax cutting. We'll give him credit for daring to challenge AARP on entitlements during his career, but our guess is that he'll accept tax increases if Democrats agree to cut Medicare and Social Security benefits for future retirees who make more than median incomes.

The rest of the 18 commission members will be named by the four House and Senate leaders from both parties (three each) and four more by Mr. Obama. This means Democrats are likely to outnumber Republicans 10-8, which further tilts the commission toward those who want to take federal taxes from the modern average of about 18.5% of GDP to 25% or more. The real name for this exercise should be the VAT Commission, as in the value-added tax it is likely to propose.

Our advice to GOP leaders is that they select the most antitax members they can find in the hope that they will file a dissenting report. If Mr. Obama really wants to balance the budget, he and the Democrats who run all of Washington with large majorities can show their sincerity by starting to reduce spending now.

Printed in The Wall Street Journal, page A14
Copyright 2009



2)Subject: THE HISTORY OF HAITI


The best predictor of future actions is past actions; so, let's look at the past history of Haiti.
In the 1700’s what is now Haiti was called the “Jewel of the Caribbean,” and supplied about 40% of the world’s sugar.
In 1791 the government of France passed legislation to phase out slavery in its Caribbean colonies and grant the former Negro slaves citizenship. Rather than becoming citizens, Haiti’s Negro population mass murdered all whites and Mulattoes who could not flee the Island in time. In 1804 only full blooded Negros remained and Haiti became the first Negro ruled nation.

The Haitian revolution dominated America’s debate over slavery. While both the north and the south agreed that slavery should be ended, southerners and a large percentage of northerners universally opposed having a large population of freed slaves living in their midst.. The Haitian “Revolution” was fresh in every one’s mind.

Flash forward to 1915. The “Jewel of the Caribbean” is now a desolate cesspool, that is exporting almost no sugar. The United States decides to “take up the white man’s burden” and send the US Marine Corps to rebuild Haiti’s infrastructure and feed it’s starving population. The United States gave huge amounts of money to Haiti and over-saw the building of 1,000 miles of road, telephone lines, modernized its port, and helped Haiti to start exporting sugar once again. The US also put an end to the thousands of bandits along Haiti’s border with the Dominican Republic.

The US left in 1934 at the request of the then stabilized and very ungrateful Haitian government.Haiti immediately sank straight back into total desolation strife.

In 1973 the United States once again began playing a huge role in Haiti, giving the Island huge sums of money in handouts each year.

In 1994 the Clinton administration once again sent the US military to Haiti to rebuild the Island’s infrastructure.

In 1995 the Peace Corps went to Haiti in large numbers to train the Haitians in job skills. The US government spent almost one Billion providing food and job training to the Haitians between 1995 and 1999.

So when Obama says that Haiti has our “full, unwavering, support,” they have already had our full support since 1915.

3) Obama Is Already Achieving Bipartisanship
By Libby Sternberg

If his goal is truly bipartisanship, President Obama should relax. On his major policy initiatives, he's achieved it. Democrats have successfully reached across the aisle to work with Republicans to oppose initiatives such as cap-and-trade, health care reform, and now the administration's handling of terror suspects' trials.


On health care, for example, 39 House Democrats -- or about fifteen percent of the total caucus -- voted against the reform bill (final vote: 220-215 for passage). According to a chart devised by the New York Times, 24 of these Democrats are classified as fiscally conservative "Blue Dogs." The Times points out that almost all the fourteen freshmen among this group hail from districts that were previously Republican, and thus they might feel vulnerable during the coming election cycle. This could suggest that these congressmen are acutely aware of their constituents' desires.


On the cap-and-trade energy and climate change bill, the vote for passage was another close call in the House: 219-212. Again, a significant group of Democrats -- 44 to be exact -- voted against the party line, joining their Republican colleagues in a bipartisan but failed attempt to block this legislation.


Although both of these bills passed the House, they're stalled now, in no small part because of the bipartisan opposition that led to their thin margins of victory.


In the Senate recently, bipartisanship bloomed as two prominent Democratic Senators -- Blanche Lincoln of Arkansas and Jim Webb of Virginia -- joined with Independent (and former Democrat) Joe Lieberman of Connecticut and fifteen Republicans to deny funding for civilian trials of 9/11 terror suspects.


The president's ability to achieve this oppositional bipartisanship goes beyond Congress. He's managed to unite the electorate as well, bringing substantial numbers of Democrats and independents to agree with Republicans -- on opposing his agenda.


In Massachusetts, Sen. Scott Brown, a Republican, won approximately 22 percent of the Democratic vote and more than 70 percent of "unaffiliated" voters, according to Rasmussen. This in a state that went overwhelmingly for President Obama in 2008 and still had his favorability above fifty percent at the time of the election. These voters are sending to Washington a Republican senator who is explicitly opposed to health care reform as it was proposed in Congress, promising to be the 41st vote against it in the Senate.


The president and those who bemoan the lack of bipartisanship would do well to study all these examples for clues on how to craft better initiatives, rather than better photo-ops, speeches, or Q&A sessions. The problem isn't that politicians and the electorate itself lack the spirit to put team loyalty aside and cooperate. The problem is that a large number of people don't like the substance of what the president is pushing. They're perfectly willing to cooperate in opposing him.


The president seems to be defining bipartisanship as a one-way street: principled opponents dropping their legitimate concerns so as to pass the president's agenda.


Instead of viewing bipartisanship through this skewed lens, the president, along with House and Senate Democratic leaders, might want to look at the cooperative spirit of opposition and ask not what bipartisanship can do for them, but what they should be doing for bipartisanship.


Libby Sternberg is a novelist. Her latest humorous women's fiction book, My Own Personal Soap Opera (written as Libby Malin), will be released in April.

4)Russia to supply Iran with S-300 defense systems
By Reuters


Russia intends to fulfill a contract to supply S-300 air defense missile systems to Iran, Interfax news agency quoted Deputy Foreign Minister Sergei Ryabkov as saying on Friday.

Israel and the United States have repeatedly asked Russia to scrap a contract to sell Iran the truck-mounted S-300, which can shoot down hostile missiles or aircraft up to 150 km (90 miles) away.

"There is a contract to supply these systems to Iran, and we will fulfill it," Ryabkov told Interfax in an interview. "Delays (with deliveries) are linked to technical problems with adjusting these systems," he added.


He also cautioned against politicizing Russia's arms exports to Iran.

"It is absolutely incorrect to put the emphasis on the issue of S-300 supplies... and to turn it into a major problem, to say nothing of linking it to the discussion on restoring trust in the purely peaceful character of Iran's nuclear program," Ryabkov said.

The possible sale of the S-300s, which could protect Iran's nuclear facilities against air strikes, is an extremely sensitive issue in Russia's relations with Israel.

Israeli Prime Minister Benjamin Netanyahu visited Moscow this week to press the Kremlin to back tougher sanctions against Iran.

5)What's gone wrong in Washington? American politics seems unusually bogged down at present. Blame Barack Obama more than the system
The Economist

THIS week Evan Bayh, a senator from Indiana who nearly became Barack Obama’s vice-president, said he was retiring from the Senate, blaming the inability of Congress to get things done. Cynics think Mr Bayh was also worried about being beaten in November (though he was ahead in the polls). Yet the idea that America’s democracy is broken, unable to fix the country’s problems and condemned to impotent partisan warfare, has gained a lot of support lately (see article).

Certainly the system looks dysfunctional. Although a Democratic president is in the White House and Democrats control both House and Senate, Mr Obama has been unable to enact health-care reform, a Democratic goal for many decades. His cap-and-trade bill to reduce carbon emissions has passed the House but languishes in the Senate. Now a bill to boost job-creation is stuck there as well. Nor is it just a question of a governing party failing to get its way. Washington seems incapable of fixing America’s deeper problems. Democrats and Republicans may disagree about climate change and health, but nobody thinks that America can ignore the federal deficit, already 10% of GDP and with a generation of baby-boomers just about to retire. Yet an attempt to set up a bipartisan deficit-reduction commission has recently collapsed—again.

This, argue the critics, is what happens when a mere 41 senators (in a 100-strong chamber) can filibuster a bill to death; when states like Wyoming (population: 500,000) have the same clout in the Senate as California (37m), so that senators representing less than 11% of the population can block bills; when, thanks to gerrymandering, many congressional seats are immune from competitive elections; when hateful bloggers and talk-radio hosts shoot down any hint of compromise; when a tide of lobbying cash corrupts everything. And this dysfunctionality matters far beyond America’s shores. A few years ago only Chinese bureaucrats dared suggest that Beijing’s autocratic system of government was superior. Nowadays there is no shortage of leaders from emerging countries, or even prominent American businesspeople, who privately sing the praises of a system that can make decisions swiftly.

It’s alright, Abe
We disagree. Washington has its faults, some of which could easily be fixed. But much of the current fuss forgets the purpose of American government; and it lets current politicians (Mr Obama in particular) off the hook.

To begin with, the critics exaggerate their case. It is simply not true to say that nothing can get through Congress. Look at the current financial crisis. The huge TARP bill, which set up a fund to save America’s banks, passed, even though it came at the end of George Bush’s presidency. The stimulus bill, a $787 billion two-year package, made it through within a month of Mr Obama taking office. The Democrats have also passed a long list of lesser bills, from investments in green technology to making it easier for women to sue for sex discrimination.

A criticism with more weight is that American government is good at solving acute problems (like averting a Depression) but less good at confronting chronic ones (like the burden of entitlements). Yet even this can be overstated. Mr Bush failed to reform pensions, but he did push through No Child Left Behind, the biggest change to schools for a generation. Bill Clinton reformed welfare. The system, in other words, can work, even if it does not always do so. (That is hardly unusual anywhere: for all its speed in authorising power stations, China has hardly made a success of health care lately.) On the biggest worry of all, the budget, it may well take a crisis to force action, but Americans have wrestled down huge deficits before.

America’s political structure was designed to make legislation at the federal level difficult, not easy. Its founders believed that a country the size of America is best governed locally, not nationally. True to this picture, several states have pushed forward with health-care reform. The Senate, much ridiculed for antique practices like the filibuster and the cloture vote, was expressly designed as a “cooling” chamber, where bills might indeed die unless they commanded broad support.

Broad support from the voters is something that both the health bill and the cap-and-trade bill clearly lack. Democrats could have a health bill tomorrow if the House passed the Senate version. Mr Obama could pass a lot of green regulation by executive order. It is not so much that America is ungovernable, as that Mr Obama has done a lousy job of winning over Republicans and independents to the causes he favours. If, instead of handing over health care to his party’s left wing, he had lived up to his promise to be a bipartisan president and courted conservatives by offering, say, reform of the tort system, he might have got health care through; by giving ground on nuclear power, he may now stand a chance of getting a climate bill. Once Mr Clinton learned the advantages of co-operating with the Republicans, the country was governed better.

Redistricting the redistricters
So the basic system works; but that is no excuse for ignoring areas where it could be reformed. In the House the main outrage is gerrymandering. Tortuously shaped “safe” Republican and Democratic seats mean that the real battles are fought among party activists for their party’s nomination. This leads candidates to pander to extremes, and lessens the chances of bipartisan co-operation. An independent commission, already in existence in some states, would take out much of the sting. In the Senate the filibuster is used too often, in part because it is too easy. Senators who want to talk out a bill ought to be obliged to do just that, not rely on a simple procedural vote: voters could then see exactly who was obstructing what.

These defects and others should be corrected. But even if they are not, they do not add up to a system that is as broken as people now claim. American democracy has its peaks and troughs; attempts to reform it dramatically, such as California’s initiative craze, have a mixed history, to put it mildly. Rather than regretting how the Republicans in Congress have behaved, Mr Obama should look harder at his own use of his presidential power.

6)Obama homes in on TARP funds
By: Carol E. Lee and Kasie Hunt


While he’s visiting the state with the highest foreclosure rate in the nation Friday, President Barack Obama plans to announce a proposal to take $1.5 billion in funds originally designed to assist ailing banks and instead use the money to help the hardest-hit states stem the housing crisis, according to senior administration officials.

The proposal to redistribute money from the Troubled Asset Relief Program will benefit the five states with the steepest declines in home prices: Nevada, California, Florida, Arizona and Michigan.

Obama’s announcement comes as he’s in Nevada to boost Senate Majority Leader Harry Reid, who is facing a tough reelection campaign this year. The proposal, which targets homeowners, is likely an attempt to quell some of the voter rage over taxpayer-funded bailouts of banks, a sentiment that runs across Nevada, where the unemployment rate is 13 percent.

"As we think about the actions that the government takes here,” a senior administration official said, “there are some things we can do; there are a whole lot of things that we can't and shouldn't do with taxpayer money. And I think that getting that balance right is something that the president will talk a little bit about tomorrow."

The timing of the announcement, which Obama will make at an event with Reid, seems designed by the White House to bolster the beleaguered Nevada Democrat.

“Sen. Reid has been, as everyone knows, a big leader on housing and many of these issues, and this is a program that he really pushed for as well,” another senior administration official told reporters in a background briefing call Thursday. “So everybody should note that as they're reporting on this overnight.”

Information about Obama’s plan was embargoed until 6 a.m. Friday. Reporters were briefed Thursday by a senior administration official who said the White House is “very relieved that we are in a dramatically different place today, where we have very significant stabilization in prices across most of the country.”

The program Obama will announce is intended to help address “urgent problems,” with the specific goal of helping people who are sitting in houses that are worth less than is owed on them, the first senior administration official said.

The five states eligible for the funds have all seen a more than 20 percent decline in housing prices, the official said. The official also said the money will not be divided equally among the states but, rather, allocated based on the state's price decline and unemployment rate.

And unlike the $23 billion that the Federal Reserve recently provided to state housing authorities, states receiving this money are not expected to pay it back, the official said.

7)A Toothless Commission On Spending Is No Substitute for True Leadership

The recent debt limit increase passed by Congress [2] has sparked a national debate on how to adequately reverse out-of-control federal spending. After much congressional hand-wringing recently over what budget process reform to attach to the must-pass increase in the debt ceiling, support for a bipartisan commission crafted by Senate Budget Committee leaders Kent Conrad (D-ND) and Judd Gregg (R-NH) [3] crumbled. Lawmakers realized that the framing of the commission would most likely lead to tax increases with little real spending restraint with the same back-room deals of which Americans have become weary.

Just this morning, the President signed an executive order creating the National Commission on Fiscal Responsibility and Reform [4], which will operate similarly to the failed Conrad-Greg proposal except that it would be set up by the White House rather than by statute. The goal of the commission is to balance the budget, excluding interest payments, by 2015. The commission will also be expected to make recommendations regarding entitlement reform in order to rein long-term deficits.


The National Commission created by the President raises concerns beyond those of the Conrad-Gregg proposal, especially since the President’s proposal is even further from securing the public’s trust and taking into account public opinion on future reform.

The White House commission lacks the necessary broad public consultation and steps to gain public support essential to achieving and sustaining major reforms in entitlements [5]. The deadline for the commission’s recommendations, December 1, thoroughly discounts public opinion, as the date conveniently ensures the recommendation will not affect November elections. This also means lame duck members of Congress who have lost their seats and are no longer held accountable to their constituents will vote on the recommendations of the commission, which will be seen by many Americans as an affront to the will of the people as expressed at the polls.

The structure of the National Commission is also likely to strain bipartisanship. The commission will consist of 18 members, and 14 votes will be required to vote a recommendation out of the commission. Congressional Majority and Minority leaders will respectively choose six members, and the President will choose the remaining six. Of the President’s appointees, two must be Republicans. The President will without doubt choose Republicans who are likely to fall in step with his vision for reform [6], leaving only two additional Republican votes needed to pass a recommendation.

As we’ve pointed out before [7], an executive commission with no teeth to tackle surging entitlement spending will merely remove pressure on Congress and the President to take true action. This past year saw spending explode to nearly 26 per cent of the economy – well over the 20% historical average – and with a staggering deficit of $1.4 trillion, or nearly 10 per cent of GDP. President Obama can show true leadership by proposing serious and specific reforms to entitlement spending [8], and he can start to get current spending under control by such things as canceling TARP. But issuing an executive order to assemble a group of tired lawmakers to do the job for him is not the action of a decisive leader and will not produce effective results.


7a)How Obama Should Shrink His Deficit: For one thing, cut the remaining 'stimulus' spending
By MARTIN FELDSTEIN

President Obama declared in his budget message last month that "it's time to live within our means" and to stop "borrowing against our children's future." Unfortunately, his budget would move us away from that goal by adding trillions of dollars to our national debt over the next decade.

The administration's projected $18.5 trillion debt in 2020 would be more than double the size of the debt when Mr. Obama took office. The annual interest on that debt would exceed $800 billion, requiring a 36% rise in the personal income tax just to pay that interest.

Mr. Obama complains about the problems he "inherited." But the key to shrinking the nearer term deficits is to avoid his costly new initiatives. The most expensive of these is the tax cuts and income transfers to low- and middle-income households that would cost some $3.1 trillion over the next decade.

The proposed tax cuts include the Making Work Pay plan, a refundable tax credit targeted at individuals earning less than $13,000 a year. Since many of those individuals owe no tax, this "tax cut" just becomes a new government transfer.

Also hidden in the vast budget document is a repeat of the president's plan to spend a trillion dollars over the next decade to expand Medicaid and provide subsidies for health insurance. It doesn't reach the bottom line because equally well hidden is the trillion dollars of tax increases and Medicare cuts to finance the extra spending. Dropping that spending would cut the national debt by a trillion dollars.

The president has emphasized his proposal to freeze for three years the current $437 billion of spending on discretionary nondefense programs. The administration's budget indicates that this would reduce outlays by a total of $49 billion over three years. This is a trivial cut relative to this year's $3.7 trillion projected outlays.

But even the small projected three-year saving may never occur, since the proposed freeze would apply only to the total of the nondefense programs and not to each program separately. Because Congress does not legislate all of that spending in a single bill, it would be virtually impossible to control the total even if the president is prepared to use his veto authority.

Mr. Obama's proposed freeze does not apply to the big backdoor spending routes: increases in "mandatory" spending programs and new tax rules that substitute for increased government spending. The president's proposal to increase the Medicare drug benefit would therefore not be part of the freeze because Medicare is a "mandatory" program. Similarly, the president's plan to increase funds for child care wouldn't be covered by the freeze because it would be done by changing tax rules. If the president tries to revive his trillion-dollar health plan, that would no doubt be done as a new "mandatory" entitlement.

Future deficits could be reduced not only by rejecting the Obama plans for new transfers and low-income "tax cuts," but also by canceling some of the future transfer payments that were enacted in last year's "stimulus" plan. Despite the hype about shovel-ready projects and new green energy initiatives, the Congressional Budget Office (CBO) reports that the stimulus bill paid for only $5 billion of Transportation and Energy Department spending in fiscal year 2009 and will now pay for only $20 billion in 2010. Most of the stimulus spending is just transfers to state governments and to individuals.

Moreover, the CBO projects that $289 billion of the "stimulus" money will be spent in 2011 through 2019, years when the administration projects the economy will be growing at an above-trend rate. Much of that spending will be on health care, food stamps and other transfer programs that have nothing to do with stimulating a growing economy. The out-year fiscal deficits could be cut by $100 billion or more by repealing some of the $289 billion of future outlays.

But the biggest potential for reducing the out-year deficits without raising marginal tax rates or taxes on business is to limit the growth of the special tax provisions that substitute for spending programs. The recent Senate debate about the exclusion from taxable income of employer-provided health insurance showed the potential importance of such "tax expenditures." That exclusion reduces income and payroll tax revenue this year by more than $200 billion. Just stopping the projected rise in that tax expenditure could reduce the 2020 national debt by more than $1 trillion. Limiting other tax expenditures could cut the 2020 debt by additional hundreds of billions of dollars.

Unfortunately, the Obama administration has focused its deficit reduction measures on raising tax rates on businesses and high-income individuals. The proposed tax hike of more than $1 trillion over the next decade would hurt incentives, hurt the recovery, and hurt the economy's long-term growth.

Fortunately, the Obama budget is not the law. It's up to Congress now to slow the growth of the nation's debt and to do so without the damaging effects of higher marginal tax rates.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, is a professor at Harvard and a member of The Wall Street Journal's board of contributors.

8)Complex Loans Didn't Cause the Crisis: And Obama's Consumer Financial Protection Agency wouldn't protect us from another one
By TODD ZYWICKI

Regulatory reform that can improve competition and consumer choice in financial services is long overdue. But no new federal bureaucracy such as the Obama administration's proposed Consumer Financial Protection Agency (CFPA) is needed to bring that about.

More importantly, the administration is incorrect in claiming that such an agency would have prevented the present financial crisis and is necessary to prevent the next crisis. On the contrary, such an agency might be the first step toward more problems.

During the housing boom bankers made a raft of extraordinarily foolish loans. Some were the result of lenders defrauding borrowers; probably at least as many were the product of borrowers defrauding lenders. But there is no evidence, as Elizabeth Warren (a champion of CFPA and chair of the TARP Congressional Oversight Panel) recently asserted on these pages, that lender fraud was the overriding cause of the crisis.

The bank loans were not foolish because borrowers didn't realize what they were doing. They were foolish because of the incentives they created for borrowers, especially when housing prices turned south.

There were three distinct stages of the housing crisis. In the first, the Federal Reserve's extremely low interest rates from 2001-2004 induced consumers to switch from fixed to adjustable rate mortgages and drew short-term speculators and house-flippers into the market in certain cities. The Fed's increase in short-term interest rates over the next two years increased homeowner payments and precipitated a round of defaults.

My own research confirms the analysis provided by University of Texas economist Stan Leibowitz on these pages last July: The initial onset of the foreclosure crisis was a problem of adjustable-rate mortgages, whether prime or subprime. It was not initially a subprime problem.

In the second phase, falling home prices provided incentives for owners whose mortgages were under water to walk away from their houses. And in the third phase, which we are now experiencing, traditional macroeconomic factors like unemployment led to more foreclosures—especially where homeowners' mortgages are already underwater. Reflecting this situation, the Mortgage Bankers Association reports that the fastest-rising segment of foreclosures in recent months has been traditional prime, fixed-rate mortgages.

None of this analysis has anything to do with fraud or consumer protection problems. Consumers rationally switched to adjustable-rate mortgages when their prices fell relative to fixed-rate mortgages—a pattern that has repeated itself numerous times since the 1980s. And when housing prices fell, underwater homeowners rationally responded by walking away from their houses. The proliferation of mortgages with minimal downpayments, interest-only or even negative amoritzation terms, and cash-out refinances meant that many consumers fell into negative equity territory much more rapidly than they would have otherwise.

Regulators may want to limit mortgages that provide so many borrowers with such strong incentives to walk away when housing prices fall. They may want to prohibit lenders from making loans with minimal downpayments or interest-only loans that result in consumers having minimal equity in their homes. But that's an issue of safety and soundness, not protection against fraud. With respect to ARMs, the obvious solution is a less-erratic Federal Reserve interest rate policy. ARMs have been in widespread use for 25 years (and are common in the rest of the world) without mishap like in the current cycle.

So the problem isn't consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well.

It is worth remembering that, although the banking crisis was a national crisis, the foreclosure crisis is concentrated in four states—Arizona, California, Florida and Nevada—that comprise almost half of the mortgages in foreclosure. Even within those states, foreclosures are concentrated within a handful of hot-spots such as Las Vegas, Miami, Phoenix and the Inland Empire region of California. It is unlikely that borrowers in these cities are more gullible than borrowers elsewhere. Evidence does suggest, however, that there were a larger number of speculators and home-flippers in those cities than elsewhere.

This is not to deny that we are overdue for a comprehensive reform of consumer credit regulation. Over the years, federal laws governing disclosures have become encrusted with an ever-thickening coat of litigation- and regulation-imposed barnacles.

One example, according to Federal Reserve economists Thomas Durkin and Gregory Elliehausen in a book to be published this year, involves the Truth in Lending Act, which has grown from a simple effort to standardize disclosures on consumer credit to a morass.

Regulatory mandates and lawsuit fears are largely responsible for the mind-numbing length of a typical credit-card agreement and monthly statement. The most recent mandate-induced clutter requires the monthly statement to disclose how long it would take to repay the balance by making the minimum payment while making no new charges. According to a Federal Reserve Study by Mr. Durkin, only 4% of consumers would even consider this option.

Similarly, a 2007 Federal Trade Commission staff report by economists James Lacko and Janis Pappalardo documented the convoluted nature of current mortgage disclosure rules (which fail to convey key costs) and presented prototype disclosures that significantly improved key mortgage cost disclosures. Yet such common-sense proposals remain buried in the bureaucracy.

What's needed is simplified and streamlined regulation, not another agency.

Policies based on a misdiagnosis of the true nature of the problem might actually lay the seeds for the next crisis. For example, Ms. Warren rails in her op-ed about "tricks and traps" such as "universal default" provisions in credit-card contracts, where a failure to pay one credit-card bill can trigger a default on another one. Yet it is obvious that a consumer's failure to pay some of his bills provides valuable information about the likelihood of default on his credit-card bill (universal default provisions are common in commercial loans for this reason).

Thus a lender's elimination of universal default will have to be offset by higher interest rates or fees. To the extent that a CFPA makes access to credit cards less available, excluded borrowers will inevitably shift to more expensive alternatives such as payday lending or pawn shops. If the CFPA were to impose bans on efficient risk-based pricing by lenders in the name of vague claims about "fairness," the likely result will be to increase overall risk and make the next financial crisis more likely.

The financial crisis resulted primarily from the rational behavior of borrowers and lenders responding to misaligned incentives, not fraud or borrower stupidity. Policies that fail to appreciate the difference will not protect, and may hurt, the very consumers they are intended to protect.

Mr. Zywicki is a law professor at George Mason University and a senior scholar at the Mercatus Center. This op-ed is based in part on a Mercatus working paper, "The Housing Market Crash."

9)Obama and Iran: Engagement has failed. The President needs a new strategy.

These have been busy days for Iran's leadership. On January 28, the regime hanged two government opponents and sentenced 10 others to die. It has arrested and jailed some 500 opponents since December. Last week, it shut off access to Gmail and Google Buzz, as it already has done with Twitter, to prevent opposition forces from organizing. On the 31st anniversary of the Islamic Revolution, it jammed the streets of Tehran with supporters and security forces. Oh, and Mahmoud Ahmadinejad announced that Iran has begun enriching uranium to 20% purity, making it a "nuclear state."

Maybe now we can all agree that "engagement" with Iran has failed. So where does the Obama Administration go from here? It seems to be moving on multiple, not always coherent, fronts.

Last Wednesday, the Treasury Department imposed sanctions on a commander of Iran's Revolutionary Guards Corps along with several IRGC-related companies said to be involved in WMD programs. And this week, Secretary of State Hillary Clinton warned that Iran may be evolving into a military dictatorship, with the Revolutionary Guards essentially running the show.

The U.S. is also trying to get the U.N. Security Council to agree to a new round of sanctions on Iran, over continued Chinese opposition. A Western diplomatic source tells us we can probably expect another essentially symbolic U.N. resolution in the coming weeks.

Then there is Congress, which in the past two months has voted overwhelmingly for legislation that targets companies doing energy business with Iran. The two bills must now be reconciled, but the State Department has previously sought to postpone the measures on grounds that they would constrain its room for diplomatic maneuver and could hurt the Iranian people.

Our sources tell us the Administration may now reluctantly be willing to let Congress play bad cop as it pursues its sanctions options at the U.N. and, separately, with the Europeans. That's fine as far as it goes, and we hope the Administration understands that the Congressional bills would also have a major impact on the Revolutionary Guard, which dominates Iran's energy business and takes a huge cut from the $6 billion-plus annual gasoline trade, according to the Foundation for Defense of Democracies.

Then again, we doubt even this Administration thinks that these sanctions alone can alter the regime's behavior, much less force its collapse. Instead—and in the absence of a credible threat of the use of U.S. military force—the Administration seems to be gambling its Iran policy on a set of assumptions that look increasingly wishful.

One of these assumptions is that there may still be a "grand bargain" to be struck with the Iranian leadership, notwithstanding its refusals to do so last year amid President Obama's overtures. The Administration also allowed itself to imagine that Iran's protest movement would force the regime to take a more conciliatory nuclear line. It seems to have done the opposite.

Another assumption is that Iran has encountered serious technical difficulties in its nuclear program, out of some combination of incompetence and perhaps sabotage. We certainly hope that's true. But the driving fact is that Iran seems to have repeatedly surmounted these obstacles over the years, and last year it surprised U.N. inspectors by producing more low-enriched uranium than anticipated. Enrichment only becomes easier as it moves to higher states of purity. And yesterday, the U.N. nuclear agency said it is worried that Iran may already be working on a nuclear warhead.

Then there is the whispered assumption that a nuclear Iran would be "containable." But leaving aside the view that a religiously fanatic regime can never safely be trusted with a bomb, a nuclear Iran would open the Pandora's box of nuclear proliferation in Saudi Arabia, Egypt and Turkey. For an Administration that has made nuclear nonproliferation a centerpiece of its agenda, allowing Iran to go nuclear would seem an odd way to advance that goal.

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All of this suggests the need for a new U.S. strategy that drops the engagement illusion and begins to treat Iran as the single biggest threat to Mideast and U.S. security. Sanctions can be part of that strategy, but they will need to be more comprehensive than anything to date. They must also be ramped up rapidly because they will need time to be felt by the regime. The U.S. should give up on the U.N., which will only delay and dilute such pressure, and build a sanctions coalition of the willing.

The U.S. can also speak and act far more forcefully and clearly on behalf of Iran's domestic opposition. The regime's recent crackdown suggests that the chances of regime change in the near term are remote, but popular animosity against Iran's rulers still seethes underground. The U.S. should assist that opposition in any way it can, especially with technology to help communicate with each other and the world.

Finally, the option of a military strike will have to be put squarely on the table. Sanctions have little chance of working unless they are backed by a credible military threat, and in any case Israel is more likely to act if it concludes that the U.S. won't. The risks of military action are obvious, but the danger to the world from a nuclear Iran is far worse.

After a year of lost time, Mr. Obama needs to put aside the diplomatic illusions of his campaign and make the hard decisions to stop the Revolutionary Guards from getting the bomb.

Printed in The Wall Street Journal, page A14