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Alternatives to Obamacare

Friday, July 26th, 2013

As Obamacare looks more and more as though it will collapse, there are some alternatives beginning to appear. Several years ago, I suggested using the French system as a model. At the time, the French system was funded by payroll deduction, a source affected by high unemployment, and used a national negotiated fee schedule which was optional for doctors and patients. The charges had to be disclosed prior to treatment and the patient had the option of paying more for his/her choice of physician. Privately owned hospitals competed with government hospitals and patient satisfaction was the highest in Europe.

Recently the French system has run into trouble.

French taxpayers fund a state health insurer, “Assurance Maladie,” proportionally to their income, and patients get treatment even if they can’t pay for it. France spends 11% of national output on health services, compared with 17% in the U.S., and routinely outranks the U.S. in infant mortality and some other health measures.

The problem is that Assurance Maladie has been in the red since 1989. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget.

This may be due to several factors. The French economy is in terrible shape with high unemployment. More of the funding for the health plan is coming from general revenues. This was not how it was supposed to work. It was payroll funded, much as the German system is, with a wider source than individual employers. This allows mobility for employees and allows employers to distribute risk among a larger pool. Germany allows other funding sources such as towns and states. I think it is still a good model for us but, with the passage of Obamacare, it will take a generation before another large reform would be viable. Obamacare must stand or fall first and I think it will fall but, as in most government programs, it takes years before the sponsors will admit defeat.

Another proposal has been made by a serious study group.

1. The government should offer every individual the same, uniform, fixed-dollar subsidy, whether used for employer-provided or individual insurance. For everyone with private health insurance, the subsidy would be realized in the form of lower taxes by way of a tax credit. The credit would be refundable, so that it would be available to individuals with no tax liability.

2. Where would the federal government get the money to fund this proposal?

We could begin with the $300 billion in tax subsidies the government already “spends” to subsidize private insurance. Add to that the money federal, state and local governments are spending on indigent care. For the remainder, the federal government could make certain tax benefits conditional on proof of insurance. For example, the $1,000 child tax credit could be made conditional on proof of insurance for a child.10 For middle-income families, a portion of the standard deduction could be made conditional on proof of insurance for adults. For lower-income families, part of the Earned Income Tax Credit could be conditioned on obtaining health coverage.

3. If the individual chose to be uninsured, the unclaimed tax relief would be sent to a safety net agency providing health care to the indigent in the community where the person lives, so that it would be available there in case he generates medical bills he cannot pay from his own resources. The result would be a system under which the uninsured as a group effectively pay for their own care, without any individual or employer mandate. By the very act of turning down the tax credit for health insurance in choosing not to insure, uninsured individuals would pay extra taxes equal to the average amount of the free care given annually to the uninsured. The subsidies for the insurance purchased by the insured would then effectively be funded by the reduction in expected free care the insured would have consumed if uninsured. [See Figures II and III.]

The paper goes on to explain the proposal The trouble is that this is another major reform and I see no chance for it in the foreseeable future.

What then is the most likely development ?

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Why Obamacare is collapsing.

Tuesday, July 9th, 2013

Government is not very good at constructing software or IT systems. The FBI spent a decade with a troubled software project, then abandoned it.

Some FBI officials began raising doubts about the bureau’s attempts to create a computerized case management system as early as 2003, two years before the $170 million project was abandoned altogether, according to a confidential report to the House Appropriations Committee.

By 2004, the report found, the FBI had identified 400 problems with early versions of the troubled software — but never told the contractor. The bureau also went ahead with a $17 million testing program last December, even though it was clear by then that the software would have to be scrapped, according to the review.

The 32-page report — prepared by the House committee’s Surveys and Investigations staff and obtained by The Washington Post — indicates that the FBI passed up numerous chances to cut its losses with the doomed Virtual Case File (VCF), instead forging ahead with a system that ultimately cost taxpayers more than $100 million in wasted expenditures.

This is the history of complex government projects like this. They will not hire private companies and let them design these projects. Banks use ATM software that is far more complex and which works reliably.

Now Obamacare is the latest failure. I have been predicting this for a year. The electronic medical record software is another boondoggle. It increases workload and is not secure. Now the exchange IT systems are not ready and will not be for a decade, if ever.

“It’s the joyous, simultaneous, nonlinear equation from hell,” said Kip Piper, a former top official at HHS and OMB who is now a consultant in close contact with IT vendors. Piper said it’s no surprise that the administration has given up on certain functions given the technological complexity needed and the short time-frame.

But the long-term nature of the bad news could be good news for those who hope that the new marketplaces will launch in some form on time.

The struggles with technology and administrative complexity have not come as a recent surprise to administration officials; they’ve been negotiating them for months already. By eliminating non-essential tasks, they may be violating the letter of the health reform law, with its rigorous timetables and multiple requirements, but they may be more likely to get the core functions right.

Or wrong as the case may be.

The FBI experience is revealing:

The system was part of Trilogy, a $581 million FBI program that includes a new computer network and thousands of new high-speed personal computers for agents and analysts. VCF would have been the final major step in the upgrade, providing a modern database for storing case information and allowing agents to share and search files electronically.

Numerous outside experts and panels have criticized the FBI’s paper-based records system as outmoded and inefficient, and the commission that investigated the Sept. 11, 2001, attacks concluded that the shortcomings may have contributed to the failure to detect the al Qaeda plot. The Justice Department’s inspector general warned in February that the FBI’s continuing technology problems had “national security implications” and that agents were “significantly hampered” in their efforts to prevent terrorism and combat other serious crimes.

The new report, which is not scheduled for public release, reveals that “some officials involved in VCF’s development began to see problems” in early 2003, about a year after the FBI and its contractor, Science Applications International Corp., began focusing on creating the case management software.

That report is from 2005. My daughter is an FBI agent. They finally abandoned the whole thing last year and have begun from scratch.

Obamacare will not be functional by 2020. They will lie about it and fake it but the thing will be a complete mess.

Magan McArdle has more on the changes. All that is happening is that all cost control is stripped out. All that is left is the spending.

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Posted in corruption, health reform, medicine, politics, technology | 2 Comments »

What is a “True Conservative?”

Tuesday, June 25th, 2013

We are facing a lot of major issues that seem to divide the Republican Party. There is immigration and deficits. There is the little matter of Obamacare. There is the matter of international relations with countries like Iran and Syria.

Right now we have the immigration bill that has been passed by the Senate after being written by the “Gang of 8.” This bill, like so many major pieces of legislation lately, was written in secrecy and has not been through the usual committee process. “We have to pass it to see what is in it.”

As if Obamacare were not enough, here we have another opaque and mysterious bit of legislation that is thousands of pages of incomprehensible legalese.

Jennifer Rubin weighs in with a rather beltway-oriented view. Fair enough as she writes in the Washington Post.

The immigration battle, the debate over U.S. involvement in Syria and the flap over NSA surveillance have suggested two starkly different visions of the GOP as well as two potential paths for the GOP.

The question remains whether the GOP will become the party of: Sen. Rand Paul, Ky., or Sen. Kelly Ayotte, N.H., on national security; The Gang of Eight or the Gang of Three (Sens. Mike Lee, Ted Cruz and Jeff Sessions) on immigration; Sen. Rob Portman, Ohio, or Rick Santorum on gay marriage; Broad-based appeal (e.g. Govs. Chris Christie, Gov. Scott Walker) or losing ideologues (Sharron Angle, Christine O’Donnell, Michele Bachmann). I don’t know that Angle and O’Donnell were “ideologues.” Angle, at least was an amateur, somewhat like other candidates supported by the Tea Party.

I’m not sure I agree with her choices but let’s think about it.

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How to respond to the IRS scandal

Wednesday, May 15th, 2013

Washington DC seems to be convulsed this week with scandals. Most of us were well aware of the Benghazi disaster and coverup. The IRS scandal is new and does a lot to explain the quiet status of the Tea Party groups that were so active in 2010. Many of us expected to see more of them last year in the run up to the 2012 presidential election, as well as the other races for Senate and House. Now we know what happened.

The Tea Party groups that filed for 501 (c) 4 status were harassed and threatened by the IRS. 501 (c) 4 status does NOT grant tax exemption to donations, contrary to the statement of Nancy Pelosi, not a good source in any situation. It only allows tax exemption for activities intended to education the public on issues of interest to the organization. From the IRS web site:

The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).

The Tea Parties were organized for political and educational activity, not as lobbies. There are plenty of lobbies. Other organizations singled out by the IRS in this scandal included those concerned with “The Constitution” or other philosophical topics. Several examples are included in this article.

Kookogey’s organization, Linchpins of Liberty, is one of several groups still awaiting approval of their applications for tax-exempt status after more than three years. Linchpins, a conservative mentoring program for high-school and college students, has received extensive and intrusive requests for information about the organization. Unlike most of the groups targeted, however, Linchpins of Liberty was seeking status as a 501(c)(3) educational non-profit, as opposed to a more overtly political 501(c)(4) “social welfare” group, and had no direct “tea party” affiliation. The group’s stated mission is “to challenge the imagination of the rising generation” through “the study of books about the human condition and about civic order.”

I see no evidence of lobbying intent there.

The agency sent him more than 30 questions in response to his application, including some that defied comprehension. “They asked me to identify the students I’m teaching and what I’m teaching them,” he says. “Now, imagine the disservice I’d be doing to the parents of these kids if I reported their children to the IRS. It was clearly meant to intimidate.”

This is far beyond the role of a tax agency.

How do we deal with this ?

First, donations to 501 (c) 4 organizations are NOT tax deductible for the donor. The organization benefits from the fact that its own activities are tax exempt. It cannot conduct a business that returns profits to the organization although educating members and charging for that service may be permissible.

Under this technical instruction program (pdf) the social welfare group would be allowed to engage in business as a means of financing the social welfare program. The business might consist of holding seminars on politics.

I was president of such an organization years ago. It was the Orange County Medical Association. It was tax exempt and, when we began to organize a subsidiary that would provide health care for low income persons, we made the subsidiary a for-profit company and allocated all business expenses related to the provision of health care as expenses to that subsidiary. We had no IRS trouble although Reagan was president and the IRS was not political as it is under Obama.

My suggestion is to contribute and help the Tea Party and similar organizations to organize themselves under another model. Perhaps legislation to allow educational organizations to function free of harassment would be in order although Democrats in the Senate would probably try to block it. Complaining about the IRS will only accomplish so much. The history of misuse of the IRS is long and goes back to Roosevelt

President Franklin Roosevelt used the IRS to harass newspaper publishers who were opposed to the New Deal, including William Randolph Hearst and Moses Annenberg, publisher of the Philadelphia Inquirer. Roosevelt also dropped the IRS hammer on political rivals such as the populist firebrand Huey Long and radio agitator Father Coughlin, and prominent Republicans such as former Treasury Secretary Andrew Mellon. Perhaps Roosevelt’s most pernicious tax skulduggery occurred in 1944. He spiked an IRS audit of illegal campaign contributions made by a government contractor to Congressman Lyndon Johnson, whose career might have been derailed if Texans had learned of the scandal.

Andrew Mellon, Treasury Secretary under Coolidge, was harassed by FDR until he died. After his death, Mellon was exonerated completely.

The administration of President Franklin D. Roosevelt subjected Mellon to intense investigation of his personal income tax returns. The US Justice Department empaneled a grand jury, which declined to issue an indictment. Roosevelt hated Mellon, as the embodiment of everything he thought was bad about the 1920s; Mellon vehemently denied the charges. A two-year civil action beginning in 1935, dubbed the “Mellon Tax Trial”, eventually exonerated Mellon, albeit several months after his death.

We should support the Tea Parties and get tax lawyers to construct a standard application with responses to legal and appropriate questions.

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Posted in corruption, financial, politics | 2 Comments »

Conspiracy Theories

Sunday, May 12th, 2013

Last week was a week for the conspiracy theories. First, we had Benghazi and the hearings which interviewed career State Department officers, most of whom probably vote for Democrats. The fact that they were ordered not to talk to Congressmen and denied any attempt at help when under attack, even from as close as Tripoli, invites speculation about motive. Peggy Noonan, a little unusually, hits this one out of the park.

Since it is behind a pay wall, I’ll quote a few bits.

What happened in Benghazi last Sept. 11 and 12 was terrible in every way. The genesis of the scandal? It looks to me like this:

The Obama White House sees every event as a political event. Really, every event, even an attack on a consulate and the killing of an ambassador.

Because of that, it could not tolerate the idea that the armed assault on the Benghazi consulate was a premeditated act of Islamist terrorism. That would carry a whole world of unhappy political implications, and demand certain actions. And the American presidential election was only eight weeks away. They wanted this problem to go away, or at least to bleed the meaning from it.

That sounds about right to me.

Because the White House could not tolerate the idea of Benghazi as a planned and deliberate terrorist assault, it had to be made into something else. So they said it was a spontaneous street demonstration over an anti-Muhammad YouTube video made by a nutty California con man. After all, that had happened earlier in the day, in Cairo. It sounded plausible. And maybe they believed it at first. Maybe they wanted to believe it. But the message was out: Provocative video plus primitive street Arabs equals sparky explosion. Not our fault. Blame the producer! Who was promptly jailed.

If what happened in Benghazi was not a planned and prolonged terrorist assault, if it was merely a street demonstration gone bad, the administration could not take military action to protect Americans there.

Yup. That has to be it unless someone comes up with a better rationale. Maybe one of those additionla whistle blowers who are asking to testify.

Why couldn’t the administration tolerate the idea that Benghazi was a planned terrorist event? Because they didn’t want this attack dominating the headline with an election coming. It would open the administration to criticism of its intervention in Libya. President Obama had supported overthrowing Moammar Gadhafi and put U.S. force behind the Libyan rebels. Now Libyans were killing our diplomats. Was our policy wrong? More importantly, the administration’s efforts against al Qaeda would suddenly come under scrutiny and questioning.

The military disgraced itself, as well. Why no plans for evacuation or reinforcement ?

Maybe those generals and admirals who were relieved in the weeks after Benghazi were too willing to do something when the orders were to do nothing.

On October 18, Secretary of Defense Leon Panetta appeared unexpectedly at an otherwise unrelated briefing on “Efforts to Enhance the Financial Health of the Force.” News organizations and CSPAN were told beforehand there was no news value to the event and gave it scant coverage. In his brief remarks Mr. Panetta said, “Today I am very pleased to announce that President Obama will nominate General David Rodriguez to succeed General Carter Ham as commander of U.S. Africa Command.”

AFRICOM was the area command that was asked for help.

The information I heard today was that General Ham as head of Africom received the same e-mails the White House received requesting help/support as the attack was taking place. General Ham immediately had a rapid response unit ready and communicated to the Pentagon that he had a unit ready.

General Ham then received the order to stand down. His response was to screw it, he was going to help anyhow. Within 30 seconds to a minute after making the move to respond, his second in command apprehended General Ham and told him that he was now relieved of his command.

The story continues that now General Rodiguez would take General Ham’s place as the head of Africom.

That sure sounds like it. However:

On Monday October 29 General Martin Dempsey, Chairman of the Joint Chief of Staff, released the following statement:

“The speculation that General Carter Ham is departing Africa Command (AFRICOM) due to events in Benghazi, Libya on 11 September 2012 is absolutely false. General Ham’s departure is part of routine succession planning that has been on going since July. He continues to serve in AFRICOM with my complete confidence.”

Well, that tells us more about Dempsey than about Ham. In 1964, as he edged into Vietnam, Lyndon Johnson repeatedly sidelined war fighters and replaced them with politicians like JCS Chairman Earle Wheeler, who spent six years presiding over the Vietnam debacle. Wheeler had no command or combat experience in WWII. He had always been a staff officer. It makes me think of Courtney Massengale, the villain of “Once an Eagle, Anton Myrer’s wonderful novel of military life. It is still required reading for military officers of all branches. I have often wondered if Myrer chose the name of his villain from the name of a popular douche at about the time he was writing the novel.

There were flag officers relieved right after Banghazi. Nothing to see here. Move along.

We will learn more about the Benghazi story and Democrats dishonor themselves by their transparent efforts to divert attention and discredit honorable officers.

The next scandal that erupted last week was the IRS auditing expose. Tea Party groups have been complaining about selective harassment by the IRS since 2009 when Obama joked about doing just that.

A BEDROCK principle of U.S. democracy is that the coercive powers of government are never used for partisan purpose. The law is blind to political viewpoint, and so are its enforcers, most especially the FBI and the Internal Revenue Service. Any violation of this principle threatens the trust and the voluntary cooperation of citizens upon which this democracy depends.

So it was appalling to learn Friday that the IRS had improperly targeted conservative groups for scrutiny. It was almost as disturbing that President Obama and Treasury Secretary Jack Lew have not personally apologized to the American people and promised a full investigation.

And that was the Washington Post !

And then we have the spectacle of the HHS Secretary asking health executives to fund Obamacare with donations.

“Nice little insurance company you’ve got there. It would be a shame if something happened to it.”

Over the past three months, Sebelius has made multiple phone calls to health industry executives, community organizations and church groups and asked that they contribute whatever they can to nonprofit groups that are working to enroll uninsured Americans and increase awareness of the law, according to an HHS official and an industry person familiar with the secretary’s activities. Both spoke on the condition of anonymity to talk openly about private discussions.

Yes, it was all voluntary.

Young said that Sebelius did not solicit for funds directly from industries that HHS regulates, such as insurance companies and hospitals, but rather asked them to contribute in whatever way they can.

But the industry official who had knowledge of the calls but did not participate directly in them said there was a clear insinuation by the administration that the insurers should give financially to the nonprofits.

And so goes another week of Obamaworld. And I didn’t even mention “immigration reform.”

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An interesting update on Benghazi.

Thursday, May 2nd, 2013

Today, another blog has an interesting post on the Benghazi fiasco and some informed speculation on why it happened.

On the night of the Benghazi terror attack, special operations put out multiple calls for all available military and other assets to be moved into position to help — but the State Department and White House never gave the military permission to cross into Libya, sources told Fox News.

The disconnect was one example of what sources described as a communication breakdown that left those on the ground without outside help.

“When you are on the ground, you depend on each other — we’re gonna get through this situation. But when you look up and then nothing outside of the stratosphere is coming to help you or rescue you, that’s a bad feeling,” one source said.

The Special Ops community has been particularly angry about what happened.

Once the alarm is sent – in this case, from the consulate in Benghazi — dozens of HQs are notified and are in the planning loop in real time, including AFRICOM and EURCOM, both located in Germany. Without waiting for specific orders from Washington, they begin planning and executing rescue operations, including moving personnel, ships, and aircraft forward toward the location of the crisis. However, there is one thing they can’t do without explicit orders from the president: cross an international border on a hostile mission.

That is the clear “red line” in this type of a crisis situation.

No administration wants to stumble into a war because a jet jockey in hot pursuit (or a mixed-up SEAL squad in a rubber boat) strays into hostile territory. Because of this, only the president can give the order for our military to cross a nation’s border without that nation’s permission. For the Osama bin Laden mission, President Obama granted CBA for our forces to enter Pakistani airspace.

On the other side of the CBA coin: in order to prevent a military rescue in Benghazi, all the POTUS has to do is not grant cross-border authority. If he does not, the entire rescue mission (already in progress) must stop in its tracks.

That permission was never given. Did he go to bed so he would be bright and ready for the fund raiser the next day ?

Or did he watch them die like they were rats in a maze?

The Special Ops community has a few opinions.

As The Whistleblower Revealed: Obama Knew Who Was Behind Benghazi, FBI Now Releases Photos

The FBI has posted the photos of three individuals who were on the scene during the Sept. 11, 2012 attacks on the U.S. mission in Benghazi.

The three individuals, who were not named in the FBI announcement, are suspected to have more information on the attacks. Here’s the FBI’s notice:

The United States Federal Bureau of Investigation appreciates that the Libyan people and the government of Libya have condemned the September 11, 2012 attacks on U.S. Special Mission personnel and facilities in Benghazi, Libya.

The FBI is now asking Libyans and people around the world for additional information related to the attacks, which resulted in the deaths of four Americans, including the U.S. ambassador to Libya.

From the Foreign Policy website.

benghazi

The FBI is now looking for them. The trail is pretty cold by now. “What does it matter now ?”

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Immigration and the Gang of Eight.

Wednesday, April 24th, 2013

The Senate has served up another in Harry Reid’s menu of bills with no hearings and no amendments except those he approves. This is not how the Senate is supposed to work and is a large part of the reason that Congress has produced such bad legislation since 2008. Now, we have another massive bill which is being presented with minimal hearings and debate.

The “Gang of Eight” has written this bill and it is supposed to be fast tracked with no argument. Marco Rubio has been pressing for approval and now Paul Ryan is aboard.

In an interview last week with the Catholic television network EWTN, Ryan recalled his history at Kemp’s side and how they worked together to fight Proposition 187, a California ballot initiative that prevented non-citizens from using the state’s social services.

One reason why immigration worked in this country for 150 years was the fact that immigrants were here to work and support themselves. There was no welfare for them. Prop 187 in California was passed with 60% of the vote and even had majorities on heavily Hispanic districts. It was ruled “unconstitutional” by the California Supreme Copurt and the decline of the “Golden State” had followed. His reasoning at the time ?

“I actually campaigned with Jack Kemp against a thing called Prop 187,” Ryan told host Raymond Arroyo. He said they both worried that the proposal would burn Republicans within the immigrant community, and “make it so that Latino voters would not hear the other messages of empowerment.”

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Iran may have the bomb

Tuesday, March 5th, 2013

A report suggests that the most recent North Korea nuclear test, which used Uranium, not Plutonium as in their others, may have been the Iranian bomb.

the RAND Corporation reports that the third North Korean nuclear test appears to many experts to be fundamentally different from its previous two efforts. North Korea’s first tests used plutonium to trigger the nuclear explosion. This one, according to some atmospheric tests, likely used highly enriched uranium, exactly the form of nuclear weapon pursued by Iran.

The report is not that positive about the weapon type.

Key aspects of North Korea’s third nuclear weapon test, carried out on Tuesday, remain unknown. We do not know whether it was a test of a plutonium or highly enriched uranium weapon, though many experts suspect the latter.

The report is hardly definitive but it would not be a surprise if Iran has pushed through to a success in its program, unencumbered by any serious US opposition. Still, there is some serious concern.

The question is whether the weapon North Korea tested this month was its own, Iran’s or a joint project. A senior U.S. official told The New York Times, “It’s very possible that the North Koreans are testing for two countries.” It would be foolish for Iran to test a nuclear weapon on its own soil. Nuclear weapons cannot be detonated in secret; they leave unique seismic markers that can be traced back to their source. An in-country test would simply confirm the existence of a program that for years Iran has denied.

Ralph Peters has some serious concerns about where the Obama administration is going.

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The Lost Boys

Saturday, March 2nd, 2013

Belmont Club has an unusually good post for yesterday. I could say that more than once a week, if truth be known. This one is quite to the point on Sequester Day.

The NHS, which its creators boasted would be the ‘envy of the world’, has been found to have been responsible for up to 40,000 preventable deaths under the helm of Sir David Nicholson, a former member of the Communist Party of Britain. “He was no ordinary revolutionary. He was on the hardline, so-called ‘Tankie’ wing of the party which backed the Kremlin using military action to crush dissident uprisings” — before he acquired a taste for young wives, first class travel and honors.

The NHS is dealing with the shortage of funds by pruning its tree of life, so to speak. He also does not tolerate anyone telling the truth about it.

it emerged he spent 15 million pounds in taxpayer money to gag and prosecute whistleblowers — often doctors and administrators who could not stomach his policies.

The public money spent on stopping NHS staff from speaking out is almost equivalent to the salaries of around 750 nurses.

It has recently been noted that NHS staff no longer recommend their own hospital for family members. Also one quarter report being harassed or bullied at work.

The other half of the equation involves the youth.

The European Youth will remain outside the Death Pathways for some time yet. But they will spend the time waiting for their turn at affordable, caring and passionate medicine in poverty and hopelessness. With the exception of Germany youth unemployment in Europe is over 20%. “A full 62% of young Greeks are out of work, 55% of young Spaniards don’t have jobs, and 38.7% of young Italians aren’t employed.”

Unemployment exceeds even our own Obama economy for failure. (more…)

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Where we are headed, I fear

Tuesday, February 5th, 2013

UPDATE: An an article at Belmont Club describes interest in alternative money creation as a way of anticipating inflation. It also goes further into a discussion of general competence.

The idea that Virginia should consider issuing its own money was dismissed as just another quixotic quest by one of the most conservative members of the state legislature when Marshall introduced it three years ago. But it has since gained traction not only in Virginia, but also in states across the country as Americans have grown increasingly suspicious of the institutions entrusted with safeguarding the economy.

What has changed is faith in the federal government, not just in Virginia but in a growing number of places. The lack of faith in the competence of government — and the soundness of the dollar — has been growing leading some states to create contingency plans in case the currency goes bust.

Once again, I apologize for my pessimism but this is what I see. First, there is this article, which quotes a well known financier.

There may be a natural evolution to our fractionally reserved credit system that characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a “big freeze” trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence. And too, the advancing entropy in the physical universe may in fact portend a similar decline of “energy” and “heat” within the credit markets. If so, then the legitimate response of creditors, debtors and investors inextricably intertwined within it, should logically be to ask about the economic and investment implications of its ongoing transition.

Certainly “growth” seems to be fundamental to our economic health. That, of course, presumes a growing population but it also would be affected by a stagnant population with a growing age disparity. The obvious example of the latter is Japan.

The creation of credit in our modern day fractional reserve banking system began with a deposit and the profitable expansion of that deposit via leverage. Banks and other lenders don’t always keep 100% of their deposits in the “vault” at any one time – in fact they keep very little – thus the term “fractional reserves.” That first deposit then, and the explosion outward of 10x and more of levered lending, is modern day finance’s equivalent of the big bang. When it began is actually harder to determine than the birth of the physical universe but it certainly accelerated with the invention of central banking – the U.S. in 1913 – and with it the increased confidence that these newly licensed lenders of last resort would provide support to financial and real economies. Banking and central banks were and remain essential elements of a productive global economy.

The effect of asset bubbles on such a system is worrisome as the history of Japan and the recent history of the US have shown. The Panic of 1907 was largely responsible for the creation of the Federal Reserve. That financial crisis is thought, by a recent book, to have been a consequence of the 1906 earthquake in San Francisco, which destroyed a large amount of real assets and the insurance costs that were associated. The immediate cause was financial speculation but the real losses had added to the fragility of the system.

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