Thursday, October 13, 2011

Herman Cain Exposed: Economically Incompetent

By Dan Beaulieu

I have seen several headlines in the recent past that Herman Cain’s economic knowledge is just what we need to get our economy running again; the “Cain-train” as some call it. Serving as ex-Federal Reserve chairman of the Kansas City branch from 1992 until 1996, why wouldn’t American’s trust his economic prowess? To be honest, until I scrutinized his 9-9-9 plan and read into his economic history, I bought into the “honest businessman” image. I encourage readers to drop all superficialities and examine each candidate’s economic histories as America cannot afford any more mistakes.

I have already gone over Herman Cain’s faulty 9-9-9 plan in depth in a previous article, so I urge readers wanting to know more, to go read it. That said, I will address the comments that Cain has made in this video.
"the sales tax in the state of Florida or any other state - I'm that’s not addressing that, that’s going to be there whether we have the old system or the new system so, let’s not muddy the waters with that, that’s a totally different situation" –  Herman Cain
This was a play common of most politicians, tiptoeing around the question to save face, then quickly following it up with an irrelevant point. The concern that msNBC’s host Chuck Todd inquired about was that “sticker shock” would affect consumerism negatively which could hurt the economy further. In Cain’s response he stated that “the [state sales tax] is going to be there whether we have the old system or the new system.” Unfortunately, the presence of the state tax alone was NOT the concern, the idea of a national tax on TOP of the state tax was the concern. Cain knew this.
The truth about Cain’s 9-9-9 plan is that mathematically it will not work, it would kill the middle class.  However, the shortcomings of Cain’s 9-9-9 plan should be expected once one takes into consideration who wrote the plan, Art Laffer, the man who not only gave the economy a clean bill of health just before the collapse, but laughed at Peter Schiff who was accurately predicting catastrophe.
His Failure to Foresee the Housing Market Collapse
On August 17th 2005 Herman Cain not only gave the economy a clean bill of health but he followed it up by insulting those who were predicting catastrophe:
"coverage of the bush economy reads like a collection of democratic party press releases, calling a strong economy everything from struggling to volatile or dicey... that kind of ignorance make homeowners fear that their most expensive possession could turn worthless overnight. That won't happen."
Herman Cain’s predictions couldn’t have been more wrong. The housing bubble collapsed as all bubbles must and countless American‘s went into foreclosure. When Mr. Todd asked Cain what signals he missed in 2005 were Cain scapegoated his lack of economic foresight. He claimed that at the time he didn’t know just how much Freddie Mac and Fannie Mae distorted the housing market.  I am sure many listeners hastily accepted this fantasy, although the twist should’ve been obvious.
Freddie and Fanny couldn’t distort the housing market, only the fed can do that by lowering interest rates which creates bubbles. Bubbles form when the Federal Reserve lowers interest rates below the natural levels of a market, it influences expansion of investments well beyond sustainable levels. This distorts the signals that business uses to assess risk. These distortions then lead businesses (Freddie and Fannie) to believe that consumers have the savings to back up their investments. However, artificially low (below market) interest rates don’t generate new wealth to make good on investments. So when the bubble pops these fallacies are realized in lost investments.
Looking back on Herman Cain’s past position as a Federal Reserve chairman surely he understood this. I imagine it’s safe to assume that he has a thorough understanding of how the Fed works. Having said that, one can only draw the conclusion that Mr. Cain purposely put the blame on Freddie and Fannie in order to protect his interest with the Fed.  I go over why the Federal Reserve is problematic and why Herman Cain’s involvement in  the Fed should concern all of us in a previous article.
This wasn’t his only economic failure, on September 1st of 2008 Cain wrote:
“The supposed failure of bush's economic policies has been a constant theme of the democrats since the 2006 elections, when the democrats regained control of the house and senate by convincing enough of the voters that the sky was falling, and that the war in Iraq could not be won. Based on all of their convention speeches, they plan to continue those themes right through Election Day on November 4th
Herman Cain’s incompetency here was made obvious within 15 days of that writing. His simple response when questioned about this statement is that as president he will have people working under him who will understand the economy for him, this person is Art Laffer who is equally incompetent. Herman's misguidance continued with the epic TARP bailouts which lead to the devaluation of our dollar. In our country’s state of economic crisis; in the world’s state of economic crisis, can we really prepared to invite more bad economic policy by electing a man who’s economically incompetent? 
Bad economic policy got us into this mess and the only person who can get us out of this mess, is a person who fully understands economics, bubbles and how the collapse occurred. Herman Cain made clear he was not that man. By now I am sure you have syllogistically figured out who I am referring to; Ron Paul warned of the Housing Market collapse in 2001.

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