Jimmy Carter, Malaise, Ronald Reagan, Austrian Economics, Morning in America, Barack Obama, Keynesian Economics and Great Recession

Posted by PITHOCRATES - September 4th, 2012

History 101

It was Morning in America again because Ronald Reagan reduced the Misery Index by 42.7%

Ronald Reagan was a supply-sider when it came to economics.  Of the Austrian school variety.  In fact, one of his campaign promises was to bring back the gold standard.  A very Austrian thing.  The Austrian school predates the Keynesian school.  When the focus was on the stages of production.  Not on consumer spending.  These policies served the nation well.  They (and the gold standard) exploded American ingenuity and economic activity in the 19th century.  Making the U.S. the number one economy in the world.  Surpassing the nation that held the top spot for a century or more.  Perhaps the last great empire.  Great Britain.

Following the stagflation and misery (misery index = inflation rate + unemployment rate) of the Seventies Reagan promised to cut taxes and governmental regulations.  To make it easier for businesses to create economic activity.  Easier to create jobs.  And he did.  Among other things.  Such as rebuilding the military that the Carter administration severely weakened during the Seventies (it was so bad that the Soviet Union put together a first-strike nuclear option.  Because they thought they could win a nuclear war with Jimmy Carter as president).  During the 1980 campaign Reagan asked the people if they were better off after 4 years of Jimmy Carter.  The answer was no.  Four years later, though, they were.  Here’s why.  (Note:  We used so many sources that we didn’t source them here to save space.  The inflation rate and unemployment rates are for August of the respective years.  The dollar amounts are annual totals with some estimates added to take them to the end of 2012.  The debt and GDP are not adjusted for inflation as they are only 4 years apart.  Gas prices and median income are adjusted for inflation.  There may be some error in these numbers.  But overall we believe the information they provide fairly states the economic results of the presidents’ policies.  (This note applies to both tables.))

Reagan entered office with some horrendous numbers.  The Carter administration was printing so much money that inflation was at 12.9% in 1980.  Added to the unemployment rate that brought the misery index to 20.6%.  A huge number.  To be fair Carter tapped Paul Volcker to be Fed Chairman and he began the policy of reigning in inflation.  But Carter did this far too late.  The only way to cure high inflation is with a nasty recession.  Which Volcker gave Ronald Reagan.  But it worked.  By 1984 inflation fell 8.8 points or 66.7%.  Even with this nasty recession the unemployment rate fell 0.2 points or 2.6%.  Which shaved 8.8 points off of the miserable index.  Or reducing it by 42.7%.  This is why it was morning in America again.  The Left to this day say “yeah, but at what cost?” and point to the record deficits of the Reagan administration.  Saying this is the price of tax cuts.  But they’re wrong.  Yes, the debt went up.  But it wasn’t because of the tax cuts.  Because those tax cuts stimulated economic activity.  GDP rose 12.6% by 1984.  And tax receipts even increased with those lower tax rates.  Because of the higher GDP.  By 1984 Reagan’s policies increased tax revenue by 28.9%.  And on a personal level the median income even increased 0.4%.  And this following a very bad recession a few years earlier.  Finally, gas prices fell 22.2%.  And the way Americans feel about rising gas prices this was truly morning in America again.

To Top off the General Malaise of the Obama Economy Gas Prices Soared while Median Income Fell

Barack Obama is a Keynesian through and through.  A believer in pure demand-side economics.  To that end his administration focused everything on increasing consumer spending.  Tax and spend policies.  Income redistribution.  Deficit spending.  Anything to make America ‘more fair.’  Raising taxes on the rich so the poor can spend more money.  With the Keynesian multiplier they believe this is the path to economic prosperity.  Just doing everything within their power to put more spending money into the hands of poorer people.  Increasing government regulation, fees and fines as well as taxes to bring more money in Washington so they can redistribute it.  Or spend it directly on things like roads and bridges.  Or solar power companies.  Even paying people to dig a hole and fill it back in.  Because these people will take their wages and spend them.  Creating economic activity.

So President Obama put Keynesian economics to work.  Beginning with a $787 billion stimulus bill.  Investments into green energy and the jobs of the future.  Like a Department of Energy loan of $528 million to the now bankrupt Solyndra.  Which was only one of many loans.  The bailout of the UAW pension fund (aka the auto bailout).  The government poured $528 million into GM.  And President Obama touted the Chevy Volt, boasting that GM would sell a million each year bringing his green goals to fruition (GM is struggling to sell 10,000 Volts a year).  A lot of malinvestment as the Austrians would say.  But a Keynesian sees any government expenditure as a good investment.  Because if all the people who receive this government money spends at least 80% of it (while saving only 20%) the Keynesian multiplier will be five.  Meaning that the net gain in GDP will be five times whatever the government spends.  So how has that worked for the president?  Well, here are his numbers:

The government spent so much money that the federal debt increased by $5.4 trillion.  Trillion with a ‘T’.  That’s over a trillion dollar deficit each of the president’s 4 years in office.  And his last year isn’t even a whole year.  Unprecedented until President Obama.  And what did all of that federal spending get us after about 4 years?  An unemployment rate 2.1 points higher.  Or 33.9% higher than when he took office.  Inflation fell but it did nothing to spur GDP growth which grew at an anemic 3.1%.  Which is less than a percentage point a year.  Which is why the Great Recession lingers still.  Meanwhile the Chinese are having a bad year with a GDP growth of 7.8%.  So all of that spending didn’t help at all.  In fact, it made things worse.  The economic activity is so bad that even tax receipts fell 2.2% after four years of President Obama.  Which has many in his party saying that we need to raise tax rates.  Contrary to what Ronald Reagan did.  And to top off the general malaise of the Obama economy gas prices soared 107.6% under his presidency.  While the median income fell 7.3%.  One has to look hard to find any positive news from the Obama economy.  And there is one.  Inflation did fall.  But even that really isn’t good.  As it may be an indicator of a looming deflationary spiral.  Giving America a lost decade.  Like Japan’s Lost Decade.

The Flaw in Keynesian Thinking is that it Ignores the Layers of Economic Activity above the Consumer Level

So there you have an Austrian and a Keynesian.  Both entered office during bad economic times.  Although things were much worse when President Reagan took office than when President Obama took office.  The misery index was 20.6% in 1980.  It was only 11.6% in 2008.  About half as bad for President Obama than it was for President Reagan.  It came down 16.4% under Obama.  But it came down 42.7% under Reagan.  Which is why it isn’t morning in America under President Obama.  Reagan increased tax receipts by 28.9 % by the end of his first term.  They fell 2.2% under Obama.  Adjusted for inflation Reagan averaged annual deficits of $348 billion.  That’s billion with a ‘B’.  Obama averaged $1.324 trillion.  That’s trillion with a ‘T’.  Or 280% higher than Ronald Reagan.  Gas prices fell 22.2% under Reagan.  They rose 107.6% under Obama.  Median income barely rose 0.4% under Reagan.  But it fell 7.3% under Obama.  In short there is nothing in the Obama economic record that is better than the Reagan economic record.

And why is this?  Because Obama’s policies are Keynesian.  While Reagan’s policies were Austrian.  Reagan focused on the stages of production to improve economic activity.  Cutting taxes.  Reducing regulatory compliance costs.  Creating a business-friendly environment.  A system that rewarded success.  Whereas Obama focused on consumer spending.  Tax, borrow and print (i.e., quantitative easing).  So the government could spend.  Putting more money into the pockets of consumers.  Which stimulated only the last stage in the stages of production.  So while some consumers had more money it was still a business-unfriendly environment.  Where tax, regulatory and environmental policies (as well as the uncertainty of Obamacare) hindered business growth everywhere upstream from retail sales.  From raw material extraction to industrial processing to construction to manufactured goods.  Where these Obama’s policies punish success.  For the bigger you get the more you pay in taxes and regulatory compliance costs.

The greatest flaw with Keynesian economics is that it looks at aggregate supply and demand.  With a focus on consumer spending.  And ignores the layers of economic activity that happens before the consumer level.  The Austrian school understands this.  As did the British when she became one of the greatest empires of all times.  As did America during the 19th century.  No nation became an economic superpower using Keynesian economics.  Japan grew to be a great economic power during the Fifties and Sixties.  Then went Keynesian in the Eighties and suffered their Lost Decade in the Nineties.  Some Keynesians like to point to China as an example of the success of Keynesian economics.  But they still have a fairly restrictive police state.  And their economic policies are hauntingly similar to Japan’s.  Some have even posited that it is very possible that China could suffer the same fate as Japan.  And suffer a deflationary spiral.  Resulting in a lost decade for China.  Which is very plausible considering the Chinese practice state-capitalism where the state partners closely with businesses.  Which is what the Japanese did in the Eighties.  And it hasn’t been great for them since.  As it hasn’t been great in America economically since the current administration.

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LESSONS LEARNED #55: “Liberals are all for trickle-down economics as long as the wealth trickles down from those who support liberals.” -Old Pithy

Posted by PITHOCRATES - March 3rd, 2011

 JFK Governed as a Conservative

We’ve had two ‘trickle-down’ administrations in recent times.  Both JFK and Ronald Reagan were proponents of supply-side economics.  Between these two administrations we had a few Keynesians (LBJ, Nixon, Ford and Carter).  JFK and Reagan cut tax rates.  The Keynesians never lowered the tax rate lower than JFK’s.  Reagan did.  But not the Keynesians.

JFK was a Democrat.  But he governed as a conservative.  He was strong on defense.  Even got us into Vietnam to prevent the dominoes from falling in Southeast Asia.  And he was business friendly.  But that doesn’t stop Democrats from loving him, though.  Most probably don’t know anything about his conservative side.  They think about Camelot.  Jackie.  John John.  “Ich bin ein Berliner” (the big Cold War speech after the Soviet Union built the Berlin Wall).  Landing a man on the moon and returning him safely.  “Ask not what your country can do for you; ask what you can do for your country.”  And the civil rights stuff.  Not that he was a hawk when it came to war (Bay of Pigs-sort of, Cuban Missiles Crisis and Vietnam).  And a tax cutter.

LBJ may have been JFK’s vice president but he was no JFK.  Kennedy wanted to build a strong economy and he believed that started with making a business-friendly environment.  Which he did.  Johnson, on the other hand, was a big, old school, liberal.  To him businesses were just cash piñatas for the government to whack.  He wanted their money.  Because he wanted to spend it.  And boy did he.  He exploded the role of government in our lives.  Increased taxes.  Increased regulation.  And increased the government bureaucracy.  He called it his Great Society.  And he gave FDR‘s New Deal a run for its money.

JFK’s Tax Cuts Stimulated Economic Activity

When Kennedy became president, there was a bit of a recession going on.  Unemployment got as high as 6.7% in his first year.  And the top marginal tax rate was 91%.  When he looked at the two the answer was obvious to him.  With a top marginal tax rate of 91%, there was little incentive to invest.  If your earnings exceed a certain amount, you only kept 9 cents of each additional dollar?  So why bother?  Like Billy Joel said, “You can pay Uncle Sam with the overtime.  Is that all you get for your money?”  Or like George Harrison said, “There’s one for you, nineteen for me.  Cause I’m the taxman.”   

No one likes paying taxes.  Especially confiscatory taxes.  It’s why the Beatles left the UK.  All you need may be love.  But even hippies want to keep their money.  And JFK understood this.  High taxes discouraged investment.  And drove some business away.  So he put together an economic plan that included cuts in the tax rates.  He brought the top marginal rate from 91% to 70%.  And how did that work?  Not too bad.  Based on the numbers.

In the four years following his tax cuts, tax receipts increased 41%.  So he brought more money into Washington by cutting tax rates.  And it gets better.  The unemployment rate went down 33% (from 5.7% to 3.8%).  And GDP increased 35%.  In the technical language of economists, these numbers are awesome.

The LBJ/Nixon Policies End the JFK Economic Expansion

Well, the party wasn’t going to last.  Thanks to Lee Harvey Oswald.  JFK was dead.  Assassinated.  And LBJ took the oath of office in Air Force One before leaving Texas.  Who can forget the image of a grief-stricken Jackie as Johnson took the oath?  Much like with the assassination of Lincoln, the consequences of that action was to forever change the country (we all wonder how Reconstruction would have gone with Lincoln).  JFK was gone.  LBJ was in.  And he was bringing his Great Society with him.  And the size of government would never be the same.

Johnson raised taxes in his last 2 years to pay for the massive federal spending.  Nixon cut them.  He brought the top marginal rate back to the Kennedy level.  But he didn’t cut spending.  And to keep up with the spending he started printing money.  Gold started flying out of the country so he decoupled the dollar from gold, igniting inflation.  The heady days of the JFK economic expansion were over.  Looking at a period that included the last 2 years of LBJ’s term and Nixon’s 6 years, it’s not a pretty picture.

Tax receipts soared 77% to pay for all that government spending.  And, not surprisingly, the unemployment rate soared, too.  It went from 3.8% to 5.6% (an increase of 47%).  GDP shot up an impressive 80%, too.  Landing on the moon, Vietnam and the Great Society created a lot of economic activity.  But that economic activity wasn’t real.  It was a bubble.  Paid for with high taxes and printed dollars.  So prices were high thanks to inflation.  And a lot of us didn’t have a job.  And this is what Carter got when he entered office.  Malaise.  Stagflation (high unemployment and high inflation).  And something we called the misery index (the sum of the unemployment and inflation rates).  Carter was not going into the 1980 election with a lot going for him.  And the Iranian Hostage Crisis didn’t help any either.

Ronald Reagan Cuts Taxes, Stimulates the Economy and Wins the Cold War

Then came Ronald Reagan.  He put Carter out of his misery by winning the 1980 election.  Then rolled up his sleeves.  And got to work.  When he came into office the top marginal tax rate was 69%.  By the time he left it was 28%.  The Left called him reckless and irresponsible.  That he ran high deficits.  And exploded the federal debt.  Well, yes, both of these did increase during the Reagan years.  But it’s not because of the tax rate cuts.  Those were caused by spending more money than the treasury collected.  And, believe you me, the treasury really raked it in during the Reagan presidency.

In 1981, tax receipts were about $600 billion.  In 1990 (adding in the first year of George H.W. Bush), tax receipts were about $1 trillion.  In other words, the Reagan tax rate cuts increased tax receipts by 72%.  The treasury collected more tax dollars at the lower tax rates.  So there is no way no how you can blame deficits and debt on the Reagan tax rate cuts.  And it gets better.

During the Eighties, the unemployment rate fell 26%.  And the GDP rose 86%.  Lower tax rates.  Higher tax revenue.  Lower unemployment.  And a surge in economic activity.  Wow.  Can it get any better?  Why, yes.  Reagan spent the Soviet Union into defeat in the Cold War.  They just couldn’t keep up.  Caused a lot of trouble on the other side of the Iron Curtain.  Long story short, after his presidency, Eastern Europe would be free of Communism.  And the Berlin Wall would be no more. 

Supply-Side Economics Works

The moral of this lesson?  Supply-side (aka, trickle-down) economics works.  It worked for JFK.  And it worked for Reagan.  What doesn’t work is the Keynesian economics of LBJ, Nixon, Ford and Carter.  They grew government.  Increased government spending.  Giving us higher taxes, higher unemployment, higher inflation and malaise.  The only thing that trickled down was their misery.

So if trickle-down can fill the federal coffers why do liberals hate it?  Because those who support supply-side economics are typically in the private sector.  Have jobs.  Don’t belong to a union.  And don’t need any help from government.  You put that all together and the answer is clear.  These people don’t lobby liberals.  So what good is their wealth when no part of it makes its way to liberal pockets?  Like Big Labor?  Or public sector unions?

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FUNDAMENTAL TRUTH #40: “Big Government is more efficient when old people die sooner.” -Old Pithy

Posted by PITHOCRATES - November 16th, 2010

Revenues Must be Greater than Costs in Both Private Business and Government

Private business must make a profit.  That means the costs of their business can NOT exceed their revenues.  There may be times when costs do exceed revenue.  Such as during a recession.  Or when another business offers the same goods or services for less.  If these periods last too long, a business must act.  Find ways to increase their revenues.  Or cut costs.

Apple continues to innovate and create new products that people want.  This keeps their revenues greater than their costs.  GM, on the other hand, has not.  Their costs have exceeded their revenues.  So they have cut back on production.  And laid off people.  But, in the end, they still needed a government bailout to survive.

Government can tax and print money.  And run perpetual deficits.  So they don’t hold themselves to the same standards as private business.  But if they tax too much or print too much money, it can push the economy into recession and/or inflation.  So they try to make their revenues (taxes) cover as much of their costs (government spending) as possible. 

A Growing Population Can Fund Social Security and Big Government

If you go back 100 years, there was no Social Security.  No Medicare.  No big federal government.  That’s the way the Founding Fathers wanted it.  They minimized the money and reach of the federal government.  Because they were students of history.  They knew governments tended to oppress their people when they had money and power.

In the first century or so of our nation, it was easier to keep the size of government small.  Our population was small.  A big federal budget would require huge per capita taxes.  But that changed as the population grew.  Soon, it was possible to have big federal budgets from modest federal taxes.

We saw the growth of Big Government beginning around the turn of the 20th century.  First it was Woodrow Wilson and the Progressives.  Then came FDR.  He gave us Social Security.  Which was basically a Ponzi Scheme.  It worked at first as all Ponzi Schemes do.  As long as more people are entering into the scheme than collecting benefits, Social Security was sound as a pound.

Population Growth Rate and Big Government Peak and Crash in the 1970s

A growing population means a growing tax base.  The more babies are born, the more future taxpayers there will be.  And when FDR gave us Social Security, it wasn’t uncommon for a family to have 10 or more children.  That’s a lot of future federal taxes they could count on.

Then came LBJ.  He saw what FDR did.  Liked it.  Then tried to outdo him.  He gave us his Great Society (to end poverty and racial injustice).  And Medicare (health care for those 65 and older).  And other stuff.  But these programs were very, very expensive.  So he raised taxes.  A lot.

Then it all crashed in the 1970s.  The increase in taxes to pay for all that government spending stalled the economy.  When they tried to stimulate it with monetary policy, they unleashed inflation.  The U.S. dollar was convertible to gold then.  Which is a bad thing when you’re printing money.  For when you depreciate your currency, you increase the value of gold as measured by your currency; it takes a lot more devalued dollars to buy the same amount of gold.

Well, foreign governments exchanged their dollars for gold.  So much so that Nixon suspended the convertibility of dollars into gold in 1971.   Without the gold restraint on printing money, they printed even more.  We had both recession and inflation.  Stagflation.   Double digit inflation, interest rates and unemployment.  This malaise made Carter a one-term president.

Birth Control and Abortion – The Death Knell of Big Government

So what happened?  Where did it go all wrong?  It goes back to the number of taxpayers.  Something happened between FDR and the 1970s.  We weren’t having as many babies.

Instead of 10 or more children in families, many families were having only 2 or 3 kids.  Widespread use of birth control and abortion drastically reduced the population growth rate of the country.  Fewer taxpayers were being born than before.  Which meant that more people would be entering retirement than there would be new taxpayers entering the work force to pay for these retirees.

This is how Ponzi Schemes fail.  When there are more people drawing benefits than paying into the scheme, the whole house of cards collapses.  And this is a big problem for government.  To support their massive spending, they need more, not fewer, people entering the work force.

How can Government Save Social Security and Medicare?  Old People Just Need to Hurry Up and Die.

Well, there’s a couple of ways to address this problem.  First there’s the revenue side.  They can increase the taxes they collect.  By raising tax rates on individuals.  Or by simply creating more individuals to tax.  Such as amnesty for illegal aliens.  But both of these options are difficult to do without hurting your chances at getting reelected.

Then there’s the cost side.  They can cut benefits.  Increase the Social Security retirement age.  But these, too, have political consequences.  Because these old coots tend to vote more than any other demographic.  Which can make them a real pain in the behind.

Of course, if they would jut die before reaching retirement age, the government doesn’t have to pay them or their survivors.  And if they’re dead, they won’t be consuming any Medicare benefits.  You see, not only are they the most vocal group at election time, but they are also the most costly when it comes to government benefits.  The government could kill two birds with one stone if these old codgers would just hurry up and die.

One Way for Big Government to Cut Health Care Costs:  Death Panels

The government doesn’t see your mother or grandmother.  They’re looking at numbers in columns.  They are having trouble increasing the numbers in one column (tax revenue).  And are having trouble keeping the numbers in the other column from growing (benefits).  Because of old people.  Who don’t work anymore.  Or pay much in income taxes.  But they consume the lion’s share of the benefits.  They’re the biggest thorn in the government’s side.  If it wasn’t for them, their programs wouldn’t forever be facing bankruptcy.  You can see why they aren’t the government’s favorite people.

So they increase the retirement age.  In hopes more will die before reaching retirement.  And those who do reach retirement age, well, they’ll have fewer years left to enjoy their benefits.  And they make cuts in the Medicare program.  Disallow some reimbursements.  Maybe prod a few seniors to an earlier death.  Why?  Because these kinds of cost savings are the only cost savings that will have any impact in a government-managed system.

Then there’s the holy grail of Big Government.  Government-managed universal health care.  Obamacare, in its latest manifestation.  And, of course, it will end up just like Social Security and Medicare.  For the same reasons Social Security and Medicare ended up the way they did.  But Obamacare will have a new twist.

Government panels will determine who gets medical treatment.  And who doesn’t.  Based on a ‘return on investment’ analysis used to manage and optimize health care costs.  Will medical treatment result in more taxpaying years for the patient?  If yes, treatment approved.  If not, treatment not approved.  If anything, the government’s death panels will be a model of efficiency.  On paper.

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Europeans Wonder why Americans Don’t Love Obama as Much as They Do

Posted by PITHOCRATES - October 29th, 2010

Obama falls from grace because the American people have learned what the mainstream media wouldn’t tell them; the truth.

America, Europe, the Middle East, hell, the whole world had a love affair with Barrack Obama.  A man who did nothing but serve a partial term as a U.S. senator.  Before that?  Community organizer.  His resume had a lot of white space on it.  He is the most inexperienced person to ever become president.  Even Sarah Palin, who the Left disparages as stupid and experienced, has executive experience.  She was more qualified than Obama to be president.  Based on their experience.  Place their resumes side by side and no one can dispute this.  Yet Palin is stupid and inexperienced.  And Obama is the second coming of Christ.  And when the results of Obama’s policies reflect his experience, those infatuated express shock and disbelief (see Europe ‘dismayed’ as midterms highlight Obama’s struggles by Marian Smith, msnbc.com).

“They’re very confused as to how [Americans] could vote for Obama and then two years later turn around and vote for a completely different set of policies,” Sarah Oates, professor of political communication the University of Glasgow, told msnbc.com.

There’s a simple reason for this confusion.  The mainstream media was also infatuated with Obama.  They endorsed his candidacy.  But they never vetted him.  No one knew anything about Obama during the campaign.  They ignored his far-left associations with Reverend Wright and Bill Aires.  They didn’t discuss his criticism of the U.S. Constitution (it didn’t empower government enough).  Or his policy guide: Rules for Radicals by Saul Alinsky.  The mainstream media’s gross journalistic malfeasance hid the real man from the American voter.  The real Obama is not the Obama the American people voted for.  Hence his fall from grace.

Jimmy Carter handed off a worse economy than Bush.  But things got better when Ronald Reagan cut taxes.

Obama has told us ad nauseam that he inherited the worst economy since the Great Depression.  Some would argue that the numbers were pretty bad when Ronald Reagan took office.  But he followed Democrat Jimmy Carter.  So they don’t like to bring up his atrocious economy.  Because the economy he handed down to Ronald Reagan was pretty atrocious.  I mean, they didn’t use words like ‘malaise’, ‘stagflation’ or ‘misery index’ during the Bush economy.  And they’re not using them during the Obama economy.  But you repeat the lie enough, people just accept it as fact.

However, Obama remains broadly well-liked and many Europeans think the disenchantment that many American voters have been expressing is unfair.

“What he inherited was so enormous that no American president could have fixed it,” Manfred Gortemaker, professor of modern history at Germany’s University of Potsdam, told msnbc.com.

The bad economy Obama inherited was a long time in the making.  Because the Democrats were in power for a long time.  And it was their passion that caused it.  Affordable housing.  Putting people into houses who couldn’t afford houses.  Ask anyone which party you think of when it comes to affordable housing and they’re not going to say Republican.  The American disenchantment is with Democrat Big Government.  And Obama believes in Big Government.  The bigger the better.  America just can’t afford it anymore.  There isn’t enough money left in the private sector to steal to pay for it.  And Obama just wants to spend more.  But spending doesn’t work.  It didn’t help Carter.  That’s why he lost to Reagan.  Reagan cut taxes.  And, you know what?  That worked.  The electorate wants more Reagan.  Less Obama.

It’s good t be king.  As long it’s not 1790 France.  Or 2010 America where the Tea Party is spoiling a good time for the ruling elite.

The French can’t figure out the Tea Party movement.

“In all the French newspapers and magazines, people are writing, trying to figure it out,” Bacharan said.

Michelle Obama stayed at a 5-star Spanish resort while Americans were suffering near 10% unemployment and seeing banks foreclose on their homes.  There have been other vacations at very expensive and exclusive resorts.  And a lot of golf outings.  Obama has played more golf in 2 years than George W. Bush has in his 8 years.  Then there’s the latest presidential vacation.  They’re going to India.  They’ll be taking 40 airplanes.  Three helicopters.  A bunch of armored cars.  And they’ll be staying at the 5-star Taj Mahal hotel.  And only them.  The Obama party has booked the whole place.  It’s good to be king.

Now, I’m poking a little fun at my French friends.  That ‘good to be king’ line comes from Mel Brooks History of the World Part One.  But it’s something the French should understand.  While the masses are suffering, the Obamas are living like royalty.  They are detached from ordinary America.  Cold and detached.  Sort of like King Louis XVI and his queen, Marie Antoinette.  We’re just waiting for Michelle Obama to say, “Let them eat cake.”  Of course, we have the right to vote.  Unlike the people did in 1790 France with their ruling elite.  And it’s that right that the Tea Party is exercising.  Because they feel the way the French felt in 1790.  (Without the famine, of course.)

The Tea Party are not Nazis; Obama is not Hitler.  But the Nazis were Big Government liberals

The mainstream media has been falsely reporting a ‘Nazi’ element within the Tea Party.  They repeat the lie so often that many accept it as fact.  Even the Germans, no doubt sensitive to anything Nazi, are writing about it.

“The Holocaust was the result of murderous ideological fanaticism of the kind not to be found in leaders forced to face re-election every four years,” [a Der Spiegel newspaper] editorial said. “It is hard to imagine even the most hard-bitten Tea Party activist sincerely believing that President Barack Obama wants to systematically murder over 6 million people like Adolf Hitler did. And that is necessarily the implication.”

The German people elected Adolf Hitler to office in free elections.  He did not campaign on the Holocaust, though.  He did adopt what would eventually be Saul Alinsky’s Rules for Radicals.  He identified, isolated and attacked his enemies.  The Jews.  Obama has identified, isolated and attacked his enemies.  The Tea Party.  George W. Bush.  And Republicans in general.  Hitler was an environmentalist.  Obama is an environmentalist.  Hitler expanded state power.  Obama wants to expand state power.  Hitler controlled state media.  Obama has a willing and complicit mainstream media.  Hitler nationalized industries.  Obama nationalized industries.  Take away the crazy, the Holocaust and the militarism, and Hitler was just another Big Government liberal.  Like Mussolini.  Like Stalin.  And FDR.  And as Big Government liberals, they lied to their electorate to get elected (well, except for Stalin).  Then people learned the truth.

That said, Obama is no Hitler.  He is not a Nazi.  Sure, some kooks on the fringe say stupid things.  Just like some on the Left said George W. Bush was another Hitler.  Called him a Nazi.  But we need to stop the crazy. On both sides.  Obama got a pass by the mainstream media during the campaign.  They worshipped and adored him.  Got the people to vote for him.  And now people have learned the truth.  And here’s why Obama is NOT Adolf Hitler.  We can fix our mistake in the voting booth. 

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LESSONS LEARNED #7: “High on the endangered species list is the objective journalist.” -Old Pithy

Posted by PITHOCRATES - April 1st, 2010

WHEN YOU HEAR the words ‘Tet Offensive’, what do you think of?  The Battle of Hue?  The Siege of Khe Sanh?  Dead American soldiers in the U.S. Embassy compound?  The biggest American victory to date in Vietnam?  I’m guessing you’re probably thinking yes, yes, yes and no.  Or you’re asking yourself, “Vietnam?”

Tet was an all out gamble by the communists to end the war.  The war by 1967 had grown into a military stalemate with the communists unable to win any significant battlefield wins.  The bombing of North Vietnam was taking its toll.  They needed a new plan.  What plan, though, was a matter for debate.

Without going into specifics (unless you want to – I don’t mind), there was no unity of opinion in the North.  Three groups had three different plans raging from large-scale military action to negotiated peace.  The Soviet Union favored a negotiated peace.  The Chinese said screw that.  So after much discussion, debate and arrests, they adopted the Tet plan.

Briefly, Tet called for attacks on cities throughout South Vietnam to encourage the people to rise in rebellion and join the communists.  Once they did the war would be over.  Or so went the plan.  Which failed miserably.  There were no rebellions.  There were no military victories.  Just huge communist losses.  The leaders would later vow never to undertake such a plan again.  As they licked their wounds they pondered what to do in the wake of the catastrophe known as the Tet Offensive.  Then something happened.  In the United States.

Walter Cronkite gave his opinion on the air.  There is some debate whether this turned public opinion on the war.  When he said we couldn’t win the war, though, it stunned President Johnson.  He said if he lost Cronkite he lost the American people. 

The anti-war movement spread following Tet.  The communists saw this.  And they learned something.  They didn’t need to defeat the Americans in a decisive battle (which they couldn’t).  All they had to do was to wait.  And wait they did.  For 7 years.

The opinion of the most trusted man in America may have not influenced public opinion.  But when you are the most trusted man in America, your opinion probably does influence people.  A shame, really.  The world changed in 1968. 

Tet was a glorious opportunity.  The North was reeling.  If the response to Tet was an all out, no holds bar, counterattack, the U.S. could have been negotiating from a position of strength.  Great strength.  Vietnam may have ended like the Korean War.  Maybe we could have avoided another 7 years or so of war.  And, if the war did end earlier, the currency inflation (to pay for both the Great Society and the war) may not have been so bad.  Maybe Nixon wouldn’t have decoupled the dollar from gold, igniting double-digit inflation and interest rates.  Maybe Carter wouldn’t have given us malaise and stagflation.  Perhaps a group of radical students wouldn’t have stormed our embassy and taken hostages because they saw us as a ‘paper tiger’. 

Would’ve, should’ve, could’ve, yes, but you have to ask yourself.  What would have happened if the most trusted man in America didn’t say we couldn’t win the war in Vietnam?

EARLY VIETNAM STRATEGY revolved around the body count.  You counted the enemy dead.  You killed more of theirs than they killed of yours, you won the battle.  Kill enough of them and they can’t fight anymore.  And then you win the war.  Or so went the strategy. 

Counting dead bodies is kinda cold and callous.  People didn’t like it.  Among the changes in policy following Tet, the military stopped the big search and destroy operations and counting the dead for ledger columns.  But the body count lived on.

Flash-forward to the wars in Afghanistan and Iraq.  During the Bush (Republican) administration, the mainstream media (MSM) included body counts in their broadcasts – of American dead.  They didn’t just give numbers, they identified them by name.  They wanted to film returning coffins at Andrews Air Force Base.  Remember that?  Maybe not.  It’s hard to remember something that isn’t happening anymore.  During the Obama (Democrat) administration, the MSM appears to have suspended the body count policy.  Once the Republican was gone, apparently it was no longer fashionable to politicize dead soldiers.

IF YOU WANT to hear evidence of talking points in the MSM, you can tune into the Rush Limbaugh program on almost any day.  Limbaugh edits sound bites together and plays them on his program.  It’s a lot easier to hear the pattern in a montage than if you’re only watching one or two of the MSM’s outlets.  Even if you don’t like Limbaugh, give a listen.  They’re pretty interesting.  And entertaining.

Here’s an old montage featuring an unusual word: gravitas.  A portion of the transcript copied from his website follows.

Begin transcript.

RUSH:  This goes back to the year 2000. It’s one of the all-time great montages, this happened within a day of President Bush selecting Dick Cheney to be his vice presidential running mate.  You’re going to hear Al Hunt, Juan Williams, Claire Shipman, Steve Roberts, Vic Fazio, Jeff Greenfield, Jonathan Alter, former Senator Bob Kerrey, Margaret Carlson, Mike McCurry, Sam Donaldson, Eleanor Clift, Walter Isaacson, Mark Shields, Judy Woodruff, and Sam Donaldson — and none of these are repeated.

HUNT:  He is a man who meets all George W.’s weaknesses: lack of foreign policy experience, lack of gravitas.  I think now when Gore is trying to make the case of lack of gravitas against George W….

WILLIAMS:  Now we look and we see the son, who is seeking some gravitas, to say to people that he is an intelligent man…

SHIPMAN:  There is a lot talk they are looking at older candidates, candidates with gravitas.

ROBERTS:  He’s had health problems, uh, he’s worked for a Big Oil company, but he has the gravitas.  You can sum it up in one word: stature.

FAZIO:  I really believe that George W. Bush needed that perhaps more than anyone in recent memory because, if there is a rap about him, it may go to the gravitas issue.

GREENFIELD:  If the question about Governor Bush was one of the weight, or to use the favorite phrase of the moment, “gravitas”…

ALTER:  What he gets here is grav-i-tas, a sense of weight, competence, and administrative ability.

KERREY:  I’ve gotta strengthen it in some fashion. I’ve gotta bring gravitas to the ticket.

KERREY:  He does not need anybody to give him gravitas!

CARLSON:  It means that Bush, you know, Gore has experience and gravitas.

McCURRY:  I think he also needs to demonstrate some gravitas, too.

DONALDSON:  …that he was put on the ticket, but by former President Bush, to give gravitas to the ticket.

CLIFT:  Well, Dick Cheney brings congeniality and he brings gravitas.

ISAACSON:  He does seem to bring some vigor as well as gravitas and stature to the ticket.

HUNT:  It’s called “gravitas.”

NOVAK: Right.

SHIELDS A little gravitas!

WOODRUFF:  You certainly have gravitas tonight.

DONALDSON:  Displayed tonight a certain gravitas.

RUSH:  Now, I don’t care. I don’t care how it happens. I don’t care whether they all got together and decided, or one person used it and they all decided to mimic. They are who they are, and that montage is a good illustration.  

End transcript.

George W. Bush has a B.A. in history from Yale.  An MBA from Harvard.  Military experience (though no combat experience).  He was a businessman.  He worked in the energy industry.  Owned part of the Texas Rangers.  Was governor of Texas.  And won reelection to a second 4-year term. 

Obama has a law degree.  Was a community organizer.  State senator for 7 years.  U.S. senator for 3 years.  No executive experience.  No business experience.  No military experience. 

Perhaps both candidates needed to add ‘gravitas’ to their ticket.  In comparing the experience, though, one appears to be lighter than the other.  But when they talked about Joe Biden adding gravitas to the ticket, they didn’t make it sound like Obama was an incompetent boob.  Why?  Probably because it wasn’t in the talking points.

A BLIND MAN can see it.  There’s bias.  Opinion and political activism is taking over objective journalism in the MSM.  It’s been a gradual process.  It started in the 60s.  And continues to grow.  When will it stop?  Hard to say.  Until it does, there is one objective voice left in the crowd.  FOX News.  Which is why the political Left (and the MSM) attacks it so vehemently.

www.PITHOCRATES.com

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LESSONS LEARNED #3 “Inflation is just another name for irresponsible government.” -Old Pithy

Posted by PITHOCRATES - March 4th, 2010

PEOPLE LIKE TO hate banks.  And bankers.  Because they get rich with other people’s money.  And they don’t do anything.  People give them money.  They then loan it and charge interest.  What a scam.

Banking is a little more complex than that.  And it’s not a scam.  Countries without good banking systems are often impoverished, Third World nations.  If you have a brilliant entrepreneurial idea, a lot of good that will do if you can’t get any money to bring it to market.  That’s what banks do.  They collect small deposits from a lot of depositors and make big loans to people like brilliant entrepreneurs.

Fractional reserve banking multiplies this lending ability.  Because only a fraction of a bank’s total depositors will ask for their deposits back at any one time, only a fraction of all deposits are kept at the bank.  Banks loan the rest.  Money comes in.  They keep a running total of how much you deposited.  They then loan out your money and charge interest to the borrower.  And pay you interest on what they borrowed from you so they could make those loans to others.  Banks, then, can loan out more money than they actually have in their vaults.  This ‘creates’ money.  The more they lend the more money they create.  This increases the money supply.  The less they lend the less money they create.  If they don’t lend any money they don’t add to the money supply.  When banks fail they contract the money supply.

Bankers are capital middlemen.  They funnel money from those who have it to those who need it.  And they do it efficiently.  We take car loans and mortgages for granted.  For we have such confidence in our banking system.  But banking is a delicate job.  The economy depends on it.  If they don’t lend enough money, businesses and entrepreneurs may not be able to borrow money when they need it.  If they lend too much, they may not be able to meet the demands of their depositors.  And if they do something wrong or act in any way that makes their depositors nervous, the depositors may run to the bank and withdraw their money.  We call this a ‘run on the bank’ when it happens.  It’s not pretty.  It’s usually associated with panic.  And when depositors withdraw more money than is in the bank, the bank fails.

DURING GOOD ECONOMIC times, businesses expand.  Often they have to borrow money to pay for the costs of meeting growing demand.  They borrow and expand.  They hire more people.  People make more money.  They deposit some of this additional money in the bank.  This creates more money to lend.  Businesses borrow more.  And so it goes.  This saving and lending increases the money supply.  We call it inflation.  A little inflation is good.  It means the economy is growing.  When it grows too fast and creates too much money, though, prices go up. 

Sustained inflation can also create a ‘bubble’ in the economy.  This is due to higher profits than normal because of artificially high prices due to inflation.  Higher selling prices are not the result of the normal laws of supply and demand.  Inflation increases prices.  Higher prices increase a company’s profit.  They grow.  Add more jobs.  Hire more people.  Who make more money.  Who buy more stuff and save more money.  Banks loan more, further increasing the money supply.  Everyone is making more money and buying more stuff.  They are ‘bidding up’ the prices (house prices or dot-com stock prices, for example) with an inflated currency.  This can lead to overvalued markets (i.e., a bubble).  Alan Greenspan called it ‘irrational exuberance’ when testifying to Congress in the 1990s.  Now, a bubble can be pretty, but it takes very little to pop and destroy it.

Hyperinflation is inflation at its worse.  Bankers don’t create it by lending too much.  People don’t create it by bidding up prices.  Governments create it by printing money.  Literally.  Sometimes following a devastating, catastrophic event like war (like Weimar Germany after World War II).  But sometimes it doesn’t need a devastating, catastrophic event.  Just unrestrained government spending.  Like in Argentina throughout much of the 20th century.

During bad economic times, businesses often have more goods and services than people are purchasing.  Their sales will fall.  They may cut their prices to try and boost their sales.  They’ll stop expanding.  Because they don’t need as much supply for the current demand, they will cut back on their output.  Lay people off.  Some may have financial problems.  Their current revenue may not cover their costs.  Some may default on their loans.  This makes bankers nervous.  They become more hesitant in lending money.  A business in trouble, then, may find they cannot borrow money.  This may force some into bankruptcy.  They may default on more loans.  As these defaults add up, it threatens a bank’s ability to repay their depositors.  They further reduce their lending.  And so it goes.  These loan defaults and lack of lending decreases the money supply.  We call it deflation.  We call deflationary periods recessions.  It means the economy isn’t growing.  The money supply decreases.  Prices go down.

We call this the business cycle.  People like the inflation part.  They have jobs.  They’re not too keen on the deflation part.  Many don’t have jobs.  But too much inflation is not good.  Prices go up making everything more expensive.  We then lose purchasing power.  So a recession can be a good thing.  It stops high inflation.  It corrects it.  That’s why we often call a small recession a correction.  Inflation and deflation are normal parts of the business cycle.  But some thought they could fix the business cycle.  Get rid of the deflation part.  So they created the Federal Reserve System (the Fed) in 1913.

The Fed is a central bank.  It loans money to Federal Reserve regional banks who in turn lend it to banks you and I go to.  They control the money supply.  They raise and lower the rate they charge banks to borrow from them.  During inflationary times, they raise their rate to decrease lending which decreases the money supply.  This is to keep good inflation from becoming bad inflation.  During deflationary times, they lower their rate to increase lending which increases the money supply.  This keeps a correction from turning into a recession.  Or so goes the theory.

The first big test of the Fed came during the 1920s.  And it failed. 

THE TWO WORLD wars were good for the American economy.  With Europe consumed by war, their agricultural and industrial output decline.  But they still needed stuff.  And with the wars fought overseas, we fulfilled that need.  For our workers and farmers weren’t in uniform. 

The Industrial Revolution mechanized the farm.  Our farmers grew more than they ever did before.  They did well.  After the war, though, the Europeans returned to the farm.  The American farmer was still growing more than ever (due to the mechanization of the farm).  There were just a whole lot less people to sell their crops to.  Crop prices fell. 

The 1920s was a time America changed.  The Wilson administration had raised taxes due to the ‘demands of war’.  This resulted in a recession following the war.  The Harding administration cut taxes based on the recommendation of Andrew Mellon, his Secretary of the Treasury.  The economy recovered.  There was a housing boom.  Electric utilities were bringing electrical power to these houses.  Which had electrical appliances (refrigerators, washing machines, vacuum cleaners, irons, toasters, etc.) and the new radio.  People began talking on the new telephone.  Millions were driving the new automobile.  People were traveling in the new airplane.  Hollywood launched the motion picture industry and Walt Disney created Mickey Mouse.  The economy had some of the most solid growth it had ever had.  People had good jobs and were buying things.  There was ‘good’ inflation. 

This ‘good’ inflation increased prices everywhere.  Including in agriculture.  The farmers’ costs went up, then, as their incomes fell.  This stressed the farming regions.  Farmers struggled.  Some failed.  Some banks failed with them.  The money supply in these areas decreased.

Near the end of the 1920s, business tried to expand to meet rising demand.  They had trouble borrowing money, though.  The economy was booming but the money supply wasn’t growing with it.  This is where the Fed failed.  They were supposed to expand the money supply to keep pace with economic growth.  But they didn’t.  In fact, the Fed contracted the money supply during this period.  They thought investors were borrowing money to invest in the stock market.  (They were wrong).  So they raised the cost of borrowing money.  To ‘stop’ the speculators.  So the Fed took the nation from a period of ‘good’ inflation into recession.  Then came the Smoot-Hawley Tariff.

Congress passed the Smoot-Hawley Tariff in 1930.  But they were discussing it in committee in 1929.  Businesses knew about it in 1929.  And like any good business, they were looking at how it would impact them.  The bill took high tariffs higher.  That meant expensive imported things would become more expensive.  The idea is to protect your domestic industry by raising the prices of less expensive imports.  Normally, business likes surgical tariffs that raise the cost of their competitor’s imports.  But this was more of an across the board price increase that would raise the cost of every import, which was certain to increase the cost of doing business.  This made business nervous.  Add uncertainty to a tight credit market and business no doubt forecasted higher costs and lower revenues (i.e., a recession).  And to weather a recession, you need a lot of cash on hand to help pay the bills until the economy recovered.  So these businesses increased their liquidity.  They cut costs, laid off people and sold their investments (i.e., stocks) to build a huge cash cushion to weather these bad times to come.  This may have been a significant factor in the selloff in October of 1929 resulting in the stock market crash. 

HERBERT HOOVER WANTED to help the farmers.  By raising crop prices (which only made food more expensive for the unemployed).  But the Smoot-Hawley Tariff met retaliatory tariffs overseas.  Overseas agricultural and industrial markets started to close.  Sales fell.  The recession had come.  Business cut back.  Unemployment soared.  Farmers couldn’t sell their bumper crops at a profit and defaulted on their loans.  When some non-farming banks failed, panic ensued.  People rushed to get their money out of the banks before their bank, too, failed.  This caused a run on the banks.  They started to fail.  This further contracted the money supply.  Recession turned into the Great Depression. 

The Fed started the recession by not meeting its core expectation.  Maintain the money supply to meet the needs of the economy.  Then a whole series of bad government action (initiated by the Hoover administration and continued by the Roosevelt administration) drove business into the ground.  The ONLY lesson they learned from this whole period is ‘inflation good, deflation bad’.  Which was the wrong lesson to learn. 

The proper lesson to learn was that when people interfere with market forces or try to replace the market decision-making mechanisms, they often decide wrong.  It was wrong for the Fed to contract the money supply (to stop speculators that weren’t there) when there was good economic growth.  And it was wrong to increase the cost of doing business (raising interest rates, increasing regulations, raising taxes, raising tariffs, restricting imports, etc.) during a recession.  The natural market forces wouldn’t have made those wrong decisions.  The government created the recession.  Then, when they tried to ‘fix’ the recession they created, they created the Great Depression.

World War I created an economic boom that we couldn’t sustain long after the war.  The farmers because their mechanization just grew too much stuff.  Our industrial sector because of bad government policy.  World War II fixed our broken economy.  We threw away most of that bad government policy and business roared to meet the demands of war-torn Europe.  But, once again, we could not sustain our post-war economy because of bad government policy.

THE ECONOMY ROARED in the 1950s.  World War II devastated the world’s economies.  We stood all but alone to fill the void.  This changed in the 1960s.  Unions became more powerful, demanding more of the pie.  This increased the cost of doing business.  This corresponded with the reemergence of those once war-torn economies.  Export markets not only shrunk, but domestic markets had new competition.  Government spending exploded.  Kennedy poured money into NASA to beat the Soviets to the moon.  The costs of the nuclear arms race grew.  Vietnam became more and more costly with no end in sight.  And LBJ created the biggest government entitlement programs since FDR created Social Security.  The size of government swelled, adding more workers to the government payroll.  They raised taxes.  But even high taxes could not prevent huge deficits.

JFK cut taxes and the economy grew.  It was able to sustain his spending.  LBJ increased taxes and the economy contracted.  There wasn’t a chance in hell the economy would support his spending.  Unwilling to cut spending and with taxes already high, the government started to print more money to pay its bills.  Much like Weimar Germany did in the 1920s (which ultimately resulted in hyperinflation).  Inflation heated up. 

Nixon would continue the process saying “we are all Keynesians now.”  Keynesian economics believed in Big Government managing the business cycle.  It puts all faith on the demand side of the equation.  Do everything to increase the disposable money people have so they can buy stuff, thus stimulating the economy.  But most of those things (wage and price controls, government subsidies, tariffs, import restrictions, regulation, etc.) typically had the opposite effect on the supply side of the equation.  The job producing side.  Those policies increased the cost of doing business.  So businesses didn’t grow.  Higher costs and lower sales pushed them into recession.  This increased unemployment.  Which, of course, reduces tax receipts.  Falling ever shorter from meeting its costs via taxes, it printed more money.  This further stoked the fires of inflation.

When Nixon took office, the dollar was the world’s reserve currency and convertible into gold.  But our monetary policy was making the dollar weak.  As they depreciated the dollar, the cost of gold in dollars soared.  Nations were buying ‘cheap’ dollars and converting them into gold at much higher market exchange rate.  Gold was flying out of the country.  To stop the gold flight, Nixon suspended the convertibility of the dollar. 

Inflation soared.  As did interest rates.  Ford did nothing to address the core problem.  During the next presidential campaign, Carter asked the nation if they were better off than they were 4 years ago.  They weren’t.  Carter won.  By that time we had double digit inflation and interest rates.  The Carter presidency was identified by malaise and stagflation (inflation AND recession at the same time).  We measured our economic woes by the misery index (the unemployment rate plus the inflation rate).  Big Government spending was smothering the nation.  And Jimmy Carter did not address that problem.  He, too, was a Keynesian. 

During the 1980 presidential election, Reagan asked the American people if they were better off now than they were 4 years ago.  The answer was, again, ‘no’.  Reagan won the election.  He was not a Keynesian.  He cut taxes like Harding and JFK did.  He learned the proper lesson from the Great Depression.  And he didn’t repeat any of their (Hoover and FDR) mistakes.  The recession did not turn into depression.  The economy recovered.  And soared once again.

MONETARY POLICY IS crucial to a healthy and growing economy.  Businesses need to borrow to grow and create jobs.  However, monetary policy is not the be-all and end-all of economic growth.  Anti-business government policies will NOT make a business expand and add jobs no matter how cheap money is to borrow.  Three bursts of economic activity in the 20th century followed tax-cuts/deregulation (the Harding, JFK and Reagan administrations).  Tax increases/new regulation killed economic growth (the Hoover/FDR and LBJ/Nixon/Ford/Carter administrations).  Good monetary policies complimented the former.  Some of the worst monetary policies accompanied the latter.  This is historical record.  Some would do well to learn it.

www.PITHOCRATES.com

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