Lee Gomes writes on Forbes.com with a clear-eyed reminder that privacy regulation has been costly, yet failed to deliver. Lovers of government intervention will, of course, take this as an argument to double-down.
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“They Don’t Have the Money to Pay Us Back”
When they let their guard down, politians can say the most revealing things. In today’s Wall Street Journal, representatives of local governments in California attacked Governor Schwarnenegger’s plan to borrow $2 billion from local property tax revenues to cover some of the state’s budget shortfalls. In response, Don Knabe, chairman of the Los Angeles County Board of Supervisiors said, “They’re hijacking our dollars. They don’t have the money to pay us back. It’s a joke.”
Given that California doesn’t have the money to pay back borrowing from its local government, it’s likely they might not be able to pay back borrowing from private investors either. To solve this problem, we have the Municipal Bond Insurance Enhancement Act, on which the House Financial Services Committee held a hearing this week. To encourage investors to buy California’s risky debt, the federal government would cover any losses to the investor. We’re told that the federal government would charge bond-issuing governments insurance premiums to cover any losses, but the federal government’s history of setting rates based on politics rather than risk (have you looked at the health of the National Flood Insurance Program lately?) guarantees that the taxpayer would likely have to cover billions in losses on any guarantee of California’s debt.
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E‑Verify: The Surveillance Solution
The federal government will keep data about every person submitted to the “E‑Verify” background check system for 10 years.
At least that’s my read of the slightly unclear notice describing the “United States Citizenship Immigration Services 009 Compliance Tracking and Monitoring System” in today’s Federal Register. (A second notice exempts this data from many protections of the Privacy Act.)
To make sure that people aren’t abusing E‑Verify, the United States Citizenship and Immigration Services Verification Division, Monitoring and Compliance Branch will watch how the system is used. It will look for misuse, such as when a single Social Security Number is submitted to the system many times, which suggests that it is being used fraudulently.
How do you look for this kind of misuse (and others, more clever)? You collect all the data that goes into the system and mine it for patterns consistent with misuse.
The notice purports to limit the range of people whose data will be held in the system, listing “Individuals who are the subject of E‑Verify or SAVE verifications and whose employer is subject to compliance activities.” But if the Monitoring Compliance Branch is going to find what it’s looking for, it’s going to look at data about all individuals submitted to E‑Verify. “Employer subject to compliance activities” is not a limitation because all employers will be subject to “compliance activities” simply for using the system.
In my paper on electronic employment eligibility verification systems like E‑Verify, I wrote how such systems “would add to the data stores throughout the federal government that continually amass information about the lives, livelihoods, activities, and interests of everyone—especially law-abiding citizens.”
It’s in the DNA of E‑Verify to facilitate surveillance of every American worker. Today’s Federal Register notice is confirmation of that.
O Canada!
So not only is Canada economically freer than the United States, with government spending and taxes about to be lower than ours, now the Canadian navy has saved an American ship from a pirate attack off Somalia. It may be time to play “The World Turned Upside Down” again.
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The Terminator Turns into a Spendinator
Appearing on Larry Kudlow’s CNBC show, I warn that tax-and-spend policies are turning California into an American version of France. But for those who want all the gory details, Reason TV has an excellent new video.
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Who’s Going to Buy Your Debt, Mr. President?
The administration’s presumption that America can borrow its way to prosperity has taken a couple of big hits over the last couple days.
First, just as the Third World debt crisis destroyed the belief among international bankers that countries don’t go bankrupt, so is the West’s borrowing binge ending the belief among international investors that the U.S. and other Western nations are safe economic bets.
Reports the Wall Street Journal:
Britain was warned by Standard & Poor’s Ratings Service that it may lose its coveted triple‑A credit rating, triggering a drop in U.K. bonds and sparking global fears about the consequences of massive debts being incurred by the U.S. and other major nations as they try to dig out from the economic crisis.
…
The announcement quickly sent waves across the Atlantic. Investors initially dumped U.K. bonds and the pound, heading for the relative safety of U.S. Treasurys. But within hours, worries about an onslaught of new U.S. bond sales and the security of America’s own triple‑A rating drove down the prices of U.S. Treasurys.
The yield of the benchmark U.S. 10-year bond, which moves in the opposite direction to the price, rose by 0.15 percentage point from Wednesday to 3.355%, its highest level in six months.
The relative gloom about the U.K. and the U.S. was apparent Thursday in the market for credit-default swaps, where investors can buy and sell insurance against sovereign defaults. Five years of insurance on $10 million in U.K. debt jumped to around $81,000 a year, from $72,000 earlier in the day. U.S. debt insurance cost the equivalent of $37,500 — in the same range as France at $38,000, and Germany at $35,000.
A shot across the bow of the American ship of state, some analysts have called it.
But shots also were being fired from another direction: East Asia. The Chinese are starting to have doubts about Uncle Sam’s creditworthiness. Reports the New York Times:
Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.
China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.
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Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.
This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.
The national debt is over $11 trillion. This year’s deficit will run nearly $2 trillion. Next year the deficit is projected to be $1.2 trillion, but it undoubtedly will run more. The administration projects an extra $10 trillion in red ink over the coming decade.
Fannie Mae and Freddie Mac need more money. The Pension Benefit Guaranty Corporation is in trouble. The FDIC will need more cash to clean up failed banks. The effectively nationalized auto companies will soak up more funds. Then there’s the more than $70 trillion in unfunded Social Security and Medicare liabilities.
But don’t worry, be happy!
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Dan Mitchell: ‘California Is the France of America’
California voters have spoken, and they said no to California’s high tax budget balancing proposals in a special election Tuesday.
Cato scholar Dan Mitchell debated Air America founder Mark Walsh on CNBC yesterday, and called California “The France of America,” for their tax and spend policies: