Volume 7, Number 6 June 2015

Publisher, William L. Armstrong

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Principled Ideas from the Centennial Institute

Editor, John Andrews

RECESSION REALITY CHECK:

LEARN FROM THE LAST ONE
TO AVERT THE NEXT ONE

ITS NO WONDER
THE CREDIBILITY GAP
KEEPS WIDENING

By Bill Armstrong

By Nathan Hale

As Albert Einstein is reported

to have said, the definition of
insanity is doing the same thing
over and over and expecting
different results.
With this in mind, note the
similarity of events leading up
to the stock market crash of
1929 and the Great Depression
which followed, with the
comparable causes and outcomes of the real estate and
stock market meltdown of 2008from which the nations
economy has yet to fully recover.

Americans are being lied to

regularly and massively. It needs
to stop.
After all, it was We the People
who created the United States
government, not the other way
around. They work for us, not
we for them. We are the masters,
the employers. They are our
servants, the employees. What
else makes sense?

We hold these truths to be self-evident, says the Declaration

of Independence, and Americas political birthright is truth.
Granted, certain matters involve the nations
The Roaring 20s were partly so called because the
Federal Reserve fostered a 60 percent increase in
Truth is security and must be kept secret. Other matters
are of a personal nature and should be kept private.
the nations money supply preceding the markets
our
political
But beyond these two legitimate exceptions, what
Black Monday crash. When the resulting stock
market bubble burst, credit contracted, banks birthright. right does our government have to withhold the
truth from uslet alone to misinform, ill-inform,
failed, and consumers slashed purchasingthus
or outright lie to us? No right at all.
triggering business failures and massive unemployment.
The jobless rate reached 25 percent at one point.
We Cant be Trusted?
Making Matters Worse
With the economy cratering, policymakers acted swiftly
to make matters even worse. They raised the top tax rate
to 63 (and later 94) percent, hiked tariffs through the
notorious Smoot-Hawley Act, and forced manufacturers
into government-controlled cartels through the National
Industrial Recovery Act. All this increased the cost of doing
business by an estimated 40 percent.
Adding insult to injury, Congress and the president created
the Agricultural Adjustment Act to impose new taxes
on food processors, using the proceeds to pay farmers
to destroy their own crops and livestock. The Wagner
Act gave unprecedented power to labor unions, again
boosting production costs. Meanwhile, President Franklin
Roosevelt leveled a barrage of devastating criticism
against businessmen and free enterprise, inveighing against
economic royalists. Federal spending skyrocketed, and
Continued on Page 2

Yet today, wherever you look, the officers and agencies

of our government are regularly, actively, and aggressively
doing just that. Truth is being withheld every day from you
and me as citizens. Our employees seem to have decided that
we, their employer, cannot be trusted with a full accounting
of Federal Reserve policies or IRS practicesor even with
basic historical facts.
Continued on Page 3
Bill Armstrong, President of Colorado Christian University since 2008, has been a
leader in Colorados political, business, and civic life for over half a century.
Nathan Hale, a hero of the Revolutionary War, is the pen name of one of Americas
most successful business executives, who wrote this article at our invitation.
Centennial Institute sponsors research, events, and publications to enhance
public understanding of the most important issues facing our state and nation.
By proclaiming Truth, we aim to foster faith, family, and freedom, teach
citizenship, and renew the spirit of 1776.

ARMSTRONG: REALITY CHECK

Continued
something like 30 million, charged Jim Collins, chairman
and CEO of the Gallup polling organization, in a recent
article entitled The Big Lie. That would boost the
ostensible unemployment rate of 5.5 percent (April 2015)
to more than 19 percent.
Bush and Obama share blame for the Great Recession,
as do Hoover and Roosevelt for the Great Depression

with it the national debt. Lawrence Reed tells the whole

sad story in a previous issue of Centennial Review (December
2010), adapted from his brilliant monograph, Great Myths
of the Great Depression.
So the Great Depression dragged on for over a decade,
including a second government-induced downturn in 1937,
until economic activity was finally stimulated by the onset
of World War II.

So have we learned anything from this bitter experience?

Sad to report, most Americans have been bamboozled
into believing that the private sector caused the 2008 crash
and that the nation has been saved only by the wisdom of
Washington, D.C.
Nine Realities
Such notions are palpably false. Despite vociferous efforts
to make mortgage lenders and Wall Street speculators the
scapegoats for the nations economic miseries, the reality is
very different. We can list at least nine obvious ways:

1) In reality, the housing bubble and subsequent crash that

If all this sounds familiar, the reason is that its almost
left millions of homeowners under water on their mortgages
exactly what happened 80 years later. The Federal
(owing more than the market value of their home) was
Reserve again let the money supply grow
caused by excessive monetary expansion by
Americans
at an unsustainable rate and produced huge
the Federal Reserve. The Fed made the same
bubbles in real estate and stocks. At the
mistake in the early years of this century that
have been
same time, Congress mandated lenders to
it made leading up to the 1929 stock market
bamboozled.
give mortgages to borrowers with low credit
crash and the Great Depression of the 1930s.
ratings and miniscule down payments, loans which quickly
2) In reality, the stock market went bust in 2008 for the same
went into default.
reasontoo much money sloshing around the nations
Policymakers in Overdrive
financial markets, which led to what Alan Greenspan
prophetically called irrational exuberance, victimizing
Policymakers, mimicking the failed decisions of the 1930s,
gullible investors.
went into overdrive to exacerbate the situation. They bailed
out banks, nationalized mortgage markets, and seized
3) In reality, the real estate market cratered because President
industrial companies, squeezing out bondholders in the
Bush, President Obama, and the Treasury Department,
process. Predictably, GDP dropped, banks and businesses
along with bureaucrats at HUD, FHA, and VA, deliberately
failed, and home foreclosures skyrocketed. Millions of
encouraged loans to unqualified borrowers.
homeowners found themselves under water on their
4) In reality, Rep. Barney Frank, Sen. Chris Dodd, and
mortgage loans, owing more than the reduced market value
their congressional colleagues abetted the executive branch
of their homes.
by ignoring warnings that lending money to unqualified
Perhaps worst of all, millions of American workers lost
borrowers with low down payments and even lower credit
their jobs, a good many of them permanently. Recent
scores would lead to massive defaults. They denied that
favorable news about unemployment is largely accounted
credit standards were too loose and prodded private lenders
for by the millions of discouraged workers who have quit
to make more and more affordable loans. The result was
seeking jobs and are therefore no longer officially counted
a tsunami of defaults, foreclosures, and human misery.
as unemployed. With a reality check, government claims of
5) In reality, as the downturn morphed into a full-blown
fewer than nine million unemployed should be restated to
recession, the economy experienced additional drag from
CENTENNIAL REVIEW is published monthly by the Centennial Institute at Colorado Christian University. The authors views are not necessarily
those of CCU. Designer, Bethany Bender. Illustrator, Benjamin Hummel. Subscriptions free upon request. Write to: Centennial Institute, 8787
W. Alameda Ave., Lakewood, CO 80226. Call 800.44.FAITH. Or visit us online at www.CentennialCCU.org.
Please join the Centennial Institute today. As a Centennial donor, you can help us restore Americas moral core and prepare
tomorrows leaders. Your gift is tax-deductible. Please use the envelope provided. Thank you for your support.
- John Andrews, Director
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Centennial Review February 2015 2

Congresss earlier enactment of the Sarbanes-Oxley bill (2002),

a bundle of new regulations which have damaged capital
markets, reduced initial public offerings, and increased public
company compliance costs by 130 percent. Additionally, the
law imposes a brutal opportunity cost as business executives
are incentivized to spend disproportionate time thinking about
compliance instead of profitable, job-creating activity.
6) In reality, Congress alsothrough the Dodd-Frank
billcreated a new consumer protection agency, reorganized
financial institution supervision, and set up new regulators
which are required by the statute to promulgate 243 rules,
conduct 67 studies and issue 22 periodic reports, according to
research by the Davis Polk firm.
One of those many requirementsthe so-called Volcker rule
prohibiting banks from proprietary tradinghas proven so
complicated that rulemaking took
five years and the effective date was
Government
postponed to 2016. And confusion
itself was
lingers even now, suggesting further
the culprit.
delay in implementing the rule.
7) In reality, the Federal Reserve
forced interest rates to nearly zero by purchasing $4.5 trillion
of bank assets, an unconventional monetary policy that
seems to have done little to restore economic growth but has
dramatically lowered interest income for retired persons and
other savers.
8) In reality, the implementation of Obamacare has prompted
many firms to fire workers or cut back their schedules to less
than 30 hours per week, the threshold for mandatory inclusion
in this socialized medicine scheme.
9) And finally, in reality, Congress went on a spending spree,
running up the bonded debt to over $18 trillion and piling up
an estimated $127 trillion in unfunded liabilities for public
employee pensions, Social Security, Medicare, and more.
Phony Pretext
So much for the fallacy that the economic meltdown of
2008, and the recession that followed, were primarily caused
by unscrupulous Wall Street manipulators and mendacious
mortgage lenders. The culprit, in reality, was government itself.
Equally fallacious, and more worrisome, is the widespread
belief that the ensuing recovery, such as it was, owed everything
to the guidance of Washington wise men whose intervention
in the private economy saved the day. This pervasive notion
served as the pretext for unprecedented expansion of
government power with a severely adverse effect on economic
growthand on the nations future prospects for prosperity.
So what to do? For starters, we should recall the wisdom of
Ronald Reagan, who said as he assumed the presidency in 1981:
Government is not the solution to our problem. Government
is the problem. The Gipper was right. What we need is not
more government, but less. Heres a common-sense agenda for
learning from the last recession and heading off the next one:

For a Rapid Rebound

Lets repeal Dodd-Frank, Sarbanes-Oxley, and
Obamacare, along with all the new regulatory agencies
they created and the tens of thousands of pages of
regulations they fostered.
Lets stop subsidizing commodities, exports, wind
power, AMTRAK, and a thousand other schemes that
dont make economic sense.
Lets abandon the idea of the Federal Reserve as a
super regulator and manager of the national economy,
meeting behind closed doors and with little public
scrutiny. Instead, lets hold the Fed accountable for
maintaining a stable value of currency to facilitate
domestic and international trade, thereby creating new
jobs and prosperity from coast to coast.
Lets ignore President Obamas call for a huge tax
increase and instead cut back on business taxes,
which are among the highest in the world. Also lets
cut personal tax rates, which have created so much
hardship for working families.
Lets amend the U.S. Constitution to forbid budget
deficits except in a time of national emergency certified
by a two-thirds majority vote of the House and Senate.
Lets stop criticizing and demonizing the investors and
entrepreneurs whose capital and ingenuity are the best
hope for restoring a solid economic growth rate, and
start praising them as they deserve.
Everyone hopes America will not soon have another
crash, or even another recession. But when the economy
does begin slowing down, as it eventually will, we should
urge policymakers to learn from the 2008 debacle and
follow this common-sense agenda for a rapid rebound.

HALE: CREDIBILITY GAP

Continued
Our government routinely and disdainfully condescends
to millions of its own citizens and taxpayers and voters,
upon whose supposed education it has spent (or too often
squandered) untold billions.
Consider six illustrative examples out of many we could
cite. The truth about each, though easily discovered, is
seldom admitted or even hinted by politicians, the media,
and the education system.
1) The 2008 financial meltdown, so devastating to the
U.S. economy, was primarily a responsibility of our own
government, not of the private sector.
The acknowledged simultaneous causes of that crisis
included artificially low interest rates set by the Fed,
activist legislation with unintended consequences (such
as the Commodity Futures Modernization Act), subprime
Centennial Review February 2015 3

Bill Armstrong on Reality

Nathan Hale on Truth
The financial meltdown of
2008 prompts this pair of biting
commentaries by CCUs President
and by a good friend of CCU,
writing incognito. Politicians
culpability is inescapable, says
Armstrong. And their aversion to
truth is intolerable, adds Hale.

Centennial Institute
Colorado Christian University
8787 W. Alameda Ave.
Lakewood, CO 80226
Return Service Requested

mortgage lending policies pushed by Barney Frank, risky

home loans by Freddie Mac and Fannie Mae, and dereliction
by the SEC and other regulators.

two-parent family. Single-parent families, the increasingly

prevalent norm, are failing in droves, primarily the victims
of destructive welfare policies.

All five of those factors stemmed from government. While

the financial industry does not have clean hands either,
with such factors as its own mismanagement, the Wall
Street securitization fiasco, the rating agencies, and markto-market accounting rules, public policy must bear most
of the blame.

6) And now, with the Internet facing imposition of clumsy,

counter-productive net neutrality regulations, what has
arguably been the greatest period of human innovation
since the invention of the printing press is about to be shut
down by a super-secretive governmental panel of unelected
bureaucratsthe Federal Communications Commission.

2) Likewise, the duration and severity of

the Great Depression of the 1930s were
primarily the fault of government, not of
the private sector.

Its time
to insist
on truth.

Public policy drove all three major causes

of the Depression, including faulty Federal Reserve
actions to close 9,000 banks; faulty presidential actions by
both Hoover and Roosevelt regarding the gold standard,
deflation, and more; and faulty legislative policy regarding
tariffs, taxes, and the myth of communism. Other nations
economies, not similarly burdened, recovered more rapidly
than the U.S. economy.
Blame the GUMS

3) Our system of public education has failed us miserably.

America is first in the world in per capita education
spending and yet we rank in the lower third in academic
achievement when compared to 33 other industrialized
nations. The blame, once again, lies with the unholy alliance
of governments, unions, monopolies, and special interests
(the GUMS, as I call them), though they are always blaming
others.
4) Our governments 50-year, $22 trillion War on Poverty
has also failed miserably. The gap between the rich and the
poor grows wider every day. And as social scientists from
Daniel P. Moynihan to Charles Murray have shown, the
root of the problem is cultural poverty (often governmentpromoted) much more than financial poverty.
5) Further, and related to this, our government bears the
primary responsibility for the breakdown of the traditional
Centennial Review February 2015 4

Fed Up

Need we say more? We could go on with

similar examples for days, but from this
half-dozen the point is clear. Truth is the
foundation of our society, the foundation of
our system of government.
Yet the government itself, at all levels and too often with
both political parties collaborating, screens citizens from
the truth and justifies policies with untruth.
Its no wonder the credibility gap keeps widening. People
are fed up with being misled and lied to. As we say after
losing a big football game, its time to go back to the basics.
Its time to insist on truth.

Students Age 16-20

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