US: The Founders’ Vision Versus Ours

US: The Founders’ Vision Versus Ours – by Walter Williams

The celebration of our founders’ 1776 revolt against King George III and the English Parliament is over. Let’s reflect how the founders might judge today’s Americans and how today’s Americans might judge them.

In 1794, when Congress appropriated $15,000 to assist some French refugees, James Madison, the acknowledged father of our Constitution, stood on the floor of the House to object, saying, “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” He later added, “(T)he government of the United States is a definite government, confined to specified objects. It is not like the state governments, whose powers are more general. Charity is no part of the legislative duty of the government.” Two hundred years later, at least two-thirds of a multi-trillion-dollar federal budget is spent on charity or “objects of benevolence.”

What would the founders think about our respect for democracy and majority rule? Here’s what Thomas Jefferson said: “The majority, oppressing an individual, is guilty of a crime, abuses its strength, and by acting on the law of the strongest breaks up the foundations of society.” John Adams advised, “Remember democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” The founders envisioned a republican form of government, but as Benjamin Franklin warned, “When the people find they can vote themselves money, that will herald the end of the republic.”

What would the founders think about the U.S. Supreme Court’s 2005 Kelo v. City of New London decision where the court sanctioned the taking of private property of one American to hand over to another American? John Adams explained: “The moment the idea is admitted into society that property is not as sacred as the laws of G0d, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If ‘Thou shalt not covet’ and ‘Thou shalt not steal’ were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.”

Thomas Jefferson counseled us not to worship the U.S. Supreme Court: “(T)he opinion which gives to the judges the right to decide what laws are constitutional and what not, not only for themselves in their own sphere of action but for the Legislature and Executive also in their spheres, would make the Judiciary a despotic branch.”

How might our founders have commented about last week’s U.S. Supreme Court’s decision upholding our rights to keep and bear arms? Justice Samuel Alito, in writing the majority opinion, said, “Individual self-defense is the central component of the Second Amendment.” The founders would have responded “Balderdash!” Jefferson said, “What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms.”

George Mason explained, “(T)o disarm the people (is) the best and most effectual way to enslave them.” Noah Webster elaborated: “Before a standing army can rule, the people must be disarmed. … The supreme power in America cannot enforce unjust laws by the sword; because the whole body of the people are armed, and constitute a force superior to any band of regular troops that can be, on any pretense, raised in the United States. A military force, at the command of Congress, can execute no laws, but such as the people perceive to be just and constitutional; for they will possess the power, and jealousy will instantly inspire the inclination, to resist the execution of a law which appears to them unjust and oppressive.”

Contrary to Alito’s assertion, the central component of the Second Amendment is to protect ourselves from U.S. Congress, not street thugs.

Today’s Americans have contempt for our founders’ vision. I’m sure our founders would have contempt for ours.

US: Walking Back Pelosi

US: Walking Back Pelosi – Investors.com

Free Speech: The speaker of the House wants to know how opponents of the Ground Zero mosque are being funded. When Americans can be investigated for their opinions, our republic has arrived at a dangerous place.

In an interview Tuesday with KCBS in her home district of San Francisco, Nancy Pelosi said she’s among “those who have called for looking into how is this opposition to the mosque being funded,”and wondered how the issue is being “ginned up.”

This is how tyrants act, not U.S. lawmakers — especially those two heartbeats from the presidency. Elected and appointed officials in this country have a duty to tolerate dissent, and in some cases even promote it. Our constitutional safeguard of free speech is one of the principles that sets us apart from repressive nations.

Caught in a corner she stumbled into by herself, Pelosi tried to “walk back” her remarks. But she failed to disown her previous statement. She merely added to it, saying she also supports transparency about who is funding the mosque itself. So her contention that the opposition needs to be investigated stands.

Should the speaker get her way, that will be some drawn-out probe. The number of Americans she would charge with being the “opposition” is considerable.

A Siena Research Institute poll found that 63% of New York state voters are against the Cordoba House. When polling all Americans, CNN found that 68% oppose the mosque, and Time discovered that 61% don’t like the idea. Only 29% told CNN they favor the plan, while 26% in the Time poll said they support it.

The Pelosi probe would also catch one of her colleagues in the dragnet. Harry Reid, her counterpart in the Senate, is also opposed to a mosque so near the spot where nearly 3,000 Americans were incinerated in the name of Allah. So is former Democratic National Committee Chairman Howard Dean.

No matter how odious an idea or speech may be to those in power, the state doesn’t have the moral standing to punish or re-educate those who express unpopular positions or annoy the authorities.

When lawmakers respond as Pelosi did, they undermine our founding principles and inject a degree of tyranny into our system. Anyone who wasn’t chilled by her statement is part of the problem.

US: Immigration Looms as the Next Test for Congress

US: Immigration Looms as the Next Test for Congress – by Michael Barone

Is Congress, behind on Barack Obama’s deadlines on health care and cap-and-trade legislation, and flummoxed by the failure of the stimulus package to hold unemployment below 10.2 percent, prepared to address the immigration issue next year?

Homeland Security Secretary Janet Napolitano says it better be. The current situation, she told the Center for American Progress on Nov. 13, “is simply unacceptable.” We need a “three-legged stool,” with provisions to strengthen enforcement, legalize some illegal immigrants and improve “legal flows for families and workers.”
This sounds a lot like the comprehensive legislation, backed by the Bush administration, that never came to a vote in the Republican House in 2006 and was rejected by the Democratic Senate in 2007. But, as Napolitano correctly noted, the facts on the ground have changed in the last two years.

Ironically, the push for legalization in 2006-07 resulted instead in stronger enforcement measures. Some 600 miles of border fence have been built, the Border Patrol has been vastly expanded, and the e-Verify system for determining whether job applicants are legally in the country has shown its worth.

It’s probably not a coincidence that Arizona, where e-Verify is most widely used and where Napolitano used to be governor, had a statistically significant drop in its foreign-born population percentage in 2007-08. The Obama administration may be skinning back on some enforcement procedures. But states and localities are moving forward, and the momentum seems to be toward stricter enforcement of existing law.

Even more important, the flow of immigrants into the United States is slowing dramatically and may be reversing. The Pew Hispanic Center notes that the number of immigrants from Mexico in 2008-09 is down three-quarters from four years before. The Center for Immigration Studies estimates that the number of illegals in the U.S. declined by 1.7 million, or 14 percent, in 2007-08. Government figures show that border apprehensions, a statistic that is often taken as a proxy for illegal crossings, fell 23 percent in 2008-09 from the previous year and was only one-third the number in the peak period of 2000-01.

Those numbers obviously reflect a response to deep recession as well as the effects of tougher enforcement. They suggest a much smaller immigration flow and significant reverse migration back to countries of origin in the years ahead.

The 2006 and 2007 comprehensive immigration packages were premised on different facts. An approach more in line with current realities comes from a bipartisan panel assembled by the Brookings Institution and Duke University’s Kenan Institute.

The Brookings/Kenan panel would provide for legalization of less than half of current illegals, with stringent requirements and only after stepped-up workplace enforcement provisions reach stated levels of use and effectiveness. Technology should allow programs like e-Verify to screen job applicants for legal status in a way that was promised but never delivered by previous immigration laws.

In addition, the Brookings/Kenan panel urges a sharp reduction in the number of green cards for relatives beyond the nuclear family of current legal residents and a sizable increase in admissions of high-skill immigrants. This is the approach taken, with good results, by Canada and Australia, which liberalized their immigration laws after our 1965 law opened the floodgates.

These proposals address the political reality that any new immigration bill must have bipartisan support, because the issue poses dangers for both Democrats and Republicans.

Conditioning legalization on more effective enforcement procedures could give Democrats cover from attacks for supporting amnesty. They could argue, accurately, that enforcement has become more effective and that they voted to make it even tougher.

Changing admissions requirements from favoring extended family members to favoring high-skill immigrants could give Republicans cover from charges that they are anti-immigrant. They could argue that, in a time of high and extended unemployment, it makes sense to switch from admitting job seekers to admitting job creators.

The 1965 and 1986 laws resulted in a large illegal immigrant population because they promised things that proved beyond the capacity of government to deliver. Now that a combination of public indignation and high-tech ingenuity have increased government’s enforcement capacity, and while the inflow of immigrants is slowing and an outflow of illegals may be accelerating, we may have reached a point when we can put in place immigration laws with enforceable limits and that encourage an influx of the kind of immigrants we need most. Can Congress act?

U.S.-Mexican border is terrorists’ moving sidewalk

U.S.-Mexican border is terrorists’ moving sidewalk – by Deroy Murdock

Daniel Joseph Maldonado AKA Abu Mohammed

NEW YORK — While Americans march against Arizona’s new restrictions on unlawful immigration, hundreds of illegal aliens from countries awash in Muslim terrorists tiptoe across the U.S.-Mexican frontier.

According to the federal Enforcement Integrated Database, 125 individuals were apprehended along the border from fiscal year 2009 through April 20, 2010. These deportable aliens included two Syrians, seven Sudanese, and 17 Iranians, all nationals from the three Islamic countries that the U.S. government officially classifies as state sponsors of terrorism.

Federal authorities also track “special interest countries” from which terrorism could be directed against America. Over the aforementioned period, 99 of those nations’ citizens also were nabbed on the border. They were: two Afghans, five Algerians, 13 Iraqis, 10 Lebanese, 22 Nigerians, 28 Pakistanis, two Saudis, 14 Somalis, and three Yemenis. During FY 2007 and FY 2008, federal officials caught 319 people from these same countries traversing America’s southwest border.

Some such characters were confined in Arizona, which recently adopted a controversial law that lets cops ask the citizenship status of those they suspect of other possible violations. WSB-TV recently publicized an April 15, 2010, “population breakdown” of immigrants detained at a facility in Florence, Ariz. Of the 395 males behind bars, 198 were Mexican, 18 hailed from Afghanistan, Iraq, Iran, Lebanon, Nigeria, Pakistan, Somalia, Sudan and Yemen.

Perhaps these gentlemen simply want to pursue the American dream. Worrisome signs suggest, however, that some may have arrived via blistering, cactus-adorned deserts so they could blow Americans to smithereens.

Texas Border Patrol agents discovered, along with Iranian currency and Islamic prayer rugs, an Arabic clothing patch that reads “martyr” and “way to immortality.” Another shows a jet flying into a skyscraper.

“Members of Hezbollah, the Lebanon-based terrorist organization, have already entered the United States across our southwest border,” declares “A Line in the Sand,” a 2006 report by the House Homeland Security Investigations Subcommittee, then-chaired by Rep. Michael McCaul (R-Texas).

Even more disturbing are the uninvited terrorists and terror suspects that were arrested after entering America through our permeable underbelly:

– Mahmoud Youssef Kourani pleaded guilty in March 2005 to providing material support to terrorists. First, Kourani secured a visa by bribing a Mexican diplomat in Beirut. He and another Middle Easterner then hired a Mexican guide to escort them into America. Finally, Kourani settled in Dearborn, Michigan’s Lebanese-immigrant community, and raised cash for Hezbollah.

– Miguel Alfonso Salinas was caught in New Mexico near the international border in 2006. As The Washington Examiner reported, one week of FBI interrogation exposed Salinas as an Egyptian named Ayman Sulmane Kamal. Evidently, he remains in federal custody.

– Then-National Intelligence Director Mike McConnell said that in FY 2006 and FY 2007, at least 30 potentially dangerous Iraqis were found trying to penetrate America via Mexico. As McConnell told the El Paso Times: “There are numerous situations where people are alive today because we caught them.”

– The Department of Homeland Security issued an April 14 intelligence alert regarding a possible border-crossing attempt by a Somali named Mohamed Ali. He is a suspected member of Al-Shabaab, a Somali-based al-Qaida ally tied to the deadly attack on American GIs in 1993′s notorious “Blackhawk Down” incident in Mogadishu.

– Captured in Brownsville, Texas, Ahmed Muhammed Dhakane pleaded not guilty on May 14 to federal charges that he “ran a large-scale smuggling enterprise” designed to sneak East Africans through Mexico into Texas, including “several AIAI-affiliated Somalis into the United States.” Al-Ittihad Al-Islami is yet another Muslim-extremist organization.

– Daniel Joseph Maldonado also has Somali ties. He was picked up in Somalia in 2007 during terrorist training. He was returned to Houston for prosecution. As Rice University’s Joan Neuhas Schaan told KHOU-TV: “They had plans for him to come back to the United States and recruit female suicide bombers.”

All this involves only the bad guys who the authorities nailed. Those who have stayed undetected after crossing the border to murder Americans remain, by definition, invisible.

* Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.

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HOOVER + MCGOVERN = OBAMA

HOOVER + MCGOVERN = OBAMA

Obama's presidency will discredit the Democratic party into the future
By DICK MORRIS & EILEEN MCGANN

Comparisons of Barack Obama's presidency to Jimmy Carter's miss the point. Carter's presidency did little to change the basic party construct of the nation or to influence its ideology. Reagan's presidency accomplished both.

But Barack Obama is destroying the Democratic party. It may not recover for a long time. In this, he most closely resembles a synthesis of the failed candidacy of George McGovern and the catastrophic presidency of Herbert Hoover. The damage he is doing to his party's image and prospects closely resembles the harm Hoover did to the Republican party, from which it did not recover for 20 years after he left office. And the extent to which Obama is discrediting the Left parallelsthe damage George McGovern did to his ideological confreres in 1972, when he went down to flaming defeat.

In a sense, America met its first conservative in 1981 and fell in love. We met our first liberal in 2009 and are running away screaming. FDR was too long ago to count, Lyndon Johnson too distracted by Vietnam to make an impact. So Obama is the first full-throated liberal to be president in our lifetimes. And we won't soon forget him and the lessons his failure is teaching us.

Strangely, the Democrats don't yet get it. They whistle a happy tune as they march off the cliff. There is no voice of dissent against Obama's policies, no mumbled animosity, no suppressed discontent. The party is solid as a phalanx behind its leader even as he sends it to political death. It is the Charge of the Light Brigade, and none of them know that "someone has blundered."
For decades, the liberal alternative glittered attractively on the sidelines. As income inequality increased and Wall Street bonuses excited class animosity, the possibility of an economic-populist response had become more interesting to voters by the time Obama came along. The hyperactive Bush foreign and military policy made the yearning for peace and isolation stronger. And as conservatives increased our national wealth, the glaring omission of the health-care system loomed larger. Finally, when the depression hit, voters called in the liberals from stage left and asked them to take a shot at turning the country around.

And did they ever! They kept their promises and then some. They tripled the deficit and sent the debt soaring. From the moment George Washington took the oath of office until Obama did, America had borrowed $9 trillion. Under Obama, it has borrowed $3.2 trillion more, in less than two years. Our health-care system was deformed, manufacturing was terrified by the prospect of cap-and-tax, GM was absorbed by the government and conquered by the unions, and federalism was buried in an avalanche of subsidies that turned state governments into branch offices of Washington.

Americans have learned their lesson, just as they learned from Hoover the evils of Republican laissez-faire economics. His legacy cast a shadow over politics until Eisenhower vanquished it with his personal popularity in 1952. But it was not until Nixon and Reagan that anti-Hooverism stopped structuringnational elections.

In George McGovern, we all saw the incompetence of liberalism, its disorganization, its extremism, and its ultimate impotence. The best testament to his failure as a candidate is his own discovery of the virtues of private-sector capitalism in his old age. This gentleman -- who was never anything less than that -- clearly paved the way for Ronald Reagan and the conservative ascendancy.

This is likely not the legacy Obama had in mind when, with his massive ego, limited competence, and paltry experience, he took over the White House. Americans, in a fit ofnational delusion, made what they now realize was one of their biggest mistakes.

The magnitude of our error -- or at least of our understanding of it -- will become apparent on November 2, when the GOP will win both houses of Congress, the House by a considerable margin. The 2010 landslide will likely set the record for the largest transfer of House seats in an off- year election. The prior mark of 74 seats in 1922 (a Democratic gain in the wake of Harding's scandals and the Teapot Dome investigation) will probably be eclipsed. But the true measure ofthe damage Obama has done to his ideology and his party will not be evident for some time.

The Twister of 2010

The Twister of 2010
America's political landscape will never be the same.

By PEGGY NOONAN

On a recent trip to Omaha, Neb., I found a note prominently displayed in my hotel room warning of the possibility of "extreme weather" including "tornadic activity." The clunky euphemism was no doubt meant to soften or obscure what they were obliged to communicate: There may be a tornado, look out.

That's what's going on nationally. Tornadoes are tearing up the political landscape.

Everyone talks about the tensions between the Republican establishment, such as it is, and the tea-party-leaning parts of its base. But are you looking at what's happening with the Democrats? Tensions between President Obama and his supporters tore into the open this week as never before, signifying a real and developing fracturing of his party. Mr. Obama, in an interview in Rolling Stone, aimed fire at those abandoning him: "It is inexcusable for any Democrat or progressive right now to stand on the sidelines in this midterm election." The Democratic base "sitting on their hands complaining" is "just irresponsible. . . . We have to get folks off the sidelines. People need to shake off this lethargy, people need to buck up. Bringing about change is hard—that's what I said during the campaign. . . . But if people now want to take their ball and go home, that tells me folks weren't serious in the first place."

At first I thought this was another example of the president's now-habitual political ineptness, his off-key-ness. You don't diss people into voting for you, you can't lecture them into love. The response from the left was fierce, unapologetic—and accusatory. Mr. Obama had let them down, he'd taken half measures. "Stop living in that bubble," shot back an activist on cable. But Jane Hamsher of the leftist blog Firedoglake saw method, not madness. She described the president's remarks as "hippie punching" and laid them to cynical strategy: "It's about setting up a narrative for who will take the blame for a disastrous election." She said Mr. Obama's comments themselves could "depress turnout."

Take the blame? Disastrous? Setting up a narrative?

This isn't the language of disagreement, the classic to-and-fro between a restive base and politicians who make compromises. This is the language of estrangement. It is the language of alienation.

There is a war beginning in the Democratic Party, and the president has lost control of his base.

The Democratic leadership in the House appears to have lost another kind of control, fleeing Washington without passing a federal budget or extending even part of the Bush-era tax cuts, which are due to expire on Jan. 1. Democrats hold a solid majority in the House. They have a hitherto-powerful speaker. And the decision to adjourn passed by only a single vote—that of Nancy Pelosi, who saw 39 Democrats join the Republicans in dissenting.

The Democratic Party right now is showing signs of coming apart under the pressure of the election and two years of an unpopular presidency. But it's not a split in two, with the left versus the establishment. It's more like a splintering, with left-leaning activists distancing themselves from the party's politicians, and moderate politicians distancing themselves from Mr. Obama.

And part of what's driving it is what is driving the evolution of the Republican Party. The Internet changed everything. Everyone has facts now, knows who voted how and why. New thought leaders spring up and lead in new directions. Total transparency leads to party fracturing. Information dings unity. We are in new territory.

Another tornado: The president's influential counselor, David Axelrod, attempted this week to insinuate into the election what Democrats used to deride as "wedge issues." In an interview he said abortion will "certainly be an issue," for Democrats. It will be raised "across the country."

This suggests a certain desperation. Whatever stand you take on the social issues, you have to be blind to think they will make a big difference this year. The issue this year is the size, role, weight and demands of government, and the public sense that its members selfishly look to their own needs and not those of the country. A GOP congressman told me this week that he very much disagrees with the characterization of tea party and Republican voters as enraged or livid. They are scared, he said. He has never, in two decades in politics, heard so many people tell him they are "scared," frightened for their own futures and for the future of their country.

No one will get revved in the way Mr. Axelrod hopes who isn't already a reliable Democratic vote. His raising of a wedge issue speaks not only of a certain cynicism but of what appears to be an endemic White House cluelessness.

Yet another tornado. The Democrats have begun what Grover Norquist predicted a month ago. They saved their money for the end of the campaign and have begun running negative ads. They are not speaking in support of their own votes on health care and other issues. They are avoiding the subject of their own votes on health care and other issues. They are focusing instead on accusations of personal scandal. Both parties have done this in the past, to their mutual shame. But this year, with some exceptions and for obvious reasons, it appears to be largely a Democratic game. At this point in history, with America teetering on the brink of bankruptcy, negative advertising is even more destructive, more actually wicked, than it was in the past.

Negative advertising tears everything down. It contributes to the cynicism of the populace, especially the young. It undermines the faith in government Democrats are always asking us to have, by undermining respect for those who govern, or who seek to. It wears everyone down. And in the long term, though this can never be quantified, it keeps from electoral politics untold numbers of citizens who could bring their gifts and guts to helping solve our problems. I will never forget the visionary real-world entrepreneur who sighed, when I once urged him to enter politics, "I've lived an imperfect life. They'd kill me."

But let's go to what is traditionally the only way journalists and political professionals judge such ads: Do they work? In the past they have. But here's a hunch: This year they will not be so effective. The primary reason is the severity of the moment. But another is that negative ads worked so well in the past. For a generation, the American people have been told their politicians are lowlifes. You know what they now think of them? They think they're lowlifes! People don't really expect high character from their political figures anymore. "Congressman Smith cheated on his wife." That's her problem. Cut my taxes.

Good practical advice on all this comes from Indiana's Gov. Mitch Daniels, who met this week in New York with conservative activists, journalists and historians. Our country is in real peril, he said, we have a short time to do big things to get it right. Republicans "need to campaign to govern, not merely to win." If Democrats are "the worst, the most malevolent" in their campaigning, "don't match 'em, let 'em." Be better. Be serious about the issues at a serious time.

What appears to be coming is a Republican rout. The main reason is the growing connection between public desire on various issues and Republican stands on those issues. But another is what is happening among Democrats—the rise of a spirit of destruction, and the increasing fact of fractured unity.

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Echoes of the Great Depression

As in the 1930s, policy uncertainty and hostility to business have retarded recovery. At least this time around the political price for economic failure promises to be swift.

PHIL GRAMM

This may not be your grandfather's Great Depression, but many aspects of today's situation would remind him of the 1930s. If the recession that officially ended a year ago feels uncomfortably surreal to you yet familiar to him, it's probably because the recovery went missing.

During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007. The economy is growing at only about a third of the rate of previous postwar recoveries from major recessions.

Obama administration officials such as Treasury Secretary Tim Geithner have argued that without their policies the economy would be worse, and we might have fallen "off a cliff." While this assertion cannot be tested, we can compare the recent experience of other countries to our own.

View Full Image

Associated Press

President Franklin D. Roosevelt and Treasury Secretary Henry Morgenthau Jr.

The chart nearby compares total 2007 employment levels in the United States, the United Kingdom, the 16 euro zone countries, the G-7 countries and all OECD (Organization for Economic Cooperation and Development) countries with those of the second quarter of 2010. There are 4.6% fewer people employed in the U.S. today than at the start of the recession. Euro zone countries have lost 1.7% of their jobs. Total employment in the U.K. is down 0.6%, G-7 average employment is down 2.4%, and OECD employment has fallen 1.9%.

This simple comparison suggests two things. First, that American economic policy has been less effective in increasing employment than the policies of other developed nations. Second, that if there was a cliff out there, no country fell off. Those that suffered the most were the most profligate, such as Greece, and their problems can't be blamed on the financial crisis. While the most recent quarterly growth figures are just a snapshot in time, it is hardly encouraging that economic growth in the U.S. (1.7%) is lower than in the euro zone (4%), U.K. (4.8%), G-7 (2.8%) and OECD (2%).

Most striking about these comparisons is their similarity to the U.S. experience in the Great Depression. Using data from the League of Nations' World Economic Survey, we can look at unemployment in developed nations between 1929 and the end of 1938. Ten years after the stock market crash, total employment in the U.S. was still almost 20% below the pre-Depression level. The decline in France was similar. But in the U.K. and Italy, total employment was up 10% and 12%, respectively. Industrial production on average in the six most developed countries was almost 16% above their 1929 levels by the end of 1938, but industrial production had declined by 20% in the U.S.

Today's lagging growth and persistent high unemployment are reminiscent of the 1930s, perhaps because in no other period of American history has our government followed policies as similar to those of the Great Depression era. Federal debt by the end of 1938 was almost 150% above the 1929 level. Federal spending grew by 77% from 1932 to 1934 as the New Deal was implemented—unprecedented for peacetime.

Still the economy did not take off. Winston Churchill gave a contemporary evaluation of the Roosevelt policy by observing, in the April 24, 1935, Daily Mail, "Nearly two thousand millions Sterling have been poured out to prime the pump of prosperity; but prosperity has not begun to flow."

The top individual income tax rate rose from 24% to 63% to 79% during the Hoover and Roosevelt administrations. Corporate rates were increased to 15% from 11%, and when private businesses did not invest, Congress imposed a 27% undistributed profits tax.

In 1929, the U.S. government collected $1.1 billion in total income taxes; by 1935 collections had fallen to $527 million. In 1929, individual income taxes accounted for 38% of government revenues, corporate taxes accounted for 43%, and excise taxes for 19%. By 1939, individual income taxes made up only 26% of federal revenues, corporate income taxes made up 29%, and excise taxes made up 45%.

When Treasury Secretary Henry Morgenthau suggested to President Roosevelt that the administration cut income tax rates in 1939, Roosevelt, apparently concerned about the possible effect of deficit-financed tax cuts on interest rates, asked, "You are willing to pay usury in order to get recovery?" Morgenthau said that he responded, "Yes sir." The president disagreed.

The Roosevelt administration also conducted a seven-year populist tirade against private business, which FDR denounced as the province of "economic royalists" and "malefactors of great wealth." The war on business and wealth was so traumatic that the League of Nations' 1939 World Economic Survey attributed part of the poor U.S. economic performance to it: "The relations between the leaders of business and the Administration were uneasy, and this uneasiness accentuated the unwillingness of private enterprise to embark on further projects of capital expenditure which might have helped to sustain the economy."

Churchill, who was generally guarded when criticizing New Deal policies, could not hold back. "The disposition to hunt down rich men as if they were noxious beasts," he noted in "Great Contemporaries" (1939), is "a very attractive sport." But "confidence is shaken and enterprise chilled, and the unemployed queue up at the soup kitchens or march out to the public works with ever growing expense to the taxpayer and nothing more appetizing to take home to their families than the leg or wing of what was once a millionaire. . . It is indispensable to the wealth of nations and to the wage and life standards of labour, that capital and credit should be honoured and cherished partners in the economic system. . . ."

The regulatory burden exploded during the Roosevelt administration, not just through the creation of new government agencies but through an extraordinary barrage of executive orders—more than all subsequent presidents through Bill Clinton combined. Then, as now, uncertainty reigned. As the textile innovator Lammot du Pont complained in 1937, "Uncertainty rules the tax situation, the labor situation, the monetary situation, and practically every legal condition under which industry must operate."

Henry Morgenthau summarized the policy failure to the House Ways and Means Committee in April 1939: "Now, gentleman, we have tried spending money. We are spending more than we have ever spent before and it does not work . . . I say after eight years of this administration we have just as much unemployment as when we started . . . and an enormous debt, to boot."

Despite the striking similarities between then and now, there is one major difference: Roosevelt's policies remained popular even as the economy faltered. The magnitude of the Depression, with its lack of stabilizers and safety nets, traumatized Americans and undermined their confidence in the economic system. This induced voters, as historians would later do, to judge Roosevelt not on his results but on his intentions.

Today, however, the Obama program appears to be failing politically as well as in the marketplace. The trauma of the financial crisis did not approach that of the Great Depression, and Americans do not appear to have lost faith in our economic system or come to see government as the savior. While progressivism gave the New Deal its intellectual foundations, history today is driven by the freedom tide that produced our economic revival in the 1980s and '90s and still drives economic liberalization in China and India.

Finally, we should not underestimate that this administration faces stronger and more united congressional opposition than FDR ever faced. The House and Senate Republican leadership has far surpassed all expectations of a minority party.

Mitch McConnell of Kentucky and John Boehner of Ohio have led a loyal opposition that, through its unity, has exposed the radical underbelly of the Obama program. Young guns like Paul Ryan of Wisconsin and Jeb Hensarling of Texas have provided vision and energy.

FDR rode the tide of history while President Obama strives mightily against it. The progressive vision that resonated in the 1930s foundered on the hard experience of the 20th century, and it has no broad appeal in the 21st. The recovery from the Great Depression did not occur until World War II was underway, but it appears, as of today, that voters will bring the latest experiment in American collectivism to an end on Nov. 2. A real economic recovery won't be far behind.

Mr. Gramm is a former U.S. senator from Texas and former professor of economics at Texas A&M University.

Wall Street Struggles

Wall Street Struggles on First Day of New Month

By CHRISTINE HAUSER

The major indexes were higher in early trading after the latest data on personal income, consumer sentiment, and manufacturing were generally in line with forecasts. But then the market declined, barely holding on to small gains. Technology, health care and consumer discretionary shares led the decreases.

Analysts said that although some of the economic statistics were generally positive, the markets have already priced in a slow-growth economy and therefore need fresh impetus to break through to new ground.

“We have now reduced the probability of a double dip,” said William J. Schultz, the chief investment officer for McQueen, Ball & Associates.

“We have now priced in a lot of good news and need better,” he said, adding the market “needs a new catalyst to get it moving higher from here. We need the next level of better to get this market going higher.”

Such a catalyst would be an improvement in the job situation in the United States. The next report on the national unemployment picture will be released next Friday.

The Institute for Supply Management reported that its survey of manufacturing fellto 54.4 percent in September from 56.3 percent. in August. The latest reading was slightly lower than the 54.5 that economists polled by Reuters had forecast. Any reading above 50 on the index indicates that the sector is expanding.

In addition, the Commerce Department reported that spending on construction rose slightly, or 0.4 percent, in August, although the rise was mainly a result of government projects rather than the private sector. The slight rise followed a decline of 1.4 percent the previous month.

Other government reports showed personal income was up 0.5 percent in August, an improvement over the previous two months, and spending rose 0.4 percent.

In the early afternoon, the Dow Jones industrial average was up 21.50 points, or 0.2 percent. The Standard & Poor’s 500-stock index gained 1.52 points, or 0.1 percent, but the Nasdaq was 3.65 points, or 0.2 percent, lower.

In the bond market, prices slipped as the yield on the 10-year Treasury note rose to 2.52 percent from 2.51 percent late Thursday.

With the major indexes ending the third quarter on Thursday with increases, investors now have to look forward to the next corporate earnings season, and the guidance that will come with it, to potentially inspire future rallies.

“The data today is driving the market, but we are getting close to earnings reporting season which will be the next catalyst for the market in terms of potentially driving it going forward,” said Hank Smith, the chief investment officer, for Haverford Investments.

William Smith, the president of Smith Asset Management, noted that businesses were sitting on record amounts of cash, but were hesitant to hire or spend, a situation that might change with any improvements in the economy to help remove the uncertainty. “The data suggests that we are muddling through,” he noted.

The manufacturing sector, Mr. Smith said, continued to exhibit signs of expansion in the manufacturing report that was part of a fresh batch of economic figures on Friday that seemed to confirm a steady, but slow, pace of economic growth.

But the state of the consumer and the job market is still critical to a recovery.

While it continued to expand, “the manufacturing sector throttled back on production and employment growth in the third quarter,” said Brian Bethune, the IHS Global Insight chief United States economist. “Given the general alignment of sluggish consumer and business spending and orders, this situation is not expected to change much in the fourth quarter.”

Joshua Shapiro, the chief United States economist with MFR, said that the new orders index in the manufacturing report declined, indicating weak final demand growth. Meanwhile, the University of Michigan consumer sentiment index for September was revised slightly higher, to 68.2 points, from an earlier estimate of 66.6.

But with household balance sheets still over-leveraged, the key determinant of consumer spending growth in coming months will be the pace of the recovery in the labor market, Mr. Shapiro said.

“Our own view is that the labor market recovery will be a grudging one, that consumers will enjoy only modest gains in wages and salaries for some time, and that consumer spending growth will therefore be moderate at best,’ he said in a research note.

Ecuador's Correa Rescued

Ecuador's Correa Rescued, Now Faces Political Fight

By REUTERS

QUITO (Reuters) - Ecuadorean President Rafael Correa emerged triumphant after a military raid to rescue him from protesting police, but still faces a political fight to push through austerity measures testing his popularity.

Troops stormed a hospital in Quito late on Thursday and freed the 47-year-old leftist leader from dissident police who attacked him during a demonstration over bonus cuts, forcing him to seek refuge in the building for hours.

He accused his rivals of trying to topple him in a coup.

But Correa was buoyed by his return at the end of a day of turmoil in the South American OPEC member that brought messages of support from Washington to Havana.

"I give so much thanks to those heroes who accompanied me through this hard journey," Correa told cheering supporters from the balcony of his presidential palace.

"Despite the danger, being surrounded, ministers and politicians came, to die if necessary. With that bravery, with that loyalty, nothing can defeat us."

The local Red Cross said two police officers died as troops stormed the building. At least 88 people were injured on Thursday as Correa supporters skirmished with police outside the hospital. There was some unrest in other cities, too.

Ecuador has a history of coups and instability.

Oil prices rose to a seven-week high of near $80 a barrel on Thursday, partly due to the unrest in the crude producer.

Correa, a U.S.-trained economist and ally of Venezuela's socialist firebrand, Hugo Chavez, took office in 2007 and alienated international investors a year later when his government defaulted on $3.2 billion (2.03 billion pounds) in global bonds.

But he won strong public approval for policies such as exerting greater state control over natural resources, including thrashing out new contracts with foreign oil firms.

His efforts to cut back spending made him enemies, however, including some of the rank and file in the security forces.

Correa was attacked by police demonstrating against cuts to their bonuses and frozen promotions when he tried to talk to them on Thursday. They jostled him and threw a tear-gas canister that exploded close to his face. Then, outside the hospital, the police fired tear gas at his supporters before troops moved in.

POLITICAL PROBLEMS

Analysts predicted Correa would ride out the crisis thanks to his public support, the lack of unified opposition to his administration, and the fact that the police high command did not back the protests by their subordinates.

The Eurasia Group think-tank said recent events suggested his government would likely be left with less political room to make necessary economic adjustments.

"How he responds to this crisis may very well shape his ability to complete his term," it said.

Correa still faces a potentially damaging showdown with Congress, where half the 124 members are officially allied with him, but some in his left-wing Country Alliance party have been blocking budget proposals aimed at cutting state costs.

Ecuador's 2-year-old constitution lets the president declare an impasse, dissolve Congress and rule by decree until a new presidential and parliamentary election.

Such a move -- which Correa has said he is considering -- would still need to be approved by the Constitutional Court.

South American leaders who met in Buenos Aires for an emergency meeting of the Unasur group welcomed Correa's return to the presidential palace and said they would send their foreign ministers to Quito to show support for him.

"We can celebrate the fact that our comrade, the president of Ecuador, Rafael Correa, has been freed and is well ... the situation in Ecuador is under control," Argentine President Cristina Fernandez said.

Colombian President Juan Manuel Santos said the region's condemnation of Thursday's turmoil showed "South America is united."

"We're united in the region to defend democracy. That's a very important signal," he said.

Standoff in Ecuador

Standoff in Ecuador Ends With Rescue of the President

Dolores Ochoa/Associated Press

President Rafael Correa of Ecuador, sitting in a wheelchair, was rescued from a hospital, where he was held by rebellious elements of the police forces in Quito. More Photos »

By SIMON ROMERO

CARACAS, Venezuela —Ecuador’s police chief resigned Friday after an uprising by officers who held President Rafael Correa captive for more than 10 hours the day before.

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Police Officers Strike in Ecuador

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Guillermo Granja/Reuters

President Rafael Correa of Ecuador spoke from the balcony of the Carondolet Palace as supporters gathered to greet him in Quito on Thursday night. More Photos »

The tense standoff ended when Ecuadorean soldiers stormed the police hospital where Mr. Correa was being held and rescued him amid an exchange of gunfire, but the government maintained a state of emergency.

The police chief, Freddy Martínez, submitted his resignation Friday morning, hours after President Correa vowed to overhaul the force.

The uprising, which left at least two people dead, arose after security forces took over barracks in several cities to protest a new law that would reduce their benefits and slow salary increases, part of a broader project to rein in government spending.

Some members of the air force joined the protests in Quito, the capital, blocking the airstrip at the international airport and preventing planes from landing or taking off. Hundreds of police officers and military personnel protested the changes.

Speaking shortly after the rescue operation, which involved about 500 soldiers who entered the hospital grounds wearing gas masks, Mr. Correa delivered a fiery speech from the balcony of the presidential palace and blamed “infiltrated elements” of the security forces for the day’s events.

“Here there will be no pardon or forgetting,” Mr. Correa said.

The operation came during a state of emergency declared Thursday after Mr. Correa was caught earlier in the day in an angry scrum of officers at a barracks in Quito and was physically assaulted. He was tear-gassed, shoved, insulted and pelted with water, and emerged gasping for air.

He sought refuge in the police hospital, which was surrounded by protesting officers. Speaking to the news media by telephone, the president said that he was “practically captive,” while hundreds of his supporters marched on the police compound, demanding his release.

He called the protests “an attempt at a coup d’état” and lashed out at the protesting officers as “a bunch of ungrateful bandits.”

Striking police officers also occupied the National Assembly, where hundreds of Mr. Correa’s supporters gathered outside, but it was not clear whether the police officers sought control of the government.

In the security vacuum created by the protesting officers, sporadic robberies were reported at supermarkets and at banks, in the capital and in Guayaquil, a large coastal commercial city. Retail businesses and schools shut down. Local radio stations in Guayaquil reported that more than 50 people had been arrested in connection to robberies there.

Mr. Correa had gone to the barracks to address the police complaints in person. A shouting match ensued, and at one point, he loosened his tie and opened his shirt as if to show that he was not wearing a bulletproof vest. “If you want to kill the president, here he is,” he said. “Kill him, if you want to. Kill him if you are brave enough.”

The military leadership appeared to support the president. Gen. Ernesto González, the highest-ranking military official, called on the protesting police officers and troops to stand down. “We are a state of law,” he said in comments broadcast on Ecuadorean radio. “We are subordinated to the maximum authority, which is the president of the republic.”

Leaders from across the hemisphere expressed support for Mr. Correa, 47. The White House expressed support for him and urged a peaceful end to the crisis. “The United States deplores violence and lawlessness and we express our full support for President Rafael Correa, and for the institutions of democratic government in that country,” Secretary of State Hillary Rodham Clinton said in a statement.

The chaos raised new doubts over the stability of a country that had churned through eight different presidencies in the decade before Mr. Correa was first elected in 2006. Since then, Ecuador has enjoyed relative calm, and Mr. Correa’s leftist agenda of increased state control of the oil industry and welfare programs for the poor proved popular enough that he was re-elected in 2009.

But his approval ratings recently slipped amid protests over his efforts to reorganize the federal bureaucracy.

Republican Pledge on Spending Freeze

Republican Pledge on Spending Freeze Would Reduce Budget by $100 Billion

By Patrick O’Connor

Representative Paul Ryan, who would likely be chairman of the Budget Committee if his party regained its majority in the Nov. 2 elections. Photographer: Joshua Roberts/Bloomberg

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Oct. 1 (Bloomberg) -- Stanley Collender, managing director of Qorvis Communications, discusses the outlook for the U.S. budget deficit and the prospects of inflation. Collender speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

U.S. House Republicans’ pledge to cut $100 billion from the federal budget next year would slash spending for education, cancer research and aid to local police and firefighters.

Keeping the midterm-campaign promise would require a Republican-led Congress to cut 21 percent of the $477 billion lawmakers have earmarked for domestic discretionary spending.

“That’s where you get the savings,” said Representative Paul Ryan, a Wisconsin Republican who would likely be chairman of the Budget Committee if his party regained its majority in the Nov. 2 elections.

A cut of that magnitude would necessitate major reductions in spending likely to spur protests across many fronts, and Republican leaders have refused to specify any major targets before Election Day. Most of the proposals Republicans have offered so far provide minimal savings, like shaving $2 billion from the budget by capping federal salaries next year.

Still, Republicans argue that spending cuts trump tax increases as the best way to start balancing the budget in the wake of the worst recession since the Great Depression.

“To balance the budget, Congress has to get its arms around the spending here in Washington, and we have to have a healthy economy that gets Americans working again,” House Republican Leader John Boehner told an audience yesterday at the American Enterprise Institute, a Washington-based group that favors smaller government. “You can’t have a healthy economy if you raise taxes on those that you expect to reinvest in the economy and hire more people.”

Social Services

Democrats warn that the promised cuts would lead to dramatic reductions in social services across the board.

“This would have significant real-world consequences,” said Representative Rob Andrews, a New Jersey Democrat on the Budget Committee. “I don’t see any way there isn’t a hit on college students,” he said. “I don’t see any way there isn’t some hit on local police and fire.”

Republicans have made their task even harder by taking military spending off the table along with any programs for seniors or veterans.

Under the Republican plan, the budget resolution would set spending at 2008 levels, lawmakers said. While cutting the $100 billion needed to meet that pledge would force deep cuts, they have steered away from a specific plan for it.

“I’m a budgeteer,” Ryan said. “I just bring down the cap.”

Potential Firing Range

The Republican pledge to trim $100 billion from discretionary spending puts many programs, such as public education and cancer research, on a potential firing range:

President Barack Obama has requested $73.4 billion for the Department of Education next year. That request includes $23 billion for Pell Grants to help low-income students afford college, a 32 percent increase from this year.

The money also funds special education programs, block grants to school districts and $2 billion in adult education.

A 21 percent cut across the board would take about $15 billion from education. A 21 percent cut in Pell Grants would take almost $5 billion from student tuition.

The Obama administration has asked Congress for $76.4 billion for the Department of Health and Human Services next year. Almost half that -- $32 billion -- is for the National Institutes of Health, which includes the National Cancer Institute and other research facilities.

A 21 percent cut at the National Institutes of Health would take about $6 billion from health research.

Centers for Disease Control

The president’s proposal includes $6.6 billion for the Centers for Disease Control, $5.1 billion to help low-income households pay their energy bills and $8.2 billion for meals for low-income children and other aid through the Head Start program.

In aid to local governments, Congress sets aside money for local law enforcement through Justice Assistance Grants. Police departments can use the money for equipment and personnel and any other crime-prevention programs. Lawmakers have requested about $2 billion next year for the office that allocates that.

A 21 percent cut would take $400 million from police.

Within the overall federal budget of $3.6 trillion, entitlements such as Social Security and Medicare, requirements such as payment of the national debt and discretionary spending on defense consume most of the money. Less than $500 billion is allocated for discretionary spending outside of defense.

Programs that saw big increases under Obama could be particularly vulnerable in a Republican-run House of Representatives.

National Cancer Institute

The president’s request for the National Cancer Institute is up 10 percent from where it was in 2008.

Spending requests this year for Transportation and Housing and Urban Development rose by 38 percent from 2008, up $18.6 billion to $67.4 billion. Likewise, Democrats sought a 47 percent increase for diplomatic spending next year.

Representative Eric Cantor of Virginia, the No. 2 Republican in the House, set up a website called “YouCut” that encouraged Internet users to propose and vote on specific cuts.

Ideas include selling excess federal property and forbidding the administration to advertise stimulus projects, which would save “tens of millions,” according to Cantor’s website. Others that would produce much bigger savings, like revamping Fannie Mae and Freddie Mac, are politically difficult to enact.

Other lawmakers offer broader cuts, like Republican Arizona Representative Jeff Flake, who favors major cuts to farm subsidies through the Department of Agriculture.

Tax Collectors

Cutting some budgets can be counterproductive, said Scott Lilly, former Democratic staff director of the House Appropriations Committee. If the Internal Revenue Service is forced to cut tax collectors or agencies reduce the number of people who audit federal spending, the government could lose more revenue than it would save through budget cuts, he said.

Republicans would protect money for the military and operations in Iraq and Afghanistan. By offering explicit protections for seniors, programs like Meals on Wheels and low- income housing grants could also be off-limits.

Republicans want to revamp the spending process in other ways to give lawmakers more license to strip individual programs from individual government agencies.

Boehner offered a plan yesterday to break the spending bills up so that money for the Labor Department isn’t coupled, for example, with funding for Health and Human Services.

‘On Their Own Merit’

“Let them come to the floor individually, to be judged on their own merit,” he said at the American Enterprise Institute. “Members shouldn’t have to vote for big increases at the Commerce Department just because they support NASA.”

The pledge that Boehner announced in September includes a proposal giving individual members of both parties more discretion to cut money from spending bills as they are being debated on the floor of the chamber.

The fight would play out during an expected post-election debate over curtailing the federal deficit, projected at $1.34 trillion this year. Democrats charge Republicans with hypocrisy for championing budget cuts as they push for an extension of Bush-era tax cuts for the wealthiest Americans that could cost $41.1 billion next year.

“It will have a serious impact on real people, but it won’t have a serious impact on reducing the deficit,” Andrews said of the Republican pledge for budget-cutting.

Obama said in June, during a meeting with other heads of state in Toronto, that he hoped “some of these folks who are hollering about deficits and debt step up because I’m calling their bluff.”

Even Republicans acknowledge that spending cuts alone won’t balance the budget.

“Let’s face it: We could zero out both the Department of Defense and zero out the Department of Education, and we’d still have a massive structural debt that we’ve barely made a dent in,” said Representative Jeb Hensarling, a Texas Republican.

Swiss Tax Treaty With Germany

Swiss Tax Treaty With Germany May Finish Bank Secrecy in Europe

By Warren Giles -

German Finance Minister Wolfgang Schaeuble. Photographer: Michele Tantussi/Bloomberg

Switzerland’s tax treaty with Germany may finish banking secrecy in Europe and prompt withdrawals as Swiss banks will no longer guarantee client confidentiality.

The treaty will allow investigators to request Swiss assistance in tracking down undeclared money deposited by German nationals, said Eric Jucker, a Zurich-based tax lawyer. It probably will be signed this month by Swiss Finance Minister Hans-Rudolf Merz and his German counterpart Wolfgang Schaeuble.

“The agreement that will come into force will go very much further on the information that can be exchanged between officials,” Jucker said. “Banking secrecy will come to an end” for clients who are not Swiss as the country adopts international tax standards, he said.

Germans are the biggest clients of Swiss money managers with assets of about 260 billion francs ($264 billion), according to estimates from Geneva-based broker Helvea. Swiss banks, including Julius Baer Group Ltd. and Bank Sarasin & Cie., are now setting up branches around Europe to retain cross-border clients.

The German accord follows standards set out in Switzerland’s agreement with the Organization for Economic Cooperation and Development in March 2009 after the country was threatened with being blacklisted as a tax haven. It will spell out circumstances under which Switzerland will give Germany “administrative assistance” in cases where there is evidence of tax evasion, said Mario Tuor, a spokesman for the Swiss State Secretariat for International Financial Matters in Bern.

‘Dramatic Change’

“This is a dramatic change because until recently there was no chance a foreign tax authority could get hold of information,” said Kurt Blickenstorfer, a lawyer at Bratschi Wiederkehr & Buob in Zurich.

A name and a bank account may be enough for Germany to request information from Switzerland, said Daniel Fischer, founder of Zurich-based AFP Fischer & Partner law firm who specializes in banking law and fraud.

“The main question is how they will define reasonable suspicion and how far back the German tax authorities will be allowed to look,” Fischer said. “Things are getting much more complicated for swindlers.”

The treaty comes 14 months after the Swiss government agreed to turn over details of as many as 4,450 UBS AG accounts to the U.S. Internal Revenue Service to settle a lawsuit over suspected tax evasion.

More Disclosures

While the UBS deal spurred more than 14,700 Americans to disclose secret offshore accounts to the IRS, the crackdown on German clients will be more significant for Swiss banks, which hold more than 25 percent of the world’s offshore wealth, said Milan Patel, tax attorney at Sharp Kemm PA in Zurich.

“The impact of this for Switzerland, and Zurich in particular, will be huge in comparison with the U.S. deal,” said Patel, who is a former litigator for the IRS.

There were more than 10,000 voluntary account declarations in the six weeks following the German government’s February announcement that it would use data stolen from wealth managers to identify tax evaders.

The new treaty may trigger another round of disclosures, said Hans-Ulrich Lauermann, the Frankfurt-based head of the German financial services tax team at PricewaterhouseCoopers.

Switzerland’s Federal Tax Administration opened a special unit today to examine requests for administrative assistance from other governments. The unit can handle a “couple of dozen cases” a year and employs the equivalent of five full-time staff, said Thomas Brueckner, a spokesman for the tax authority.

Stolen Data

The German Finance Ministry said it plans to complete the double taxation treaty this month. It wasn’t more specific.

The Swiss parliament has already approved 10 such tax agreements, including those with the U.S., France and the U.K., while the government has initialed or signed accords with 18 other countries.

Swiss Finance Minister Merz told Sonntag newspaper in a Sept. 26 interview that he wants guarantees that Germany won’t continue to use stolen data. Swiss financial companies must also gain access to the German market to help compensate banks for the loss of secrecy, he said.

German prosecutors, using stolen data to probe undeclared assets, began questioning clients of Credit Suisse Group AG in August. That increased tensions between the two countries that surfaced after the Swiss government adopted the OECD standards.

‘Seventh Cavalry’

Swiss Defense Minister Ueli Maurer returned his Mercedes S- Class, made by Stuttgart-based Daimler AG, last year to protest German pressure over the tax regime.

That followed comments by then-German Finance Minister Peer Steinbrueck who called the threat of international sanctions on Switzerland “like having the Seventh Cavalry in Fort Yuma that can be ordered to ride out but doesn’t have to.

‘‘The important thing is that the Indians know it exists,’’ he said.

The Swiss hope to retain an element of secrecy by proposing a withholding tax on the interest, dividends, capital gains and investment income earned by Germans with offshore bank accounts. Under the plan from the Swiss Bankers Association, revenue from the tax would go to the German Treasury and client identities would remain secret.

Germany and the U.K. have both ‘‘hinted at having a lot of interest in our proposals,’’ Swiss Bankers Association Chairman Patrick Odier said on Sept. 16.

Lacking Transparency

While German Finance Minister Schaeuble said ‘‘a combination of withholding tax and administrative assistance’’ would be part of the agreements, the U.K.’s HM Revenue and Customs said last December that such taxes don’t meet OECD standards for transparency.

Schaeuble said Sept. 3 that a solution for existing German funds will be found, without giving details.

The withholding tax may prove insufficient to address the history of tax evasion in Switzerland, said Philip Marcovici, a lawyer who last year helped negotiate a tax treaty between the U.K. and Liechtenstein.

‘‘Is there any immunity for banks or clients and will the withholding be the final tax and a cure for the past?” said Marcovici. “My suspicion is that it will not be because tax authorities usually have a desire for more than just withholding taxes.”

Emanuel, Obama's Top Aide Departs for Chicago

Emanuel, Obama's Top Aide Departs for Chicago; Rouse Becomes Staff Chief

By Roger Runningen and Hans Nichols

Rahm Emanuel ended his tenure as President Barack Obama’s chief of staff today to run for mayor of Chicago as the president named Peter Rouse, a longtime loyalist, as his interim replacement in one of the most influential jobs in the White House.

“We are all very excited for Rahm as he takes on a new challenge for which he is extraordinarily well qualified,” Obama said in the East Room of the White House, calling it “the least suspenseful announcement of all time.”

Obama called Rouse, who will serve as interim chief of staff, “a skillful problem-solver.”

“There’s a saying around the White House: ‘Let’s let Pete fix it,’” Obama said.

Emanuel, 50, a former Illinois congressman known as a combative negotiator, is heading to Chicago in a bid for a job that’s been a long-time goal after spearheading major Obama initiatives, including overhaul of health care and revamping the financial industry.

Rouse, 64, is more reserved by contrast, a troubleshooter who prefers a more behind-the-scenes role. He’s built a reservoir of trusted relations at the White House and in former years in Congress on how Washington works.

The two “have slightly different styles,” Obama said.

Emanuel thanked Obama for allowing him to serve in “these consequential times.”

‘The Tough Calls’

Addressing the president, Emanuel said, “You had the guts to make the tough calls that stopped the free-fall and saved our country from recession to depression.”

Emanuel lauded his replacement, saying he “commands the respect of everyone in this building.”

Emanuel served three terms in the U.S. House representing part of Chicago’s North Side and adjacent suburbs before being picked by Obama for the White House job that began in January 2009. He said in April that being mayor of his hometown was a longtime aspiration, though he wouldn’t run unless Mayor Richard M. Daley decided not to seek reelection.

Daley announced Sept. 7 that he wouldn’t run for a seventh term.

Emanuel called Chicago the “greatest city.”

Fed's Dudley Says Further Easing......

Fed's Dudley Says Further Easing Probably Warranted

By Scott Lanman and Caroline Salas

Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that the central bank has options to add stimulus without major drawbacks. Photographer: Stephen Yang/Bloomberg

Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that more monetary easing is probably needed to spur growth and avert deflation.

“We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy-setting Open Market Committee, said today in a speech to business journalists in New York. “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

Dudley’s remarks are one of the clearest signs that policy makers will start a second round of unconventional monetary easing as soon as the FOMC’s next meeting Nov. 2-3. While other Fed officials voiced a range of views in speeches this week, Chairman Ben S. Bernanke said yesterday that the central bank has a duty to aid the U.S. economy as the jobless rate holds near 10 percent.

Lowering long-term interest rates by restarting purchases of Treasuries or mortgage debt would have a “significant” effect on the economy by supporting the value of homes and stocks, making housing and refinancing mortgages more affordable and reducing the cost of capital for businesses, Dudley, 57, said to a Society of American Business Editors and Writers conference.

Deflation Concern

“Both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable,” Dudley said. “The longer this situation prevails and the U.S. economy is stuck with the current level of slack and disinflationary pressure, the greater the likelihood that a further shock could push us still further from our dual mandate objectives and closer to outright deflation.”

Responding to questions afterward, Dudley said he’s not concerned the U.S. will relapse into recession and that he’s expecting the current 2 percent growth to “gradually accelerate.”

“What I’m less confident about is how fast we’re going to get back to our objectives” of price stability and full employment, he said.

Treasuries declined after reports showed U.S. consumer spending rose more than forecast in August and manufacturing in China expanded at the fastest pace in four months in September. The yield on 10-year Treasury note rose to 2.56 percent at 9:28 a.m. in New York from 2.51 percent yesterday.

‘Credible’ Plan

The risk that inflation expectations rise because of asset purchases can be countered by a “credible” plan from the Fed to exit the unprecedented stimulus with tools such as term deposit accounts, Dudley said. Also, “there is nothing to worry about” on expanding Fed exposure to higher short-term rates, he said.

Dudley said that $500 billion of purchases, for example, would add as much stimulus as reducing the Fed’s benchmark rate 0.5 percentage point to 0.75 percentage point, depending on how long investors expect the Fed to hold the assets.

“The clearer and more credible the framework governing purchases, the greater the likelihood that market participants would act in a manner that helped the Fed achieve its objectives,” Dudley said. Investor confidence in the Fed’s ability to exit “when the time is right” will make purchases more effective in stimulating the economy, he said.

Inflation Problem

Dudley said in response to questions that the ability “for us to exit on time” and without leading to a longer-term inflation problem is “critical.”

Another option is for the Fed to announce an explicit inflation goal and then, if price increases are too slow, potentially aim to overshoot the goal in future years. One risk is that investors may “mistakenly” conclude that the Fed was “tinkering with its long-run inflation objective,” undermining the change in policy.

Dudley’s comments differ from the FOMC’s Sept. 21 statement that it’s prepared to ease policy “if needed” to spur growth and achieve its mandate of stable prices and full employment.

Misaligned With Mandate

The jobless rate has been above 9 percent since the worst recession since the Great Depression ended in June 2009. Inflation measures are “somewhat below” levels the FOMC judges consistent with its mandate, the Fed panel said in its statement last month.

Dudley declined to comment on what he’ll advocate at the next meeting or to predict its outcome. Some policy makers may not be on board: Philadelphia Fed President Charles Plosser said Sept. 29 that he doesn’t see how additional asset purchases will help employment in the near term, while Dennis Lockhart of the Atlanta Fed said Sept. 28 that he hadn’t made up his mind yet on easing policy.

Figures from the Commerce Department in Washington showed yesterday that the U.S. economy grew at a 1.7 percent annual rate in the second quarter, marking the start of the slowdown in growth that’s concerned the central bank. The world’s largest economy grew 3.7 percent in the first three months of the year and 5 percent at the end of 2009.

Economists surveyed last month projected little pickup in growth for the rest of the year as joblessness hobbles consumer spending and housing languishes around record lows.