In a recent column for the Wall Street Journal, I explained why Mitt Romney’s interest in a value-added tax is deeply troubling.

One of my key points was that the VAT is a money machine for big government.

But don’t believe me. Look at Japan, where the politicians see increases in the VAT as a way of financing a much larger burden of government spending. Here’s some of what is being reported by Bloomberg.

Noda reshuffled his cabinet last week, aiming to win support for doubling Japan’s 5 percent national sales tax by 2015… Japan’s finances are “getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P… Japan’s aging population is also weighing on Noda’s struggle to achieve fiscal health. Social-security expenses have more than doubled in two decades and will account for 52 percent of general spending for the year starting in April, according to a budget proposal the cabinet approved last month.

The key point in this excerpt is that the VAT is a substitute for entitlement reform. Without the VAT, politicians might actually reform the welfare state. But because of the VAT, they want to take the easy (but extremely destructive) route and boost the tax burden.

This is why I get so agitated about the threat of a VAT in America, as illustrated by this recent appearance on Larry Kudlow’s show.

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The importance of strategic metals to the U.S. economy came into sharp focus last November when China cut off Japan’s rare earth metals supply over a territorial dispute and Japan immediately backed down. Since then, Americans have learned that the majority of rare earth deposits are in China, accounting for 97% of world production.

China’s action against Japan also exposed a more threatening strategy in the works‐‐ to create a two-tiered price structure with China’s manufacturers receiving rare earths at significantly lower costs than the rest of the world. Prices outside China are now 20 times what they were 2 years ago and 40% higher than inside China.

Is America confronting a situation similar to the 1970s OPEC oil embargo? No, the current situation is actually far worse. Deng Xiaoping famously noted 30 years ago that “the Mideast has oil, China has rare earths”. What he didn’t say was unlike the Mideast, China also has the means to manufacture and distribute globally every product that requires rare earths, which today includes automobiles, computers, cell phones, fluorescent lights, much of our military equipment and nearly every green technology‐electric cars, wind turbines, fuel cells, solar panels, etc. This is precisely what makes the current situation so dangerous to the long term prospects for the U.S. economy and American jobs. A two‐tiered price structure could make it impossible for American manufacturers to compete with China in the 21st Century.

A constant refrain from economists and politicians is that American innovation is our way out of the current financial dilemma. Breakthrough U.S. discoveries in the past have created whole industries such as automobiles, commercial flight and computers, generating millions of jobs and national prosperity. But what if we are unable to participate in the next great American discovery simply because we can’t get the necessary raw materials at competitive prices? The millions of jobs would blossom where the materials are available. Today, that is China.

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American Exceptionalism has routinely been underestimated by America’s adversaries. We have argued for the last year that powerful trends are reshaping U.S. that will lead to result a rebirth of American manufacturing, coupled with positive business trends, and just as powerful political trends are shrinking the size of government and its capacity to intervene in the economy. The combination of these trends will create a sustained upward spike in the American economy.

Last week the Financial Times newspaper published an editorial: “America Must Manage Its Decline”. The jest of the FT article was that United States must develop an effect foreign policy, similar to Great Britain’s in 1945, to manage her economic and political decline:

“If America were able openly to acknowledge that its global power is in decline, it would be much easier to have a rational debate about what to do about it. Denial is not a strategy.”

President Obama, the American press, the rabid right wing, and even a Harvard professor were all excoriated by the FT for their pathetic reliance on such homilies as: “Decline is not a condition. Decline is a choice.” From the high floor in the FT’s office tower, the author cynically snarled down at America’s inability to take “determined action” to increase higher education funding and “self-indulgent episodes such as the summer’s near-debt default” as prime evidence of America’s “declinism” and the inevitable rise to economic dominance by China.

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President Barack Obama’s call yesterday for “restraint on all sides” as defenseless Coptic Christians were attacked and murdered in Egypt in a government-supported Islamic pogrom was typical of his administration’s response to attacks by states against civilians.

Though he has, in some cases, come around to criticizing and even toppling regimes, Obama’s first instinct is to treat the perpetrators and the victims as equals.

The sole, and repeated, exception is Israel, which the Obama administration criticizes and condemns for legal activities such as construction within the municipal boundaries of Jerusalem. By contrast, the administration coddles the unrepentant, terror-promoting Palestinian leadership–a fruitless effort, greeted with contempt rather than gratitude.

The same tendency is apparent in Obama’s newly-uncovered attempt to apologize for the atomic blast at Hiroshima, which the Japanese, appropriately, rejected. Obama has had trouble, especially early in his presidency, distinguishing defense from aggression–especially when that defense is on behalf of western democracy.

That is worse than moral equivalence; it is “immoral equivalence,” because it destroys the moral distinction between freedom and tyranny. (more…)

From the Associated Press:

The Federal Reserve acknowledged Wednesday that the economy is growing more slowly than it expected. But it said it will complete its $600 billion Treasury bond buying program by June 30 as planned and announced no further efforts to boost the economy.

Ending a two-day meeting, the Fed repeated a pledge to keep interest rates at record lows near zero for “an extended period,” a promise it’s made for more than two years.

Fed officials said in a statement that they think the main causes of the economy’s slowdown, such as high gas prices and supply disruptions from Japan’s disasters, are temporary. Once those problems subside, Fed officials said the economy should rebound.

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One of the many blessings of running my own accounting firm are the relationships that I build with people I would have never met otherwise. After running in the Republican primary for my congressional district last spring, I had yet another group of incredible new friends and partners. Through some of those new friends, I was put in touch with an American businessman living in Japan who had an absolutely incredible story of how the recent tsunami had affected his life and the lives of those closest to him.

Phil Foxwell grew up and has since raised his family in Japan, maintaining a summer home in the rolling hills of a sleepy Japanese fishing town called Shichigahama, which lies northeast of Sendai, the city hardest hit by the tsunami. Set in an idyllic, pine wooded valley surrounded by hills on three sides, it was a refuge for harried Tokyo-ites wishing to escape the summer heat. For Phil, a trip to Shichigahama is more than just a getaway, it’s a family reunion. For years, he has invested in the aging community, many of whom he has known since his childhood and grown up alongside. They are his friends, and his family. His first-hand account of a journey to find what he was certain would be more death and desolation ended as something very different indeed.

This is an incredible story of God’s provision and protection in a time when people question how God could let such a thing happen. This is a story that has motivated me to go above and beyond the ordinary in supporting those who have lost their home and livelihood, or even a loved one. I want to encourage you to get involved in the rebuilding of Japan as they suffer through what is described as the most devastating natural disaster in the modern era, upwards of 20,000 lives lost and $250 billion in damages. In addition, please pray for the survivors and their families, and also the rescue workers who are doing what they can with scarce resources and constant threat of radiation exposure. Japan is in dire need of a miracle. Read this incredible story by Phil Foxwell to see one that already happened.

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Caveat emptor: The first-quarter economy is slowing and inflation is rising. A month ago, economists were optimistic about the potential for 4 percent growth. Now they are marking down their estimates toward 2.5 percent. Behind this, consumer expectations are falling while inflation fears are going up.

A recent CNBC All American Economic Survey revealed that 37 percent of respondents expect the economy to get worse in the next year. That’s up about 15 percentage points from the December poll. The key reasons? Worries over rising food and fuel costs. Respondents anticipate prices to climb 6.6 percent over the next year. That’s double the 3 percent inflation registered in the December survey.

Supporting the CNBC poll, the early March consumer sentiment index from the University of Michigan dropped sharply, with the reading for consumer expectations falling 14 points. Additionally, one-year inflation expectations have risen to 4.6 percent in March from 3.4 percent in February.

Of course, everyone has been badly shaken by the terrible disaster in Japan. For the U.S. economy, supply-chain disruptions will damage growth. Also, the civil war in Libya and the broad unrest across North Africa and the Middle East has fueled a mild oil-price shock, also subtracting from U.S. growth.

So if the economy ending in the March quarter slows to less than 3 percent, it would mark the fourth-straight sub-3-percent GDP reading. Despite the strength in the manufacturing sector and rising corporate profits, that reading would underscore the softness of this recovery cycle.

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Japan and the real costs of inflation for the average American family.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Inside the Obama administration, a debate is raging. In the face of the uprisings in the Middle East, Barack Obama has opted to sit on his hands. He has a talent for that. Robert Gates, who is extremely wary – one might even say, excessively wary – of commitments abroad, is happy about the President’s passivity; Hillary Clinton, who had hoped that we would act to tip the balance in Libya, is not. It would not be hard to imagine her resigning from the cabinet over this issue. The tensions are starting to mount.

In his comedy routine last week at the Gridiron Club, the President reportedly delivered remarks that had a certain edge. “I’ve dispatched Hillary to the Middle East to talk about how these countries can transition to new leaders – though, I’ve got to be honest, she’s gotten a little passionate about the subject,” he is said to have remarked. “These past few weeks it’s been tough falling asleep with Hillary out there on Pennsylvania Avenue shouting, throwing rocks at the window.” And in an interview yesterday with Wolf Blitzer on CNN, when Mrs. Clinton was asked four times whether she would agree to serve in any post under Barack Obama if he were re-elected in 2012, she responded on each occasion in the negative and refused further comment.

Here is what The Daily Caller reports: “Obviously, she’s not happy with dealing with a president who can’t decide if today is Tuesday or Wednesday, who can’t make his mind up,” a Clinton insider told The Daily. “She’s exhausted, tired.”

He went on, “If you take a look at what’s on her plate as compared with what’s on the plates of previous Secretary of States — there’s more going on now at this particular moment, and it’s like playing sports with a bunch of amateurs. And she doesn’t have any power. She’s trying to do what she can to keep things from imploding.”

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In two short years, Barack Obama has wrested the crown for most self-indulgent president from Monica Lewinsky’s ex-boyfriend, Bill Clinton.

Graphic by Freeper paulycy.

Clinton’s most self-indulgent moment came when when he urged Lewinsky to perform oral sex on him while he took a phone call from a Congressman. However, the November 17, 1995 incident occured in private, the Congressman did not suspect anything was amiss and it was not revealed until years later as part of the Starr investigation.

Obama’s most self-indulgent moment was broadcast on national television this week when, in the midst of numerous crises crying out for American leadership, he took time to film his picks for the NCAA basketball tournament brackets for broadcast by the ESPN sports network.

This follows a two-year string of self-indulgences by Obama since he became president that has demonstrated to the world that nothing comes before Obama’s me-time.

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There’s a ton of unrest in the world and world markets are jittery. So, having just finished off the arduous task of filling out his NCAA brackets, who would begrudge the President a little R and R. From Forbes:

President Barack Obama will take his first official trip to Brazil this weekend where he will speak in the popular Cinelandia Square in downtown Rio de Janeiro. Access, of course, will be tightly restricted and security measures so secretive that not even the Embassy or US Consulate in Rio know exactly how it’s all going to go down. Obama’s speech will be free and open to the public and take place around 15:00 local time (14:00 EST). Access to the square will begin at 11:30, and is sure to draw a crowd. Obama is popular in Brazil. One politician seeking office in Rio actually changed his name to Barack Obama in 2008 to solicit votes. He didn’t win.

The Obama family will also take in the sights in Rio. A trip to Corcovado mountain, where the Christ the Redeemer statue stands (France gave us Lady Liberty, gave Brazil Jesus) is supposedly on the itinerary.

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss today’s crashing market, then Ben discusses Don Berwick’s probable exit at CMS, and finally Pejman Yousefzadeh discusses the nuclear disaster in Japan.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Futures Plunge as Japan Nuclear Crisis Weighs
Ben: Could Don Berwick be Done at CMS?
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Japan is suffering from a natural disaster that threatens to turn into an existential crisis. Colonel Q-ball has unleashed a blistering assault on pro-democracy rebel forces.  Large swaths of the Middle East are in turmoil. The federal government is bleeding red ink, with absolutely no end in site. The economy sucks and is getting battered by skyrocketing commodity prices and a volatile oil market. Near-record numbers of Americans are leaving the work force. If the world isn’t quite on fire…it is at least approaching a slow burn.

But, what’s all that against a little MARCH MADNESS!

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Japan, iPad2 sales, and the minimum wage.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Japanese plant races to contain meltdowns after two blasts; third reactor loses cooling capacity
Coffee & Markets: The Need for Oversight in Disaster Relief
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The Minimum Wage and Job Loss from 2006 through 2010
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Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

Interest payments on debt may be a better gauge of a nation’s fiscal health. The next chart (2011 data) shows the same countries, and the two nations with the highest interest costs, Greece and Ireland, already have been bailed out. Interestingly, Japan is in the best shape, even though it has the biggest debt. This shows why interest rates are very important. If investors think a nation is safe, they don’t require high interest rates to compensate them for the risk of default (fears of future inflation also can play a role, since investors don’t like getting repaid with devalued currency).

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This week, President Obama held a summit in Washington, D.C., with top CEOs to discuss a variety of economic topics.  Among them was U.S. competitiveness in the global economy, with Obama describing the issue upfront as an “overarching theme,” and with the message being sent that competitiveness impacts domestic job creation.

Obama’s comments were timely, because on Tuesday, it emerged that Japan, which currently maintains the highest corporate tax rate of any O.E.C.D. (i.e., developed) nation, will cut its corporate income tax by “5 percentage points in a bid to shore up its sluggish economy,” according to the New York Times.

Currently, Japan’s corporate tax rate is about 40 percent, slightly higher than but roughly the same rate as the U.S. rate.

However, Japanese leaders aim to cut the tax rate in order to make the country more competitive, internationally, provoke new investment and boost job creation.  Japan is worried about its unemployment rate of 5.1 percent–a figure of envy to most in Europe and the U.S., where unemployment is running substantially higher.

The fact that Japan’s corporate tax rate, post-cut, will remain higher than that of South Korea (24 percent) or Germany (29 percent) however has some figures skeptical as to whether the plan will work.  In addition, Japan may raise its consumption tax rate to offset the cut, which could minimize positive effects that would otherwise flow from it.

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Sometimes it’s not a good idea to be at the top of a list. And now that Japan has announced a five-percentage point reduction in its corporate tax rate, the United States will have the dubious honor of imposing the developed world’s highest corporate tax rate.

Here’s an excerpt from the report in the New York Times.

Japan will cut its corporate income tax rate by 5 percentage points in a bid to shore up its sluggish economy, Prime Minister Naoto Kan said here Monday evening.Companies have urged the government to lower the country’s effective corporate tax rate — which now stands at 40 percent, around the same rate as that in the United States — to stimulate investment in Japan and to encourage businesses to create more jobs. Lowering the corporate tax burden by 5 percentage points could increase Japan’s gross domestic product by 2.6 percentage points, or 14.4 trillion yen ($172 billion), over the next three years, according to estimates by Japan’s Trade Ministry. …In a survey of nearly 23,000 companies published this month by the credit research firm Teikoku Data Bank, more than 44 percent of respondents cited lower corporate taxes as a prerequisite to stronger economic growth in Japan. …A 5 percentage-point tax rate cut is unlikely to do much to solve Japan’s woes, however. An effective corporate tax rate of 35 percent would still be higher than South Korea’s 24 percent or Germany’s 29 percent, for example. …Meanwhile, the government is trying to offset lost tax revenue with tax increases elsewhere, which could blunt the effect of reduced corporate tax burdens.

I suspect the Japanese government’s estimate of $172 billion of additional output is overly generous. After all, the corporate tax rate in Japan will still be very high (the government originally was considering a bigger cut). And foolish Japanese politicians will probably raise taxes elsewhere. But there will be some additional growth since the corporate tax rate is an especially damaging way to collect revenue.

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Today the leading Austrian economic think tank, the Ludwig von Mises Institute held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.

Below are his main points and entertaining quotes:

• Central banks will never tighten monetary policy again, merely print, print, print
• Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
• “The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
• “Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
• US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
• “You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
• Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
• The next 3-5 years will be highly volatile

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