Federal Spending is NOT the Problem...

This issue with our federal deficits and debt is not a result of federal government spending.  What?!  No, it's a result of UNCONSTITUTIONAL federal government spending.  The only big ticket item that the federal government is authorized to spend money for is defense.  Period.  Not Social Security nor welfare nor Medicare nor farm subsidies, etc.  I would wager that upwards of 75% of federal government spending is unconstitutional.  Prove me wrong!

I'll Be Forever in Your Debt...

So let me see, the United States federal government is over $13 trillion in debt and racking up over a trillion dollars more each year. Now we learn that in order to try to finance this deficit spending the federal government is going to buy its own debt. Huh? Run that by me again, slowly and with clarity. Let me think, how can the federal government get money to finance its deficit spending? Well, it can raise taxes on the citizens; and it does. But there is a point of diminishing returns that we have certainly already passed. The Laffer curve is real. At high levels of taxation business growth slows, job growth slows, people defer or shelter income and returns to the federal government coffers actually start to shrink. Lower the tax rates and the opposite happens, tax receipts actually grow. This is what Reagan did in the ‘80’s. But that is a discussion for another day.
The next way that the federal government can obtain funds is to sell bonds, T-bills and the like to U.S citizens, people in other countries and governments of other countries. Sell our debt, indenture the nation to a variety of creditors, don’t worry about ever really having to pay off the principle; just keep rolling it over and over to new creditors and pay the interest out of current tax receipts or borrowed money (is there a never-ending loop here?); or via new printed money added to the current money supply. This brings us to the third source of federal revenue: the printing presses.
This is the latest development being announced in the media-- monetizing the debt. The government is the only entity which can legally print its way out of debt. But can it really?? Dumping newly printed money into the current money supply doesn’t really add any new wealth, it’s not backed by anything of substance or value (except the federal government’s promise to pay, to make good on its debt. I know; ROTFL!). All this does is look good for a brief flash in the pan, then the effects ripple out through the economy, artificially inflating the money supply which ultimately only devalues the currency to the extent it was expanded and inflates the cost of everything-- labor and goods and services to the extent of the expansion. The final outcome is runaway inflation. Can you say Weimer Republic? Wheelbarrows full of worthless paper just to buy a loaf of bread. This can happen because our currency is not backed by anything tangible and universally accepted as valuable, such as say, oh something like gold. It’s only backed by the federal government’s, ahem promise to pay. Here we go again.
What would happen if you or I tried to buy all of our debt back? Could we? Well, if we actually had the money to buy our debt back then we really wouldn’t be in debt would we? (Hint Uncle Sam) We can’t raise taxes on our neighbors to buy our debt back. In our case that would be called theft! We probably can’t just keep rolling it over to new creditors because our credibility to pay it back, our promise to pay (which is in reality our credit rating score) would plummet and no one would eventually take our credit. Sort of like the Chinese getting skittish about buying our bonds. Something about that promise to pay thingy. There has actually even been talk about lowering the federal government’s credit rating. Hmmm. Now you and I certainly can’t print money and monetize our debt, well legally anyway. So we’re stuck, we actually have to pay back our debts with real money or file for bankruptcy.
Time to start burying gold in the backyard?

It's Time to Pay the Piper

If you think about the current economic mess in which we find ourselves and all of the talk about a 40% loss of value in the stock market, nothing has really gone away. Dirt, buildings, cars, trucks, houses, television sets and shoes are all still here. None of that has disappeared. Credit and the money value of business have decreased, but those are not actually real. They are only psychological constructs. Money is not based upon anything like say, gold. Money and credit are only agreements between people. They only exist in people’s minds and imaginations.
The real culprit here is easy credit and the false demand driven by it. This is true for individual families, corporations and government at every level. The current collapse has been inevitable for decades. And there is plenty of blame to go around. Those responsible for extending such credit are culpable as are the people and institutions who kept lapping it up and spending this fake money like there was no tomorrow. With regard to the national debt we would say, well we just owe it to ourselves. When that was actually true it was still a bad thing because it would strap our children and grandchildren with a horrendous tax burden to service the debt. But now, we actually owe a huge chunk of our national debt to foreign powers such as China, not necessarily good friends and who certainly don’t have America’s best interests foremost in their plans.
This addiction to credit and wild spending is every bit as powerful a force as addictions to tobacco, alcohol, drugs, sex and gambling. And every bit as hard to shake. It sneaks up on you so gradually and by the time you realize that you have a problem you are probably past the point that you alone can do anything to stop it. For decades our society has been driven by the relentless push to achieve and acquire, achieve and acquire. Keep up with the Joneses. We are bombarded constantly and everywhere by Madison Avenue marketing exhorting us to buy, buy, buy! More, more, more! You deserve it-NOW! Don’t wait, use the plastic. Have it today. Pay for it, well, never. Tomorrow never comes. Twelve months same as cash. No payments no interest for a year. We are pressured by our co-workers, neighbors, friends, relatives, children and their peers. We must keep up appearances. We have to have the newest, flashiest and fastest. This easy credit has put people in houses, cars, big-screen televisions and clothing that they cannot really afford and should not be buying. This same mind-set also applies to corporations and governments. The sky-rocketing demand for all of these goods and services has been built upon a precarious house-of-cards for many years. Fake credit providing fake money driving fake demand creating fake business growth creating fake jobs with fake income and resulting in fake tax revenues culminating in a fake economy with a fake GDP and fake growth rate. Well, the predictable explosion of the comical mortgage market was the card on the bottom. When it was pulled out the whole house has come tumbling down. Sadly, this has been obvious for years. It had to happen. It needed to happen. Like a drug addict, at some point someone has to take the needle away and let the patient go through the horror of withdrawal. It’s ugly and painful, but it’s the only way to ultimately survive. Then, after it’s over someone must always watch out to stop the addict from going back to the drug.
For many years the hole in the bottom of the boat was small enough that we could just bail the water out and stay afloat. Adding more fake money and credit to cover the bad worked for a while. Now the hole in the bottom of the boat has become so large that bailing will no longer work. We have to plug the hole first. That means no more easy credit, no more borrowing. We must cut back on spending and go to a cash-only, pay-as-you-go basis. That applies to individuals and families, corporations and governments from your city all the way up to the federal government. We cannot print any more funny-money lest we risk creating hyper-inflation which will only greatly exacerbate the problem, not solve it. People must go back to my grandparents’ budget strategy. You live below your means, save money and pay cash for the things that you really need and at a level that you can really afford. That will mean smaller homes, modest cars, fewer vacations, smaller television sets and non-designer clothes for many. It will also mean understanding delayed gratification. You save for things that you really want and put off buying them for years until you can pay cash for them. That’s right, 23 year-old college graduates don’t deserve to buy a BMW, a 5-bedroom house, Fila sneakers and 70-inch home theaters for probably another 20 years. So sorry. These federal bailouts and loans must stop. They only serve to forestall the inevitable correction that our businesses and economy must go through. If we don’t, the problems will only fester and grow bigger beneath the surface to erupt later in a much bigger disaster. Let’s get our national withdrawal over with and reset the economy on saner foundations. Pay now or pay later. The price will be much greater and more painful if we wait until later.

Who's Coming to Town, Santa or Scrooge?

Donald Trump nonchalantly misses a $53 million interest payment for one of his casinos. The federal government is passing out trillions of non-existent dollars to an endless line of panhandling corporations, running up the federal debt well beyond the stratosphere (if you think any of that will ever be paid down I would love to sell you some beachfront property in Arizona). The feds can’t consistently run a balanced budget, much less a surplus. There are untold trillions of unfunded commitments to future Social In-security and Medicare ‘recipients’ just waiting to bust the budget. So what is our brilliant president-elect planning? Trillions of dollars for new federal programs all paid for by raising tax rates on the wealthy. And of course they will dutifully pay them. No, they won’t shift their income off-shore or into tax-deferred instruments. Of course not. That would be unpatriotic. Hehehe.
And with all of this going on, if Joe the Plumber misses one payment on his credit card they call out the National Guard to haul him in. Sauce for the goose, sauce for the gander? How is he supposed to look his children in the eye and explain why this will be a bleak Christmas? The feds are passing out money like candy. Dad, go get some for us! We average Joe’s are supposed to pay for all of these bailouts, keep our family budgets in balance and dare not delay, much less miss any payments. Don’t do what the feds do, do what they say. Don’t follow their lead. Duh, McFly, they’re not leading! They’re not following. They are floundering. How on Earth are we supposed to teach our children fiscal responsibility when our esteemed ‘public servants’ are completely reckless and irresponsible with our cumulative national milk money? In the corporate world they would all be hauled up on charges for gross negligence, mismanagement and embezzlement.
Can anyone, or everyone say Enron?