Default is Last Resort...Not First!

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." from Section 4 of the 14th Amendment.

Believing that not raising the debt ceiling equals default means that you must believe that every penny the government is now spending is absolutely necessary...that not one penny can be cut.  The 14th Amendment spells out that the legally incurred debt of the United States cannot be questioned...in other words, it is a debt and must be paid.  Defaulting on debt, therefore is the last resort...after all other measures have been exhausted.  In this current "crisis," however, no other measures are being even considered or negotiated by our imperial dictator.

Before we default on debt, we should...must...cut other spending to the point where we can service our current debt.  We can reduce or eliminate discretionary spending.  We could eliminate departments of government that are inefficient, out-dated, corrupt, or unconstitutional...which is most of them.  We can stop maintaining national parks...national public radio.  We can pull out of the United Nations and eliminate that obligation.  We can eliminate federal funding for food stamps, welfare, and socialized medicine.  We can do very many other things that do not affect the rightful and constitutional operation of what is meant to be a very limited Federal government.  But we cannot constitutionally default on our debt.

If the President of the United States willfully defaults on our legal debt, he should be immediately removed from office and possibly imprisoned for breaking federal law.  If our Congress allows him to default, the States, from whom the Federal government gets it's power, must rise up and recall and replace them with those who will live up to the oath of defending the Constitution.

REPEAL THE 17th AMENDMENT!

ENFORCE THE 10th AMENDMENT!

Debt Limit and Default

President Obama is a liar and if HE CAUSES a default, he should immediately be removed from office. Representative Tom McClintock (R- CA) lays out the case that not only does failure to raise the debt limit not equal default, that it would have to be a conscience decision of the President, against the laws of the land, for the country to default.

We must destroy the Imperial Presidency in this country, along with the elitism of the Senate.  We must take back power to the States and the People and return these offices to their constitutionally proscribed limits.

REPEAL THE 17th AMENDMENT!

ENFORCE THE 10th AMENDMENT!

The More Things Change...

It's as true today as it was then...people don't know history...they are clueless about how the economy works...and don't know or care about the consequences of the way they vote.  People STILL believe that the Great Depression was a failure of the Free Market.  Why?  Because those really at fault, government, told them so.  But Friedman tells a different story:

"So the Great Depression was not produced by a failure of business.  On the contrary, it was produced by a failure of government...and a failure of government in an area in which responsibility had been assigned to government since the founding of this country...We have learned from that failure.  The Federal Reserve will not fail in the same way again.  This time it will fail in a different way.  This time it has been failing, not by producing a Great Depression, but by producing an inflation.  Because just as you will hear the story that it was business that was responsible for the depression, so you will today  hear the story that it is labor and management that are responsible for inflation.  It is the same kind of a myth."

The inflation he is speaking of here is in the 1970s when interest rates were in the double-digits and much of the American manufacturing base, such as steel, collapsed.  President Gerald Ford ran on a W.I.N. platform, which stood for Whip Inflation Now.  It was a time of what was being called "hyper-inflation," and it was devastating to our economy.

Today, we are on the verge of another devastation to our economy.  The Federal Reserve is printing more and more money.  This causes the value of the dollar to drop, and therefore, prices to raise...this is inflation.  But who is to blame.  Once again, Friedman tells it like it is:

"Inflation is made in one place, and one place only...Washington D.C.  And in Washington D.C., the chief source...immediate source of inflation...is a Greek temple on Constitution Avenue, which houses the Federal Reserve Board.  An accomplice, and a major accomplice of course, sits in the halls of Congress in Washington.  They are a major accomplice because you tell 'em to be.  The American people have been telling Congress for many years, 'Spend more money on us, please.'  But they've been telling us, 'Don't raise our taxes.'  Congress has been listening.  It's been spending more money on you, but, on the other hand, its been very unwilling to raise taxes.  As a result, its imposed inflation as a tax. That's one tax you don't have to vote for...but you have to pay."

I fear, though, that things are building to be even worse.  With the debt as high as it is, many in government today seem to have no problem both causing inflation and increasing taxes.

Watch the whole video.  It's an interesting history lesson, one that is very relevant for today.

Debt Limit Looming...Again!

In July of 2011, I did a post with two videos arguing against raising the Federal debt ceiling.  Well, of course they did it...they raised the ceiling.  At that time, we were about to come up against a $14.2 trillion debt limit.  We were told we had to raise the debt ceiling or we would be in default...a lie.  Now, less than a year and a half later, Newsmax,com reports that, "The Obama administration said on Wednesday that the nation would hit the legal limit on its debt near the year's end..."  That's right, now the Central Spending Machine is only "$235 billion below the $16.4 trillion statutory ceiling on the amount it can borrow."  The Debt now exceeds the GDP of the entire country at just over $15 trillion.

In an October 2011 post, when we were a mere $14 trillion in debt, I tried to put the National Debt in Perspective.  In that post I said:

"In 2010, The US government spent more than $413 Billion on interest payments alone. This is more than was spent on The Department of Health and Human Services…The Departments of Transportation, Energy, Veterans Affairs, Housing and Urban Development, Justice, Homeland Security, Agriculture, Commerce…hold on, I’m almost done…The Department of Treasury, Department of Labor and the Small Business Administration …COMBINED. Just to service current debt. And, according to the non-partisan Congressional Budget Office, the interest payments on the debt are projected to be $1.1 Trillion a year by 2021, a mere 10 years from now."

I also pointed out that then it would have taken 384 years to pay off the debt if government stopped spending any other money and just paid $100,000,000 a day on the debt.  That time frame has increased by 65 years to 449 years...in a year and a half.

Let me remind you that candidate Obama said of President Bush's addition of $4 trillion to the debt in eight years, "That's irresponsible. It's unpatriotic."  Which I agreed with.  Now Obama will have raised the debt by more than $6 trillion in four years.

The Debt ceiling has been raised 10 times in the last decade, from $5.9 trillion to $16.4 trillion. And now, the Treasury is already calling for another hike, "As we saw last summer, it is important that the debt limit is raised in a timely manner," said Treasury Assistant Secretary Matthew Rutherford.  

Our credit rating has already fallen.  Our spending is out of control.  We cannot continue to raise the debt ceiling.  We cannot continue to pass results of the current government's irresponsibility down to our children, grandchildren ..and great, great grandchildren.  We need to take responsibility.  We need people who do not allow their votes to be bought with government hand-outs.  We need serious adult leadership in government.  We need to reduce the size and scope of government...and we can't put it off.

How Do We Balance The Budget?

Regardless of who wins the upcoming Presidential election, there are hard decisions to be made to avoid a financial disaster in our country.  Federal spending is out of control with no apparent end in site. At the time of this posting the Federal debt exceeds $16 Trillion.  That's:

$16,000,000,000,000

In past posts I have put this kind of debt in perspective (and that was in 2011 when the debt was only $14 Trillion)...I have shown that it is not a revenue problem, but a spending problem.  Raising taxes can't fix it, because you could tax corporations and everyone who is considered rich at 100% and still not have enough money to feed the government's spending habit.

Though everyone knows that we have an unsustainable debt problem...that our deficits continue to grow, government continues to expand programs...and therefore spending.  Not only that, but the government has been actively advertising and recruiting to get more people on the roles of programs like food stamps.  Today the Washington Times reported that "Overall, welfare spending as measured by obligations has grown from $563 billion in fiscal 2008 to $746 billion in fiscal 2011, or a jump of 32 percent."  While welfare programs were cut during the Clinton administration, the Obama administration has been redoubling their efforts to increase this spending.

We are headed in the wrong direction.   I agree with then candidate Obama when he said of the much smaller debt under Bush, "That's irresponsible.  It's unpatriotic." We must first stop the bleeding, and then begin to return to fiscal responsibility and prudence.  This can only happen through a return to the principles of limited and decentralized government.  Come on folks, let's get patriotic again.

Professor Antony Davies has another great video on the issue:

A Spending Problem

Revenue - Spending = Deficit 

It is a simple equation, really...why does Washington not seem to understand it?  Our country's debt problem is simply a matter of spending more than the available revenue.

Government revenue historically averages about 18% of Gross Domestic Product (GDP).  This seems to be the level that the voting public and the economy will stand.  But, tax revenue per household, adjusted for inflation, as Professor Davies explains in the video below, has risen, by about 300% since the 1950s.

So, if revenue continues to grow over the years, but we also continue to have deficits, what is the problem?  I'll wait a little while for some of you to catch up...That's right, it's spending!  Our rate of spending continues to grow at an even faster rate than revenue.  Professor Davies explains the issue very clearly and succinctly in the video below.



Related Posts:
Federal Spending and the Economy

JFK: Right-Wing Radical?

Could John F. Kennedy be supported by today's far-left Democratic Party?

Certainly not for his views on taxes and the economy.

The Keynesian Perpetual Motion Machine

Trigger and Freewheel - October 17, 2011

The search for the elusive Perpetual Motion Machine has persisted through history.  Such an apparatus could continue to run by it's own power once it was started, without the requirement of any additional outside energy.  Though many have claimed that they have invented such an apparatus over the centuries, it is not possible.  If it were, we would all be driving electric cars that charge themselves as they travel along the road.

I won't go into the detailed physics about why Perpetual Motion is not possible, because frankly, I'm not a physicist and don't play one on the Internet.  If you want the details, I'm sure you can find more than you want to know from a quick search on your favorite search engine.  But, for a simplistic view of the subject, let's look a the diagram below which provides a classic depiction of a Perpetual Motion Machine.  The idea here is that once the center wheel is started spinning in a clockwise direction, the arms attached to the wheel will swing out and the force of the weights attached at the ends will force the wheel to continue to move.  As the wheel turns, new arms will continue to swing out and drive the wheel.  Sounds plausible...if you only think about it for about 30 seconds.  The problem is that the force of the weights going IN must be overcome coming back OUT as they are dragged back up the other side.  Add the friction of the axle and other issues, and the machine eventually comes to a halt if no additional energy is used to keep it going.

"Okay," you say, "how does that apply to Keynesian economics?"  Well, let's look at this machine as the economy.  Politicians who extol the virtues of Keynesian-based monetary policy believe, among other things, that they can boost the economy by adding so-called Stimulus money into the economy.  But, they forget that government does not create the wealth that they put IN to the machine at the top of the cycle, they only take it OUT of the economy in the form of taxes, fees and tariffs.  Add the frictional drag from the bloated bureaucracy of the government itself, and the wheel soon slows and comes again to a stop.

The government solution to the slowing wheel is to add more Stimulus going IN...but where do they get the money?  Well, they can raise taxes...but the public will only stand for so much of that before they revolt and vote them from office.  So, for the past several decades, they have hid their source and done something even worse...they have borrowed the money.  This new borrowed money comes with the added frictional drag of interest.  Coming back OUT, the machine not only have to support the continued turning of the wheel and the drag of bureaucracy, but now the added debt service.  So any new government Stimulus has less and less of a positive effect on the motion of the economic machine.

Now I hear you saying, "How is that any different from the so-called Free Enterprise System?"  A very good question...you are a smart one.  While government only pulls wealth out of the economy, or borrows it, the Free Enterprise System creates new wealth.  This new wealth is created by taking the raw materials of business and, through ingenuity and hard work, turns them into products and services that are more valuable than their component parts.  This new wealth is the on-going new energy that the Free Market adds IN to the system to keep the machine turning.  Companies who create wealth have a vested interest in reducing the drag so they can take more profit OUT of the machine.  This profit allows their companies to grow and increase the new wealth they can add IN again.

Only the Free Enterprise System has demonstrated the on-going ability to continue to add the needed new energy to keep the economic wheel turning.  The failures of the economy have never been failures of Free Enterprise, but rather the failures of government.  When government adds drag to the machine through higher taxes or unreasonable regulation, it slows the wheel and reduces the profit companies can take OUT...thus reducing the new wealth they can add back IN. 

Yes, this is a simplistic analogy, but an accurate one.  The Keynesian models have been debunked over and over through the years.  One of the shining examples that Keynesians have held up as the success of their policies, FDR's New Deal, has come under scrutiny in recent years.  In fact, economists from UCLA have recently released the results of a four-year study of the FDR policies and their effect on the Great Depression.  Rather than saving us from the Great Depression, as Keynesians have always claimed, UCLA research found that  while the economy had been "poised for a beautiful recovery," that recovery was "stalled" by FDR's "misguided policies."  The study concludes that the FDR actions "thwarted economic recovery for seven long years."  One of the study's authors, Harold L. Cole, stated that their "work shows that the recovery would have been very rapid had the government not intervened."

Bringing things up to the present, The Washington Times reported that "The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy."  So, since this was basically a failure, Obama wants to do more of the same...Typical.

There is no such thing as a Perpetual Motion Machine...or a successful government-driven economy.  Any one who believes there is, are a lot like the spoiled teenager in the comic at the top of the page who thinks it works as long as "someone" continues to pay the bill.

The National Debt in Perspective

There's been a lot of discussion about the national debt recently.  Everyone seems to have an opinion about the severity of the problem and the solutions that should be used.  The root cause, though, seems to be very clear… government is spending more that it brings in.

The current debt level is more than $14 Trillion.  This is a very…very large number. That’s fourteen followed by 12 zeros.  But, let’s add a little more perspective.  $14 Trillion is more than $47,000 dollars for every man, woman and child in the country, based on the most recent U.S Census data. According to numbers from the U. S. Treasury, this would be more than $131,000 for every US taxpayer. If the government stopped spending any other money, and put $100 Million-a-day toward paying off the debt, it would take more than 384 years. This doesn't even consider interest payments...You do the math.

In 2010, The US government spent more than $413 Billion on interest payments alone. This is more than was spent on The Department of Health and Human Services…The Departments of Transportation, Energy, Veterans Affairs, Housing and Urban Development, Justice, Homeland Security, Agriculture, Commerce…hold on, I’m almost done…The Department of Treasury, Department of Labor and the Small Business Administration …COMBINED. Just to service current debt. And, according to the non-partisan Congressional Budget Office, the interest payments on the debt are projected to be $1.1 Trillion a year by 2021, a mere 10 years from now.

If the government stopped spending any other money, and put $100 Million-a-day toward paying off the debt, it would take more than 384 years.

Many people say that the amount of debt, in dollars, is not what’s important, but rather what percentage of the over-all economy, or Gross Domestic Product (GDP), it represents. Even from this perspective, though,  the debt is high. At nearly 70% of the US GDP, the debt is at its highest level since World War II. Some current projections have the debt exceeding 100% GDP by around 2025.

Regardless of your view on the seriousness of the debt...or whether you believe that the it is necessary or not...the root cause is simply that the government is spending more money than it is receiving. The difference between revenues and outlays is known as the deficit. To make up for this deficit, the US borrows money every year from many different sources, including foreign countries like China. As historian and economist, Dr. Thomas E. Woods, Jr. says in his book Rollback, "Every year $250 billion is borrowed from China so the U.S. government can play superpower."

Government spending has been on an upward trajectory for many years…through Republican and Democratic control. While median household income has increased 27% (in inflation adjusted dollars) from 1970 to 2009, government spending increased 299% during the same time period. In 2011, the government is expected to take in about $2.15 Trillion in revenues while spending $3.77 Trillion. This is a deficit of about $1.62 Trillion.

Many different solutions to the debt problem have been proposed. Some say that we need to attack the problem from a revenue perspective. But, there is disagreement on how this should be done. Some say that taxes should be raised…but which taxes…and who should pay these taxes? Others say that lowering taxes will actually increase the revenues by boosting the economy. They point to previous tax rate cuts such as those championed by President Kennedy and President Reagan as proof.

"Every year $250 billion is borrowed from China so the U.S. government can play superpower."

Other people believe we should attack the problem from a spending standpoint. The largest block of spending is on what is generally known as Entitlements, including Social Security, Medicare and Medicaid. Entitlements together make up approximately 58% of the budget. National Defense makes up about 19%. These areas of the budget are very politically sensitive. Any proposed cuts in these areas meet with strong opposition from one group or another.

There are even those who believe that the government should spend more, believing that increased government spending will stimulate the economy and therefore increase revenues. This is the basis of the so-called Stimulus packages that have been enacted and proposed.

And, many believe that some balance between revenue and spending solutions are necessary due to the scale of the problem.

There are consequences of a large national debt. As the debt grows, so does the interest payments required to service that debt. As I mentioned before, interest payments last year alone were more than $413 Billion. When the budget continues to be in deficit, it becomes more and more difficult to pay this growing interest. In effect, the government is borrowing money to pay the interest of previous loans…never getting a chance to pay down the loans.  When Congress proposes new spending, it is actually calling for more borrowing...since we don't have enough revenues to pay for our current spending.

If the lenders’ faith that the United States can pay back the loans and interest diminishes as the debt grows, the country’s credit rating can be downgraded, as recently happened when Standard & Poor’s changed their rating of the US from triple A (AAA) to Double A plus (AA+). This can, as with individuals, effect interest rates the government has to pay and its ability to borrow.  Ultimately, if the problem gets too large, the country can fail to make necessary payments and default on its loans. This can have even worse consequences to the economy.

When Congress proposes new spending, it is actually calling for more borrowing...since we don't have enough revenues to pay for our current spending.

The scale of the debt issue is very large…almost too large to understand. There is very little agreement on what should be done, but it is a problem that must be addressed. This debt can affect all of our futures and the future of our country. I hope I have been able to offer just a little perspective to a complex issue.

How Poor Are Our Poor?

Bill Whittle of PJTV makes an excellent point in the video below that I have been complaining about for years.  Namely, that the so-called "poor" in America are not really poor and that our tax money...the 50% or so of us who are paying taxes...should not go to support most of those who are receiving entitlements.  I have long contended that someone who is "poor" does not have cable TV...does not have a cell phone...does not have an Xbox.  These people are not poor and I don't want to pay for their cable bill or to buy them cigarettes or Twinkies.

Whittle shows graphs from a new Heritage Foundation report on poverty in the U.S.  These charts are very revealing.  Watch the video and tell me that we cannot cut fat out of the entitlement programs.