If 41 cents of every dollar you made was going on your credit card, would you keep doing it?

According to the Department of the Treasury, 41 cents of every dollar spent by the federal government of the United States was borrowed. 

Think about that. Think about that long and hard. Can you imagine that any sane person can possibly think that this kind of reckless spending can be sustained?  This is the equivalent of a private person making about $25,500 spending $50,000 dollars every year. That means that they had to put $20,500 on the credit card in a single year to hit the same ridiculous deficit spending percentage our government has.

The Bi-partisan Debt Commission report has come out. It's harsh. It's going to ask Americans to accept deep cuts in many of the entitlements that we hold dear. It holds nothing back. Deep cuts are found in health and human services, Social Security, the Department of Defense, all of which been "untouchable" and "third rail issues" until now.

So its surprise to me that the commission itself was only able to get 11 of 17 to support the conclusions of the commission. 

Two examples:
Max Baucus of Montana refused to support it because of the proposed gasoline tax hike that would damage the agriculture industry.  That's nothing. If it were me I would end farm subsidies and let farmers grow whatever the heck they want in quantities they want.

Andy Stern, the president of Service Employees International Union (SEIU) also refused to support it, because it would have deep consequences for federal government employee union pension plans.

As long as people continue to think "Think not what I can do for my country, think what my country can do for me" we are going to head down the road of national insolvency.  When will We, the People, wake up and realize that we've allowed our politicians to walk us down a path paved with the false glitter of lies and promises right to the very trapdoor of financial hell?  When will we stop demanding that our government take money from some and give it to others, when in fact there just isn't any more money to take?  Yeah, the rich are rich, but there aren't enough of them nor do they make enough that by themselves they could pull us out of this mess we are in.  We have to reduce spending. All across the board.

Because unlike you or I who have our mortgage company or credit card company to send us into bankrupty, the federal government instead gets to answer to China and Qatar and the United Kingdom.  And they aren't likely to be any more understanding than your local debt collector. What kind of a debt collector would China use, anyway? Do we really want to find out?

Earmarks are a symptom of the problem.

In 2005, the Congressional Research Service found that earmark projects accounted for 1.92% of all federal outlays (spending). Now... that doesn't sound like a lot of money.  Well, OK, in the jaundiced and stratosphere-high world of federal spending, that doesn't sound like a lot of money.  In fact, it would work out to about $47.7 billion dollars, which compared to the $1300 billion that we overspent in 2010, doesn't really seem like much.

However, earmarks are a symptom of a Washington problem that John McCain and a few others have been warning us against for years.  Earmarks are used to buy votes in both houses of Congress.  It's a form of political currency that is used to influence members of both the House and the Senate to vote in a manner that they might otherwise have done.  Here's an example:

House Leader: This reform legislation is very important and we really need your vote in order to guarantee it's passage.
Representative: I realize that this is important to you, but you have to understand that my constituency isn't effected that much by the problem your legislation addresses. And they will object to its cost.
House Leader: Well, what is your constituency interested in?
Representative: We've been trying for years to build that new county library, but the economy has made it difficult to get it done.
House Leader: Well, what if we were to attach, let's say, $600,000 in earmarked funding for that library to the proposed legislation?  
Representative. My constituency will be grateful.  You have my support.

See the problem?  So even though earmarks themselves only represent a small amount of the total federal funds spent, they contribute to a bloated federal budget by making it more palatable to some members of Congress by sending some funding back home where it will do some good.

In the above example, would a new public library be of benefit to the community? Almost assuredly so. But because it's earmarked legislation, it never gets debated as part of the budget.  Therefore, this funding is hard to find and hard to track.

If you get rid of these "pork-barrel" projects and hidden earmarked funding riders, then bills tend to be voted on based only on their relative merit and not because votes have been bought and paid for.  For example, without the sweetheart deals that were made to certain members of Congress in states like Kansas and Louisiana, the United States National Health Care legislation (aka "Obamacare") would probably never have gotten enough votes to pass.

And that's why the Tea Party wants earmarks eliminated.

Grumpy Conservative, The 2010 Midterm Results Prove Nothing.

As of 5:00 PM on November 3, 2010, I've heard a President admit he made mistakes and I've heard a resurgent GOP and their pundits talking about a "mandate". 

Florida Senator-elect Marco Rubio said it best. This election result is not an embrace by the people of the GOP, it is a second chance to get it right.

I'm already betting they don't. Because in order for the GOP to get it right, they are going to have to finally convince the American people that we no longer can afford all the programs, services and entitlements that we have come to expect from our federal government. They are going to have to convince the American people that they are going to have to cut over $600 billion dollars from the 2011 federal budget.  They are going to have to repeal parts of the health care reform. But that's only the start.

They are going to have to convince the people that every category of the budget will need to be cut.  They are going to have cut over $150 billion from health and human services. They are going to have to cut over $150 billion from the federal defense budget. They are going to have to dramatically change the way social security payments will be made to people who retire five or more years from now. They are going to have to cut and I mean DRAMATICALLY cut the budgets of federal agencies like the Dept of Education, the Dept of Energy, the Dept of Agriculture, the National Endowment for the Arts, the FBI, CIA. Across board. Nothing is sacred.

Oh yeah, they are going to have to RAISE taxes too. On everybody. Even those who currently don't pay.

And if you the American people don't buy it, then the GOP and the Democratic party are both screwed and the United States defaults on it's debt in 2012.

But the American people won't buy it so why in the hell am I even bothering? I'll see you in the bread line.

Quantitative Easing, Round Two.

Read this CNNMoney article.

Back in March of 2009, the Federal Reserve Bank printed $2 trillion dollars ex nihilo, which means that this money was being added to the money supply but was backed by no additional value in our actual treasury.  In April of 2009, every dollar owned by everyone everywhere was worth 17% less than it was just before they printed the money.

Why would they do such a thing? Well, as the article explains, they are doing this because the federal government is finding it harder and harder to get anybody to buy our deficits. You know... those deficits where our beloved federal government, at the behest of the American people is spending more money than they are willing to pay it for the services they demand their government provide.  So, if China or Bahrain or Qatar or the UAE or the UK are no longer willing to buy our bonds, then the Federal Bank is willing to step in.

Yup, they are going to electronically credit the Federal Reserve with an addition $600 billion dollars in order to be able to purchase our own debt. This is also called "quantitative easing", a desperation move that is taken by a government when an economy is stalled but interest rates for lending are already close to zero.  This is also known as "monetizing the debt", something that has been tried before. I document this in a previous blog posting you can read here.

The Weimar Republic, the German government after World War I did this in order to pay off the massive reparations that they were obligated to pay per the Versailles Treaty.  Look it up. It was not a happy time to be a German.

If you are OK with your government reducing the value of every dollar that you have saved or invested, then don't do anything. But if I were you, and especially if you are a Republican, now is the time to fire up your word processor and write your Senators and Congressman and tell them to STOP THIS NOW!

The Unfinished Business of the Federal Government (or We have met the enemy and they is us)

I'd be willing to bet that more than 70% of the American public is completely ignorant with regards to the responsibilities of the U.S. federal Congress.  Article I Section 7 of the U.S. Constitution states: "All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills."

But the partisanship being displayed by both the Republicans and Democrats have made the environment in Washington so toxic that Congress has utterly failed in this fundamental and Constitutionally mandated responsibility. 

A federal income-tax hike in the midst of our weak economic recovery seems unfathomable. Such a hike will surely stifle consumer spending and either stall or dampen any recovery we might experience going into 2011.  And yet, our Congress completely failed to come to any agreement on the extension of the "Bush tax cuts", which are scheduled to expire on December 31st of this year.  Worse yet, here we are in late September of 2010 and we don't even know what the tax tables are going to look like for next year. How can our vaunted and esteemed Congress possibly budget when they don't even have a GUESS as to what revenues will be?

So we don't get a federal budget. Of course, the political junkies will tell you that Congress is not required to provide a federal budget. And they're mostly right. But how can you possibly control spending unless you create a budget and then try and stick to it? Or maybe it's that our "transparent Congress" doesn't want to pass a budget because then they might be expected to actually control spending. Hmmm...

That same "transparent" Congress (reference to Speaker Nancy Pelosi's infamous promise) has failed to adequately investigate misconduct charges leveled against Representatives Charlie Wrangle (D-NY) and Maxine Waters (D-CA).

But Congress CAN raid our empty treasury to authorize a $42 billion "small business  stimulus" bill even though small business aren't likely to borrow money for expansion or hiring because the tax hike will discourage consumers from parting with what little discretionary spending they still have in their own household budgets. More "chicken in every pot" politics and Americans LOVE it.

Every taxpaying citizen I talk to (I don't talk to non-taxpaying citizens because they have no skin in the game so why in the hell do I care about THEIR opinion?)  laments the fact that the government spending is completely out of control. And yet, when I start mentioning reduction of the budgets for the Dept. of Education, teachers scream. Or if I mention reduction in Medicare/Medicaid then seniors and the unfortunates of our society scream.  Or if I mention reduction in military spending, then the hawks and those serving in the military scream. 

Our elected leadership has utterly failed (for at least 60 years) to give it to us straight, to give us the plain, unvarnished truth.  If you want to have a healthcare system like Sweden's, or Canada's, or the United Kingdom's, then you have to pay taxes like a Swede, a Canadian or an Englishman. Or, if you want lower taxes, then you must do more for yourself and your community and expect less from your government, especially with regards to entitlements and the redistribution of wealth.  But our Congress and our President (again, for over 60 years), has told us we can lower taxes and still provide all the entitlements that you could ever ask for.

I do not lay the huge mess, the possibly unrecoverable mess, at the feet of Pelosi, Reid and the President. I lay it instead at the feet of every Congressman that ever asked for an earmark, every President that pushed social-engineering through government programs, every Senator that ever tacked on unrelated resolutions to authorizations (ala Harry Reied and the "DREAM" act for the current Defense Spending Authorization). Ultimately, I lay our huge mess on every American that still refuses to do with less of their piece of the entitlement pie and still expects our bloated federal government to reduce spending.

So Congress is going into recess. Well, during that period I guess the important and constitutionally mandated business of the people will have to wait. But by the same token, if they are in recess then they can't do any more harm to us.  I guess that's the silver lining. But that sure isn't the American Exceptionalism I grew up with.

Wake Up America! We are going to have to both cut spending AND raise taxes.

America, we are in big trouble. We have allowed our political representatives, senators and even our President to hoodwink us in believing that we can have a chicken in every pot today without paying for it until tomorrow. This is not a new phenomena. Anybody that thinks that reckless spending without restraint has only happened under President Obama's administration is delusional. Only one President in the last 40 years got us even close to a reasonable budget and that was President Clinton, who was the beneficiary of the tremendous "peace dividend" bequeathed to him by President Reagan and to a lesser extent President Bush (41).

Republicans and Democrats alike have flimflammed us, the American people in believing that the government can improve all of our lives if we just give a little more. And when we the people aren't in the mood they take anyway by simply selling off some more debt to the Federal Reserve or to foreign investors and in the process they mortgage us and our progeny.

We are now at the point where our progeny will be paying for the arrogance and greed of the Boomers, The X'ers and Y'ers and who knows what we will call the current generation, for decades to come.

Congress just raised the debt ceiling to 14.6 trillion dollars. We had a budget deficit of 1.2 trillion in 2009 and 2010 is going to have a 1.6 trillion shortfall. Our national debt now represents nearly 85% of our Gross Domestic Product. I am told that when it exceeds 90%, "bad" things are going to happen. This rant however, isn't about what those bad things are. Instead it's a high level view of what it's going to take to start curbing the debt.

Take a look at this chart:

This image is referenced from Wikipedia.

From this graph it is clear that unless Congress is willing to trim back spending in some of the "sacred cows" of the Federal Budget we are going to go the way of Greece. Which is bankruptcy.

The progressives complain that we spend too much on Defense. They have a point. We do spend a lot. But when you look at that graph, you see that we spend more on each of the following: Treasury, which includes interest payments on debt, Health and Human Services and Social Security Administration.

The big four (Treasury, Defense, Health and Human Services and SSA) represent about 80% of the total money spent by the Federal government. Everything else represent only 20% of the budget. If we were to completely shut off spending for everything except the big four, we would roughly break even. That doesn't pay down the debt we owe. We simply wouldn't add any more to it.

We as the American people must be prepared to sacrifice some of our "sacred" entitlements. And some of that may take some time.

Examples:
Social Security was originally intended to be insurance against bad times for those who needed it. It was not an entitlement for all. Americans must once again plan for the future and start saving for their own retirements plans now. And the younger they start, the more likely they won't need to depend on the rest of us when they can no longer work. And in the immediate future, the SSA is going to have to freeze cost increases. Families are going to have to step in and help with their elderly parents and grandparents. 2009 funds spent: $720 billion.

Health and Human Services. Much of the activity under this branch of government isn't even mandated by the U.S. Constitution. Be that as it may, this branch is also going to have to be slashed. On their own website (http://www.hhs.gov/about/whatwedo.html) they state that "HHS represents almost a quarter of all federal outlays". Assuming that cuts CAN'T be made in Medicare and Medicaid (which I don't agree with but for the sake of argument) then we MUST cut the other functions, such as the FDA, Research grants, Head Start, and emergency preparedness. Those functions that can be handled by communities must be. 2009 funds spent: $790 billion.

Defense: Robert Gates did a bold thing when he canceled more purchases of the world's best air-superiority fighter, the F-22 Raptor. In the process, he made a lot of people very angry. Like the Air Force and the good folks who build it. But we need that kind of slashing at every level and in every sector of the defense industry and department. 2009 funds spent: $690 billion.

Since these three departments represent about 65% of the budget, if we were to look at the 2009 budget deficit of 1.2 trillion, that means that we would have had to cut the budgets in these three departments by a combined $780 billion dollars, or roughly $260 billion dollars each.

But don't forget, just slashing these budgets will make things worse. Because to slash these budgets to this level only balances the budget, meaning we aren't adding any more to the public debt. But we still have to REDUCE it. And in the process we would add another 10 million people to the unemployment lines.

So obviously we can't just cut spending. We must raise revenue. There are two ways to do this. We can grow the economy by making our corporate tax rates competitive with other industrialized nations, or we can pay it through income. It will actually be a combination of the two.

America, you must remember that our government is of the people, by the people and for the people. In the final analysis, we let the politicians sham us. But it's our government, and therefore it's our responsibility.

The question is: Do we have the guts to make the hard call? Do we have the guts to force our federal elected representatives and senators to cut the budget where they possibly can? Are we willing to sacrifice our entitlements? Are we willing to start paying on the enormous spending spree debt that we have accumulated over the last forty years? Democrats sure don't have it in them to do that. Republicans could, if they were true to their principles. Tea party people, with their feet on the necks of the Republicans, do they truly understand the level of sacrifice that must be given by every single American to right our financial ship of state? Because let me tell you how it's going to happen.

Congress will slash the federal budget by 900 billion dollars. Conversely, they must raise tax revenues by the same amount to balance the budget. If we make America friendly for manufacturing again... if we make America friendly for business and industry again... we might make it without each taxpayer having to pay an additional 3,500 in taxes EACH YEAR. But unless we can grow the economy while simultaneously tightening our belts we'll never get out of this death-spiral that we're in and the U.S. as we knew it will vanish into the mists of history.

How Business is Done in D.C.

http://blogs.abcnews.com/thenote/2009/11/the-100-million-health-care-vote.html

Read the article first. Of course, over time weblinks will fail. So here's the synopsis.

Senator Mary Landrieu (D-LA), a moderate Democrat, has been playing "hard to get" on committing to an up vote for the Senate version of the US Health Care reform bill. Apparently, a whole section has been added to the bill that benefits one state and one state only; Louisiana. The section is 58 lines and contains 660 words. It can be found on page 432 of the Reid bill, and the section is titled: "SEC. 2006. SPECIAL ADJUSTMENT TO FMAP DETERMINATION FOR CERTAIN STATES RECOVERING FROM A MAJOR DISASTER."

In summary this section increases federal Medicaid subsidies for certain states recovering from a major disaster. There is only one state that meets the conditions set forth in this section: Louisiana.

Since Harry Reid needs all 60 of his Democrat Senators to bring this bill onto the Senate floor for debate, he needs Mary Landrieu's vote. And this is apparently how he will get it.

Oh, one other thing... The Congressional Budget Office estimates that this provision will cost U.S. taxpayers $100 million.

I'm sure that Majority Leader Reid, who is battling an uphill fight in his own state to be re-elected next November, expects Senator Landrieu to stay "bought".

And this, ladies and gentlemen, is how bizness is done in DC.

Kudos to ABC News' Jonathan Karl for bringing this to the harsh light of day.

Good Liberal Argument Concerning the National Debt

When you throw away the name-calling and other infantile behavior that currently plagues our legislatures at the Federal and State levels it becomes possible to listen to well-reasoned arguments from either side of the political spectrum and learn from it.

I was perusing a Progressive website (Centers for American Progress or CAP) and read an article written Michael Ettlinger and Michael Linden.

Michael Ettlinger is the VP for Economic Policy at CAP, principal developer of the ITEP Microsimulation Tax Model. He holds degrees from Cornell and American University.

Micheal Linden is the Assoc. Director for Tax and Budget Policy at the CAP. He has a master's degree in public policy from UC Berkeley. He is also a children's advocate, working at First Focus.

Both of these gentlemen lean heavily to the left. But, can we actually hear words of common ground from them? You bet...

In an article hosted on CAP's website that was posted on September 30, 2009 titled "Deal wit It. A Guide to the Federal Deficit and Debt".

While I disagree with their position that heavy deficit spending is necessary to prevent economic collapse during challenging times, I found several of the following quotes to be self-evident and very common sense.

"The real challenge is what we face after the recession: significant sustained deficits which, while not quite as eye catching, are equally historic, harder to solve, and pose a greater danger."

They also point out that sustained high levels of national debt can deter domestic investment, lower future incomes, raise interest rates and promote inflation, which causes further damage to people who see their wages fail to keep up with increasing inflation.

They provide a dire warning by stating that the CBO1 and the OMB2 both project high deficits through 2019, the latest year for which they offer their estimates.

The offer the following for consideration:
1) Revenue shortfalls are projected in personal income taxes, corporate income taxes and payroll taxes, especially compared with previous periods (they cite 1998, when the budget was actually generating a surplus of .8 of GDP3). This is especially pernicious in light of the fact that in the short term, stimulus spending (TARP4, ARRA5, TARPII, CARS6) is going to produce greater deficits in the short term, adding dramatically to the national debt burden and therefore also the amount of money the federal government pays monthly on that debt plus interest.
2) Government health care spending is expected to dramatically increase as the baby-boomers go from workers paying INTO social security to retirees taking FROM the system. Hence, the extreme urgency of reforming health care. Yes, health care reform is a national security issue. It's the WAY that we reform health care that is the source of so much angst and invective in our current political conversation.
3) Because of our involvement in Afghanistan, the ongoing campaign against jihadist threats and the likelihood that we will be facing a resurgent threat from an increasingly socialistic Russia and an emerging threat from socialist China, our military expenditures are projected to INCREASE.

These postulations are not in dispute by any reasonable person of either party.

They emphasize the difficult decisions that we are going to have to make and offer the following analysis.

"The [deficit] 6.3 percent of GDP swing is driven by both decreases in revenues and increases in spending." This is also common sense and incontestable. They make more assertions. Let's see if you agree with any of them.

1) Across the board spending cuts aren't likely. Some areas of the [federal] budge will be spared, which means other areas will have to face deeper cuts. Examples: We aren't going to default on our debt payments. We are also not going to cut Social Security, simply control the rate of growth. By taking these two items off of the table, the REST of the budget would have to be cut by 27% to achieve balance, or 14% to bring the deficit to below 2% of GDP.
2) Health care reform (assuming that the current version of USNHC were passed) is assumed to result in significant Medicare cost reductions, but most of these reductions will not become apparent for a decade or more. Assuming we can't cut Medicare, then the remainder of the budget must be cut by 35% to balance the budget or 18% to get the deficit below 3% of the GDP.
3) If we also exempt military spending from the cuts, which we would probably be obligated to do considering our current geopolitical obligations and future scenarios, that would mean that the rest of the budget would have to be cut by 51%.

So what gets cut by 51%? Funds to health clinics, federal retiree and veteran benefits, public schools, grants to higher education, the entire transportation infrastructure, regulatory agencies, the US Post office, etc. This is not a realistic solution.

The other side of the coin is to balance the budget by raising revenues (taxes and fees). It's also equally dismal. We would have to increase federal revenues by 22% in order to balance the budget by 2014. That's a 22% increase in everybody's income taxes, gas taxes, payroll taxes and federal charges. And don't forget that the 50 states are also raising or will be raising taxes and fees. To bring the deficit to 2% of GDP would still require a 12% across the board increase in revenues. However, the current administration has promised that they will not increase taxes on individuals who earn less than $250k annually. This means that family's earning more than $250k annually and corporations would have to pay a tax rate of nearly 70% in order to cut the budget deficit to only 2% of GDP by 2014. Note that this does NOT balance the budget.

They then ask some questions that I don't agree with. Example: "Can the U.S. afford to continue to spend so much more of it's national income than the rest of the world on defense?" As of 2003, the U.S. spent 3.7 of national income on military expenditures, which represented 49% of U.S. discretionary spending. While this does not include the last five years, 49% of the discretionary spending budget is nearly the lowest percentage spent in any given fiscal year since before World War II.

For over four decades our government has run budget deficits, with the natural result that our national debt has grown to a dangerous high. The conclusion: In order to slow our deficit spending and return to a balanced budget or even a budget surplus will require significant sacrifice on our part.

Here's the part my conservative friends isn't going to like. Our economy is a national security issue. We must stop spending money that we do not have. Quite the opposite, we must start to repay the money that we have already borrowed. The only way that we are going to be able to do that is to both reduce government spending (including military and health care) while at the same time, all American citizens are going to be called upon to pay more in fees and taxes while at the same time receiving less entitlements. It's going to hurt. Any conservative that tells me that we can solve this solution while not increasing taxes is not looking dispassionately at the facts of our situation. However, any liberal that thinks we can balance the budget and reduce the debt by increased taxation alone are also equally deluded. Programs of all kinds, including social programs (education, housing, health care, regulatory agencies) are going to have to be cut or dramatically reduced.

We've had our party. It's time to pay the bill.


(1) CBO: Congressional Budget Office, a non-partisan Federal organization that provides the Congress with financial impact analysis.
(2) Office of Management and Budget, a Federal organization that monitors existing Federal spending.
(3) GDP: Gross Domestic Product
(4) TARP: Troubled Asset Relief Program
(5) ARRA: American Reinvestment and Recovery Act
(5) CARS: Car Allowance Rebate System