Economics

I’m deeply concerned about the ticking time bomb of US debt. This week the “Super Committee” is tasked to enact important budget cuts–but the Democrats won’t budge on raising taxes and the Republicans are showing weakness.

The problem cannot not be solved by increasing taxes. Out-of-control SPENDING is our scourge. Raising taxes will discourage economic recovery and only grow the size of government. That’s a lethal combination. Our current politicians are like pimps that are perpetuating their power and the dependency habits of their citizen-prostitutes by refusing to do what’s right–dramatically cutting spending.

We need to throw out the cowards in 2012 and elect some courageous leaders who will save this Republic from a frightful financial suicide.

The following article by John Hayward of Human Events could not be more clear. Read it, weep, pray, and get involved. And don’t forget: “In God We Trust.” Happy Thanksgiving. RB

Fifteen Trillion And Counting 

Signposts on the road to systemic collapse

by John Hayward – 11/18/2011

The United States government officially passed the $15 trillion debt milestone on Tuesday.  The Republican National Committee produced a little video to commemorate the occasion, and remind us of the bygone days when Barack Obama​ stridently declared $9 trillion in debt was too much, and he’d cut the deficit in half by the end of his first term:

Many people have become concerned about the staggering amount of American debt purchased by China.  Those people can relax, because China is no longer the largest holder of U.S. government debt.  Who is?  Why… none other than the U.S. Federal Reserve​.  That’s right.  The largest share of Uncle Sam’s debt is held by Uncle Sam.  We borrow the money from ourselves, so Barack Obama can buy votes with over a trillion dollars a year more than the government actually takes in.

In its latest monthly report, the Federal Reserve said that as of Sept. 28, it owned $1.665 trillion in U.S. Treasury securities. That was more than double the $812 billion in U.S. Treasury securities the Fed said it owned as of Sept. 29, 2010.

Meanwhile, as of the end of this September, entities in mainland China owned $1.1483 trillion in U.S. Treasury securities, according to data published today by the U.S. Treasury Department. That was down slightly from the $1.1519 trillion in U.S. Treasury securities the Chinese owned as of the end of September 2010, according to the same Treasury Department report.

Thus, at the end of September 2010, the Chinese owned about $339.9 billion more in U.S. Treasury securities than the Fed owned at that time. By the end of September 2011, the Fed owned about $516.7 billion more in U.S. Treasury securities than the Chinese owned.

Okay, so we’ve got the feds chewing on its own tail, with a swollen belly full of madly churning printing presses, ready to explode in a shower of devalued dollars.  But at least Obama’s madcap spending spree helped stimulate the economy, right?

Nope.  Not only did we get nothing for the trillions in debt Obama has piled on, his “stimulus” ideas were worse than useless.  It will have a net negative effect on GDP over the next ten years.  Republican Senator Jeff Sessions of Alabama wondered how that was possible in a budget hearing on Tuesday, and Congressional Budget Office Director Douglas Elmendorf laid out the dismal situation:

Bonus: things will get even worse in the next decade, as the enormous cost of financing Obama’s debt keeps rolling along.

We could pay off the national debt today… provided every single man, woman, and child on Earth sent $2,000 to the U.S. Treasury.  Of course, a lot of them don’t have $2,000.  That’s more than the per-capita income of 70 countries.  Maybe we could ask everyone in the developed world to work one month out of the year to get good old Uncle Sam out of debt?  Unfortunately, only 29 countries have a per-capita income above $2,000 per month.  That includes Greece and Italy.  They’re kind of busy with their own debt issues right now.

Greece and Italy, by the way, have a combined national debt of about $3.1 trillion, one-fifth of ours, and their economies are on life support.  Of course, we’re a larger country with a much larger economy, so we can handle the debt load, can’t we?  Look at it this way: the per-capita debt of Greece is about $56,000 per person, while in Italy it’s $45,000 a head… and we’re right in the middle, with just a hair under $49,000 in debt piled on every single American’s shoulders.  We’re on schedule to hit Greek levels of per-capita debt within two years.

No level of taxation can ever erase that burden.  Outright confiscation kills the goose that lays the golden eggs.  High tax rates crush GDP growth even faster than high deficit spending.  And if our GDP finally perks up, and brings us some decent job creation, interest rates will probably go up too… raising the cost of financing the debt.  We’ll stumble out of the Obama woods and walk right into the debt-service bear trap he’s set for us.

The deficit-reducing Super Committee is locked in a death struggle over the right mixture of tax increases and spending cuts to reduce the deficit by $1.2 trillion over 10 years.  That’s not the same thing as reducing the debt – it will continue to grow.  They’re just arguing about reducing the rate of increase by 10% or so, at best.  $1.2 trillion over 10 years is $120 billion per year.  The United States of America borrows $120 billion roughly every three weeks.

The cost of financing all that debt will eat an increasing portion of the federal budget.  Debt service gobbles up over 6% right now.  That means either tax increases, or even higher deficits, will be necessary merely to maintain current spending levels – and that’s before the automatic “baseline” increases built into every government program are factored in.  Today’s staunch opposition to tax hikes means ever-greater debt, which siphons away even more federal money into debt service, and builds the pressure for tomorrow’s even more massive tax increases.

If you think the “evil Rich” are being demonized now, just wait until debt service has eaten away another 5% of the budget – something that will happen within the next 10 years, and probably the next five, even if America’s credit rating doesn’t take another serious hit.  It will happen even if Obama doesn’t get the next $450 billion “stimulus” he’s been demanding.  Our government is quite large enough to die of a fiscal coronary even if it stops eating donuts.

The spending death spiral has long passed the point where it’s self-perpetuating.  Citizens of Greece coping with austerity programs feel as if they have no good choices – they can’t afford reduced pensions or higher taxes, but their government will die if it doesn’t get its debt under control.  The last “good choices” for Greece were a generation ago.  The next generation of Americans will feel exactly the same way, if we don’t wise up and do something about it, right now.

Fifteen trillion in debt and counting.  You won’t like what happens when we hit twenty.  We’ll probably get there by the end of Barack Obama’s second term.

[Let’s work and pray so that there will not be another disastrous four years….RB]

Texas governor and presidential candidate Rick Perry is rattling the political world by maintaining that Social Security is a Ponzi scheme. Social Security (SS) is supposed to be the “third rail” of politics–a popular program that you criticize or alter at your own peril.

The pundits are drooling that Perry and the Republicans are in deep trouble if they continue to speak about changing the system that FDR gave us in the 30s to help elderly retirees.

I don’t believe it. I have come to this conclusion about Social Security:

What’s good for me is not good for America.

And if I and many others are not willing to put country before self over this and other vital national interests, then we’re probably finished as a just and prosperous nation.

Here’s why…

I am a Baby Boomer who could start taking Social Security in five years and expect to live another twenty or thirty. I’m also in the lowest tier of income earners in America (due to my choice to be a Christian missionary) who could greatly benefit by the monthly check from the government.

I also know many people who are currently on SS who would like to keep getting their monthly checks from the government. So would I. But I also realize that SS and other large entitlement programs will bankrupt this nation if we bury our heads in the sand, selfishly demand our checks, and don’t have the guts to do something about it.

Gov. Rick Perry has told us the hard truth.

Social Security is a sham–a fraud–and if left unchecked, will fail for everybody.

I don’t know the motivations of those who gave us Social Security. For argument sake, let’s say that the those who launched this social experiment many years ago were well meaning and thought that it would be a good idea to collect money from working Americans during their productive years to give back during retirement.

Fine. People were suffering greatly during the Great Depression and our leaders thought it might be helpful to especially protect the vulnerable elderly.

But good motives can have terrible consequences if ill-designed and delivered. Some of the worst financial consequences come from Ponzi schemes. Think Bernie Madoff–and the thousands who lost their life savings through his mischief.

And Social Security is nothing less than Ponzi-like. Erick Erickson explains:

“Social Security is, for all intents and purposes, a Ponzi scheme. Don’t believe me? Try out the Securities and Exchange Commission definition: ‘A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.’

“Or how about from Wikipedia? ‘A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.'”

Note the clear definitions. Ponzi schemes are never good investments. They promise great returns in the future, but they spend more money in the present than what they save for the future, and only survive for a time by having new suckers come into the system to pay for the current obligations.

But the operation is a house of cards that over the long-run cannot be sustained and ultimately collapses–especially hurting the last investors to enter the charade.

In terms of SS, think of our children and grandchildren.

There is really only one difference between a Ponzi scheme and Social Security. In a Ponzi scheme fraud, the game always collapses when the criminal runs out of money. In American, the criminals (i.e. the government), don’t run out of money because they can always tax more and print more.

But alas! Those days are over. The American nation can no longer bear increased taxes or more fiat money.

The “game” is essentially over.

Here’s the truth about Social Security:

1. It was begun during a time in which most Americans lived to be about seventy. It was designed to help them with the last five-to-ten years of life. Today, many Americans live into their eighties and nineties and can collect SS for thirty years or more. Thus retiring Americans today will receive three to five times more money than they ever put in! That’s not a great return. It’s robbing future generations.

2. The monies that were collected since the 1930s were never invested or “held.” They were spent every year in the general federal budget. Social Security was never a fund or investment. It is a data-entry IOU. In the early years of the programs, there were plenty of younger workers to pay for retirees. But no longer. Social Security expenditures exceeded the program’s non-interest income in 2010. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are just the beginning of a half a trillion dollar short-fall by 2021 (CBO estimate). The retirement of the Baby Boom generation creates a desperate situation that will overwhelm the system. Not in the future. Now.

3. We can’t raise taxes to fix the broken system. There are simply not enough younger workers to pay for the older generations–unless they start giving 50-100% of their income to the federal government. This is not an answer. It is slavery and tyranny of the young.

4. The enactment of Social Security had two other negative consequences. First, it astronomically grew the size of government and created dependency for millions of Americans. This was never the American way. Secondly, it began to divide and diminish the American family. For hundreds of years, American families took care of their own–not just the nuclear family, but relatives of all types. If you read the literature of the 18th and 19th centuries, you hear of families being responsible for grandparents, aunts, uncles, cousins–everybody related to them. This was a good thing that placed the family at the center of society. Government has now taken its place–and no wonder the American family is dying. When you don’t need each other, meaningful relationships cease to exist.

Rick Perry is right. Social Security as it currently exists is a fraudulent program that is a financial cancer on the American economy. We must talk about it and we must makes some changes. I have a few recommendations:

1. Raise the age threshold as people are living longer lives. Continuing to work and be productive is a good thing. Retirement–for twenty or thirty years–is not a right. It’s a privilege and fruit of a well-lived life. Just raising the age to 67 or 70 would save billions of dollars per year.

2. Make Social Security a true savings instrument where the money is “lock-boxed” and invested in financial markets to multiply a return. This is the way that it always should have operated. The government must collect SS money, not spend it on other things, and invest it for future payments. And older folks should receive at retirement only what they’ve contributed and the interest it has earned–not five times what they put in.

3. If younger generations don’t want to invest in the government system, they can take their SS monies and invest them personally in other private instruments. If government cannot be competitive, then it shouldn’t be allowed to be in the retirement business at all. More choices will mean better returns.

4. Americans should be encouraged once again to be the primary providers for their own families. I am personally arranging my future finances around taking care of my own.  There’s nothing wrong with children caring for their parents and grandparents in their later years–and even living together as a result of that commitment. This would strengthen and renew the American family. God knows this is one of our greatest needs as a society.

To make these ideas and other good reforms come to pass, we need to be dirt honest about the giant Ponzi scheme called Social Security and be willing to do the right thing–even at our own expense. Here’s the principle to which we must commit:

What’s good for me isn’t necessarily good for America.

Translation: The Ponzi-like Social Security check that I’d love to receive from age 65 to 90 is bad policy for my nation. I won’t take it. It’s better to “ask not what my country can do for me, but rather ask what I can do for my country” (John F. Kennedy.)

That means I need to work a little harder and longer, give up the money I don’t deserve, take responsibility for my extended family, and work to reform the system for future generations.

If we do, they will rise up in the future and praise us.