QOTD: Debt Limit Smackdown

There isn't a person outside a mental hospital or an Ivy League faculty who believes the federal government can continue on its current fiscal trajectory, even with tax increases. Change is inevitable. Real change. Bone-deep, re-write the social contract, no more free lunch, learn to live within our means change. What is the political wisdom of demanding that it can only happen over your party's dead body?

Bill Frezza had that to say a week ago as the debt ceiling vote drew nearer (the no strings attached version of which was voted on last night and went down harder than a DC hooker).

Obviously, Mr. Frezza is correct in that Washington is so delusional with regards to spending that they can (and should) be grouped with the Ivy League nut jobs and the psychos whom belong in white padded rooms.  Thus, it's imperative that some how, some way, the putzes inside the beltway get their shit together and find a way to cut the federal budget now (and not for next year, or the next 10 years) and forever to allow our country's finances to remain in tact (or at least functional).

Discrediting the Fed

Mark Steyn (self proclaimed undocumented anchor man as a fill for Limbaugh, and author of America Alone) had an excellent editorial on the Fed, the beltway mantra, and the policy impact upon an accelerating collapse of the US economy.  Also, he throws in a simple man's essay of explaining the debt ceiling debate.

What spurns Steyn's article?  It seems as though some of the beltway baboons (no offense to baboons) take great offense to the members of congress whom refuse to do the bidding of the Turbo Tax Timmy and the Bernake's ologarch orders.  Those reps in congress are "financial terrorists," according to some hack from the Bush 1 admin:

The people who are threatening not to pass the debt ceiling,” he said, “are our version of al-Qaeda terrorists. Really."

I guess that makes over 70% of the American people financial terrorists since they don't support a debt ceiling increase?  AWESOME!  I've always wanted to be on a government list! 

Zero Hedge Week in Review

Some interesting things from Zero Hedge that I think are worth reading. 

The Con of the Decade:  A guest post with a logical explanation for why inflation will not turn hyper-inflationary, based upon the "other side" of the trade.  Meaning, debt is an asset to those who hold it to earn the interest.

FBI Raids Chuck E. Cheese:  I thought I had blogged about this before, but perhaps not.  I suggest you read the back story from the Daily Reckoning first, before reading the satire of von NotHaus' conviction.  I mean, if someone wanted to giving a silver coin that is meant to represent a US Quarter Dollar (but is .999 pure silver and a metal content value of say, oh, like $15), wouldn't you accept that as payment on goods and services?  Read the satire, it is funny, in a somewhat scary way.

Misery Index All Time High:  This one is from 3/29.  Oops.  I told you dear reader I had a back log of posts.

$1,800 Gold By October: Ben?  Is that you!?!

TEOTWAWKI preps inflation, 47% in 6 months:  Enough said.

And...last one for the week, which is more survival / prep minded here: Keeping Capital in a Depression

Of course, you don't need me to read www.zerohedge.com.

Tax Freedom Day

Tax Freedom day was yesterday (Tuesday) for this year.  Translated, all of your income through April 12, 2011 for this year, was effectively paid to the federal government to satisfy your tax obligations (how nice of you comrade!). 

The question is, do you feel free from the federal government and their uncontrolled spending?  No?  Me either!  Nor this author either.

Meanwhile, as I type this I have cruised over to www.usdebtclock.org where I see that my share of the Federal Debt as a taxpayer (per taxpayer) is approximately $128,548 of the total $14,292,975,600,000 debt.  (Of course, give or take a few clicks of the printing press mouse).  Have you paid your fair share?  Have you gotten a good return on your investment?  I didn't think so.

Here's to hoping that the Repubs get their act together and stonewall an attempt to raise the debt limit.  Perhaps they can make some push with all 47 Repub senators signed onto a Balance Budget Amendment, but I'm not holding my breath. 

USA Screwed & FedGov Budget

Next time you debate someone on military spending versus entitlement programs and how the former instead of the latter is bankrupting us, make sure they see this chart.

Yep, that's right, 58% of all Tax Revenue AND federal borrowings go to fund social security, medicare/medicaid, and unemployment insurance / other entitlements.  Defense, a mere 20% of the total budget (or roughly $700 billion) amounts to only 32% of total tax revenues.  This shows that defense spending, though large and impressive and still as much or more than all other countries' combined spending, is NOT a large number when compared to social programs.  Defense budget moaners and code pink members please take note that building planes, manning ships, and fighting foreign wars of aggression would be fully funded and met without sending us further into debt all by itself.  Unfortunately propping up failing social programs that rely upon an ever growing society just can't make that argument.  Further, this graphic shows just how large and damaging Obama's budget deficits truly are.

Once the morons whom get this education via these pie charts, I urge them to take the full crash course found here (or here).

Last, just for the record to all those enviro-wackos out there...please realize that since you champion reduced populations the world over, you need to make a sacrifice of a reduction in people or a reduction in welfare.  Returning to a popular theme around the globe, It's ALL ABOUT Demo(graphic)s!  The USA currently produces about 2.1 children per adult, which is the bare minimum for population growth.  (Actually, it is the threshold for population maintenance / growth).  Since most of the social programs are funded via taking revenues from working and young people (those paying into the system), an aging and or stagnant population trend turns the traditional pyramid scheme upside down (since the tax base will be the same at best or declining at worst).  

Obama has gotten one thing of his presidency right, he has certainly brought us change.

Fed, FedGov Budget, Purchase Power of the Dollar: Three Things that Need Fixing

Yesterday I read this detailing two major things (discounting the The Mogambo Guru ranting style).  First, the value of the dollar today, is less than what a quarter dollar would purchase 40 years ago in 1971.  Second, the US government spent a cumulative $15 billion from 1789 until 1900 (not adjusting for inflation, but you see the idea).

Yikes!  Those are small numbers when compared to today's debt.  Running the numbers, you get roughly .11% of the current country debt, was accumulated in the first 100 years of the Republic.  YOWSA!

Which leads me to this posting over at BigGovernment.com, which details the history of money in the first of a several part series. 

Click through, watch the video, get educated, and I'll post up the next part of the series when I see it.

QOTD: Soverign Debt Backstop Doesn't Negate Risk

From the Daily Reckoning:

Now, such action [providing sovereign backstop to liquidity] can slow contagion, to be sure, but can it stop it? As the sovereign steps in to provide ever more explicit guarantees for the financial system, this places the sovereign in the front line, facing investors who may still desire to reduce credit risk. Just because credit risk has been assumed by the sovereign does not in any way imply that the risk has disappeared; rather, it has merely changed form, from private to public. Debt which investors previously thought would be serviced via private sector economic activity, such as the generation of corporate cash flows to service corporate debt, or the generation of household incomes to service household debt, now must be serviced by the government, which implies that it must be paid for out of future tax revenue.

The first part of a two part article is a great explanation into just how risk, debt, and default all play an interesting part in navigating freedom, markets, and economics.

Irish Vote of No Confidence in Ruling Class

One of the reasons we focus on foreign countries and history, is for insight into what the future of our country holds.  Therefore, it is exciting to see such a great resistance of the people developing in Ireland to continued debt servitude.  

While we were busy stuffing our faces with turkey, the Irish people were busy rejecting the ruling class who has provided them with a bleak future.  On the surface, it seems that the citizens of Ireland are simply rejecting the austerity that is sure to be headed their way, but in reality (and as the earlier Daily Reckoning article eluded too) the tough Irish bastards want the EU and the Euro out of their economy.  The bailout that the EU is going to give the Keltic country isn't really a handout as much as it is a debt restructuring.  This restructuring will not really do anything for the Irish people except to decline their standard of living for a longer period of time when compared to how it will impact them if they chose to default on their debt obligations. 

French Pension Riot Through Pictures

The Big Picture has a 40 page spread of photos with captions covering the above mentioned French riots.  And, just announced to me by AK Fan, the French Senate has passed the pension reforms for austerity that has been the hot button topic in Europe this week.  I wonder if this will increase the fervor of the riots in France? 

Are these pictures a prelude to what we may see here in the USA as Congress votes in the coming years to raise retirement ages, cut benefits, and hopefully, pay down our debts?  Ugliness indeed. 

Debt Free America Act

As tweeted last night, this was making it's rounds around Facebook and other social networks.  H/T to my wife for reading it to me and her cousin (whom had posted it).

So, some quick Google Fu last night returned this bill summary:   

2/23/2010--Introduced.

Debt Free America Act - States as purposes of this Act the raising of sufficient revenue from a fee on transactions to eliminate the national debt within seven years and the phasing out of the individual income tax. Amends the Internal Revenue Code to impose a 1% fee, offset by a corresponding nonrefundable income tax credit, on transactions that use a payment instrument, including any check, cash, credit card, transfer of stock, bonds, or other financial instrument. Defines "transaction" to include retail and wholesale sales, purchases of intermediate goods, and financial and intangible transactions. Establishes in the legislative branch the Bipartisan Task Force for Responsible Fiscal Action to review the fiscal imbalance of the federal government and make recommendations to improve such imbalance. Provides for expedited consideration by Congress of Task Force recommendations. Repeals after 2017 the individual income tax, refundable and nonrefundable personal tax credits, and the alternative minimum tax (AMT) on individuals. Directs the Secretary of the Treasury to: (1) prioritize the repayment of the national debt to protect the fiscal stability of the United States; and (2) study and report to Congress on the implementation of this Act.

As the rumor on the social networks went, this bill was "scheduled" for a lame duck vote after the election in two weeks.  I haven't confirmed or denied that, but it doesn't look like it's forging ahead very quickly. 

The summary in and of itself isn't all that obnoxious except for the one clause; "repeals AFTER 2017, the individual income tax."  YAY! (not).  We've seen this before in the form of social security.  We pass something now, take the hit up front, and then we'll "amend" or "repeal" something later.  As soon as you get used to paying the 1% tax on bank transactions AND your income tax, you'll forget by 2017 that Congress' original intent was to repeal the income tax.  In substance, this is effectively a different way to implement a fair tax, though it is more VAT (value added tax) in nature.  Taxing without repeal of or near 100% gutting of the IRC will do nothing to solve our debt problem or our job problem.  Again, we have a spending problem.  Austerity, plus sensible tax reform, including the fair tax, will restore our country to the economic engine that the world has long aspired to become.  

Fixing the Country's Debt Problem: Nuclear Solutions

Fixing the Country's debt problems is proving to be no easy task.  Just yesterday, the Central Bank of Mexico went all in and pushed $600 million worth of dollar options.  Basically, Mexico just decided to become the next player in the global currency war in an effort to devalue the Peso to sustain their exports.  Well, I guess we should consider that they did it to sustain their legal exports, as I’m sure the drug trade has been thriving during this downturn as people need every ounce of delusion that they can get; especially those at the SEC or Federal Reserve.

Currently, this means that nearly ever central bank in the world is doing their best to pay tribute to Gutenberg, as they steam full forward towards the iceberg of inflation.  Of course, to those who run the asylum, this old parlor trick that has never worked is sure to work with just the right people pulling the levers and turning the knobs right?  Better hold on to our hats, as they may become worth more than our paper dollars in about a year’s time.  

I know dear reader that I have been a bit behind in my postings, so I tell you the above to show you this article.  Behold!  Our solution to the mountain of debt is before us!  (Or it is at least one author’s solution to the problem).  The "Smoking Ruin Solution.”  

While the “smoking ruin solution” is effectively a nuclear option, it would be the quickest solution to our problems.  Using a “if it doesn’t kill the patient" approach, it would put us ahead of the entire world on the path to default, which is really a path to finding out what things are really worth.  Forcing our creditors (China, Japan, Oil Sheiks, et al) to accept dimes on the dollar will certainly ruffle a few feathers, but to me and the author (David Galland) it seems like a real solution instead of the “let us pretend we’re solvent” Keynesian solution.  

Obviously, forcing a debt restructuring of the world’s sovereign obligations doesn’t come without costs, but the costs aren’t all bad.  A removal of the “weight of oblivion” that is the Federal Government would quickly free the economy to purge its bad debts, and thus start real wealth creation.  Advocating for stricter meddle-proof currency, Galland believes that the dollar may even be able to retain its reserve status, which will help capital inflows to rebuild the “smoking ruin” back into the greatest economic engine that man has ever known.  Destroying the national debt through default rather than inflationary burn would also destroy the bureaucracies that accompany our sovereign obligations.   This would force a natural reordering of labor and would potentially send our illegal immigrant problem packing!  What’s not to like!  

Well, as simple as Galland said, it is too simple and too painful for the average Joe or government politician to like.  Thus, we’ll continue to add a few more zeros to the notes that we use as our medium of exchange.  Maybe Helo-Ben has a green magic marker he’ll lend me that I can use to add the zeros to my stash of C-notes.  Don’t bother robbing me readers, they aren’t worth anything anyways. 

Debt vs Votes

BigGovernment.com had an interest graphic last week.

Votes for President in 2008 versus the debt loads of the states.  See a correlation? 

"A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury."  -Alexander Tyler

Click the link for a more in depth analysis of state debt load vs. 2008 presidential election. 

Laughable Solutions to Major Debt Problems

Paul Craig Roberts, writing for Alex Jones' INFOwars has a hit piece out yesterday detailing that it's time for an American Revolution.  Funny though that the piece never calls for a revolution until the final sentence, nor does it offer any realistic solutions to the debt problem that is ruling the USA.  Roberts' article starts out well with stated facts that we have a huge budget and trade deficit that are crippling the country but that's about where the good part stops. 

It seems that Roberts understands that we have been off shoring too many jobs and far too much debt, but he fails miserably to see that the USA has lost it's competitive manufacturing advantage.  To bring those lost manufacturing jobs home, he advocates for a tiered tax structure that would make a value added tax on companies who produce goods outside of the USA.  Unless Roberts has taken notice, almost everything sold on the store shelves of American retailers is made in some other country THAN the USA.  Not only would this asinine idea increase costs to American consumers, but these "tarrifs" would effectively spark a trade war with China and other trade "partners."  If Roberts believes continued deficit spending will ultimately spark a US dollar / debt purge by Treasury bond holders, there would be no better way than to do it by slapping a tax hike on imported goods.

If Roberts truly wants a competitive America, perhaps he should find a way to reduce the costs of business here in the USA.  Labor costs are currently as cheap as they have been in the last decade, but the hurdlers of business to meet OSHA protocols, union thuggery and legislative manipulation of the markets is what is truly dooming our country.  Failing to fix these things, along with a fair tax structure instead of the regressive and putative punishment of success, companies will flee to countries like China that have lower taxes, less restrictive zoning laws, no property taxes, less restrictive government oversight, and no labor lawyers and union bosses breathing down their necks.  Further, without double taxation of capital gains, dividends, and absurd confiscation rates, the real economy could then be built on investment instead of debt as Roberts seems to advocate against. 

Instead of those trade solutions and a serious reduction in social spending and pork bellies, the dimwit decides to loose all credibility and rail against the "neocon" and "military/security complex" of the country.  Roberts wants to fix the budget deficit by a reduction of military spending.  This seemingly "brilliant" idea discounts the fact that our biggest bond purchaser (besides the Fed), China, is in a full blown military arms race with the USA.  Unfortunately, the defense budget isn't even the biggest contributor to the budget deficits!  The winner of those titles can easily go to porkulious, TARP I & II, quantitative easing I (and hopefully not II), unemployment benefits, pay for teachers, medicare bailouts, health care, social security and pork barrel pet projects, pay for unions, and bailouts of the states! 

While continuing in Iraq and Afghanistan aren't exactly the best use of federal budget, leaving Iraq while real progress has been made is not currently justifiable.  I will conceded that Afghanistan is a lost cause.  Simple isolation and mitigation of the Taliban / terrorist threat from that country would suffice our national security needs.  However, when the defense budget of the US for Fiscal 2010 was 23% versus the 55% spent on social programs, we could have easily eliminated 2 trillion in waste that was simply vote buying for incumbents (source).  If that had been done, we would have had about a 1 trillion budget surplus (tax receipts vs spending).  True, Roberts is correct that US military budget "exceeds the budgets of all the serious military powers on earth combined," but that isn't what has made us bankrupt over the last 80 years.


Perhaps Roberts realizes that gutting the social programs is actually necessary to the survival of this country, even though it is not politically expedient.  Unfortunately, I would not believe that anything the crew from INFOwars publishes, actually has any real credibility behind it, since the wackos run the asylum.  I suppose though that we could toss Roberts a peanut for effort, even if it comes up a bit short sighted. 

Hello Elephant in the Room! Bankruptcy You Say?

Somewhere in that title, there is a cruel, cruel joke, but unfortunately, this is today's reality.  It is the bleak assessment that has been offered from the IMF reverberated by Boston University Professor Laurence Kotlikoft, and even echoed by the Congressional Budget office.  The total bill of current and future spending at today's present value?  Some 202 trillion dollars!  That's 202,000,000,000,000!  If you calculate each tax payer's share of this bill, each individual is on the hook for 1.3 million dollars.  That doesn't even include the state and local budget deficits or your personal debts! 

In his Op-ed today for Bloomberg News, the professor goes through a quick analysis of where we are as a country and where we are headed, financially.  The short version is that it's ugly.  At best, we will resemble Spain and Greece but at worst, we are headed for an Argentinian style fiscal collapse.  The numbers are so large, you can't really wrap your mind around them. 

There will be some tough choices that will have to be made as we move forward in the United States.  The budget pressures of maintaining the social spending, overseas aid, and even a litany of military programs will have to come under strict scrutiny if we are not to collapse under the weight of our country's mortgage. 

Be More Like Germany?

While, admittedly, I despise most of Europe for their historical nonsense and disdain for individual freedom, it's a sad state of affairs when the New York Slimes economists are saying we need to be more like Germany. 

Excerpted:

IN many countries, including the United States, there are calls for the government to spend more to jump-start the economy, and to avoid the temptation to cut back as debts mount.

Germany, however, has decided to cast its lot with fiscal prudence. It has managed rising growth and falling unemployment, while putting together a plan for a nearly balanced budget within six years. On fiscal policy and economic recovery, Americans could learn something from the German example.

Yikes.  The NY Times saying we need to follow fiscal solvency plans?  Enter Seinfeld Bizzaro World.