Tuesday, July 26, 2011

Obama's Lips Are Moving, Which Means ...

Last night in prime time, BHO used the bully pulpit, hoping to persuade millions of Americans that Congress must raise the federal debt ceiling to keep the U.S. Treasury from defaulting on debt already incurred.

The President also says taxes must be raised, but just for the"wealthiest Americans," the "biggest corporations," "corporate jet owners," and of course, "oil companies." 

The President began by saying,
"For the last decade, we have spent more money than we take in."
This much of what the President had to say is true, without a doubt.  Sadly enough, the same cannot be said for much else in the President's speech.
He went on to say,
"In the past, raising the debt ceiling was routine. Since the 1950s, Congress has always passed it, and every President has signed it. President Reagan did it 18 times. George W. Bush did it 7 times. And we have to do it by next Tuesday, August 2nd, or else we won’t be able to pay all of our bills."
Yet, in the same speech, Obama said,
"But if we stay on the current path, our growing debt could cost us jobs and do serious damage to the economy. More of our tax dollars will go toward paying off the interest on our loans. Businesses will be less likely to open up shop and hire workers in a country that can’t balance its books. Interest rates could climb for everyone who borrows money – the homeowner with a mortgage, the student with a college loan, the corner store that wants to expand. And we won’t have enough money to make job-creating investments in things like education and infrastructure, or pay for vital programs like Medicare and Medicaid."
So, let me see if I have this right.  The President argues that Congress has been irresponsible for decades by financing federal spending with ever rising Treasury debt.  He then argues that if Congress continues to "spend more money than we take in," as he puts it, we face dire consequences that are ruinous for Americans and our economy.

Unless the rules of logic and rational thought have changed, the President's own arguments would add up to pleading that Congress NOT raise the debt ceiling, wouldn't they?  But that's not what BHO is asking Congress to do.  He is asking them to both raise the debt ceiling substantially and raise taxes, too.  He calls it a "balanced" approach.  His lips are moving, which means ...  

The President says,
"Keep in mind that under a balanced approach, the 98% of Americans who make under $250,000 would see no tax increases at all."
Either the President doesn't understand basic arithmetic, or he's lying knowingly.  The federal deficit cannot be closed, and certainly the federal debt cannot be paid down just by raising taxes on households that earn more than $250,000 per year.  Which is it?  Is he really that ignorant of math and the financial facts, or is he lying?  You decide.

The House already passed a bill that called for cutting federal spending, capping federal spending, and requiring a balanced federal budget going forward.  Obama, Harry Reid, and the Democrat controlled Senate rejected the bill out of hand.  Read about it here.  

If Obama is serious about reducing the federal deficit and paying down the federal debt, he would not reject the cut, cap, and balance bill already passed by the House.  Obama knows completely and absolutely that every dollar of tax revenue ever collected by the federal government has always been spent and will always be spent.  

Raising taxes will not reduce the annual deficit and will certainly not pay down existing federal debt, regardless of whether taxes are raised only for the wealthy or for all Americans.  Increased tax revenues will simply be spent by Congress, and the deficit will expand, nonetheless.  Thus it has always been. What would change that historical fact from being repeated now, unless the cut, cap, and balance bill passed by Congress becomes law? 

Put aside that BHO insulted you and most Americans by saying,
"Now, what makes today’s stalemate so dangerous is that it has been tied to something known as the debt ceiling – a term that most people outside of Washington have probably never heard of before."
I think pretty much all of us have heard of the "debt ceiling" before, Mr. President.

Obama also insults We the People by outright lying (or is it just ignorance) when he said,
"Understand – raising the debt ceiling does not allow Congress to spend more money. It simply gives our country the ability to pay the bills that Congress has already racked up"
The federal debt ceiling need not be raised one penny to pay for debts already incurred, or to pay for "bills that Congress has already racked up."  EconoBlast and others have explained that patiently and completely here.   Raising the debt ceiling serves only one purpose; that would be raising federal spending.  His lips are moving, which means ...

The President also noted,
"Republican House members have essentially said that the only way they’ll vote to prevent America’s first-ever default is if the rest of us agree to their deep, spending cuts-only approach."
Either the President needs to read more himself, or he needs to hire better advisors who read more history.  Even if the U.S. Treasury were to default on August 3rd, it would certainly not be the "first-ever" default.  Read about the truth here. Is he ignorant, or is he lying?

If he can't persuade Americans with logical reason, Obama resorts to scare tactics by making statements he knows are simply not true.  He says,
"If that happens (the debt ceiling is not raised before August 2nd), and we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses."
What's actually true is that if Congress does not raise the debt ceiling, Congress will definitely have to decrease federal spending or raise taxes.  I repeat, raising the debt ceiling serves only one purpose --- enabling increased federal spending.

Obama said,
"For the first time in history, our country’s Triple A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet. Interest rates would skyrocket on credit cards, mortgages, and car loans, which amounts to a huge tax hike on the American people. We would risk sparking a deep economic crisis – one caused almost entirely by Washington."
Given the federal debt ($14.2 trillion and rising as I write) and the enormous unfunded future liability imposed by entitlements Congress has already legislated (Social Security, Medicare, Medicaid, and now Obamacare), America's credit rating should definitely not be AAA.  That's water under the bridge, though, not a prospect looming from not raising the federal debt ceiling.  Obama finally does say something that's true; the deep economic crisis has been "caused almost entirely by Washington."

Obama said last night,
"We know what we have to do to reduce our deficits; there’s no point in putting the economy at risk by kicking the can further down the road."
So, his conclusion is to ask Congress to raise the federal debt ceiling?  Incredible. 

Several weeks ago I wrote here in EconoBlast what to do about the federal deficit and federal debt.  The House-passed cut, cap, and balance act may not have been perfect, but the basic idea was certainly on target.  Obama, Reid, and the Democrat led Senate rejected the bill without consideration.

The President made his speech.  His lips moved, which means ...      You fill in the rest.

Saturday, July 23, 2011

Cut Spending or Enhance Revenue?

Here, one of my favorite classical liberal writers, Jeffrey A. Miron, summarizes in clear, simple language 10 principles that every member of Congress should read, as its members continue to wrangle about raising the debt ceiling.

Does the federal government need more revenue?  Definitely, it does, if the meteoric rise in federal spending over the past three years is to continue.  Should federal spending continue to rise?  Where you come out on that question will pretty much reveal to one and all whether you vote Democrat or Republican.

If you're like lots of Americans, you probably don't care if federal spending increases --- so long as someone else pays for it.  Here's an important question, though.  Will someone else be able to pay for rising federal spending on Social Security, Medicare, and Obamacare (don't forget, Congress did actually pass the miserable piece of legislation)?

Put aside whether you think federal spending should continue to rise.  Instead, think about how that could be possible.  If you think that increasing taxes is the answer, see if you can explain how increasing taxes will increase production of real goods and services.

In the end, the only way federal spending can continue to rise is if production of real goods and services continues to rise.  What is it that the 545 are doing that favors or facilitates rising production of real goods and services?  That's right; pretty much nothing.

All the smoke and fire about raising the federal debt ceiling diverts attention from the really important questions that need answers.  How federal spending is financed (taxes, debt, or money creation) is much less important than the really important questions.  Here they are:

1.  What percentage of annual GDP (which is the same thing as annual income) do We the People want  spent at the command of the 545, instead of spent at the command of the 125 million or so households that comprise America?

2.  What percentage of annual GDP can be confiscated from those who produced it, without killing the goose that's laying the golden eggs?

Congress doesn't talk about these questions much.  Neither does BHO.  Why do you suppose that is?

Friday, July 15, 2011

Can We Borrow Our Way Out of this Mess?

In a word, no.  But we can rip people off and otherwise hose'em by raising the debt limit.  Congress has been doing it for decades, as the article you'll find here explains.

The lies and distortions are heating up.  BHO is walking out of meetings.  The political breed is in dire straits with lots of eyes focused on them.  And in the end, it's so ridiculously simple.  I've said it so many times in this blog that I'm embarrassed to repeat it yet again, but repeat it I must.

You can't borrow what hasn't already been produced and saved.

So, when Congress raises the debt ceiling --- which it certainly will --- the Ponzi scheme will simply continue.  We the people will sigh with great relief, and we'll pass the old maid on, just like the Congress has done on several occasions in the past, as explained here.

What really happens when Congress raises the federal debt ceiling?  The answer is that somebody gets taxed, but just who that is becomes utterly obscured.  Just as Ben Franklin noted, default on debt is a tax.  But in less complicated times, it was clear who was getting taxed by the default on federal debt.

These days, the Fed will just manufacture new money to keep the Treasury from defaulting, as explained here.  Who will bear that tax?  No one can really say.  That's the great beauty of it, if you happen to be of the political breed.

If we the people keep voting for politicians that are wiling to raise the federal debt limit to fraudulently finance government spending, we deserve what we will eventually get.  Why is Greece coming to mind?

Raising the federal debt limit is defaulting on the outstanding debt; it's just that the burden of the default falls on people other than those who originally bought the U.S. Treasuries.  How's that, you say?

All the Fed has to do is purchase new U.S. Treasuries to roll over old Treasuries coming due.  No need to raise the debt ceiling for the Fed to do that.  But where will the Fed get the money to do that?  You already know; they Fed will simply manufacture the new money.  Of course, it isn't actually necessary to "print" the new money these days, but new money it will be.

So, even if investors around the globe are unwilling to buy U.S. Treasuries, the Fed can and will (to keep interest rates from rising through the roof).  The Treasury will continue to spend money it didn't tax away from Americans directly.  So who will bear the burden of this sort of under the table taxation?  You can't really say.  That's the beauty of it, just as I already noted.

Let me sum it all up:

1.  Congress will raise the federal debt limit, regardless of how long it takes to work out the political deal to keep all the right people from having too much loss of face.

2.  When Congress does raise the debt limit, that is equivalent to defaulting on previous debt, since interest payments on outstanding debt and new Treasuries sold to roll over previous debt will be financed with new money created by the Fed.

3.  Creating new money depreciates the purchasing power of existing money; that's why the dollar price of gold keeps rising.

4.  Somebody will bear the burden of the Ponzi scheme; just who can't be known for sure, but you can pretty much bet it won't be the kings or the king makers.

Bernie Madoff went to prison for his Ponzi scheme.  Our local politician just get reelected for theirs.  Everyone knows what's going on, so why does it continue?  I can think of no explanations that are particularly charitable for we the people.