Unlimited Debt Musical Chairs (updated 15jul2011)

George Rebane

Our friends on the left are overjoyed with President Obama’s latest gambit to keep the country going toward bankruptcy.  He has floated a hazy vision of $4T spending cuts that comes with at least $1T of tax increases that add on to the $1T tax increases required by Obamacare – our new nationalized healthcare system that is now providing the country with a new bombshell a month in additional costs, reduced care, and rationed services.

Supposedly this rejects Speaker Boehner’s new proposal to cut spending by $2T with no new tax hikes.

And now Minority Leader Sen McConnell’s desperate response (with sparse Republican support) is to pass a law allowing Obama to unilaterally increase the debt limit by $2.5T in three tranches with equivalent TBD spending cuts.  The only caveat is a no-caveat that these debt limit increases could be over-ridden only by super majorities in Congress.  This puts the ball back in the Democrats’ court, and they would continue to own the country’s downward spiral as 2012 rolls around.

In all of this back-and-forth few seem to be paying attention to the realities –

1. The country’s real financial obligations are many times the $14.3T current national debt.  The most hopeful estimates put the total federal obligations at around $64T, and more realistically above $110T.
2. Our current GDP is around $14.7T and estimated to grow very slowly for the indefinite future.  The federal budget is 25% of GDP (around $3.6T).   Even at this rate the federal revenues are only $2.2T, forcing us to borrow about forty cents of every dollar we spend.  Current plans call for annual deficits in excess of $1T indefinitely.
3. No one (Republicans or Democrats) have a plan to pay off the national debt, let alone the country’s total near-term entitlements obligations outlined above.  The only thing that the tea party movement has been able to do so far is bring this situation into the national debate.
4. No plan put forward reduces the national debt; all they hope to do is slow down its growth by some insignificant amount like $4T over ten years.  Recall that ‘deficit’ is the annual growth of ‘debt’.
5. US will default (delay debt service payments) only if Obama so orders it.  Our annual debt service is less than $300B, and receipts are $2.2T.  The US has defaulted on its debt and delayed debt service payments several times in history, this would not be the first.
6. Progressives (Democrats) tell us that GDP growth is not affected by either taxes collected or the level of government participation in the economy.  Obama’s plan is to make the current 25% participation the new norm as compared to its historical 19%.
7. Progressives believe that raising tax rates increases government revenues for the long run.  The EU countries, led by Greece, Portugal, Spain, Italy, Ireland, Belgium, give lie to that principle, as does our own history.
8. Greek debt is junk, Portugese debt is junk, Ireland’s just became junk, Italy’s is about to become junk.  The European Central Bank has only one recourse, to denigrate the rating agencies out of one side of its mouth, while putting forward a plan to screw private lenders to these countries.  And that is not even a sustainable solution.  Result: the eurozone will disintegrate.
9. The United States is solidly on track to follow its leftwing-hallowed European socialist models into financial chaos.

Few are astute enough to ask, if such tax increases don’t affect GDP and will, in fact, increase government revenues, why are the progressives so willing to postpone them until after the election.  Occam recommends accepting the simplest explanation that has always accounted for all the observables - the purposive demolition of the dollar and downfall of America, first as a hegemon, and then as a sovereign nation-state.

In the meantime, while American progressives are popping corks for what they consider Obama’s latest coup, the lenders are all playing musical chairs with how they manage their loans to the various fiscally irresponsible countries.  No one wants to lend very much, and everyone is moving their money around trying not to be where the next default(s) will come.  And yet there are some high yields out there that may still have some life in them, as long as the politicians do their part and continue to obscure the onrush of reality with their fog of lies.  What to do, what to do?

Exit question:  Anybody been keeping track of precious metals and commodities?

[15jul2011 update]  My voice has long joined those having explained to the innocent true believers in the Social Security Trust Fund that there is nothing there but IOUs - nothing that anyone can spend with which to buy a single apple.  For years the Dems have been telling their sheeple that SS is fully funded to some misty date in the future.  Many of these same simpletons live in these mountains.  A reader reminded me that if there were an actual SS Trust Fund, then we could tap it like the Strategic Oil Reserve.  And then the President wouldn't have to spew his bullcrap about not being able to send out SS on 3 August.

Well, it turns out that no progressive wants to point out the truth that the SS is bust, there is nothing there but another $2.3T of unfunded debt that will explode in the coming decaded - here is more in the San Francisco Examiner.

Comments

[Paul Emery]

All you Republicans who claim that more tax cuts will magically grow America out of a debt crisis, please explain to America why almost a decade of Bush tax rates have coincided with the worst economy since the Depression and the biggest spike in deficits in U.S. history?

[Todd Juvinall]

Paul, the Congress outspent the revenues. If that is too difficult a concept then we cannot help you. The same thing happened when Tip Oneill did the same thing to Reagan. Duh!

[paul emery]

Under Bush 2 The Congress was Republican for the first six years right?

[Steve Enos]

Paul... "Under Bush 2 The Congress was Republican for the first six years"

That is "too difficult a concept" for Todd to understand.

[paul emery]

Yeah Todd the Dodger is working on his footwork as we speak. Don't worry, I have confidense he'll find a way to blame the Dems.

[George Rebane]

Does anyone want to factor in that the dotcom bubble was the biggest since the South Sea Island fiasco, and that it went bust in 2000? That the Community Redevelopment Act (1977?) mandated broad-based home ownership under which Fannie and Freddie took the bit in their teeth and started funding home purchases by people who had no ability or intention to repay their loans, in the process tacitly guaranteeing the same kind of loans by private banks? All the while Congress gave shelter to the train wreck of the housing bubble visible to witnesses testifying before that very same Congress?

Did any of this have any overriding effects on whatever the tax rates were at the time?

[George Rebane]

Debating the sources of our debt crisis by simplistic mixing and matching of presidents and congresses has not gotten us far. IMHO the focus should be on the legislative machinery and imperatives that were emplaced and their subsequent effects.

A major impact of one such piece of machinery was the 1974 Congressional Budget and Impoundment Control Act which eviscerated the President's ability to impound Congressional spending. This act also started the 'baseline' budgeting mechanisms with guaranteed upward ratchets. After that, spending was never under any kind of adult control in Washington.

[Account Deleted]

Paul - the economy has to expand. "Paying" for the tax cuts as you like to call it, is not the issue. We are facing an avalanche of debt. You cannot get enough money from the $200K+ earners to even get close to paying for what is coming. That's just agreed on basic math. The Bush tax cuts aren't what caused this nation's problems. Out of control spending and corruption by the feds, combined with stupid fiscal policies by the Fed Res and a nation full of greedy stupid home buyers has run us into the ground. That doesn't even start to paint the picture of how broke we are. Even if there weren't Bush tax cuts and a home price bubble collapse, we are still facing something that is far worse. Pension and SS underfunding, combined with the costs of forced socialised medicine make the current mess look tame. I agree that tax cuts alone will not save us now. Obama and the economy killing left are doing a great job of deliberately destroying our production and manufacturing capability. More money in the private sector is needed to expand the economy but with this president in office we will not see job growth. The problem is worse here in California. No matter what policies are in place in DC, this state is doomed. The reckless, out of control spending has continued and we haven't even seen the disastrous effects of all of the fool regs that are just now kicking in. One good example is that Ca was once a net exporter of lumber, and we now import 80% of what is used. Considering how little construction is taking place, the difference is even worse. The idea that we can build up this state's economy with green jobs has already proven to be a failure. The only thing we have going for us here is the weather. Enjoy it!

[Todd Juvinall]

What I find fascinating about the liberal mind and its core hatred of conservatives is PaulE and SteveE's response to my post about Congress. Even though I did not identify a political party regarding Congress outspending revenues, I see these two libs assume I am defending Bush's Congress of Republicans! Too funny but the left dodges all the questions and thinks they are somehow outsmarting us. They are actually allowing all of us to see how vacuous they are in the smarts department.

[Mikey McD]

Some reading material for those who think government can tax and regulate to prosperity.

http://defenseofcapitalism.blogspot.com/2011/07/americas-fiscal-folly-and-squandering.html

Did you hear Steve Wynn (a.k.a. John Galt): http://www.youtube.com/watch?v=LTbjcKZzrmM

you can't make this stuff up!

[Paul Emery]

George

The Dotcom bubble was a perfect example as to why Bush 2 was such a lousy President. When the Repubs passed the tax cuts in 2001 they were acting as if the party was going to go on forever which of course it wasn't. Bush ran on the platform of returning tax money to the people rather than paying down the deficit, which he criticized Clinton and the Dems for. The Republican President and Congress (yes they had it all) drained the national bank account and asked future generations to pay for their tax cuts when it was obvious that the economy had run out of steam. That's just one example as to why we can't trust them with our wallet. You seem to be willing to excuse Bush 2 for his actions as President because of the dot com bubble but you don't extend the same criteria to Obama who inherited a far worst situation. We would be in a much different financial situation if we didn't have the Bush tax cuts and the 1.5 T bill for his illegal war in Iraq draining our Treasury in the form of national debt.

Blaming the Community Redevelopment Act for the mortgage collapse has no standing. When things were booming show me one Republican who stood up and tried to slow things down. The Repubs and Dems were all full steam ahead on lending and building as much as the market would bear. You know that George.

The line item veto was signed into law by Clinton in 1996 I believe but quickly shot down by the Supreme Court

So when the Repubs say they can do a better job fixing the mess they created it's a little hard to stomach.

[George Rebane]

PaulE, I made no such partisan claims except to point out that the train was already heading for the cliff way back when. Now we get to watch the arguments and apologies for why the debt limit, spending, and taxes get raised - all for the good of the country.

[Mikey McD]

We need a balanced budget amendment....

In 2006, EVERY GOP Senator voted in favor of raising the debt ceiling, and EVERY Democrat voted against it.

http://www.yaliberty.org/posts/dems-and-gop-have-opposite-debt-ceiling-positions-than-the-had-in-2006

[Paul Emery]

Mikey

That just shows you how partisan things are. As a matter of fact the Dems were trying to make a statement that the Bush tax cuts were driving us deeper into debt and that they did not create jobs as promised. I'm all for a Balanced Budget Amercement as long as it doesn't preclude tax and revenue increases. Also as ling as it doesn't include paying off old debt.

[Todd Juvinall]

Paul, the unemployment rate under Bush was as low as 4.5. I think that means most everyone had a job.

[Paul Emery]

That's what he inherited from Clinton and before he lowered tax rates that he said would create jobs. Unimployment went up from there and crashed about time he hightailed it back to Texas, Instead of creating jobs this is what happened,from Fox News none the less.

WASHINGTON — The economy has cranked out fewer jobs under President Bush — by millions — than it had by the same point in the presidencies of Ronald Reagan and Bill Clinton.

Read more: http://www.foxnews.com/story/0,2933,242424,00.html#ixzz1ScPrqGSF

[Todd Juvinall]

Paul, Bush inherited a recession from Clinto. The reason there were fewer jobs created was because the rate was 4.5 and most everyone had a job. Your spinning is pretty creative though and very democrat.