When Will the United States Budget Crash?

The dirty little secret in the halls of Congress and the spacious rooms of the White House is that the United States budget has already gone over the theoretical fiscal cliff and all are simply waiting for the crash that is coming when it hits the rocks at the bottom. All the fuss over whether or not a budget is made and how many billions of dollars they can save by raising funding of departments by less than they theoretically might have raised them had the economy and everything else been robust is all noise without substance. The honest truth is the United States spending problem went critical during the first term of President George W. Bush and was simply piling on more debt in his second term. The unbelievable spending which occurred during President Barack Obama’s first term in the White House only served to speed the train towards the end of the tracks and the great dive into the canyon beyond. Even if President Obama had simply continued with the increases as the government suffered under President George W. Bush we would be facing the same problem. All the unparalleled spending which President Barack Obama has done has simply increased the train’s speed so that we will crash a little further out into the canyons and hit the bottom simply going somewhat faster. So, the important questions that need to be asked are first, when will we hit the end of the tracks; second, what will be some of the early signs that all is lost; third, what will be the sign that the end is nigh; and fourth, what can we do to avoid total ruin; and lastly, what will happen to the world when the collapse comes?

Let us take each question in turn. The first is when will we hit the end of the tracks? Technically speaking, we have already hit the end of solid ground and the tracks we are running on are suspended over the canyon with only air between the train and the long drop. As for what is keeping us suspended in the air, mostly forward momentum, heavy rust on the tracks, and we are in that position the coyote gets when he goes off the cliff chasing the roadrunner and he waves as he pauses suspended in midair just before the perilous drop to a puff of desert sand or splash of water when he hits the bottom. What is keeping us up is a false situation where interest rates are being unnaturally held low and money is being invented electronically just in time to avoid defaults. There is nothing right now between the United States and most of the nations of the European Union and the final crash of their collective economies. The difference between the United State and Greece is one of degree and not one of inevitable ends.

Second, what will be some of the early signs that all is lost? The very first signs will be those countries that have a salvageable economy and comparatively sound fiscal policies will begin to place distance between themselves and the countries that are doomed to fail. Their initial move will be to remove any assets they have in the countries they are concerned and hold doubts of their fiscal futures and then they will attempt to call in any debts and get whatever payments they are able before the economy of the failing countries completely collapse and their currency worthless. If any of these nations are partnered in the European Union and are using the Euro as their currency, they will begin to print their original currency notes and coins and keep them in preparation for exchanging their currency for the Euros upon its failure for their citizens and only their citizens. Another step the healthier countries are likely to take somewhat further in front of the coming problems is to cash in any currencies of countries with suspect fiscal situations for Gold or in payment for commodities and solid assets such as lumber, gold, silver, other building materials and anything that will retain its value. There might even be a selling off of any realestate holding of the presumed stricken nations. You would see actions like that of Germany recently where they demanded their gold held in two foreign countries be returned with all possible haste. The two countries from which Germany demanded their gold be returned were France and the United States. This move would make one conclude that Germany has suspicions about the continued value of the Euro and the American dollar.

Third, what will be the sign that the end is nigh? This sign is actually rather strange as most will interpret this as the end of the difficulties, but it will be a temporary reprieve unless handled with great finesse and care. The end will actually be signaled by an improvement in the economy with rising employment and the appearance that things are finally going to improve. When this begins the leadership and those who monitor and adjust the controls of the economy and such things as the money supply and interest rates will immediately need to address the fourth question, namely what can we do to avoid total ruin? When the economy begins to pick up steam there is going to have to be mechanisms utilized to draw back much of the monies which were used to finance government spending during the lean periods. All the monies which were almost magically invented by raising the debt ceiling or printing and selling bonds to the Federal Reserve who bought them with electronically produced monies which in a more difficult time would have actually needed to be printed but in the electronic age we simply invent it on the ledgers and then spend it. It actually works in exactly the same manner as actually printing the bills and placing them into circulation. Currently, the vast amount of electronically injected monies put into circulation through the Federal Reserve buying new government equities with this new money is largely sitting in financial institutions not being lent or utilized on any real manner. Money lacking what is called velocity does not cause inflation or have much of an effect on the economy. Eventually, when the economy starts to pick up steam there will be more of a demand to take out loans to meet the rising demand for goods and services. Once the money begins to be lent and spent, then it has velocity and as there is a much greater amount of money available than existed when we entered the downturn in the economy, it has a deleterious effect on prices. As per the laws of supply and demand, having an oversupply of money drives up prices. That in turn will drive up the demand for higher wages which are possible due to the inflated money supply. This could potentially start a rapid spiral which is referred to as hyper-inflation which is what drove the Weimar Republic into insolvency which led to the rise of the Nazis who promised to repair the monetary insolvency caused by the hyper-inflation. In order to control the inflation and keep it from driving the economy into a ravenous feeding beast with prices raising almost hourly the people responsible for fiscal policies need to draw as much of the invented monies back out of the economy as quickly as they can without upsetting the recovery. The two most utilized methods are either to increase taxes or to increase interest rates. This is where the problem comes in for any country which has significant debt; they cannot survive rising interest rates. This is the position the United States has reached along with numerous European Union members. If your interest payments are $500,000,000.⁰⁰ when the interest rate is a very low rate between 1% and 3%, you are fine and can manage your debt as long as the interest rates remain at that level. But when the economy picks up steam and the excess monies begin to have velocity, you likely will have to raise interest rates in order to prevent runaway inflation, especially the huge amount that has been produced by many Western countries. When that interest rate climbs to 5% to 8% your interest payment rapidly increases to upwards of over one-trillion dollars. Should the interest rate triple or worse, get many multiples higher, then the interest on the debt reaches the point where it becomes un-payable and your economy collapses. That is what is approaching if things are not handled very delicately and with great finesse. Does anybody have faith that the politicians in their state, county, city or country have the wherewithal to handle anything deftly and with finesse grounded in reason, logic, and self-control? Neither do I.

Lastly, what will happen to the world when the collapse comes? Well, for examples of what the end looks like, all we need do is look back at history for similar events. There was the depression of the 1930s which followed the free-running economic over-inflated 1920s which pushed at least Germany beyond solvency and into a case of hyper-inflation which was one of the main triggers for World War II. Shaving the currency led to the failure of the Roman coins which brought on an extended period of failed economy in much of Europe. There have been numerous civil wars triggered by the financial collapse of the currency and thus the economy of numerous countries and societies. The most usual result of financial collapses is either war or governmental collapse into chaos and anarchy resulting in violent lawlessness. Whatever comes after hyper-inflation, it will be very unpleasant and many will die from malnutrition or disease. The only consolation I can offer is that it is very possible if this next economic challenge can be managed and the other side is reached, it will be because of a transformation coming to much of the world’s societies which will relatively quickly even reach and liberate everybody on the planet. There is a distinct possibility that a new age is coming in the near future which will be a revolution that will make the industrial revolution look like a small tick upward in the development of mankind and our societies. All that will be required is sufficient bravery from sufficient numbers of communities and those who will initially control the mechanisms initially that will bring on this new age to allow it to attain its highest of possibilities and capabilities. There is great hope.

Beyond the Cusp

America’s Choice; Pay Now or Pay Later

There was an old commercial for automotive lubricants where the mechanic holds up a can of oil with a car with smoke pouring from under the hood, up on the lift and says, “You can pay me now” (nodding to the can), “or you can pay me later,” (looking back at the car in the work-bay). Well, the same thing goes for America and her spiraling debt. The election will be a referendum on whether the people choose to take the necessary steps now to bring their budgets back into balance with a fair amount of pain and suffering or whether they prefer to continue blithely on until the financial emergency brings their entire economy and likely both their government and way of life crashing down around their ears. The first route will be uncomfortable until the economy grows sufficiently to allow for increasing spending, the next time hopefully wisely and with extreme caution showing that America had learned her lesson. The second route America will wake up one day with a splitting hangover and realize that the part is over as the creditors begin to claim whatever resources exist and just simply take them with no regard to people, the environment or whatever damage they do in extracting their money’s worth right out of the ground or by clear-cutting American forests. Along with this catastrophic collection on payment the American people will find that their dollar will be next to worthless beyond their shores and that they have little of anything with which to produce the products on the home-front. It will not be a pretty site and it will be from that bottoming-out that America will need to pull on their work boots and climb out of a deep and dreary hole of indebtedness.

Believe this or not, but this is not an advertisement for one side or the other for the Presidency as sufficient others will be making that argument. The Presidency is only one third of the problem, there are two other parts of government that are required to take the correct actions to try and salvage a solution from the critical crisis mode situation America faces. Those are the House of Representatives and the Senate. In the last session of Congress the House of Representatives passed at least three slightly different forms of a budget which actually did begin to address the problem and make a beginning point for responsible management of the budget. The Senate, on the other hand, figured that they had not passed a budget for over two years, why change now as everything is going so swimmingly. So, if the American voters can retain the level of sanity and sobriety in the House of Representatives as they have shown they are capable of committing, they will only have to find people to send to Washington to the Senate and bring about some fundamental changes in that body. The problem with this is that at any one election only one-third of the Senate is up for election so that limits the number of seats which can be changed to just over thirty. Since some of the Senators who are running for reelection are already on the correct side and have attempted to force the Senate to actually perform part of their Constitutionally ordained job, those Senators simply need reelecting. It will be the Senators who have joined with Harry Reid in blocking any attempts at making a budget and by such actually limiting and directing where government spending would be allowed. Instead, Harry Reid and his accomplices have been running the government on this item known as a continuing resolution which simply allows spending to continue at the current rate, often with a percentage increase, for a set period of time, usually a few months, and then repeating as necessary. The advantage for Harry Reid and his accomplices is that they can also pass other legislation to allow or even instigate other spending items which would normally have needed to be placed within a budget but without having a budget are each passed separately and thus debated completely out of any context to actual spending. This allows the conspirators to spend additional funds on those items they favor, usually vote buying types of spending better known as subsidies, without having to debate them in context of a comparison to previous spending levels thus making sneaking larger increases more easily hidden from direct scrutiny. This is especially true as they can add these extra spending allotments multiple times such that they do not appear to be as large as they end up becoming through a method of accumulation. The voters need to ask every Senator one simple question this election, “Will you vote to pass a budget or are you going to continue the deceitful practices of issuing continuing resolution to fund the government?” For any incumbent, just check their voting record and whether they voted in favor of any of the budgets passed by the house should become readily evident. If they opposed every budget vote, then do not give them your vote and send fresh blood to the Senate. And if the person you send does not support doing the hard work and crafting a budget in cooperation and debate with the House of Representatives, then when reelection time arrives, replace them. America cannot continue to proceed without an annual budget and simply voting to spend piecemeal which will always result in superfluous spending and dangerous deficits as we have seen of late.

There is one more place America needs to give careful scrutiny. Fortunately, not every American will find any disasters waiting to happen, already upon them, or potentially just down the road a bit. This problem is at every local level of government, the State, County, City, or Township. Even school boards may need to have a review to determine if they are using the funds well and what improvements may be made. Many States along with a fair number of Counties and Cities find themselves in deep debt or on the verge of large deficits. The American voter must take responsibility for these problems and elect responsible and adult people who will make the difficult choices and find the places where the budget can be cut, slashed in some places, and everything be brought back into a harmonious balance.

We in America have had it fairly good for quite a long time and had sufficient wealth and growth that it often appeared that we could accomplish anything as long as all it required was throwing money at the problem. We have reached the end of the gravy train and in many cases our train ran out of tracks quite a few miles ago. Now we are forced to park the train until we can lay sufficient tracks for it to once again roll forward. The difficulty is so many of us at all levels of income have grown comfortable with receiving gifts from government whether we truly needed the help or not. The time has come where we now need to look at these government outlays and decide if they are still in our best collective interests. If anyone can continue without dire difficulties without the government subsidy or with a far smaller subsidy, then we need to make the appropriate adjustments. This is going to take an honest and mature approach inspired by selflessness in place of the selfishness which got us to where we currently find ourselves, between broke and destitute. Another place we are going to have to change our attitudes is towards what we define as the responsibility of the Government and what is our responsibility to our fellow men. It is not necessary for government to be the giver of all assistance. There was a time not all that long ago where churches, synagogues, temples and organizations ran the food banks, soup kitchens, holiday food drives for those who might not have enough for a special holiday meal, clothing drives, and virtually anything and everything else one can think of to help the needy. This is what is meant by repair the world and giving charity. Paying taxes is not charity despite what many appear to believe.

Charity is given freely and from the heart while taxes are paid while facing the potential of a gun in your face. Americans have a proud history of being the most giving people in this world but we have slowly slipped from that high and proud perch as we have ceded more and more responsibility to government to do for us instead of picking ourselves up and doing for ourselves. We need to return to that America. Doing so will have numerous benefits beyond relieving the financial pressures on governments which do not have the funds to continue in the fashion we have become accustomed. We will also find that by returning meeting this need to the people we will get another gift, the gift of pride and respect and a warm heart when we take the actions to assist those among us who are in need. We need to insist that government not only return this responsibility to we the people, but that they also strike away those regulations which were placed between the people and the free giving of charity. What went along with the government taking this responsibility from us was a series of regulations over the years that had the singular purpose of protecting the government’s ownership of charitable actions. This was not done out of altruism or anything even close to resembling honorable. This was a selfish act by our elected officials who saw that by forcing the needy into dependence on government they could lock up the vote of that section of the population and thus assure in certain districts that those who gave out the goodies would forever keep their seat of power. We need to take that power back as it properly belongs to we the people.

Taking back our responsibility for caring for our brother will have benefits beyond making balancing the budget a little easier to accomplish. Taking back this right to care for each other and to make the world better through our own actions will bring out the best in us and could potentially show the rest of the world how honest, righteous, generous, and good people act and live. Another advantage comes in that we will find that by returning charity to the local people we will also make the act of charity more efficient than having it come from Washington. What many do not realize is that no matter how efficient the government agency might think it is; it cannot break the 80% barrier. The reason behind this upper limit is the IRS which has to allocate one dollar out of every five it takes in from taxes to processing and taking in those very same taxes. A government study once reported, if my memory serves me, that for every five dollars spent by the government the best efficiency managed to get three dollars to the target recipient while the worst got a mere seventy-five cents and the overall average for government was just short of two dollars out of five. One must keep in mind; these efficiency numbers for the government are about funds after the IRS has already wasted one out of every five dollars, so their 100% would actually be 80%. This means these numbers need to be multiplied by 0.8 to get the real efficiency. Compare that to even some of the poorest functioning charities with large overheads such as the United Way which gets and efficiency rating of about 53% while the Salvation Army gets an impressive over 95% efficiency. Oh, if all charity had their efficiency, but then the Salvation Army is a unique and wonderful organization. The average charity has an efficiency rating somewhere between 66% and 80%, both a far cry better than the government even on a good day. So, higher efficiency, a warm feeling in one’s heart, and a closer and healthier community if only we demand to replace government as the proprietors of charity, as it should be. Given time and enough efforts, we could eventually take over virtually all entitlement spending by taking the responsibility onto ourselves. That would free the government to do only that which it was tasked to do by the Constitution. This would allow for tax rates to return to levels not seen for over one hundred years, possibly even do away with income taxes, definitely FICA, and likely all taxes on the people and even on business and run the government off of fees and import and export taxes, as was done, as I like to put it, in the beginning.

The aim, dream and inspired actions of the American voters should be to return to that period of, In the beginning we had a Declaration of Independence which defined that mankind was a noble and proud group of individuals who were endowed with rights which they could choose which ones the government could assist in implementing, but they would always belong to the individual and the individuals could reclaim them at their fancy. Then we drafted a Constitution which tasked the governments among the people with the responsibility of defending those individual rights and never to impinge upon those individuals for it was the individual who was empowered and the government was to be their servant, not their master. The sole problem was that from that point we elected men to high office and they became full of themselves and eventually begot themselves the fill of the individual’s monies. That was not their place and we should never have allowed such theft in the first place. When did we give away that right that was ours and not belonging to the government for an individual is entitled to every ounce of their labor and is free to use the fruits thereof as they see fit without the taxman taking a cut for the government for such is theft by power. We must reassert that we do not agree to permit government to take on the role of a thief and get away with such usury. The time is now for us to reclaim our full rights and place government on notice that their sole job is to protect our rights from the foreigner and from the usury of themselves and we will be watching with more attention this time, let them be forewarned.

Beyond the Cusp

Coming Election Will Not Affect Seniors Despite Claims

We have already heard the Grandma off a cliff in her wheelchair reference and will likely hear a lot more of that ilk between now and the election. Fortunately for Grandma and Grandpa, this election will have little effect on their comfort in their golden years. It is highly unlikely their Social Security will be drastically curtailed though they may not get as healthy an increase going forward, they will at least be guaranteed to get at least the same levels they currently receive. The biggest threat to their Medicare funding will not come from Paul Ryan as his plan leaves everything as it stands for those over fifty-five years of age. Unfortunately, the same cannot be said about President Obama’s signature Patient Protection and Affordable Care Act, Obama Care, which has already diverted (a political wording for stolen) approaching three-quarters of a trillion dollars from Medicare. Of course the administration has denied this even when confronted by Congress when Illinois Republican Congressman John Shimkus inquired of Health and Human Services Secretary Kathleen Sebelius during a House of Representatives hearing on March 3, 2011, “So, are you using it (the $716,000,000,000.00) to save Medicare, or are you using it to fund health-care reform? Which one?” To this question Secretary Sebelius remarkably replied, “Both!” Congressman John Shimkus then replied conclusively, “So, you’re double-counting.”

So, as things currently stand, no matter who wins the election, Medicare will start with their administration having to figure out how to fund it with it already short close to three-quarters of a trillion dollars, a significant amount in anybody’s proposed budget. The funding will be found even if it has to be printed, something that has apparently become the new American cure-all for budgetary problems. What will be decided in the upcoming election in the United States will be how the country will face the problems going forward. All the blame games over who made the mess, President George W. Bush, President Barack Obama, the Republican Congress obstruction, headwinds, speed-bumps or the alignment of the universe is irrelevant as whoever wins the election will be facing the same financial predicament. What will be decided is whether spending will be cut by choice now or by imposed necessity later. The main difference is if cuts are made as soon as possible, then the cuts can be made over time in a measured manner, while if we wait until economic conditions dictate the cuts, they will be drastic and beyond the control dictated by the creditors. This is the choice being placed to the American public and this November they will decide. What makes this election somewhat of a crisis is that many claim that this could be the last chance for the United States to exit the spending freeway of their own volition.

But, the question is whether this is reality or is this simply being used as a scare tactic? Those claiming that another four years of attempting to stimulate the economy through government spending to presumably invest in order to collect the funds back in future taxes will lead to the situation where sufficient numbers of voters will be receiving Government dole-outs and thus will create a permanent majority for continuing such programs. This is much like what we are witnessing in Greece and other places suffering in the Euro crisis in Europe. On the other side there is the claim that should we cut spending and wait for time to solve the economic slowdown, then the economy will continue to stagnate and funds through taxes will drop and the country will fall into a viscous cycle of Government cuts yielding less funds forcing more cuts etc. So, which prediction is correct we will find out about after the election and will be left to guess where the other path would have led. Where spending and tax cuts for the rich, the middle class or anyone who pays taxes will be the major discussion debated during the campaign, which is only half of the problem, much of the real problem with the stagnant economy will be left alone. So what is the other half and why will it escape debate?

The other half, what we believe will be the larger half (if there can be a larger and smaller halves), is regulations, particularly on businesses. What will spur the economy faster than tax cuts would be to simply take a laissez-faire attitude and simply make a promise not to add any more regulations or other requirements and keep Government from any further impinging on the daily operations of business. Just allowing business to know that the playing field will remain constant and the requirements are not going to change on a whim allows the business owners to make plans with some degree of certainty what the rules will be going forward. One of the quickest ways to kill economic growth is to keep fussing and adjusting the rules making for a high degree of uncertainty and unpredictability which makes planning difficult to impossible. This has been proven in a very easy historic lesson for people to research. In the United States they refer to the economic problems that resulted from the stock market crash of 1929 as the Great Depression. In Europe it was the economic crash of 1929 and they were in recovery by 1933 only to have it all destroyed by a small interruption best known as World War II. The difference was that Franklin Delano Roosevelt attempted one solution and within a few months impatiently tried his next approach on and on and on. In Europe their leadership could not agree on what they should do and what to enact to repair the problem, so the result was they did nothing and before they could agree their economies began to improve. That is the funny thing about economies; they are cyclic just like nature and just about everything else in the universe. Economies go hot then cool then simmer and repeat as needed. Often the best solution to any economic downturn is to simply be patient and wait, it will come back around. Unfortunately, doing nothing is directly against every impulse of humankind. So, the difficulty is to have the discipline to do nothing and rely that the cyclical nature of all things natural or manufactured is cyclical and the only thing that is constant is change. So, our advice to whoever wins in November, make your decisions on what regulations you like and which you wish to toss out and after enacting it in your first hundred days, just take your hands and sit on them. Do not do anything no matter how obviously correct it may appear. Can any politician actually have the mental discipline to leave things alone? Somehow it is doubtful.

 

Beyond the Cusp