So Much Owed by So Many

How on earth can one country spend $5 trillion dollars it doesn’t have in just a bit over three years and not have much to show for it? Fair question we’d say. That’s a lot of dough in anyone’s book. No country; heck no continent; no known universe has ever spent so much in so little time and had so little to show for it. 

Do you remember the tales about the Battle of Britain when the Nazis controlled Europe and were planning Operation Barbarossa against Russia and they sent their Luftwaffe and missiles to destroy England and the brave RAF, Royal Air Force, took on the mission of battling the hun back; fighting day and night against overwhelming odds to keep their island out of the clutches of the murderous Germanic war machine?  Do you remember the words Churchill spoke to describe the RAF efforts?  We do.  Here they are, “Never in the field of human conflict was so much owed by so many to so few.”

Never in the field of human conflict was so much owed by so many to so few.

We are tempted to make a cheap distortion of those words to describe the debt or how much is owed by the United States. But, we dare not, or as our long gone Uncle would have said, “We dassn’t distort the profound meaning of those noble words” by tainting them with any mention in the same paragraph of America’s profound fiscal promiscuity.


So, we will just cite the facts.

• One year before George W. Bush left office, January 20, 2008, the total debt of the United States was: $9.189 trillion
• Three years and two months later, the debt of the United States is $14.238 trillion
  
• An increase of $5.049 trillion. In thirty eight months!


• We repeat.  An increase of $5.049 trillion.  38 months.

There are many reasons why this expenditure has nothing to show for it in terms of good jobs; rising exports; a strong and growing economy and the deep, internal sense within all of us that comes from hard work, sacrifice and frugality. If you read these pages you know the reasons. We revisit the reasons quickly.

 1. This nation’s economic problems are the consequence of bubbles and non productive costs created by government spending; government programs, rules, laws and countless burdens placed on every form of wealth creation and jobs producing economic growth. You don’t solve these problems by having your government borrow more to create demand. You cure the problem by eliminating the burdens on the economy.


2. Our economic problems are the confluence of two significant and converging situations. One internal. One external.


3. Internal: as describe above, we have chosen the path of self indulgence, protection and political corruption between elected and hired officials and special interests benefiting from their governance. Do we have the political, economic and financial will to break this pattern? Several states are working against all odds to do so. You have seen the turmoil that even minor changes bring from benefiting special interest groups and the politicians and bureaucrats who feed off the burdens placed on our economy.


4. External: there is a large and growing group of people in the world who are only too happy to work hard to create a better life for themselves and their children. And they are not anywhere near the stage of development where they view their self interest as more important than the rising standard of living they are experiencing. These competitors are growing. They will become even more productive and more efficient.


So, what to do? Spending has nothing to do with it. Anymore than spending was what the British people needed in 1940.


It is will. It is focus. It is determination. It is the leadership. We are only seeing smattering of these corrective forces in several of our states. We are seeing none of it in Washington DC.  Nada in Washington.


Here is what your president said after the two parties agreed a few days ago to a cosmetic “budget” deal to keep government open: “Like any worthwhile compromise, both sides had to make tough decisions and give ground on issues that were important to them," Obama said before cameras in the White House Blue Room as he acknowledged some of the cuts agreed to would be painful, with certain programs cut back and other projects encountering delays. "But beginning to live within our means is the only way to protect those investments that will help America compete for new jobs," he said.


Readers, this statement is utter nonsense. The expected deficit this year is $1.5 trillion on top of the $5 trillion noted above. Tough decisions? Cuts agreed to would be painful? Beginning to live within our means? Help America to compete for new jobs? Absolute, utter garbage!!


Mythology is not nobility. Rhetoric is no substitute for action. Can we reach back to the strength of the words of our own founders and search inside ourselves to make the commitment to demand leaders, not politicians, who will stop spending and start rebuilding our economic foundation? We remind you of the closing words of one of the greatest efforts mankind has formed to improve itself, “And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.


No one is being asked to pledge their lives. No one is being asked to pledge their fortunes or their honor. Just a combination of government spending eliminations, not reductions, and some additional taxes from the higher end.


Obama cannot lead. He neither sees the problem nor has the experience to recognize the solution. He is the wrong man for this time.  We are seeing a few leaders in state capitols with the vision and the experience to make the needed changes. They are under considerable attack from the forces that prefer rhetoric and mythology to avoid problem solving and leadership.


We must support those few who have the will to challenge the many who burden the economy.  We need a few more good leaders.  We desperately need one or two in Washington.  Real leaders are avoiding Washington the same way pretend leaders are avoiding fiscal responsibility.  Where are the leaders?

Leadership Series: Cover Your Behind

Obviously, covering one's behind is not a characteristic of good leadership.  The Treasury Secretary of the United States has written a classic "cover your a__" letter and posted it as if it represents some form of wise guidance.  We look at this letter and his behavior and, because of his leadership failure, refer to him derisively as "little Timmy."

“If Congress failed to increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds. This would cause severe hardship to American families and raise questions about our ability to defend our national security interests. In addition, defaulting on legal obligations of the United States would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans. Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.

For these reasons, default by the United States is unthinkable.”

Pretty serious stuff coming from little Timmy. No social security payments. Declining home values. Reduced retirement savings. Wait a minute. We’ve been spending like drunken sailors and we have badly declined and declining home values and our retirement savings, at least those of us who work in the private sector, have been badly hit. What about you government guys? Are you forgetting something? Won’t this mean your paychecks are not issued? Why didn’t you mention that? Maybe you are thinking that some of us might just think it’s about time your paychecks are not issued. And why didn’t we hear anything from little Timmy earlier when there still was a long way to go until we hit the debt ceiling? You know, something like, “Hey guys, let’s stop spending so much. Let’s stop borrowing so much. Then we won’t have to raise the debt ceiling.” Where was little Timmy then?

You see, in some places, they call this form of thinking, forward thinking. Looking out a bit. Some even call it strategic planning or strategic thinking.

So what to make of little Timmy’s plea for more debt?

Well if you read on here is what little Timmy has to say, “President Obama is strongly committed to working with both parties to restore fiscal responsibility, and he looks forward to working with Congress to achieve that critically important objective.”

Here is the reference for the entire letter: http://www.treasury.gov/connect/blog/Pages/letter-to-congress.aspx

So little Timmy says that the president wants to restore fiscal responsibility. That sure sounds great. But it seems that maybe some are not really sure that he is working really hard to get there. And it seems that there is a rather large and vocal group in the Senate and the House of Representatives who are not quite sure that this is the time to restore fiscal responsibility. It always seems as if these folk feel it is okay to postpone that fiscal responsibility stuff until tomorrow and then the next tomorrow.

So, what to do?

If default is unthinkable and the president wants to restore fiscal responsibility there are really only two ways to accomplish both.

Reduce spending.

Raise taxes.

Are those things unthinkable too?

Let’s see. We can reduce spending and raise taxes or do some of both and then not raise the debt limit. Makes sense to us. What do you think little Timmy? Are there ever any alternatives in your world? Do you believe in prioritizing little Timmy? Or do you just like to wait until the last minute and then write ridiculous “cover your little Timmy behind” letters?

This is not leadership folks. This is silliness and it is destroying our country. Little Timmy is not qualified to dry cars at the local car wash and we mean no disrespect to the folks who work hard and are good at drying cars at the local car wash.

Real leaders would never write a letter like little Timmy's cover his behind letter.  Little Timmy is an embarrassment.  So is the man he works for.

The Path to Prosperity

House Committee on the Budget

The Path to Prosperity

Fiscal Year 2012 Budget Resolution

http://paulryan.house.gov/UploadedFiles/PathToProsperityFY2012.pdf

The Deficit Trials

In 1986, an American company, WR Grace, prepared a TV ad dealing with their concern over America’s growing level of debt. The ad was not shown. The networks deemed it to be too controversial. Now that simple statement is worthy of several essays alone. But we, today, want you to just click on that ad and see the future as those with a foundation in fundamentals saw it so clearly, 25 years ago:

 http://www.youtube.com/watch?v=AiBCRQL58_k

In case you're wondering. "What was the US debt in 1986 when the ad was made?"  The debt of the United States as of September 30, 1986:  $2.125 trillion.  Today, it is $14.216 trillion. An almost seven fold increase in 25 years.

We know that many Americans are concerned about the US debt but have no idea what to do about it.  Frankly, we don't really have to do anything about it.  We can just let it keep rising at this geometric pace and all will occur in accord with our simple formula: deficits = debt = destruction. 

The snake oil being sold to all of us by the likes of Greenspan, Bernanke, Krugman and Geithner has been well documented on these pages.  Will any of this matter to them?  Of course not.  It will only matter to our grandchildren, just as presented in the WR Grace video twenty five years ago.

In 200+ years the debt of the US grew to $2 trillion.  Resulting in massive devaluation of the purchasing power of the dollar (please click on "Purchasing Power of Dollar" in Key Statistics section at right.)  In the past 25 years the debt has grown by $12 trillion.  What do we have to show for $12 trillion that we could not have done without?   We owe our grandchildren an answer to that question.

Watch the children in the video.  Detroit is their future. 

Never in the history of our world has a generation of entitled people been so selfish.

Why do great nations fail?

You most likely have seen the TV commercial by now. It starts out with the title of our essay – why do great nations fail? It appears to be some form of Chinese lecture hall, a smug professorial type lecturing to an auditorium of observant young people. It catalogs a series of historic failures and then focuses on the United States and its promiscuous spending and debt and closes with the conclusion that Americans now work for the Chinese because they (the audience) hold the debt. Also, at the end, they mock us with smug giggling. Pretty good stuff. It most certainly supports the fundamental that a picture is worth thousands of words. But is it on target? Is the ad accurate? Does it tell the real story?

Well, if you are a follower of TheFundamentals you would probably answer that question in the affirmative. After all, our catchy phrase, deficits = debt = destruction, is the basic theme of that ad. By the way, the ad is the product of an outfit called Citizens Against Government Waste. You can check them out at http://www.cagw.org/  and also view the 60 second ad there. By all means do so if you haven’t seen it.

But back to our questions? Does the ad tell the whole story about why nations fail? And the answer does need a bit further investigation. Are the spending and the deficits and the debt the whole story? Is it just an entitlement mentality coupled with corrupt politicians pandering to their special interests and a whole bunch of “protected classes” of voters who they depend upon for their continued survivability?

Why do great nations fail? Why is the United States so close to failure?

The answer is that we have forgotten or chosen to deliberately ignore why we were successful. And that issue does go deeper than the spending and the deficits and the debt. It even goes deeper than the Chinese holding so much debt and buying up so much of our productive capability and our intellectual know how and our priceless, intangible competitiveness.

We have chosen to burden the source of our success. And that source is wealth creation. Wealth creation is making things and growing things and extracting things. The source of all wealth in contained within those few brief words/concepts. That’s all there is to it. If you want jobs; real jobs. If you want growth so that there are good jobs for a growing population you had better grasp that you need to create wealth. And to create wealth you need to seize what is in the ground and either sell it to others or do something with it yourself and then sell that end product to others. You need to grow and cultivate the flora and fauna and feed nations with the end product. And make other usable products from the left over’s. You see, by doing these simple things, you create wealth. You create jobs. Lots of jobs.

Now if you decide that you want to make a better world and burden those simple processes with things like laws and rules and taxes and regulation and fees and interference from powerful forces like government bureaucrats and union organizers and do gooders and groups of people with their focused interests on higher pay and higher benefits and more say so in when you can do what; then you are making a choice to burden the very source of your success. At TheFundamentals we liken this activity to the old fable about the golden goose. The goose you see laid one gold egg every day. And that egg was the source of wealth for the farmer and his wife. But they became curious about why only one egg? Could we get two or three? So they dismantled (our politically correct choice of descriptive words so that no persons self esteem is damaged) the goose to investigate. And guess what happened? Yep. They killed the goose.

So the next time you see the ad remember, please, these three things:

1. Without economic strength there is no strength
2. Economic strength comes from wealth creation
3. Too much burden (dismantling) kills wealth creation

Bernanke wants you to think it is really complex.  It’s not that all that complicated folks.

The Faces of Entitlement

As our nation cuts back in Washington and as our states cut back everywhere but Illinois, New York and California, the weeping, wailing and gnashing of teeth of the unions and their only apparent lifeline to the future, public employees, will rise to a level that will make the state capitol gallery in Madison Wisconsin over the last several weeks look like the peanut gallery on the old Howdy Doody show. Public employees constitute about 16% of the nation’s employment. The total workforce, when employed, is about 150 million. With 10% unemployment, those employed drop to about 135 million. Of the 135 million working about 22 million work for state, local and federal governments. Not inconsequential percentages but most certainly nowhere near an adequate minority to justify their howling, whining, threatening and drastic level of complaining which TheFundamentals accurately predicted would happen in its April 9, 2010 essay entitled, “A Modest Suggestion.” http://thefundamentalsus.blogspot.com/2010/04/modest-suggestion.html

Simply put, public employees do not face the discipline of the marketplace which means competition and the fear of going out of business. Private sector workers know you must compete on wages, benefits and pensions and, most importantly, results to survive. On the other hand, without competition, public employees develop an entitlement mentality that is now being challenged by the much larger private workforce which is simply saying, “ENOUGH!!” These private sector worker/taxpayers expect the politicians they are electing to diminish the massive gap in wages, benefits and pensions. These private sector workers/taxpayers are not going to go away regardless of the lies, distortions and distractions created by union organizers like Richard Trumka and Andy Stern and Karen Lewis (see below.)

These three and their ilk are fighting a big uphill battle. Most people who work in the United States work in the private sector for a lot less salary and wages; a lot less benefits and days off and most do not have anything even close to a pension plan that lets them retire with 70 or 80% of their last few years paychecks after 25 or 30 years on the job. They get nothing even close to that kind of pension. More than likely they get to contribute a portion of their lower salary to a defined contribution plan (IRA or 401k) and their employer kicks in 2 – 4% of their paycheck and then the employee gets to invest the money and try to accumulate additional funds to supplement their social security check proceeds which are being discounted if applied for before the age of 66.

So, the gap between government pay and private pay is large; the benefit and days off gap is even larger and the pension/retirement plan gap is off the charts it’s so out of balance.

The disparity must end. There is a large group of current public employee retirees that have been fortunate in getting the excessive payments. The current public employees will face cut backs and will have to contribute more and new government employees will find their benefit and retirement plans much more comparable to the private sector. If they don’t like that situation let them go to their over pensioned predecessors and get some of their loot.   That would be an interesting test of "solidarity."

In the meantime, don’t expect the howling to abate right away. The howlers will demand tax increases on the middle class and the upper class wage earners. And soon the howlers and their union organizers will recognize that the largese they have grown to expect is the direct result of a growing private workforce and they will conclude that the fastest way to achieve more largese is a combination of protectionism, tariffs and currency controls (i.e. trade restrictions.)

Both movements must be fought and must be decided on behalf of the private sector workers. There is no alternative to rebuilding the jobs growth foundation of the American economy than the long overdue cutback of public sector employment numbers, public sector employee wages and benefits and the replacement of the current defined benefit pension programs with a combination of social security and IRA/401k plans. It’s happening just as we predicted. It’s about to be joined at the national level. Folks, the civil "servant" war is underway in America.  The faces or the entitled are shown above.

Pensions v. Services

One of the viewpoints seldom mentioned in the mainstream media's malingering and methodical mustering of support for anything government; anything union and anything entitlement related has to do with our topic today. TheFundamentals would conjecture that you, our readers, have not missed out on the simple point that taxpayer money paid for pensions to millions of government retirees is not available for buying goods and services that are needed by "public service" recipients.   Now that is a rather combobulated way of saying that even if you are a big or even a medium supporter of government programs and handouts and stimulus deals and other “public service” things that government employees says they are doing for you, then you would be at the head of the line demanding that your taxpayer funds are going to be spent on all those programs and activities and not directed into the hands of pension recipients. Unless, of course, you think that there is an endless supply of more and more taxpayer funds. Even the simplest thinker in the media and in government employ can grasp that priorities must be set and priorities would seem to favor the goods and services over the pensions.

But we don’t hear that argument in the media other than from a few combative governors, who are trying to cut back on wages, benefits and pensions so that services can receive top priority. What services you say? Well, how about education services and how about road maintenance and how about infrastructure building and how about water systems and sewage systems and how about public transportation and how about special care for the many needy children and handicapped citizens and just plain suffering humans in our neighborhoods and hospitals and community centers? At TheFundamentals, we support helping the needy and being good care givers to those without alternatives. We just happen to think that providing such goods and services is a much greater priority than funding collective bargaining agreements and phenomenally rich pension programs that have found their genesis in said “bargaining agreements.”

So, the question to our friends who are so adamant in their upraised voices for union positions on matters of employment, wages, benefits and, most of all, pensions is, “Do you think there is an endless source of funding for both services and pensions and, assuming you agree that there are not, what are your priorities – services or pensions?” See this article in the Sarasota newspaper in which, apparently, the very wealthy fantasy and science fiction writer, Stephen King, does think that you can have it all: http://www.heraldtribune.com/article/20110309/BREAKING/110309471  We say to folks like Steve – go for it. In your fantasy world you may not need to set priorities.  Send in your own money if you think there is no problem with supporting everything with no priority setting.   Remember this website?  https://www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454   It's for people like Steve who want to spend their own money to pay down the US debt.  How much have you sent in recently, Steve?  But, for the rest of us who set priorities in our lives, our priorities for tax payments are goods and services; not pensions.

If you have followed our many essays on this topic, you know that setting priorities is a fiscal fundamental. We all set priorities. Some make a Mercedes Benz in their garage a priority. Some are happy with a car that starts and runs. Usually, not always, the priority we set has something to do with our available resources. We always seem to come back to this resource issue. Now, at TheFundamentals, we say no to borrowing and no to printing currency. We do understand that there is a group out there, on both sides of the political spectrum,  that do not embrace this fundamental. But most of us do accept the basic concept of the need to make choices.

So, what is your choice?  If we can't have it all, do we prefer goods and services over pensions?   At TheFundamentals, we support goods and services over pensions. Where do you stand?