debt_ceiling

The Third Conception: Growing the Debt

/ L. M. Walker / Leave a comment

From an Extreme Radical Independent Centrist

– By: Larry Walker II –

In his 1943 study entitled, The New Philosophy of Public Debt, U.S. economist, founder and 1st president of Brookings Institution (1927-1952), Harold G. Moulton expounded on the two conflicting debt philosophies of that era. First was the traditional view, that “a continuously unbalanced budget and rapidly rising public debt imperil the financial stability of the nation.” And, second, the new conception of the day, that “a huge public debt is a national asset rather than a liability and continuous deficit spending is essential to economic prosperity of the nation.”

At the conclusion of Moulton’s study, it was determined that under the latter theory, continuous deficit spending would lead to constant money printing, and thus runaway inflation, culminating in a depression. And, the only way such inflation could be curbed would be through the use of totalitarian methods of control.

“We should have to control wage rates and farm incomes; we should have to regulate corporate earnings; we should have to control investment; we should have to ration commodities; we should have to control rents; we should have to license foreign trade; we should have to supervise, and possibly close the security and commodity markets. Given regimentation of virtually every phase of economic life, the process of inflation might be held in leash.”

However, even advocates of continuous deficit spending rejected such totalitarian control policies, as did the entire nation. Thus following World War II the new philosophy was cast aside, and the United States’ Debt-to-GDP ratio, which had increased from a modest 45.4% in 1941, to a peak of 122.0% in 1946 at the close of the Second World War, was eventually reduced to just 31.8% by 1981 (see chart above).

Jumping forward to today, we find the nation’s debt-to-GDP ratio once again above 100%, currently resting at around 106.5%, as we are lectured by Potus 44 on a completely new conception of public debt. At an Oct. 8, 2013 press conference, Potus 44 broke away from the two prevailing philosophies, debated in Washington D.C. for more than 70 years.

He proffered that there really is no such thing as a debt ceiling, and that even if there were, raising it would not increase the national debt. He declared, “Raising the debt ceiling is a lousy name, which is why members of Congress in both parties don’t like to vote on it, because it makes you vulnerable in political campaigns.” He continued, “Raising the debt ceiling does not increase our debt. It does not grow our deficits. It does not allow for a single dime of increased spending. All it does is allow the Treasury Department to pay for what Congress has already spent.”

Under what we shall term the Third Conception, what federal law calls the debt ceiling is likely just a misnomer, for raising this alleged ceiling won’t increase the nation’s debt, nor increase budget deficits, nor allow for even a single dime of increased spending. In other words, according to Potus 44, scholars of bygone days, including those who once favored unlimited government borrowing and spending, were misguided. Come to find out, there really is no national debt, and even if you choose to call it such, it carries no negative consequences, no matter how high it should climb.

So what are we to make of this? Could it be that the totalitarian control policies required to keep inflation in check are already secretly in place? Or have we drifted so far from reality that we no longer believe what we see with our own eyes? In Budgeting 201: An Immediate Debt Crisis, we saw how the tiny nation of Cyprus buckled as recession hit its economy while its debt-to-GDP ratio stood at around 93%, and we know that this led to the confiscation of funds from private citizen’s bank accounts. Yet our leaders turned a blind eye, as our own debt-to-GDP ratio edged above 100%.

Now, what we hear from Potus 44 is that “all of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict and focus on what the majority of Americans sent us here to do.” Yes, and what perchance is that, to grow the size of government, and along with it the National Debt?

To rephrase this, what Potus is saying is that since the final popular vote totals were 65,899,660 for Obama-Biden (51.1%) and 60,932,152 (47.2%) for Romney-Ryan, nearly half of us, or 47.2%, need to stop focusing on what we believe in, and in many cases would give our very lives for, and instead focus on whatever he, the person whom the other 51.1% of America voted for, says, no matter how preposterous, and no matter how much damage it may inflict on the nation as a whole. But who’s to say the other 51.1% actually co-signed on the concept of unlimited increases to the national debt? After all, when campaigning, didn’t Potus 44 himself promise to place the debt in check?

If it be not a debt ceiling, then what shall we call it – a debt sky, or maybe a debt horizon? Perhaps we should begin referring to it as simply “not the debt ceiling”. The truth is, no matter what we choose to call it, as soon as Congress voted to temporarily suspend the thing, the national debt catapulted above the $17 trillion milestone.

Thus, the Third Conception fails the reality test. Sorry, but we don’t compromise on principles merely to satisfy the insane whims of any and every brain-dead person around us. Try that in your own life, if you wish. In fact, Potus 44, himself, once voted against raising the debt ceiling while serving in the U.S. Senate.

As a side-note, Hell will freeze over before I ever purchase a commercial health insurance policy through the federal government. Are you kidding me? You thought people would flock to a federal government owned and operated website to purchase commercial health insurance policies from private insurance companies? Uh, what’s wrong with this picture? Do we really need the middleman? Good luck with that scam.

You see, there’s truth, and then there’s politics. One is real, the other make-believe. Does anyone out there know the difference between danger and fear? Danger is real; fear is imagined. So here’s how one can know the difference. Over the last 26 years, the United States has spent a total of $8.9 trillion on interest payments to service its national debt; $2.0 trillion of that since 2009 alone (see chart above).

Yet, according to the U.S. Treasury, the gross national debt was only $10.0 trillion at the close of fiscal year 2008, and it stands at $17.1 trillion today (see chart below). Herein is our dilemma: Unless interest rates hover near zero-percent forever and ever, this adjustable-rate, interest-only, debt bomb will one day explode, and the annual interest payments thereon will eventually consume every dime of tax revenue. Is this real, or imagined? I guess it doesn’t matter to some, as long as it’s not their money.

If the next generation doesn’t care about the size of the national debt, today, then it will reap the rewards of negligence. Those who care now won’t be around forever to warn of the perils of unlimited government debt, so if that’s how you want it, have it your way. But, don’t say you were never warned about the 70% to 90% income tax rates you’ll eventually enjoy, and don’t forget to send my generation every dime we’re due in Social Security and Medicare entitlements while you figure it all out. Have a great future! I’ll leave you with the following words of wisdom.

“If you will not fight for right when you can easily win without blood shed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.” ~ Sir Winston Churchill

Related: #Debt

U.S. Debt Ceiling | World War Infinity

/ L. M. Walker / Leave a comment

Excerpt from: GAO: “No Opinion” on U.S. Financial Audit

– By: Larry Walker II –

World War Infinity ::

“Prior to 1917, the Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress established a dollar ceiling for Federal borrowing. With the Public Debt Act of 1941 (Public Law 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of debt limit increases. Most recently, pursuant to the Budget Control Act (BCA) of 2011, the debt limit was raised by $400 billion in August 2011 to $14.694 trillion, by $500 billion in September 2011 to $15.194 trillion, and by $1.2 trillion to $16.394 trillion in January 2012.”

Let’s make this clear. Prior to 1917, Congress approved each and every debt issuance request made by the Treasury Department. It was with the outbreak of the 1st World War that a debt ceiling was first established. This gave the Treasury some latitude in keeping the government afloat without impairing wartime activities. So it would make sense that after the end of World Wars I and II, Congress would resume its role of approving each debt issuance. But instead, the U.S. government has morphed into a permanent war mentality.

Now, a small minority of borderline insane pundits are actually advocating for complete removal of any form of debt ceiling. It’s World War Infinity, they surmise. Like spoiled little children, they have conned themselves into believing that the role of government is to borrow and spend our way into a Utopian entitlement paradise. Where are the adults?

Reference:

GAO: “No Opinion” on U.S. Financial Audit

Give Up 300,000 Federal Workers… and then we’ll talk.

/ L. M. Walker / 2 Comments

U.S. Government Shutdown: Negotiation 101

– By: Larry Walker II –

“Treasury Secy. Jack Lew warns the country will run out of money later this month. Actually, that’s another lie. The country ran out of money $17 trillion ago. It’s all borrowed since then, much of it by this administration.” ~ Andrew Malcolm *

The United States federal government shutdown of 1995 and 1996 was the result of conflicts between Democratic President Bill Clinton and the Republican Congress over funding for Medicare, education, the environment, and public health in the 1996 federal budget. The government shut down after Clinton vetoed the spending bill the Republican Party-controlled Congress sent him. The federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. The major players were President Clinton and Speaker of the U.S. House of Representatives Newt Gingrich.

According to the U.S. Bureau of Labor Statistics, in November of 1995, near the beginning of the shutdown, there were 2,152,900 federal government employees, excluding postal workers. By January 1996, at the end of the shutdown, this number had been trimmed by 110,300, to 2,042,600. After the parties reached an agreement, the number of federal workers was further slashed, by an additional 184,900, falling to it’s lowest point in more than 30 years, all the way to 1,857,700 by October of 2000 (see chart below).

Looking back a bit farther, there were 2,309,200 federal employees in December of 1992, so the number had already been slashed by 254,600 from the time Bill Clinton entered office until the shutdown. All in all, the federal government was able to rid itself of 451,500 non-essential employees between the years 1993 and 2000. Simply amazing!

Unfortunately, since October of 2000, the number of federal employees has grown by 291,200, reaching 2,148,900 by August of 2013. How quickly we forget. But the situation today is even more dire. According to the Cato Institute, “Total wages and benefits paid to executive branch civilians will be about $248 billion in 2013, indicating that compensation is a major federal expense that can be trimmed. During the last decade, compensation of federal employees rose faster than compensation of private-sector employees. As a consequence, the average federal civilian worker now earns 74 percent more in wages and benefits than the average worker in the U.S. private sector.” What’s up with that?

Keeping in mind that the only time the federal budget has balanced in our lifetimes was between the years 1996 and 2000, and putting aside partisan B.S. for a moment, what does that tell you? Was it just a coincidence that balancing the federal budget during this time-frame entailed slashing the number of federal workers to the lowest level in more than three decades? No it wasn’t.

The Bottom Line: What this should tell us is that among the 900,000 (or so) non-essential federal workers just placed on furlough, at least 300,000 need to be sent packing – permanently. There’s no way the federal budget will ever balance again, until the federal government takes serious measures to reduce its own size. The private sector is not the problem; government is the problem. Now is not the time to add new entitlement programs, and ever more federal employees, rather like 1995 it’s time to slash and burn. Give up 300,000 federal workers, then, and only then, may we engage in an adult conversation regarding the remainder of the federal budget.

References and Related:

Chart: Overpaid Federal Workers – Cato Institute

If 900,000 federal workers can be furloughed as ‘non-essential,’ why employ them? – Investor’s Business Daily

Make the Shutdown of Undesirable Federal Departments and Agencies Permanent: A Continuing Resolution is an abomination. – Ideal Taxes Association

U.S. Government Manufactures 469,000 Jobs – Natural Born Conservative

Watcher’s Council Nominations – Storming The Barrycades Edition – Watcher of Weasels