US economy “hanging by a thread” 11

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.” – Barack Obama in 2006.

This is by Arnold Ahlert, from Front Page:

The rollout of ObamaCare and the subsequent government shutdown have engaged the attention of millions of Americans. Unfortunately, both issues are inconsequential compared to what will likely be another battle over raising the debt ceiling. Even more unfortunately, most Americans have little grasp of the economic issues that have brought us to the precipice for the second time in two years.

Most Americans do know the nation is $16.7 trillion in debt, but far fewer understand the implications of such debt. In fact, precious few Americans even know which nation underwrites more of our debt than any other. The overwhelming majority believes it is either China or Japan. The overwhelming majority couldn’t be more wrong. The largest underwriter of U.S. debt is the United States of America, courtesy of the Federal Reserve.

The Fed’s Keynesian-economics-on-steroids buying spree is called “Quantitative Easing” (QE). It consists of spending $85 billion per month, with no end in sight. Of that total, $40 billion is spent on mortgage-backed securities and $45 billion on longer-term Treasury securities.

Where does the Fed get the money to buy these securities? It “prints” money to buy them. To put this in household terms, the Fed is essentially paying down one credit card – by charging it to another credit card. During the Obama administration, QE, along with Congress spending additional revenue we don’t really have, has increased the national debt by an additional $6 trillion. QE has also debased the currency, since creating more currency makes each piece of currency worth less – on the way to becoming worthless.

The Fed has coupled this idea with a Zero Rate Interest Policy (ZIRP), thoroughly convinced that both agendas will “stimulate” the economy, because borrowing money is cheap, and the new money has to go somewhere. That “somewhere” has been the stock market, which has been pushed to record highs as a result. Fed Chairman Ben Bernanke and his fellow Keynesians believe that pumping up the market will result in a “trickle down” effect, as those Americans who feel wealthy with regard to their stock portfolios will spend money and create new jobs. The Fed has pursued QE in one form or another for five years.

During those same five years, the official unemployment rate has never dipped below 7.4 percent, according to the Bureau of Labor Statistics (BLS). That number is a fraud because it fails to acknowledge that we have lowest workforce participation rate in 35 years, and BLS doesn’t count the people who have given up looking for work as unemployed. If the workforce participation rate were the same as it was just before the financial crisis hit in 2008, the unemployment rate would be approximately 11.3 percent.

Furthermore, despite the nation being in a so-called recovery since 2009, we have record numbers of Americans receiving food stamps, record numbers collecting disability checks, and a record number of Americans living in poverty. Americans’ annual household income has also declined by 4.4 percent during the recovery, which is worse than the 1.8 decline that occurred during the recession.

As for inflation, the Fed claims it is under control. Americans might argue otherwise, considering the reality that food and fuel prices have gone up substantially under this administration. Yet many of those same Americans are unaware of the reality that food and fuel prices are not included when the government calculates the inflation rate. …

In short, the Fed’s QE approach is nothing less than disastrous. … It has engendered a monstrous amount of national debt, fueled by the record-setting, trillion dollar-plus annual deficits needed to pay for it. And despite the Fed’s money printing prowess, even they can’t pony up the kind of revenue necessary to underwrite the entire effort.

Thus we tax, and we do borrow from other nations.

On the tax side of the equation, those who pay them have done yeoman’s work. For the first 11 months of FY2013, the federal government received a record-setting $2.47 trillion in revenues. Yet they spent all of it, plus an additional $755 billion during the same period. Thus, on the borrowing side of the equation, we are constantly adding to our national debt, and have again “maxed out” our spending limit, reaching the so-called debt ceiling.

Yet even as we constantly bump up against a new debt ceiling, we continue paying interest on the debt we’ve already accumulated. In 2012, the interest on that debt totaled $360 billion. Like the minimum payment on a household credit card, that massive amount of spending does nothing more than maintain the debt at its present levels. Nothing is being paid down.

The average interest rate the Treasury paid on U.S. debt over the last 20 years is 5.7 percent. Americans might tolerate paying 7 percent of every dollar collected just for interest, but what about 10 percent, or 20 percent – or more? Not for more Social Security, Medicaid, Medicare, military, or any other government program. Just interest. Just to maintain. How many American families could sustain themselves if 20 percent of their income or more did nothing but keep their credit card debt right where it is now? And 20 percent may be an optimistic number. …

An American politician vividly expressed the consequences of continually raising our borrowing limit and accumulating more debt as a result:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said. “It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.

That politician was Barack Obama in 2006.

Barack Obama in 2013? ”Raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy.” Except that it does. Every time we have raised the debt ceiling, our debt level has increased.

Thus, “insane” Republicans are demanding concessions for raising the current debt ceiling. Those concessions include a one year delay of the new and massively expensive (more than triple its original cost estimate) healthcare bill, a blueprint for tax reform, medical malpractice reform, approval of the Keystone pipeline, and an increase in offshore drilling for energy. The president’s Twitter response is telling. ”I won’t negotiate on anything when it comes to the full faith and credit of the United States of America.”

Due to unprecedented levels of government spending by both parties … the full faith and credit of the United States of America is hanging by a thread. Either we stop engaging in that insanity or we are finished as a nation. Politicians lie. Math does not.

What is the point of calling it “the debt ceiling” if it is continually being raised? For the Left, the sky’s the limit.

And if another Alinskyite socialist, another incompetent, another affirmative action candidate, another economics illiterate – such as Hillary Clinton – is elected to the presidency in 2016, the thread will surely snap.

Posted under Commentary, Economics, United States by Jillian Becker on Thursday, October 3, 2013

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This post has 11 comments.

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  • rogerinflorida

    Regardless of the name calling and mud slinging the US economy is in a very serious state of decline and probably close to collapse. Both political parties have contributed to this situation although it has to be admitted that the last true deficit hawk President we had was Jimmy Carter, followed by Clinton. Reagan and both Bushes were fiscally irresponsible and this affirmative action non-entity we have now is possibly the worst.
    Whatever, the situation now calls for sweeping reforms in taxation and social policy so as to revive the “Golden Goose” of industry.
    To put the debt situation into some sort of perspective; if the real debt is $17trillion, and we had a govt. determined to retire that debt by living within the $2.7trillion or so of revenue income and setting aside a small but significant amount for retiring of the debt, say $500million/year, then the USA Federal Govt. only would be close to debt free in about 30,000 years. There is an argument that says that the $17trillion includes “obligations” as well as debt, and that these “obligations” such as SS and Medicare promises could be reneged on which would leave only about $10trillion of hard debt notes, that may be true but it changes the time frame to 20,000 years.
    There are some quite simple solutions to the competitive problems that the US faces:
    The first is that the health care albatross has to be lifted from the backs of employers, and the only politically viable way of doing this is to institute a “single payer” HC system funded through general taxation and administered by the States. The single payer system would provide a minimal level of HC, supplemented by individually carried insurance. Rant and rave all you will about “socialized medical care” but this is a real solution to a burden that is destroying American Industry.
    The US has to institute a Value Added Tax, levied on every business and ultimately paid by consumers. All our competitors have this tax and for very simple reasons; it is a money machine for Govt. and it works as a very effective import tariff/export subsidy. Ultimately I would like to see all other taxes eliminated; income, capital gains, corporation, inheritance, etc.
    We also need to get the military establishment under control; we have two armies, two navies and five air forces, no waste or duplication there!
    What we have as a political system in the US now is far from what the founders envisaged, it is not “Democrat” or “Republican”, it is Peronism. By this I mean a system where cronyism, nepotism and insider dealing all flourish, where politics is not public service but is just a career whereby an individual, or family, or tribe, enrich themselves at the expense of their fellow citizens. This is the prevailing political system in the entire world outside of the Anglosphere, and goes a long way to explaining why, outside of the Anglosphere, the world is such a shithole.

    • Jillian Becker

      A national health service for America? And you KNOW how appalling the NHS is in Britain! And in Canada etc.

      I would never have guessed, roger in florida, that you are a socialist.

      Of course employers shouldn’t pay for their employees health care. So what’s wrong with people paying for medical treatment just as they pay for everything else they want? With private insurance to help them for big-bill eventualities, that’s the way to go.

      You really are thinking like a socialist: yourself in charge, all the kids – ie the citizens – needing to be directed by you, and your sociological solution is … a national health service. Why not go the whole hog and advocate totalitarian communism? With your NHS you would be half-way there.

      Then the taxation problem would be settled too. The Supreme Soviet takes 100% of everyone’s wages, and gives them back a little spending money. Why should they need more? They’ll live in communal housing (several families to a room), ride on public transport, eat the execrable food provided in state canteens (if they eat at all), and die by the million. But you, the Dictator, will be living like an Obama. A plane for each pet to join you at your exclusive holiday dacha. (And don’t forget the Gulags for the individuals, families, and “tribes” [?] that you object to.)

      • rogerinflorida

        Ms. Becker,
        I am not a socialist in any way, shape or form, I am however, a pragmatist. I am merely pointing out that US industry and business is carrying a huge burden through the employee healthcare mandate. Utopians believe we can return to a system where individuals carry their own coverage, or none at all and then live with the consequences. This is delusional. Auto accident insurance is mandatory practically everywhere in the US but up to perhaps a third of drivers on the road do not actually have insurance. It was the same with healthcare coverage, the consequences were quite predictable; people were denied care on the basis of their inability to pay. A Republican Congress stepped in and drafted the EMTALA legislation and Ronald Reagan signed it into law. This law guarantees universal access to medical care whenever necessary. It is “universal coverage” in fact. There is no possibility whatsoever, none, zip, nada, of that legislation being repealed, we therefore have the worst of all worlds; half private, half public and half-cocked.
        We need to compete on the world manufacturing stage, that is essential, there is no wealthy state with a thriving middle class anywhere that does not a manufacturing base. For our manufacturing base to be re-grown we absolutely have to reduce costs and regulatory burden on business, the HC mandate is by far the most onerous of all the burdens; we have to get rid of it.
        I agree with you that private medical care (as is private anything!) is generally superior to a public system, and private care will be available to the prudent and careful, but a terrible problem exists whereby hospitals are treating people who have no ability or intention of paying for their care. The answer to this is a basic single payer system with private individual supplemental coverage (and therefore vastly superior) available to those who choose to pay.
        The situation you describe in your rant already exists here. My focus is on re-building an individually owned business economy where individuals can thrive and the wealthy and independent middle class can be re-created.

        • Jillian Becker

          The US is still part of the Anglosphere. But you say it is now Peronist like the rest of the world. To the extent that the Peronism you describe prevails here, it does also in all other parts of the Anglosphere: Britain, Canada, Australia, New Zealand … So the whole world, including the USA, is now a shithole?

          Maybe. But I’d still rather live in America than anywhere else.

          And you have a formula for putting America – its health care system anyway – right. Here where health care is “part private, part public, and half-cocked”, your pragmatic formula is to make it all public. Like the shithole of Cuba, perhaps? Or China? Or only like Britain, where the health care is is part private, part public and half-cocked?

          Muddled thinking, Roger, muddled thinking.

          • rogerinflorida

            Ms. Becker,
            I never said anything about “putting the HC system right”, in fact I am very well aware that publicly funded HC is a disaster. What I propose is a basic system funded through general taxation supplemented by individually purchased private insurance, I don’t care how bad the public system would be because I would not be using it.
            My primary concern is strengthening the US private business sector, where the employer HC mandate is a curse. Everything depends on re-vitalizing the golden goose of private industry, innovation and middle class wealth.
            My comment about Peronism refers to the politics of the late Argentinian dictator, whose cronyism, nepotism, govt. interference in what should have been private market decisions encouraged rampant corruption and caused Argentina to fall from being one of the world’s richest nations to one of it’s poorest and most dysfunctional.
            What ideas do you have to invigorate the US private business sector? and if you mention de-regulation please be specific about what regulations you would like to see repealed.

            • Jillian Becker

              Repeal the “Affordable Health Care Act”. Shrink government. Lower taxes.

              Is any regulation needed (other than the criminal law and the law of contract)? I understand there are hundreds of thousands of regulations on business. I have no idea which ones are most onerous and intrusive as I haven’t directly run a business for quite a while now. But in principle I cannot see any reason why the state should regulate business at all. As we have often said, we would like to see the separation of state and economy.

    • WmarkW

      I’ve been trying to catch up on my reading about Obamacare, which I’ve admittedly not kept up on compared to its importance. What I’m still confused about is:
      1. To what extent is it designed to be a transfer program to people whose income is so low, they couldn’t afford insurance
      2. To what extent is it designed to ameliorate actuarial cost expectation differences between individuals
      3. Will it help bring the full retail price of services in line with “plan allowances”
      4. Will politically powerful groups get Cadillac care for their pet needs, while dispersing the cost to everyone
      5. If illegal immigrants are excluded, what are we doing about the unpaid care hospitals give them

      I can certainly live with a certain amount of socialism in health care. Our people’s moral values require EMTALA and coverage for children. And I also wonder if the polls showing most Americans are satisfied with their plan, simply reflects that most people are profitable to the insurance companies, and the real question is how satisfied are the ones who represent negative actuarial expectation.

      • Jillian Becker

        One gathers that the answer to almost any question about the “Affordable Health Care Act” is “I don’t know” – no matter whom you ask.

  • WmarkW

    Time did not begin in 2009. The $755 billion deficit is 4.5% of GDP, or about what Bush rang up from 2002-09 (his last fiscal year).

    The deficit is a serious problem caused by three generations of compromising by agreeing to tax the future earnings of those too young to vote. It is not a serious solution to blame a socialist President, while ignoring those beholden to Big Defense and tax cuts for the rich, whose spending and saving do NOT trickle down to the rest of the economy.

    • Jillian Becker

      Arnold Ahlert clearly says that the state we’re in is “due to unprecedented levels of government spending by both parties”. Obama has had five years to make things better, but his policies are a formula for failure.

    • liz

      To say “Its not a serious solution to blame a socialist President” is like saying its not a serious solution to take the leeches off of a sick man and actually try using modern medicine. I’d take my chances with “trickle down” from the rich than from this bunch of Keynesian fools any day.