The Threat of Default on the Debt is from the Left not the Right

Posted by PITHOCRATES - October 10th, 2013

Politics 101

We have a Debt and Spending Problem as we are Spending so much that we have to Raise the Debt Ceiling

Contrary to popular belief the government doesn’t just borrow money.  They also raise money by taxing us and charging us fees.  A lot of it.  In this past fiscal year (October 2012 to September 2013) they raised $2,450,200,000,000.  That’s $2.45 trillion dollars.  Sadly, they spent $3,537,100,000,000.  Or $3.5 trillion.  Giving us a deficit of $1,086,900,000,000.  Or $1.1 trillion.  Which is why we’re having a debt crisis.

Interestingly, the left does not believe that we have a debt problem.  Or a spending problem. For they see no problem with these numbers.  The only problem they have is with Republicans.  Who do believe we have a debt problem.  As well as a spending problem.  And they want to do something about it.  Before the debt grows so big that it threatens the full faith and credit of the United States.

Now the Democrats, who don’t think we have a debt or a spending problem, are saying the Republicans are threatening the full faith and credit of the United States.  With their shutting down of government.  And their demand for spending cuts before raising the debt ceiling.  Which proves the Republicans point.  We have a debt and a spending problem.  Because we are spending so much that we have to raise the debt limit.

The Interest on the Debt is only 11.75% of the Available Revenue so there is no Danger of Default

Of course, this explains the $1.1 trillion deficit.  Out of control spending.  That the government is funding with more and more borrowing.  Which threatens the full faith and credit of the United States.  Because the more debt we accumulate the less likely we’ll ever be able to pay it off.

But are we risking default on the debt now?  With this battle over the debt ceiling?  No.  Yes, the debt is huge.  Currently it is in excess of $16 trillion.  About six and a half times total federal revenue.  To get an idea what that means consider you have the median household income which is approximately $51,000.  If you carried the same amount of debt the federal government carries you would have approximately $331,500 in credit card debt.  Any household with a median income of $51,000 with credit card debt of $331,500 has a bleak future.  And unless they win the lottery they will not escape bankruptcy.

So $16 trillion in debt is recklessly high.  And impossible to pay off.  But as bad as that is the amount of revenue the federal government collects via taxes and fees greatly exceeds the interest on the debt.  The interest on the debt is $415.7 billion.  This is the amount the government has to pay to avoid defaulting on the debt.  Which is easy to do with $2.45 trillion in revenue.  The interest on the debt is only 11.75% of the available revenue.  So even if the Republicans refuse to raise the debt ceiling there is no way in hell the government will be unable to pay the interest on the debt.  Unless the government chooses NOT to pay the interest on the debt.  Even when they have the ability to pay the interest on the debt.

The Democrats become Chicken Little whenever anyone ever Threatens their Spending Authority

So why all the talk of defaulting on the debt?  And ruining the full faith and credit of the United States?  Simple.  Democrats are liars.  And what do liars do?  They lie.  The interest on the debt is in no danger of going unpaid.  It’s all that other government spending that is in danger of going unspent.  That spending that makes people dependent on government.  And buys votes.

The left tries to frighten the people so they can keep spending.  And keep buying votes.  They try to scare Social Security and Medicare recipients.  Telling them they will lose their benefits if the Republicans don’t stop what they’re doing.  Even though they won’t.  First of all we pay into our own retirement account. At least that’s what the government tells us.  And there is a Social Security Trust Fund.  Full of our money just waiting to pay our benefits.  Or so they say.  But the Trust Fund doesn’t have money in it.  It has government IOUs.  Because the government spent that money.

So that’s why Democrats lie.  So they can keep spending and buying votes.  Which they won’t be able to do if they can’t borrow more money to spend.  And they’re spending so much that they can’t afford to lose their charging privileges.  This is why they warned the sky would fall if the sequestration spending cuts went into effect.  But as we all witnessed the sky did NOT fall with those spending cuts.  There was some discomfort.  But nowhere near the calamity the Democrats warned would befall us if they didn’t get their way.  Bringing us to their greatest fear.  That life can go on with a large spending cut.  And telling us that the government can cut spending even more.  Far more.  Which is a threat to their ability to buy votes.  And to their power.  Which is why they become Chicken Little whenever anyone ever threatens their spending authority.

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The Democrats have refused to Raise the Debt Ceiling for Republican Presidents

Posted by PITHOCRATES - October 8th, 2013

History 101

The Democrats opposed Raising the Debt Ceiling for Republican President Dwight Eisenhower

President Obama and the House Republicans are at a standoff.  At the center of the debate is Obamacare.  The House Republicans want to defund Obamacare.  They didn’t like it when it cost $1 trillion over ten years.  And they like it even less now that the CBO has revised its cost to $3 trillion.  It has frozen hiring.  And pushed people from full-time to part-time.  President Obama has also revised the law.  Taking on legislative powers that the Constitution gives only to Congress.  With the one year delay for the business mandate being especially galling to Republicans.  As well as the 75% subsidy members of Congress and their staff get.

The House Republicans have reduced their demands to basically giving the president a continuing resolution to fund all of government if he would only give the American people what he gave to his friends in Big Business.  A one year waiver of the individual mandate.  Infuriating the president.  Saying he will not negotiate with terrorists taking the American people hostage.  However, he said he will negotiate with the Republicans.  After they give him everything he wants.  Including raising the debt limit.  For shutting down the government is one thing.  But messing with the full faith and credit of the United States is another.  With the Republicans having the gall to demand spending cuts before raising the debt ceiling.  This was just unprecedented.  Never before did anyone use the debt ceiling to bully a president before.  In the past Congresses always raised the debt ceiling whenever a president requested.  Whistling a happy tune in the process.  Except, of course, in 1953 (see Can Debt Ceiling Debates Be Useful? History Says Maybe. by Joseph J. Thorndike posted 8/28/2013 on the Huffington Post).

The idea of using the debt ceiling for leverage is not new. Indeed, the nation’s first debt limit crisis hinged on it. In the summer of 1953, President Dwight Eisenhower asked Congress for a modest boost in the debt ceiling. When austerity-minded lawmakers refused, it prompted a crisis that brought the nation to the brink of default – or to its fiscal senses, depending on your point of view…

Eisenhower didn’t believe that spending cuts would be sufficient to keep federal debt under the cap. “Despite our joint vigorous efforts to reduce expenditures,” he told Congress, “it is inevitable that the public debt will undergo some further increase.” On July 30, Eisenhower asked Congress for an increase in the debt ceiling from $275 billion to $290 billion…

Sen. Harry F. Byrd, D-Va., took the lead in fighting the increase. Raising the limit would be “an invitation to extravagance,” he declared. Keeping the present cap, moreover, would encourage much-needed economy. “It may be that the administration would be forced to operate on a very prudent and conservative budget in order to avoid an increase in the debt limit,” he predicted.

A host of senators joined Byrd’s campaign to reject the increase. The New York Times reported that Democratic opposition was “almost solid,” and many Republicans were also prepared to break with the president…

As a leverage goes, it was pretty effective. Almost immediately, Eisenhower told his department heads to cut their spending. “It is absolutely essential that you begin immediately to take every possible step progressively to reduce the expenditures of your department during the fiscal year 1954,” he told them.

So it started early.  And it started with the Democrats.  Holding the debt limit hostage to get what they want.  And in 1953, the Democrats got what they wanted.  They forced President Eisenhower to make spending cuts.  Just like the Republicans asked for in 2011.  And will ask again now.  But President Obama was not as reasonable in 2011 as President Eisenhower was.  And he is saying he will be even less reasonably now.

The Democrats opposed Raising the Debt Ceiling for Republican President Ronald Reagan

So was 1953 an isolated incident?  Were the Democrats more accommodating at other times when a president asked them to raise the debt ceiling?  As President Obama would have us believe?  Well, they weren’t very accommodating in 1984.  When President Ronald Reagan asked Congress to raise the debt ceiling (see In 1984, debt debate looked different to Biden, GOP by Stephen Dinan posted 7/19/2011 on The Washington Times).

With time running out on a looming debt crisis, the president and his allies in the Senate are fighting to win a raise in the government’s borrowing limit, only to be stymied by a minority insisting that a spending freeze be part of the deal.

Sounds like present day, but it was October 1984 — when the partisan roles were reversed. Republicans controlled the White House and the Senate, while Democrats controlled the House. Democrats also could sustain filibusters in the Senate and were balking at raising the debt ceiling unless it was attached to big spending cuts…

One of the leaders of that 1984 Democratic revolt — a man who tried to impose a spending freeze and fought for a smaller debt increase than President Reagan wanted — was none other than current Vice President Joseph R. Biden, then a senator from Delaware and now President Obama’s right-hand man in negotiations with Congress.

“I must express my protest against continually increasing the debt without taking positive steps to slow its growth. Therefore, I am voting against any further increase in the national debt,” Mr. Biden said in a floor speech just before helping fellow Democrats defeat an increase of $251 billion on a 46-14 vote.

Once again the Democrat-controlled House refused to raise the debt ceiling.  So 1953 was not an isolated incident.  But the beginning of a pattern of Democrat willingness to risk the full faith and credit of the United States for political reasons.  To get their way despite losing the election to President Reagan.  Apparently back then elections didn’t have consequences.

How embarrassing it must be for the vice president.  Being part of an administration trying to do what the Reagan administration did when he stood in opposition.  Imagine trying to argue for something you argued against previously?  Thankfully, it was only the vice president that had such a hypocritical past.  Imagine how embarrassing it would be if the president had such hypocrisy in his past.

The Democrats opposed Raising the Debt Ceiling for Republican President George W. Bush

Well, as it turns out, another young Democrat senator went toe-to-toe with another Republican president over the debt ceiling.  And he just didn’t vote against it.  He made a speech.  On the record.  For posterity.  To prove he was no spendthrift.  At least, not when a Republican was in the White House.  That president was George W. Bush.  And that senator was, of course, Barack Obama (see Obama Really Wishes He Never Gave This Speech About The Debt Ceiling by Walter Hickey posted 1/14/2013 on the Business Insider).

In 2006, then-Sen. Barack Obama gave a floor speech defending his decision to vote against an increase in the debt ceiling under President George W. Bush…

Here are some of the key parts of Obama’s speech:

Mr. President, I rise today to talk about America’s debt problem. 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.

[…]

Increasing America’s debt weakens us domestically and internationally. 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 problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.

In the midst of the first debt-ceiling standoff in 2011, Obama was asked about his flip by ABC’s George Stephanopoulos. He chalked it up as a “political vote” and said his mindset changed as President.

Hypocrisy, thy name is Barack Obama.

Interesting.  It was okay for him to do what the House Republicans are doing now when he was in Congress.  When there was less debt.  And less of a debt crisis.  But it’s not okay for the House Republicans to do so now.  When there is more debt.  And a greater debt crisis.

So what is the right thing to do?  Well, if you’re President Obama the right thing to do is what he wants to do.  Not what is best for the country.  For if you argue both sides of the same issue at different times it means you’re more interested in what’s best for yourself.  Not the country.  Unless he evolved on this issue, too.  If so, perhaps we should ask for President Obama’s resignation.  For if he keeps evolving on issues he must be too ill-informed or naïve to be president.

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Shutting Down Government and Taking Hostages

Posted by PITHOCRATES - October 3rd, 2013

Politics 101

Democrats close National Parks and Deny Cancer Treatment for Children to win Political Contest

The politicians have shut down the government.  And the executive branch (i.e., President Obama’s branch) is really trying to make the shutdown hurt.  In fact they are gleeful.  For the president had his ass handed to him over his redline comment on Syria.  Having been ridiculed on the international stage he is trying to show how tough he is with people he can push around.  Americans.

So President Obama has closed national monuments.  To really annoy the people.  Even World War II veterans (men who know a thing or two about courage and bravery and being tough) coming to see the outdoor World War II monument.  Yes, he closed that, too.  But he didn’t stop there.  His executive branch even tried to close Mount Vernon.  The privately owned and privately operated Mount Vernon.  Proving the politics that motivate the president and the Democrats.

When a reporter asked Senator Harry Reid if he would approve a spending bill that would let children with cancer to participate in an experimental treatment program he said ‘no’.  Because if he did that would mean the other side would have won.  When you’re talking about winners and losers, though, you’re not doing what is best for the American people.  You’re doing whatever you can to win.  Regardless of what’s best for the people.

The Obama administration refused additional security in Benghazi so they wouldn’t offend their Muslim Hosts

The Democrats are playing hardball.  Acting like petulant children who can’t get their way.  And they don’t care who they hurt in the process.  Children throwing tantrums rarely do.  Pity they couldn’t show this same toughness when it comes to real enemies of America.

President Obama and the Democrats have unleashed every invective in the dictionary against the Republicans.  Calling them terrorists and their actions jihad.  Yet they bend over backwards not to offend those waging jihad against America.  To this day they still call the Fort Hood massacre workplace violence.  After the Boston Marathon bombing they held off calling it an act of terrorism.  And refuse to call the bombers Muslim even though they were Muslims fighting a jihad for Islam.

When the American ambassador in Libya requested additional security for their mission in Benghazi the Obama administration refused the request.  As they didn’t want to offend the sensitivities of their Muslim hosts in Benghazi by showing that we were worried about our safety there.  For President Obama won the War on Terror with the killing of Osama bin Laden.  So there was nothing to worry about.  And there was an election coming up.  So not only were they worried about their Islamic host’s sensitivities they were worried about how a ramp up of security in Benghazi would look back at home.  As they were getting a lot of miles out their campaign slogan.  “Osama bin Laden is dead.  And General Motors is alive.”  Which led to four dead Americans in Benghazi.

The Democrats hold Social Security Recipients Hostage whenever they can’t get What they Want

Of course, what government shutdown would be complete without scaring old people?  Yes, they have brought up Social Security.  Because those Social Security recipients are hostages to the government.  If the government doesn’t get what they want the government threatens to take away their benefits.

The government shutdown does not affect Social Security.  But tying the current fight in with the future fight over raising the debt limit helps the Democrats.  For they buy a lot of votes.  Which isn’t cheap.  Each year federal spending increases to pay for new and/or expanded federal programs that buy votes from those they make dependent on government.  This is the Democrats’ great fear.  That they won’t be able to raise the debt limit.  So they can continue to buy votes.  Which they must do as they can’t win in the arena of ideas.

Which is why they’re already playing the Social Security card.  Taking Social Security recipients hostage.  Threatening them that if they don’t pressure the Republicans to stop trying to be responsible they will make them pay.  And stop issuing their checks.  Which further proves how political everything is.  First of all, we pay into Social Security.  There is a Social Security Trust Fund that is supposedly holding our money.  Which means one of two things.  Either they’re withholding our own money from us.  Or Social Security is really a Ponzi scheme after all.  And the Trust Fund is empty.  Filled with nothing but federal IOUs.  Yes, they’ve spent that money to buy more votes.  So not only have they spent more than the government can pay.  They’ve also raided our retirement accounts.  To buy votes.  Which is what Obamacare is all about.  Buying votes.  To get even more Americans dependent on the government.  So the government can hold them, too, hostage to get what they want.

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The Politics of Tax Rates

Posted by PITHOCRATES - December 19th, 2012

Politics 101

Cash Starved Small Businesses cannot Afford to pay a Dime more in New Taxes

America is staring at a fiscal cliff.  Thanks to the budget debt limit debate in 2011.  The US was in danger of running out of money and defaulting on their sovereign debt.  The Republicans controlled the House of Representatives.  And the House is in charge of the money.  Before increasing the debt limit the Republicans wanted to get some spending cuts to reduce the federal deficit.  The Democrats wanted to raise tax rates (letting the Bush tax cuts expire, returning to the Clinton tax rates) to reduce the deficit.  They couldn’t reach an agreement.  So they did what politicians always do when they want to run away from a problem.  Create a committee.

The so-called super-committee.  Tasked to come up with $1.2 trillion in spending cuts (over ten years) by the end of 2012.  Or else.  With the ‘or else’ being sequestration.  Automatic budget cuts in defense and entitlement spending to the tune of $1.2 trillion.  The politicians knowing how unpleasant sequestration would be were full of confidence that the super-committee would overcome hell and high water to complete their task.  Because sequestration would be so very, very unpleasant.  Of course, politicians being politicians, kept running away from that problem.  And now we’re staring into the face of sequestration.  Taxmageddon.  The fiscal cliff.  Because the Democrats want to raise taxes on everyone earning over $200,000 (single) or $250,000 (married filing jointly).  But Republicans don’t want to because that will raise taxes on the job creators.  Something that won’t make an anemic economic recovery any better.  So let’s look at the numbers and see what kind of damage we’re looking at.

President Obama’s proposal for new tax rates leaves everything at the 28% marginal rate and below the same.  He proposes increasing the 33% rate to 36%.  And the 35% rate to 39.6%.  The new rates kick in at earnings of $250,000 (all the examples here are calculated for a married couple filing jointly).  Which raises the top income band at the 28% rate.  Holding the net tax increase to only $1,115 for a small business owner with a net income of $350,000.  Which doesn’t seem that bad.  But a small business owner with a net income of $350,000 isn’t exactly rich.  Despite paying income taxes like they are rich.  For most small business owners are S corporations or LLCs.  With their net income passing through to their personal income tax return.  So if the business owner lives on enough to equal two incomes (say $75,000 X 2 = $150,000) so his or her spouse can be a stay-at-home spouse that $1,115 comes out of $107,045 ($350,000 – $92,955 – $150,000).  Which is all they can put back into the business.  To pay for new equipment (which isn’t enough for most purchases forcing them to borrow more money and go further into debt).  To repay debt.  To cover unpaid accounts receivable.  To pay for customer write-offs for an employee error on a project.  To pay for a production run that failed to meet specifications that they couldn’t sell.  To pay for inventory shrinkage (damaged, lost and stolen goods).  To pay for employee raises.  Bonuses.  To hire new employees.  Or to pay for the newly mandated Obamacare.  When you factor in all these cost issues a small business owner may face $107,045 of retained earnings is not a lot of money and leaves a very small cash cushion.  Which is why Republicans do not want to raise taxes on small business owners.

Taxing the Rich more will do nothing to Lower the Deficit

Then presidential candidate John McCain opposed then presidential candidate Barack Obama’s proposed tax rate increases in the 2008 campaign.  Saying it would raise taxes on 23 million small business owners.  FactCheck.org debunked this number saying the actual number is closer to 6 million.  So using their number the additional tax revenue from small businesses would equal about $6.7 billion.  Approximately 0.48% of the federal deficit.  Which will do nothing to reduce the deficit.  But it will take more money away from cash-starved small businesses.  So what about millionaires?  What’s their damage?  And how much will they reduce the deficit?

The proposed tax rates will increase a millionaire’s tax by $30,549.  According to the IRS there were about 119,810 tax returns filed by people earning a million dollars in 2010.  Meaning the proposed increase in tax rates would raise another $3.7 billion in tax revenue from those earning a million dollars.  Which is only 54.7% of the new tax revenue from small business owners generated by those same new tax rates.  And only 0.26% of the federal deficit.  Which will do nothing to reduce the deficit.  So what about richer people?  Will taxing richer people do anything to reduce the deficit?  Let’s look at the numbers for someone earning $5 million.

Someone earning $5 million will pay an additional $214,549 in taxes.  Which is a huge increase.  But according to the IRS there were only 16,574 people who earned $5 million.  Which brings the total increase in tax revenue to only $3.6 billion.  Which is a $100 million less than the millionaires.  And only 0.25% of the federal deficit.  Meaning it will do nothing to reduce the deficit.  Even though they are taking an additional $214,549 away from each person earning $5 million.  That’s a lot of money from each person that results in no significant deficit reduction.  Which is the purpose of the higher proposed tax rates.

We’re simply Spending More than our Tax Revenue can ever Hope to Pay For

Crunching these numbers further we find that the proposed higher tax rates will increase tax revenue by $38.2 billion for everyone earning a million dollars and more based on 2010 IRS tax information.  Which is only 2.7% of the federal deficit.  Which is less than the automatic increases included in baseline budgeting.  Which means these proposed tax increases won’t do anything to reduce the deficit.  In fact the deficit will still grow larger.  Thanks to baseline budgeting.

The problem is that there aren’t enough rich people to tax.  The top 10% of earners are already paying 70% of all federal income taxes.  To raise new tax revenue you have to go to the middle class.  Based on the IRS there were 44,637,653 people filing income tax returns who earned between $50,000 and $200,000.  If each of these people paid an additional $1,115 like those small business owners that would raise an additional $49.8 billion in tax revenue.  Which is 3.6% of the federal deficit.  If you increased their taxes by $2,500 that would increase tax revenue by $111.6 billion.  Or 8% of the federal deficit.  Which may actually keep the deficit from growing.  But it won’t pay it down.

To get serious deficit reduction from the rich you have to take very large sums of money from them because there are so few rich people.  And even then it’s probably not possible to raise tax revenue enough to offset the automatic spending increases included in baseline budgeting.  But it’s a different story with the middle class.  Because there are so many more people in the middle class than there are rich people.  You can keep the deficit from growing by taking a far smaller amount from each of them than you would have to take from the rich.  You could even take enough to overcome the automatic spending increases of baseline budgeting to keep the deficit from growing.  But even the middle class doesn’t have enough people in it to wipe out a $1.4 trillion deficit.  Or make a dent in the federal debt.

No.  The only way to make any significant deficit reduction is with spending cuts.  Which the Democrats are steadfast against.  Because spending is their power.  It’s why people vote for them.  Which is why they will fight for increasing tax rates to the bitter end.  And never negotiate them away.  To continue the facade that new revenue can reduce the deficit.  Even though no amount of new revenue can.  Only spending cuts can.  For our spending has long since passed the Rubicon.  We’re simply spending more than our tax revenue can ever hope to pay for.  And any further increases in tax rates only reduce economic activity.  Causing the small business owners to stand fast on expanding and hiring.  Because economic growth is rewarded with punitive taxation.  So they will grow less with every increase in tax rates.  And with every increase in tax rates tax revenues will fall.  Which will lead to a downward spiral of deficits, debt, lowered credit ratings and possible default.  But anything is better to Democrats than admitting they are wrong.

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Obama’s Choice – Cut Spending or Downgrade U.S. Sovereign Debt

Posted by PITHOCRATES - July 27th, 2011

The BIG Problem is the Excessive Spending, not the Debt Ceiling

I don’t know what’s more annoying in the budget debate to raise the debt limit.  The cries on the left for the Republicans to quit being partisan.  To instead propose a true bipartisan bill that has a chance of passing the Senate.  And by ‘bipartisan’ they mean one that gives the left everything they want.  Or is it the doom and gloom being bleated by the president, Congressional Democrats and the mainstream media if the debt ceiling isn’t raised (see Debt-ceiling threat has Wall Street scrambling by Nathaniel Popper and Jim Puzzanghera posted 7/27/2011 on the Los Angeles Times).

Without a deal, the most feared scenario is that the U.S. will miss payments on its bonds and default — which financial experts say would be disastrous. While still considered unlikely, the prospect is popping up more in conversations…

No.  This can’t happen.  There’s enough money to pay interest on the debt.  And to issue Social Security checks.  But they will have to make cuts elsewhere in some nonessential areas.  Like in some cabinet departments (Education, Energy, EPA, etc.).  This is all fear peddling by the Obama administration to do one thing.  Raise the debt ceiling.  So they can keep spending.  And this is the BIG problem.

The more likely scenario that investors are preparing for is that a temporary deal is struck to lift the debt ceiling. But such a makeshift plan is unlikely to allow the U.S. to maintain its AAA grade with bond rating companies. Citigroup analysts say the odds are 50-50 that the U.S. will be demoted to an AA rating for the first time ever.

Such a downgrade could lead to a temporary market panic. In the longer term it could push interest rates up for everyone from bankers down to ordinary people taking out car loans, and weaken the dollar’s position as the world’s reserve currency.

Even if they raise the debt limit in time there is a far greater problem.  And yet few are talking about THIS problem.  The excessive spending that will ultimately cause the credit downgrade.

To Avoid Credit Downgrade will Require $4 Trillion in REAL Spending Cuts

And it’s no secret.  S&P was very explicit in their report of what would cause a credit downgrade.  Unrestrained government spending (see The Real S&P Warning: A $4 Trillion Deal or a Downgrade by Veronique de Rugy posted 7/19/2011 on National Review).

As the debt-ceiling showdown heads into its final stages, the political maneuvering has intensified. Yet I fear that we are losing sight of the only reason why the fight over the debt ceiling matters: It forces a discussion of the country’s real problem — unrestrained government spending and the tremendous fiscal imbalances that jeopardize our financial safety.

This is the real message in the July 14 S&P report.

First, S&P writes that unless there’s a credible $4 trillion deal within the next three months, they will downgrade us. By “credible,” S&P explains, they mean a plan that will actually be put into place (i.e., not one where the tax increases happen but not the spending cuts). Not $2 trillion, not $1 trillion,  but $4 trillion. And it has to be credible.

That means REAL spending cuts.  Not those ‘future’ kind that never happen.  Those that Democrats have promised time and again only to renege on those promises.  Or the base-line budgeting type of ‘cuts’ that still increase spending.  The onus is all on Obama and the Democrats.  Because they are the ones steadfast in their opposition to any real spending cuts.

The Electric Car – Typical Wasteful Government Spending

To get an idea of their voracious appetite to spend, consider the electric car.  What the economy of the future is based on.  Green energy.  The thing that’s going to make America rich and prosperous again (see California dials back its electric car credits by Eric Evarts posted 7/26/2011 on Consumer Reports).

In large part, EV appeal was greater in California due to a $5,000 state rebate that came on top of the $7,500 federal tax credit. With the tax credits, the price of an all-electric Nissan Leaf could be as low as $21,000, making it cheaper than a Toyota Prius and putting it on par with other small cars. (The Chevrolet Volt was not eligible for the state credit, although it does receive the $7,500 federal tax credit…)

While the price of electric cars is going up for California drivers, other factors still make the Golden State more attractive than most for electric cars: California uses no coal to generate electricity; its major electric utility companies have time-of-use rates and special power rates for electric cars, effectively lowering their energy costs; and perhaps most importantly, pure electric cars are still eligible to use carpool lanes on the state’s notoriously congested freeways with just a driver onboard. In addition, public charging infrastructure is on a faster track than it is elsewhere in the nation.

So that’s $5,000 from the state.  $7,500 from Washington.  That’s a discount of $12,500 (37.3%).  And yet the price of the Nissan Leaf is still $21,000.  But that still isn’t enough to make this car sell.  They need a subsidized electrical rate as well.  Government at all levels is paying a lot of our tax dollars to make a car no one wants to buy.  And this is the kind of spending that they just can’t cut.  Wasteful.  And this is only one example from the multitude.

Repeal Obamacare – Save Money, Please the People

Cutting $4 trillion over 10 years will not be easy.  But we can halve this number with one stroke of a pen (See By a Margin of 21 Points, Americans Favor Repeal by Jeffrey H. Anderson posted 7/27/2011 on the Weekly Standard).

While President Obama’s notion of a “balanced approach” to deficit reduction isn’t written down anywhere, it’s quite clear that it doesn’t involve repealing Obamacare (despite the fact that the health care overhaul would cost over $2 trillion in its real first decade, from 2014 to 2023). Polling, however, strongly suggests that it should. The latest Rasmussen poll of likely voters shows that, by a margin of 21 points (57 to 36 percent), Americans support the repeal of the centerpiece legislation of the Obama presidency.

Repealing Obamacare would be a step in the right direction.  It will save $2 trillion in spending that is pushing the U.S. toward a credit downgrade.  And the people don’t want it by a margin of 21 points.  Save money.  Please the people.  It’s a no-brainer for responsible government.  If only government was responsible.

The Choice – Cut Spending or Downgrade U.S. Sovereign Debt

The president said we need to live within our means.  And he’s right about that.  But living within our means doesn’t mean taxing and borrowing more to pay for out of control government spending.  Living within our means starts by NOT spending money we don’t have.  Not to spend first and figure out how to pay later. 

And just because other presidents raised the debt limit doesn’t mean we have to raise the debt limit.  You don’t justify bad behavior with bad behavior.  We’ve borrowed too much.  The credit rating agencies have spoken.  We need to cut spending.  And not get all professorial and lecture the American people that we need to be ‘responsible’ and raise taxes to pay for the government’s irresponsible spending binge.

We either cut spending.  Or Obama and his Democrats will downgrade U.S. sovereign debt for the first time in history.  Those are the choices.  And a good place to start would be to repeal Obamacare.  Because that’s all future spending.  All $2 trillion.  Not like Social Security or Medicare.  You can cut Obamacare.  And no one will miss it.

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A Debt Default and ‘no Social Security Checks’ only Scare Tactics in the Budget Debate to Raise the Debt Limit

Posted by PITHOCRATES - July 25th, 2011

A Summary of the Budget Debate to Raise the Debt Limit

One day making tracks in the prairie of Prax came a tax-raising Zax.  A tax-raising Zax.  And a spending-cuts Zax.  A tax-raising Zax.  And a spending-cuts Zax.  And it happened that both of them came to a place where they… *boom*  There they stood foot to foot.  Face to face.

“Look here, now,” the tax-raising Zax said.  “I say, you are blocking my path.  You are right in my way.  I’m a tax-raising Zax and I always raise taxes.  Get out of my way, now, and let me raise taxes.”

“Who’s in whose way?” snapped the spending-cuts Zax.  “I always cut spending making spending-cuts tracks.  So you’re in my way and I ask you to move and let me cut spending in my spending-cuts groove.”

Then the tax-raising Zax said with tax-raising pride, “I never have taken a step to one side.  And I’ll prove to you that I won’t change my ways if I have to keep standing here 59 days.”

“And I’ll prove to you,” yelled the spending-cuts Zax.  “That I can stand here in the prairie of Prax for 59 years.  For I live by a rule that I learned as a boy back in spending-cuts school.  Never budge that’s my rule, never budge in the least.  Not an inch to the west, not an inch to the east.  I’ll stay here not budging, I can and I will.  If it makes you and me and the whole world stand still.”

(The Zax, from The Sneetches and Other Stories by Dr. Seuss, slightly modified)

Spending worries most Americans

If neither Zax is moving, at least there’s no spending.  And it appears that it is the spending that worries most Americans.  Based on the polling.  Which shows the spending-cuts Zax gaining support (see GOP has 10-point edge on Democrats in public trust on economic issues in latest Rasmussen Reports national survey by Mark Tapscott posted 7/24/2011 The Washington Examiner).

Republicans have gained a 10 point lead over Democrats in Rasmussen Reports latest national survey on who the public most trusts to deal effectively with economic issues.

The 10 point lead is the widest margin held by either party in months and has opened up in recent weeks as President Obama and House Speaker John Boehner have become the central players in the debate over how to deal with the approaching debt-ceiling crisis.

It seems pretty clear.  The people want the tax-raising Zax to take a step to the spending-cuts side.

You can’t Fool the Bond Market

And while one Zax stands foot to foot with the other Zax, not budging, the bond market is not all that worried.  Which is kind of odd being that they hold the debt that Obama, Geithner, Pelosi, Reid, etc., warn they may default on (see U.S. bond market: Watching and waiting by Ben Rooney posted 7/25/2011 on CNN Money).

As policymakers in Washington continue to butt heads over the debt ceiling, the response in the bond market Monday was relatively subdued…

…many bond market watchers suggested that stocks are more vulnerable to the ongoing debt ceiling drama. By contrast, some say Treasuries could actually benefit from a flight to safety if the debt ceiling isn’t raised.

This seems counterintuitive.  Especially with all of the dire predictions coming out of Washington.  But it turns out that you can’t fool the bond market.

Another reason why Treasuries have held their ground is that a default would not necessarily result in huge losses for holders of U.S. debt. Treasury would probably have to furlough workers and make other adjustments if the debt ceiling is not raised, but analysts do not expect it to immediately miss interest payments on the federal debt.

The money is there.  Some money.  Tax revenue is still making it to Washington.  Almost $200 billion each month.  The bond market knows this.  They’ll get their interest payment.  Still, there could be some fallout from a downgrading of U.S. debt. 

…many institutional investors, including money market funds and pensions, are required to hold only AAA-rated securities. If the U.S. government is downgraded, those funds may be forced to dump billions worth of U.S. paper.

This could wreak a little havoc.  But probably no more than a downgrade due to the lack of resolve to restrain out of control spending which is the root cause of all these budget problems.  One way or another, we have to cut spending to ultimately calm the bond rating agencies.

Businesses are more Worried about the Tax Code

And they aren’t that worried in corporate America either (see Analysis: CEOs count on cash to cushion default risk by Scott Malone posted 7/25/2011 on Reuters).

Bankruptcy attorney Martin Bienenstock, of Dewey & LeBoeuf LLP, said it seemed like most business people were dismissing the likelihood of a default

“People still don’t think there is going to be an actual default,” Bienenstock said. “There doesn’t seem to be any domino effect brewing yet with the concept of ‘rates will rise and companies on the brink will fail and things like that.'”

If the U.S. runs out of money it is more likely that there will be a partial government shutdown.  Not a default.  And, to be frank, there isn’t a lot these businesses need from government.  Other than a simplified tax code.

While businesses would balk at paying higher taxes, CEOs have said that what they want right now is to have the tax debate settled so they know what they will be paying in taxes.

A government unable to pay its bills won’t affect them.  But not knowing what their taxes will be will.  Because the government shakes them down for a lot of money.  And they have to plan accordingly.  Like having a forklift and other heavy-lifting equipment available to lift those vast sums of cash.

Social Security Checks will go out Regardless

It would appear that most aren’t falling for the scare tactics of Obama and the Democrats.  But what about the seniors?  Will they get their Social Security checks?  Team Obama has been playing this card every chance someone places a microphone in front of them.  So what about Social Security?  Should seniors worry about not getting their checks?  As it turns out, no (see Contrary to the President, Social Security Checks Are Not At Risk by Michael McConnell posted 7/23/2011 on Advancing a Free Society).

The Social Security trust fund holds about $2.4 trillion in U.S. Treasury bonds, which its trustees are legally entitled to redeem whenever Social Security is running a current account deficit. Thus, if we reach the debt ceiling…, this is what will happen. The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients. Each dollar of debt that is redeemed will lower the outstanding public debt by a dollar. That enables the Treasury to borrow another dollar, without violating the debt ceiling. The debt ceiling is not a prohibition on borrowing new money; it is a prohibition on increasing the total level of public indebtedness. If Social Security cashes in some of its bonds, the Treasury can borrow that same amount of money from someone else…

President Obama is therefore wrong when he says that failure to raise the debt ceiling might result in not sending out Social Security checks. Many bad things might happen, but not that.

Interesting.  So Social Security checks will go out.  Automatically.  Even if the current account is in deficit.  Because of that glorious trust fund stuffed with treasury securities.  In fact, the only way checks won’t go out is if Obama prevents this automatic mechanism to score some political points by falsely blaming Republicans.  Which will be risky.  Because people will eventually learn the truth.  If they don’t know it already.

The Tax-Raising Zax needs to Step to the Spending-Cuts Side

The tax-raising Zax had better learn to swallow his tax-raising pride and however reluctantly he should now take that first step to the spending-cuts side. 

For the people and the bond market and businesses agree.  The problem is spending.  Much too much spending as you must by now plainly see.

And leave our seniors alone and frighten them not with horrors of checks that won’t come their way.  For the trust fund is brimming with securities aplenty that can be cashed to pay all promises made without delay.

Unless Social Security has been a big Ponzi scheme all along.

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A Neutered American Lapdog is Advancing Agenda, not Reporting News

Posted by PITHOCRATES - July 22nd, 2011

Dirty Journalists keep Politicians Clean

Poor Rupert Murdoch.  He’s getting no love from the British Establishment over the phone hacking scandal.  Those who once courted the “feral beast” (British tabloids) are turning against it.  Probably because the other political party wooed them more successfully.  And if you’re in politics, you want them on your side.  Because they’re good at their jobs (see In Defense of Hacks by Toby Harnden posted 7/21/2011 on Foreign Policy).

Whereas our American counterparts have long viewed themselves as comparable to lawyers and doctors, we British hacks still see ourselves as practitioners of a grubbing craft rather than members of an upstanding profession. (The public, which views us as on a par with real estate agents, prostitutes and perhaps even criminals, tends to agree.)

Yes, they’re less Walter Cronkite and more Louie De Palma (a character on the American sitcom Taxi).  For a good journalist knows how to get dirty.  Like Louie, a good journalist is born dirty.

While the American press has certainly had its share of similar disgraces, it is true that American newspaper articles are in the main more accurate and better-researched than British ones; the Rupert Murdoch-owned Wall Street Journal was not wrong when it ventured that Fleet Street has “long had a well-earned global reputation for the blind-quote, single-sourced story that may or may not be true.” But stories in the American press also tend to be tedious, overly long, and academic, written for the benefit of po-faced editors and Pulitzer panels rather than readers. There’s a reason a country with a population one-fifth the size of that of the United States buys millions more newspapers each week.

For all their faults, British “rags” are more vibrant, entertaining, opinionated, and competitive than American newspapers. We break more stories, upset more people, and have greater political impact.

That’s the way American journalism was before the Political Class co-opted it.  And why ordinary Americans once read newspapers.  To keep an eye on the scoundrels we put into elected office.  It was one of the few things that kept our elected officials somewhat honest.  Or, at least, honest enough not to lose the next election.

In fact, for the British press, the most damaging revelation of the phone-hacking scandal is the degree to which it shows that journalists — or, to be more precise, News International executives — breached the inner sanctums of the British Establishment. A breed that had always taken pride in being made up of grubby outsiders was allowed in and made the most of the opportunity.

In the United States, journalists are already on the inside: Witness President Barack Obama’s private chats with op-ed columnists, the Washington Post and Time magazine types who effortlessly segue into White House press secretaries and the cozy consensus of Washington’s political-journalism-industrial complex. All too often, American editors, perhaps mindful of their future cocktail party invitations, would prefer their reporters stroke rather than stick it to authority. British journalistic excesses can rightly be condemned, but the American media could use a few more of them. It took the National Enquirer to bring Senator John Edwards to book — and Fleet Street would not have stood for the credulous U.S. reporting on the Bush administration that characterized the run-up to the Iraq war.

That’s the last thing you want.  Your journalists getting all warm and cozy with the people they’re supposed to keep honest.  You don’t want the media to be an adjunct of one party, following orders to advance an agenda while launching personal attacks on the other party.  A good journalist should hate all political authority equally.  And show no favoritism when destroying political careers.  

It is the very politicians who used every opportunity to ingratiate themselves with Murdoch and his acolytes who are now those calling for News International to be broken up — and for the media as a whole to be called to account. Their aim? A regulation system — probably headed up by new a government-appointed “independent” body — that produces a neutered press close to the American model. Having visited Washington and seen reporters stand up when the American president enters the room (British hacks do no such thing for the prime minister) and ask respectful, earnest three-part questions, no wonder our politicians would want more of the same.

The danger of the fevered atmosphere in Britain — where justified outrage over tabloid tactics is fast leading to a hasty public inquisition, with 10 official inquiries or investigations underway at last count — is that what Prime Minister Tony Blair once termed the “feral beast” of the media might be tamed and muzzled. Perhaps the worst outcome of all would be for it to be turned into an American-style lapdog.

If you want to learn about American politics (or journalism) read a British newspaper.  The British Establishment hates and fears them.  Because they do their job.  Whereas in America, the Political Class only hates and fears FOX NEWS and talk radio (Rush Limbaugh, Sean Hannity, etc.).  Which tells you where to go to get your news.  Because if you want objective reporting, you have to go where they dare to be unflattering.  Unlike the sycophants in the ‘mainstream’ media.  For an unneutered feral beast is the only thing that will go for the political jugular.  And restrain the excess of our elected scoundrels.  I mean representatives.

And sometimes you need to get dirty.  Because getting dirty is sometimes the only way to keep politicians clean.

Good Journalism is more Reporting and less Stroke

If you watch FOX NEWS or listen to talk radio you’ll hear a different ‘version’ of the news than that on the mainstream media.  For example, the mainstream media has reported repeatedly polls citing that Americans want the Republicans to stop being intransigent and raise taxes already so the budget deal to raise the debt limit can move ahead.  Interesting how that ‘report’ meshes perfectly with the Obama administration policy agenda.  And yet Rasmussen reports a completely contrary poll finding (see Most Voters Fear Debt Deal Will Raise Taxes Too Much, Cut Spending Too Little posted 7/22/2011 on Rasmussen Reports).

The latest Rasmussen Reports national telephone survey finds that 62% of Likely U.S. Voters are worried more that Congress and President Obama will raise taxes too much rather than too little in any deal to end the debt ceiling debate. Just 26% fear they’ll raise taxes too little. Twelve percent (12%) aren’t sure. (To see survey question wording, click here…)

There’s a wide difference of opinion, however, between the Political Class and Mainstream voters. Fifty-nine percent (59%) of the Political Class is worried the deal will cut spending too much, while 63% of Mainstream voters fear it won’t cut spending enough. Those in the Mainstream worry more than Political Class voters by a near two-to-one margin – 70% to 37% – that the debt deal also will raise taxes too much.

It sounds like ordinary Americans don’t want higher taxes and more spending.  In fact, they are worried that any deal may raise taxes too much or cut spending too little.  Now this opposes the Obama administration policy agenda.  So I wonder which journalism is more reporting and less stroke?  And which is truer?

Entitlement Spending is the Cause of all our Budget Woes

Americans should be worried about raising taxes instead of cutting spending.  Because there is a much bigger problem out there (see Missing the Debt by Yuval Levin posted 7/21/2011 on The Corner).

…starting in the 2050s, CBO projects that health-care spending will be greater than all other non-interest spending combined, and the federal government will basically be a health insurer with some unusual side ventures like an army and a navy.

…health-care entitlement spending is basically 100 percent of our medium and long-term debt problem.

That thing that Obama and the Democrats refuse to put on the table?  Entitlement reform?  Especially all the health care programs (Medicare, Medicaid and now Obamacare)?  They’re the cause of all our budget woes.  Ignoring this fact makes the budget debate pointless.  It’s just political theatre.  Fiddling while America burns.  Pity we don’t have an unneutered feral beast to put this issue front and center.  Besides FOX NEWS and talk radio, that is.

FOX NEWS will Report what the Political Class rather you not Hear

Interestingly, FOX NEWS is part of the Rupert Murdoch Empire.  And those on the left viciously belittle it as not being ‘real’ news.  But they sure incur the wrath of the Political Class.  Which should tell you a thing or two.  Because when it comes to news organizations, they only hate those who report things they’d rather you not hear.

Of course there is a chance that the FOX NEWS isn’t a legitimate news organization.  And that they are only reporting inflammatory pieces to make a buck.  And that the Political Class is pure and innocent as the winter’s snow.  That everything they do is for our own best interests.  Being the honest public servants that they are.

Yeah, right.  Pull the other.

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Debt Limit Talks just Theatre, Obama Determined to Emulate Greek Spending and Debt

Posted by PITHOCRATES - July 18th, 2011

The Debt Limit hasn’t Stopped the Debt from Growing

The bond ratings agencies are getting nervous.  About the inevitable default of Greece.  And the possibility that the U.S. won’t be able to accumulate the unsustainable debt like the Greeks have (see Moody’s suggests U.S. eliminate debt ceiling by Walter Brandimarte posted 7/18/2011 on Reuters).

Ratings agency Moody’s on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders…

“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report…

In the United States, Moody’s said the debt limit had not effectively curbed the rise in government debt because lawmakers regularly raise it and because that limit is not related to the level of expenditures approved by Congress.

They have a point.  The Economist noted (see Down to the wire posted 7/18/2011 on The Economist) “Congress has acted a total of 91 times since June 1940 to either raise, extend or alter the definition of the debt limit…”  So it would seem that the debt limit is a limit in name only.  It hasn’t stopped the debt from growing.  As their little chart shows.  So why have it?

A Debt Default will be Bad, so will continued Out of Control Spending

Because, apart from World War II, the public debt hasn’t exceeded 100% of the GDP (see The Economist chart referenced above).  George W. Bush took it close to World War II heights to pay for two costly wars (Iraq and Afghanistan) and an expensive Medicare drug plan.  Obama has taken it beyond World War II levels.  At about 140% of GDP.  And Obama wants to borrow more, taking it to 150% of GDP.  Or beyond.  The European Central Bank is forecasting Greek debt to peak at 161% of GDP.  So you can see why having a debt limit is a little more important now.  Which makes the Moody’s recommendation a bit puzzling considering their concerns over Greece (see Senate Throws Obama a Debt Lifeline by Chris Stirewalt posted 7/18/2011 on FOX NEWS).

The bond-rating agencies have spelled out the two scenarios that would result in a downgrading of U.S. creditworthiness: either an unconditional increase to federal borrowing that shows Washington sprinting toward the fiscal abyss or an unbreakable stalemate on the debt ceiling.

A debt default will be bad.  But so will be continued out of control spending.  So it makes little sense solving one problem by making another problem bigger.  Besides, the U.S. has the money to service its debt.  The only question is will Obama service it?

But, here again, Obama is the one in charge of deciding who gets paid in the event of a shortfall. While his administration might send scare letters to senior citizens as a bargaining tactic with Republicans, it’s unlikely that the president would tell pensioners that they can’t have the money they paid into the system during their working lives.

Imagine the president keeping open national parks or green energy stimulus projects while telling America’s oldsters that they aren’t getting checks. Not going to happen.

Yes, if Social Security checks don’t go out to seniors, it will be because Obama chose not to send them.  And speaking of Social Security, this brings up another point.  That it’s a Ponzi scheme. 

The money we paid into the Social Security isn’t sitting in some lockbox collecting interest.  Like those Social Security statements we get imply.  The government spends that money, our money, as soon as they get it.  Which is why they viciously attack any plans to privatize Social Security.  They want your money now.  While you’re living.  And after you die.  For if we privatize Social Security, our heirs would get our unspent retirement money.  Not the government.  As the system is now designed.

This is just another good reason not to give the government more money.  They’re just going to blow irresponsibly.  Like using our retirement money deducted from our paychecks to pay for national parks.  Or green energy.

Obama and the Democrats don’t want Deficit Reduction

Washington can’t curb it’s appetite to spend.  Doesn’t want to.  And they don’t try to hide this fact (see Obama officially threatens to veto ‘Cut, Cap and Balance’ by Sam Youngman posted 7/18/2011 on THE HILL).

The White House on Monday warned President Obama will veto GOP legislation to “Cut, Cap and Balance” spending and the budget…

The administration lambasted the “Cut, Cap and Balance” proposal as setting out “a false and unacceptable choice between the federal government defaulting on its obligations now or, alternatively, passing a Balanced Budget Amendment that, in the years ahead, will likely leave the nation unable to meet its core commitment of ensuring dignity in retirement.”

The White House also blasted some of the cuts Republicans have suggested, saying the proposal would “undercut the federal government’s ability to meet its core commitments to seniors, middle-class families and the most vulnerable, while reducing our ability to invest in our future.

“[The bill] would set unrealistic spending caps that could result in significant cuts to education, research and development and other programs critical to growing our economy and winning the future,” the SAP said. “It could also lead to severe cuts in Medicare and Social Security, which are growing to accommodate the retirement of the baby boomers, and put at risk the retirement security for tens of millions of Americans.”

Business as usual.  Scare the old people.  So they can spend more.  This is an admission that there will be no deficit reduction.  Obama and the Democrats don’t want it.  It’s all just theatre.  To amuse the public.  And buy time.  For they plan to spend, spend and spend.  On programs that are ‘critical’ to winning the future.  Despite the fortune we’ve spent already on these programs that have won jack squat so far.

The American Taxpayer paying for Irresponsible Governments Here and Abroad

So it’s on to Athens.  Push that debt up to 160% of GDP.  I mean, what really can happen that’s so bad (see Gloomy Forecast for Europe’s Banks by Jack Willoughby published 7/16/2011 on BARRON’S)?

Sean Egan, co-founder and president [Egan-Jones Ratings], has a stunning prediction for Barron’s readers: Forget about things getting better in Europe, he says; they will actually get worse. And who might be one of the patsies in all this? The American taxpayer, who could feasibly be stung as the Federal Reserve aids an ailing European Central Bank already depleted by too many bailouts. The big question: Will Europe, worn down by bailout after bailout, finally be forced to bail out the bailer—the ECB?

Oh.  As bad as things are in Europe they’re going to get worse?  And the American taxpayer may ultimately pay for these bailouts?  Lovely.  Just when you thought things couldn’t get any worse.  Not only will the American taxpayer pay for their own irresponsible government.  But Europe’s as well.

Atlas can’t Shoulder the Weight of the World Anymore

That debt limit seems more important than ever.  This out of control spending has to stop.  Before it’s too late.  Because we can’t afford our debt and Europe’s debt.   America can’t be Atlas and shoulder the weight of the world on its shoulders.  At least, not anymore.  Not with the Obama administration running things.

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The Debt Limit Debacle goes on, Obama and the Democrats unable to Govern Responsibly like Responsible State Governors

Posted by PITHOCRATES - July 17th, 2011

An Explosion of Government Spending will require an Explosion of New Taxes, Borrowing and/or Printing

Blah, blah, blah.  And the budget debate goes on.  It is interesting that it is the Republicans that are being intransigent.  They’re the reason why there is no deal.  But the Democrats aren’t intransigent when they’re being intransigent.  Funny how that works.  Well now there’s a fallback plan.  In case the Republicans refuse to compromise and agree to all of the Democrat’s terms.  Here it is (see Five questions on the debt-ceiling debate posted 7/15/2011 on The Washington Post).

The third, and increasingly likely, option is a fallback proposed by Senate Republican leader Mitch McConnell (Ky.). Congress would allow Obama to raise the debt limit in three increments totaling $2.5 trillion. It would also vote on resolutions disapproving of the debt increases, letting Republicans formally blame the increases on Obama.

To get House Republicans behind the deal, McConnell and Senate Majority Leader Harry Reid (D-Nev.) are revising it to include $1.5 trillion in cuts to government agencies and a new bipartisan committee to produce a framework for long-term debt reduction. Obama signalled Friday that he could live with the McConnell-Reid fallback.

So they will agree to disagree and let Obama do what is ‘best’ for the country.  And let him have full blame for doing it.  It’s a trap.  So when the nation implodes under unsustainable debt and a destroyed economy, the Republicans can point at Obama and say, “He did it.”  The Republicans may win the battle.  But they will lose the war.

A new bipartisan committee?  Didn’t we already do this?  The president’s own bipartisan committee of Erskine Bowles and former-Sen. Alan Simpson already did this.  And Obama promptly ignored their recommendations.  Then Joe Biden gave it a whirl.  And failed.  Then the president sat in meetings himself.  And failed. 

Another committee?  Why?  It’s just going to fail, too.  They need to cut government spending.  They know it.  All of these bipartisan committees know it.  Even the Chi-Coms know it.  But Obama and the Democrats just aren’t going to do it.  They’ll just keep wasting time with these meetings until they can get the Republicans to cave.  Because that’s their idea of compromise.

A “grand bargain” would mean settling for smaller tax increases on the wealthy than if Obama simply let the George W. Bush-era tax cuts expire at the end of 2012. And it could impede the economic recovery by ratcheting back government spending, thus reducing demand.

A bargain implies two competing viewpoints reconciled to best satisfy both sides.  It doesn’t work well when the Democrats simply reject the Republican’s views in toto.  And hold on to failed, dogmatic Keynesian economic policies.  For if government spending worked there would be no recession.  Or a budget debate to raise the debt limit. 

This pervasive view that these Keynesian policies are accepted as the only viable policies by the Democrats is the reason why we’re in the mess we’re in.  It appears that no amount of empirical evidence discrediting Keynesian economics will ever dissuade the Democrats from their reckless spending ways.  Thickheaded, stubborn and imbued with an air of all-knowing condescension and infallibility, they will let the country crash and burn before ever considering the idea that maybe they aren’t as brilliant as they think they are.

But as Obama sees it, the debt-ceiling crisis has offered an opportunity to fulfill his grand if nebulous campaign promise to get serious about attacking the nation’s fundamental problems. Being able to campaign on a major debt deal could outweigh giving up the chance to attack Republicans over Medicare. Settling now for a smaller tax increase on the wealthy would spare Obama a divisive fight over the Bush tax cuts. And getting the nation’s fiscal house in order could make it easier to win support for spending on education, research and infrastructure in a second term.

As for the economy, Obama seems to have adopted, at least to some degree, the Republican theory that businesses will invest more if they see Washington getting a handle on the debt. And a 10-year debt deal could be arranged so that few of the cuts went into effect immediately — there could even be some upfront stimulus included in the deal.

More spending?!?  You’re going to get your fiscal house in order (i.e., reduce the deficit) by spending more?  Well there’s only one way of doing that then, isn’t there?  With massive new taxes.  And not just on the wealthy.  These are going to have to reach deep into the middle class.  Because Obama has increased the deficit by a trillion dollars.  He’s the king of deficit spending.  He’s taken deficit spending to uncharted heights.  And it will take trillions in new taxes to reduce his deficits.  And this is the problem.  He is spending too much.

The Reagan Revolution was animated by “supply side” theory, but Ronald Reagan himself presided over several tax increases after his initial big cuts of 1981. He escaped GOP opprobrium, but George H.W. Bush caught his party’s ire when he signed a 1990 deficit-reduction deal with higher taxes. George W. Bush passed two big tax cuts, which nonpartisan budget experts now say were a major factor in today’s deficits.

Those ‘budget experts’ are no doubt Big Government Keynesian economists who love stroking their egos by advising governments on macroeconomics.  Talk to an Austrian School economist and you will hear a far different story.  And one that better stacks up against history.

Reagan made a deal with Tip O’Neil and the Democrats to cut $3 dollars of spending for every new $1 in taxes.  Of course, the Democrats lied.  They never honored their spending cuts promise.  Still his tax rate cuts nearly doubled tax receipts.  So tax rate cuts can and have increased tax revenue.  It was the out of control spending of Tip and company that gave Reagan those $200 billion deficits.  Chump change by Obama’s deficit standards. 

Bill Clinton fell ass-backwards into an economic boom thanks to the irrational exuberance of the dot-com bubble.  Money from capital gains tax from all those exercised stock options poured into federal coffers.  Then the bubble popped.  And George W. Bush started his presidency with the dot-com recession.  So, in response to the recession, Bush cut taxes in 2001 and 2003 to stimulate the economy.  In 2003 federal tax receipts were $1.782 trillion.  In 2008 they increased to $2.524 trillion.  That’s an increase of $742 billion.  Or an increase of 41.6%. 

So, no, the Bush tax cuts did not cause the deficit.  It was TARP (caused by the Democrat’s poor oversight of, and profiting from, Fannie Mae and Freddie Mac and their great subprime mortgage scam).  Obama’s stimulus.  And Obamacare.  An explosion of federal spending that will require an explosion of federal taxes, borrowing and/or printing to pay for.  No, this isn’t George W. Bush’s deficit.  This is Obama’s deficit.

A Shortage of Health Care Workers in Canada?

And speaking of national health care, let’s take a look at how well it is working in Canada (see Interactive Billboards: Bringing Billboards To Life by Misty Belardo posted 4/24/2011 on Bit Rebels).

An example of a great interactive campaign is this interactive billboard placed at bus stops. The campaign’s objective was to raise awareness about careers in public service. The challenge for the ad agency was to create enough interest in people so that they might seriously consider pursuing a career in public health. The big idea was to give people the feeling that they are capable of saving a life.

The billboard consisted of a huge interactive screen that illustrated a patient dying (as morbid as that may be). When a passerby pushed the hand marks on the sign, the electrocardiogram beeped, indicating that the man came back to life. Right at that moment a message read “Choose a career in public health, visit SaveLives.com.” It would be interesting to find out how many people interacted with the billboard, and even more importantly, how many of those registered and inquired about that career. Usually for campaigns like this it takes a couple months to find out the results.

The ad is apparently to attract health care workers in the province of Québec, Canada.  Which means they must have a shortage of health care workers.  And must be rationing care.  For that is an expensive way to advertise.  And you don’t do that unless the need is critical.  Whereas in America, it is one of the few growing sectors of employment.  Until the government takes it over under Obamacare, that is.  Then the Americans, too, no doubt, will be advertising to get more people to work in the bloated bureaucracy that American health care will become.

And it’s going to be bad in America.  The debate over raising the debt limit so they can pay their current bills?  Those bills don’t even include the explosive costs of Obamacare.  Those costly benefits are yet to kick in.  When they do there will be a whole lot more people covered by the same amount of health care workers, thus creating a shortage of them.  Which will require the rationing of limited health care resources.  (Unless the government finds an extra trillion dollars in some old coat in the closet.)  And then Obamacare will limp along like Medicare.  Chronically in the red.  And forever threatening to cut providers’ pay.

The State Governors know how to Govern

Part of Obama’s grand plan is to pass a lot of costs along to the states.  Because they can.  And states have to bite the bullet and absorb these costs.  Because they can’t pass them onto anyone else.  Or print money.  We call them unfunded mandates.  State governors call them bull [deleted expletive].

You see, states don’t have the options of the federal government.  They can’t be forever silly and irresponsible.  They can’t bluster in hyperbole, thump their chests with pride for a job not done and then just kick the can down the road.  They have to do what Obama and the Democrats in Washington won’t do.  Govern (see For governors, a personal toll from budget battles by Dan Balz posted 7/16/2011 on The Washington Post).

Talk to state executives gathered here at the summer meeting of the National Governors Association and it quickly becomes clear that the budget fights this year have not just left political scars, but some personal ones as well. As Washington Gov. Christine Gregoire (D) put it, “I’ve just come through a session in which I made rotten decisions.”

In Gregoire’s view, those decisions weren’t bad because they failed to solve the state’s budgetary problems or left her budget hopelessly out of balance. To the contrary, Gregoire oversaw cuts of more than $4 billion that balanced her biennial budget.

Like many governors, Gregoire cut pay for state workers, reformed the state pension system, asked state employees to pay more for health care and retirement, eliminated cost-of-living increases for some retired state employees and revamped the state’s worker compensation system.

She cut education spending and raised college tuition.

Now that’s governing.  Doing the right thing no matter how much it pains you.  This is the way it’s supposed to be.  Politics just isn’t a game, a path to riches and a fat pension.  It’s doing what’s best for the people you govern.  Even when it goes against your own personal philosophy.

We’ve come a long way from the Intent of the Founding Fathers

It’s just more of the same from Washington.  And this is what Thomas Jefferson feared.  And why he hated Alexander Hamilton so.  Permanent government debt is a dangerous thing.  It can give you an out of control federal behemoth.  Intruding ever more on our individual liberties to feed it’s appetite for ever more revenue.  Which is what Washington is today.

Jefferson cut federal spending so much he could hardly defend American shipping.  Today the federal government collects in taxes enough to pay for one Apollo moon program each month and it still isn’t enough. 

We’ve come a long way from the intent of the Founding Fathers.  Lucky for them they didn’t live to see what we’ve done to their beloved republic.

www.PITHOCRATES.com

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Using Class Warfare to raise the Debt Limit while the Chinese Love Chairman Mao

Posted by PITHOCRATES - July 16th, 2011

You just don’t create more Jobs by Raising Taxes

Long story short the economy sucks.  And it’s not getting better anytime soon (see Number of the Week: 5% Unemployment Could Be Over a Decade Away by Justin Lahart posted 7/16/2011 on The Wall Street Journal).

162: Number of months it would take at this year’s pace of job growth for unemployment rate to fall to 5%.

That’s 13 and a half years of more of the same.  High unemployment means fewer taxpayers.  This does not bode well for our current debt crisis or that out of control government spending.  Which has all of Washington in a panic as they desperately try to get the Republicans to cave and increase the debt limit so they can borrow more. 

Obama and the Democrats want tax hikes.  To take more from those who work.  The Republicans want to go the route of making more taxpayers (i.e., create more jobs).  And you just don’t create more jobs by raising taxes.  Unless you live in fairyland.

‘Shared Sacrifice’ means Taxing the Wealthy More

But the spending is so out of control and the economy so bad that the Obama administration is desperate for new taxes.  They’re willing to offer any deal.  And tell any tall tale (see Obama appeals to middle class on debt talks; GOP touts balanced budget by the CNN Wire Staff posted 7/16/2011 on CNN).

Obama cited budget deals forged by President Ronald Reagan and Democratic House Speaker Tip O’Neill and President Bill Clinton and Republican Speaker Newt Gingrich.

“Nobody ever got everything they wanted,” Obama said. “But eventually they worked together, they moved this country forward…”

“We’ve been down this road before,” he said. “In 1990 Congress and the president struck a deficit reduction deal that combined spending cuts with tax increases. Unfortunately, while the tax hikes remained, the spending restraint did not, and our debt has marched higher.”

There’s a little history revisionism.  The Democrats got their tax hikes.  And screwed Republicans on the spending cuts.  The infamous $3 in spending cuts for every $1 in new taxes promise in the Tax Equity and Fiscal Responsibility Act of 1982Tip and his Democrats reneged on that promise.  Just like the Democrats did on their 1990 promise. 

‘Working together’ to Obama means to do what the Democrats want and to stop being a pain in the ass.  So you can understand why the Republicans are a little gun-shy when it comes to making deals with them that require trust.  Because they have a history of being untrustworthy.

Evoking compromises of the past, President Barack Obama said Saturday that a commitment to shared sacrifice can break the current impasse on the debt ceiling…

He used his address to reach out to the middle class, reiterating his call for higher taxes on the wealthy and reforms to politically popular entitlement programs such as Medicare and Social Security. “We are all part of the same country. We are all in this together…”

One of the issues at heart of the current debate is Obama’s call for more tax revenue by allowing tax cuts from the Bush presidency to expire at the end of 2012 for families making more than $250,000. His plan would keep the lower tax rates for Americans who earn less.

Obama noted earlier this week he is not looking to raise any taxes until 2013 or later. In exchange, the president said, he wants to ensure that the current progressive nature of the tax code is maintained, with higher-income Americans assessed higher tax rates.

Shared sacrifice?  Higher taxes on the wealthy?  Clearly that’s not shared sacrifice.  That’s making the wealthy pay more.  Even though they are already paying a lot.  In fact, any poor person who wins the lotto will be shocked to see how much they will owe in taxes.  Say you won a million dollar jackpot.  Per the 2010 federal income tax table, you’ll owe $327,643.75.  Not to mention state or local taxes.  You’ll be lucky to keep half of your winnings by the time you’re done paying your taxes.  Is that fair?  If it’s you, no.  If it’s the ‘rich’ and you’re not rich, sure.  Why not?  Classic class warfare.  And it’s exactly what the Democrats are banking on.  

A Warm Love for Chairman Mao

And speaking of class warfare, you know who else is good at it?  The Chinese communists.  And it starts by indoctrinating their children (see Red State by Hannah Beech posted 7/16/2011 on Time).

Twelve-year-old Chen Le is a typical Chinese kid. He loves flying paper airplanes, plays Ping-Pong and dreams of becoming a scientist. And he aims one day to join the Chinese Communist Party (CCP) so, as Chen puts it, “I can puff out my chest and say I am a party member…”

…Then there’s the Red Army school program, which uses donations and other funds to instruct 1.15 million kids in academies named after the communist militia. “Our patriotism classes are even more patriotic than those of normal schools because loving our country is very important for our current society,” says Fang Qiang, the secretary-general of the National Red Army Construction Project Council. “Our students all have a warm love for Chairman Mao.”

A warm love for Chairman Mao?  Interesting.  Talk about history revisionism. 

[The] red revival is facing something of a backlash. For some Chinese, the color red brings back the bad memories of the 1966-76 Cultural Revolution, when frenzied Red Guards rampaged nationwide. The resurgent glorification of Mao, who even staunch supporters have grudgingly labeled “70% right and 30% wrong,” has alarmed others. As the red-culture campaign reached a crescendo this spring, economist Mao Yushi of Beijing think tank Unirule Institute of Economics wrote an online essay blaming Mao for overseeing the deaths of some 50 million Chinese. The Great Helmsman was “a backstage orchestrator who wrecked the country and brought ruin to the people,” the academic wrote. Censors quickly purged his comments.

There wasn’t a whole lot of love for Mao when he was killing those 50 million Chinese.  Just a lot of fear.  And suffering.  As China reformed and purged the rich and made everyone equal.  And poor.  And now the young are singing patriotic songs about the world’s greatest mass murderer.  To help keep everyone patriotic.  So they don’t see the rich getting richer.  And the poor staying poor.

For a nostalgic faction in the Chinese leadership, it is the market-oriented economic reforms of Mao’s successor Deng Xiaoping — which turned China into the world’s factory — that are responsible for having allowed ills such as graft and income inequality to flourish. In national surveys from 2005 onward, Chinese have expressed progressively less satisfaction with their lives, even as their incomes have surged. “We can’t stop divisions in society completely, but we can try to lessen the pain,” says Fang Ning, director of the Institute of Political Science at the Chinese Academy of Social Sciences in Beijing. “The central theme of red culture is to promote unity and equality in society. China has had economic growth. Now we want to pay attention to social growth as well.”

After some spectacular growth caused by allowing a little capitalism in, they will now be paying attention to social growth.  Much like in the United States.  And we see what that did for the Americans.  A 15 year or so recession.  And a debt crisis.  Which is now coming to China.  Who are no strangers to income redistribution.  Been there.  Done that.  Under Chairman Mao.  During his Great Leap Forward.  Which was more central planning disaster than moving the country forward.  In fact, it was capitalism that finally did move China forward.  As it moved America forward.  Until the Americans focused on social growth.   

If history repeats, as it usually does, perhaps their future will be our present.  Where they will be making speeches about shared sacrifice.  To avert a disaster.  And keep the peace.  Or they could just send the tanks in.  Which have proven to be pretty effective in shutting down an unhappy opposition.

Income Inequality sure pays the Tax Bills

The American economy won’t be getting better anytime soon.  Thanks to excessive government spending and debt.  Which the Obama administration is going to ‘fix’ by borrowing and spending more.  And increasing taxes.  Things that aren’t known for creating jobs.  Which is what we need.  Like in China.  They have a lot of them.  And see how well they’re doing?  They’re getting so rich that they have to get their young to sing patriotic songs to hide the income inequality.  So they don’t grow up and become dissidents.

Say what you want about income inequality, but it sure pays the tax bills.  China is buying U.S debt. The United States isn’t buying Chinese debt.  That should tell you a thing or two about letting the rich get rich.

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