The Evolution of Thought

The following are four quotes from founding father Thomas Jefferson on the nation's credit and the wisdom of borrowing money.

"Though much an enemy to the system of borrowing, yet I feel strongly the necessity of preserving the power to borrow. Without this, we might be overwhelmed by another nation, merely by the force of its credit." --Thomas Jefferson to the Commissioners of the Treasury, 1788. ME 6:423

"I am anxious about everything which may affect our credit. My wish would be, to possess it in the highest degree, but to use it little. Were we without credit, we might be crushed by a nation of much inferior resources, but possessing higher credit." --Thomas Jefferson to George Washington, 1788. ME 6:453

"Though I am an enemy to the using our credit but under absolute necessity, yet the possessing a good credit I consider as indispensable in the present system of carrying on war. The existence of a nation having no credit is always precarious." --Thomas Jefferson to James Madison, 1788. ME 6:455

"I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government; I mean an additional article taking from the Federal Government the power of borrowing. I now deny their power of making paper money or anything else a legal tender. I know that to pay all proper expenses within the year would, in case of war, be hard on us. But not so hard as ten wars instead of one. For wars could be reduced in that proportion; besides that the State governments would be free to lend their credit in borrowing quotas." --Thomas Jefferson to John Taylor, 1798. ME 10:64

In 1788, Jefferson saw credit as a tool to be used sparingly in times of crisis, especially when other nations use their large credit lines against us to build armies and make war. He felt borrowing money was a necessary evil, and thought that a nation should work hard to preserve a good credit rating.

By 1798, his thoughts had evolved to the point where he no longer thought government could be trusted with the power to borrow. He realized that credit allowed government to run wild, and place its population in untenable situations, most importantly war. He felt so strongly that he wished for a constitutional amendment to strip the power to borrow from our federal government.

Jefferson foresaw what could happen to a nation who's government had access to credit. Our wars in Iraq and Afghanistan have been conducted totally on the national credit card. Thousands of American soldiers have lost their lives in these wars, and many more permanently injured. The cost of these wars has significantly expanded our national debt, placing our nation at the mercy of the financial system, which as we have all learned is a complete disaster.

If can learn anything from the current Greek debt crisis, as well as America's own experience, its that governments can and will borrow a nation past the breaking point. Whether it is done for social programs or to conduct senseless wars, government's national tendency is towards debt, which is passed on generation to generation, weakening our nation and our economy, and enslaving us all through our system of credit.

Obama's Debt "Reduction" Panel

I already called BS on this debt commission, and the more I learn about it the more certain I am that I was right.

The commission is scheduled to make its report by Dec. 1, about a month after the midterm elections. It is charged with recommending ways to reduce the deficit in the fiscal year 2015 to the equivalent of 3 percent of the gross domestic product or less — nearly a percentage point smaller than it is now projected to be in that year. The panel is also to recommend long-term changes in taxes and spending for the major entitlement programs — Medicare, Medicaid and Social Security — whose expected growth is the biggest factor in the deficit forecasts.

This horseshit commission isn't worth the expensive chairs I'm sure they're sitting in. They aren't even trying to balance the budget or decrease our debt, they just want to grow the debt more slowly. Thanks for nothing assholes.

I'm sure their solution will be to raise taxes. After all, comrade Obama has just saddled the American people with the Health Care bill, which we will be paying for long after we're dead. Fantastic.

Are we cutting Medicare? No, we're expanding it. Are we cutting Social Security? Yeah right, old people vote. Are we cutting the Military? Fat chance, we have to build new bombs to replace our old bombs, oh and we put more people in Afghanistan, oh and that Iraq thing is still going on.

Also, notice the scheduling of the commission's report--AFTER the elections. They know the report will be ugly, because once the rest of America wakes up to the giant pit we've dug for ourselves, they will be just as mad as I am right now.

Fuck it. I'm beginning to believe that the only way out is to spend all our money, then max out all our credit cards, until no one else will lend us money and all our checks start bouncing. Because until then, nothing will change.

LA Budget Problem Still Bad

I wrote earlier about Los Angeles's money woes. LA mayor Tony Villaraigosa has submitted his latest budget that, while cutting costs, still leaves a nearly half a billion dollar deficit.

It shouldn't be surprising that LA is having such trouble balancing its budget, considering its top budget official, Miguel Santana, is an honest-to-god non-fuctioning alcoholic.

Mr. Santana exited rehab two weeks ago after a DUI arrest, and is now hard at work doing whatever it is he does as LA's top budget official.

LA to Run Out Of Cash on May 5

Happy Cinco de Mayo, Los Angelenos, your city is out of money

“The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.”

Greuel, 48, said in the release that the city might not be able to make payroll. She asked Mayor Antonio Villaraigosa and the City Council to release $90 million from reserve funds to meet what she described as “an urgent cash need.” The controller’s financial reporting division estimated that the city would need $90 million to ensure solvency through the fiscal year that ends June 30, according to Golombek.

As LA descends into (more) chaos, their government will be forced to make hard decisions as money becomes increasingly expensive to for them to borrow. If they continue on this path, things could get ugly.

LA is a microcosm of America, both are trying to do too much with too little tax revenue, and as such both are running up massive debt.

Pay attention to LA (and California as a whole) as it goes broke, as this will give us clues to what will happen to America when it finally runs out of money.

Maybe LA will get a bailout from the American taxpayer.

[Via Glas]

Not Enough Money

Federal tax receipts for 2010 are estimated $2.381 trillion. Obama's budget for 2010 wants to spend $3.55 trillion (plus another $137 billion for the wars). That leaves us $1.3 trillion dollars in the hole.

You read that correctly. One third of our federal government's expenditures this year will be paid for by...

If that wasn't bad enough, we are running a hefty trade deficit. In 2009, we exported $1.553 trillion worth of goods and services. In the same year, we imported $1.934 trillion. That means last year a whopping $380.7 billion left our country.

Taken together, that puts us $1.687 trillion in the hole FOR A SINGLE YEAR. People, that is BAD.

And it's only going to get worse unless we change course NOW.

This Sounds Awfully Familiar

Obama signs the federal debt commission into existence today with an executive order. I'm not sure why, because Ronald Reagan did the same thing 28 years ago with the Grace Commission, and Congress has yet to take any of the commission's debt reducing suggestions.

I am confident that the latest debt commission will be just as successful as the last one.

Fareed Zakaria: Budget fixes are simple -- and unthinkable

Fareed makes some reasonable points:

If he were to cut spending at this point, the economy would quite likely go into a second recession, a double-dip, and then frankly everything collapses. If you don't have growth, you have no prospect of getting out of this budgetary situation. ... But he must in a year begin really to address the serious issues that make up the budget crisis that we have.

The most significant one is health care costs. ... Obama's health care plan, while it has some cost control measures, is mostly about expansion and adding to the costs. ... There has to be a much, much more serious focus on costs.

The second is a number of sacred cows in the federal budget which are very large but which frankly make no sense. We have a $250 billion a year hole in the federal budget because employers are given a tax deduction for health care plans. This is actually bad for health care, because it is one of the factors that contributes to these out of control costs, because it's an invitation to have inflation in the system.

Fareed has a solid plan for bringing down the deficit, but he is disingenuous about the macro economic effects of doing so. He understands and says that cutting spending would hurt the economy in the short term, but in the next breath he proposes tax increases, which would have almost the same net effect.

Not that I disagree with his proposal, because a little short term pain is going to be necessary. But he should be honest about it, or the pundits and partisans will tear it apart for raising taxes.

[via Raven]

America Jumps the Shark

The Federal government is pulling out all the stops to save our suffering economy, and it's going to send us all to the poor house.

[via Glas]

Senate Health Care Bill Will Bankrupt the US

This bill is a disaster of epic proportions, and will quickly bankrupt the United States.

Our current annual deficit is $1.4 trillion. The latest Health Bill is estimated to cost $871 billion over ten years. However, this hides the true cost as many of the bill's measures do not go into effect until 2014. If one calculates the ten year costs from 2014-2023, the bill's price tag jumps dramatically to $2.5 trillion.

Liberals would like you to believe that the bill will actually reduce the deficit. This relies on nearly half a trillion in Medicare cuts, which even honest liberals will tell you will never happen. Medicare is already underfunded, paying about 80% of what a private insurer will pay, and any further cuts to Medicare will certainly put thousands of doctors out of business.

And what about the ever spiraling cost of health care and insurance premiums? The CBO estimates that individual insurance plans will increase 10-13% over what they would be if we simply did nothing. The bill attempts to cover up these costs with subsidies for around half of those subscribers, which avoids the root problem altogether, and the other half of the individual market will just be stuck with massive, unsubsidized increases.

Prices for health care itself will also skyrocket. Massachusetts has already implemented similar reforms and has seen its health care costs increase much faster than the national average. I don't know if the CBO is even accounting for this form of accelerated inflation, but we will all be paying for it soon.

If you need more proof that costs will rise faster, you need look no further than Econ 101: Supply and Demand. With 31 million new people gaining or being forced to buy insurance, the demand for health care will drastically increase. The supply, however, will not. Any freshman economics major can tell you that when demand increases faster than supply, price goes up.

The brilliant lawmakers in Washington have decided to pay for some of this reform with new taxes in the middle of the worst recession in decades. I do not need to explain how billions in new taxes will hurt our economy, especially those at the bottom. Luckily, we won't have to pay for all of it as much of it will be paid for by borrowing.

China is already asking questions about the solvency of our reform plans, as they will be the ones paying for it. Not only will this bill bankrupt us, it will put us further under China's thumb.

Some of those dollars will not even go to reform. Billions in spending were written in for no other reason than political bribery. Ben Nelson's home state, Nebraska, will get $45 million. For Louisiana, another $100-300 million. For Florida, $5 billion. These votes have been bought and paid for, by which I mean bought by Democratic power players and paid for by you and me, bi-partisanship be damned.

Not only will this health bill bankrupt our nation, it will also trample our rights. Many states are challenging the constitutionality of an insurance mandate, and they are making a strong case.

It's probably why a majority of Americans do not want this reform.

Merry Christmas, America, you're about to get the worst health care reform in history.

The Real Cost of Obamacare

The Democratic health care bill now winding its way through Congress is purported to cost a mere $1 trillion, but the true cost is hidden by legislative gimmicks.

One gimmick makes the new entitlement spending appear smaller by not opening the spigot until late in the official 10-year budget window (2010–2019). Correcting for that gimmick in the Senate version, Sen. Judd Gregg (R-NH) estimates, “When all this new spending occurs” — i.e., from 2014 through 2023 — “this bill will cost $2.5 trillion over that ten-year period.”

Another gimmick pushes much of the legislation’s costs off the federal budget and onto the private sector by requiring individuals and employers to purchase health insurance. When the bills force somebody to pay $10,000 to the government, the Congressional Budget Office treats that as a tax. When the government then hands that $10,000 to private insurers, the CBO counts that as government spending. But when the bills achieve the exact same outcome by forcing somebody to pay $10,000 directly to a private insurance company, it appears nowhere in the official CBO cost estimates — neither as federal revenues nor federal spending. That’s a sharp departure from how the CBO treated similar mandates in the Clinton health plan. And it hides maybe 60 percent of the legislation’s total costs. When I correct for that gimmick, it brings total costs to roughly $2.5 trillion (i.e., $1 trillion/0.4).

When we correct for both gimmicks, counting both on- and off-budget costs over the first 10 years of implementation, the total cost of ObamaCare reaches — I’m so sorry about this — $6.25 trillion. That’s not a precise estimate. It’s just far closer to the truth than President Obama and congressional Democrats want the debate to be.

Six Point Two Five trillion over ten years. And here I thought we were trying to reduce costs.

[Cato via Glas]

China: Bow Down To Your Lender

China is now using its role as our lender to influence the terms of our health care reform:

In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president’s budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

“They wanted to know, in painstaking detail, how the health care plan would affect the deficit,” one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.

Who would have thought health care reform could become a national security issue?

The Chinese are getting skeptical about our ability to pay them back. Perhaps they will need to teach us a lesson in capitalism, which would be ironic to the max.

Shovel Ready My Ass

The $787 billion dollar Stimulus Bill is doing nothing and I couldn't be less surprised. Take California for example:

Figures from the California Department of Transportation show that, as of late October, over $2 billion in federal highway funds had been allocated to the state when the American Recovery and Reinvestment Act passed in February. Of that sum, only $837 million had been awarded in construction contracts. Even more surprising, only $51 million, or about 2.5 percent of the total, had actually been disbursed. Given all the talk when the ARRA was passed about the many projects that were “shovel ready” and primed for construction, this is perhaps a bit disheartening. After all, this spending was pitched as a way to pump immediate life into a collapsing economy.

The Stimulus is a complete failure. Actually, it's worse than a failure, since it's pushing capital to be invested inefficiently.

We would be better off and in less debt if we had just done nothing.

Health Bill's Medicare Cuts are Wishful Thinking

The Democrat Health Plan now working its way to the Senate is being marketed as deficit reducing, despite its $1.2 trillion price tag. The plan will be paid for by increased taxes and reduced Medicare payments.

Specifically, the plan calls for $426 billion in spending cuts and $572 billion in taxes, and is projected to net a $104 billion deficit reduction over 10 years.

The proposed cuts are likely to be short lived, as Congress has a history of proposing Medicare spending cuts, then abandoning them as medical interest groups turn up the heat.

Under both Democrats and Republicans, Congress repeatedly has waived curbs it has tried to place on spending. It has given back other savings from the 1997 law to hospitals, skilled nursing facilities and other providers, most notably in 1999. More recently, Congress has twice switched off a cost-saving trigger that was contained in a 2003 bill establishing a Medicare prescription-drug benefit. Congress also frequently has waived budget resolution limits, as well as pay-as-you-go rules requiring offsets for tax cuts and entitlement spending.

Since 1997, Congress has passed five Medicare spending cuts, only to repeal all five shortly after they went into effect.

A plan that cuts Medicare spending by half a trillion dollars is wishful thinking. Do not be fooled.