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By: Wayne Brown
President Obama stood before the nation on 8 August 2011 in a televised address to speak to the recent credit downgrade of one level handed down by the S&P. The speech contained no reassure that America was on the right path and that the best decisions had been made by our leadership to address our problems. The time was spent in a lash out at the S&P for having the audacity to point out the obvious. At least the President claimed that it was the obvious in that he made the point that we do not need the S&P to tell us that we need to do things differently. Apparently, in this case, the President is mistaken as the leaders of our country had every opportunity in the time leading up to August 2011 to do things differently and they elected to continue the status quo. The Congress approved it and the President signed it….out of desperation no doubt.
Most Americans agree as to the source of the financial problems we have as a nation. There is too much spending at the federal government level. There is too much spending to the tune of approximately 1.5 trillion dollars annually and growing. This 1.5 trillion dollars is borrowed in totality either from the American taxpayer or from other countries. Each year we add more to a national debt which has grown to almost 15 trillion dollars and will likely be near 20 trillion by the end of Obama’s first term at the current rate of spending.
The recent agreement reached by Congress and the White House cut the “rate of spending” in such a manner as to take approximately 10 trillion dollars out of the spending growth over the next ten years. While this sounds good on paper, it is rather flawed in context with little or no cuts coming immediately and a promised “reduction in the rate of downstream spending” which is supposed to produce the ten trillion dollars. In order to see the product of that solution, America will have to remain on that fiscal path for the entire ten year period…a very difficult thing to do for a country run by the whim of political party decisions as opposed to the desires of its people.
The major flaw in this line of thinking becomes obvious when one realizes that, as a country, we spend far too much in the first place. In light of that fact, even if we take ten trillion dollars in spending out of the downstream ten year projection, we still end up at a net debt level that exceeds reason. The national debt is only reduced “in theory” by coming down from “worse” to the level of “bad”. This is the picture that is very wearisome to those evaluating our ability to pay our debt service…an out of control debt load which will eventually drown us financially.
The revenue streams of the United States currently produce approximately 200 billion dollars in revenue to the government per month. Government spending accounts for about 288 billion dollars per month, yielding a deficit of 88 billion dollars in borrowed money spending. In actuality, the deficit number is larger than these figures show as the Social Security and Medicare Programs currently take in more revenue than they pay out annual. In 2010, the combined annual revenue stream of these two programs produced approximately 70 billion dollars more than it paid out or a surplus of 5.8 billion dollars per month. The government places this surplus in the general fund and spends it in other ways thereby placing an IOU on the books to the American people for this amount of money plus interest. This is debt described as “off the books” in that it is not included in the national debt figures but over time represents a debt load far greater than the national debt.
Why do politicians talk about programs such as Social Security and Medicare describing them as “entitlements” and speaking of them as if they are something dirty and unfair? They do so because the mere mention of the words remind them of how terribly wrong they have been in the management of the funds paid into these programs by the American worker. They are reminded that these people have expectations of being “entitled” to getting something back for their money at some point after so many years of paying into the system. They are reminded that the workforce is shrinking and the size of the retired population in America is growing by the day. They are reminded that the government is rapidly reaching the point at which it can no longer fund these programs because the guts have been ripped out of them by idiot politicians robbing Peter to pay Paul.
From both a revenue in and revenue out standpoint, Social Security and Medicare account for a very large portion of the federal government dollars. Had the money associated with these programs been properly invested in trust funds or annuities outside the normal spending practices of the government, it is likely these programs would remain solvent for a much greater time than they are currently projected to hold out. Instead, our elected leaders conjured up laws and accounting practices to put all the money into the pot and then forced themselves to spend it. They spend it to demonstrate to the taxpayer than all the money taken from them was “necessary” to the operation of the government and more may be required at some point.
When does a government have “enough money” in its coffers? Is that possible to imagine given the spending practices of our own government in the USA over the past fifty years? One does not need to dwell on that very long to come up with the answer. There is no such thing as “enough money” for our government for a very good reason; there is no balanced budget process in place which requires the government to spend no more than it takes in annually. There is no such device in place because the people who control our purse strings, our elected representatives, are too drunk with the power and prestige of spending to ever subject themselves to the constraints of an annual budget. Would this relieve the in-fighting in Washington if we had such a process? No, but it would focus the argument on what we have to spend versus what we need to spend our money on. At present, we have a country that operates off of a presidential wish list that has no controls for growth or limits for spending…a formula that can only lead to disaster and financial ruin.
There are a variety of thought processes out there in the heads of some who serve us in Congress but we do not have a President or a Congress willing to listen and debate the issue. They are too politically afraid of even saying the words “balanced budget” in public for fear of where it will take them. These are the people we pay to do the business of our country. If we were a private institution and we had paid them to bring us to this brink of financial ruin, most of them would be fired and some of them would likely be facing jail terms for misuse of funds. These are not people who really want to put their shoulder to the wheel and do the hard jobs. They just want to run their mouths, take advantages of photo ops, and do as much earmarking and pork-barreling as possible in a manner that makes most of them rich before they leave office or richer for those already blessed with wealth.
There a few theories floating around Washington which offer some long-term plan for attacking the debt and reducing it. The problem is that they are long-term and require a government which can stay the course over that period. I think we are whistling in the dark to believe that could happen as evidenced by the efforts that brought us to this place in the road over a long period of time. Cap, cut, and balance has merit because it immediately caps the spending at some base…for example 2006. The plan then does a line item analysis of current spending and defines programs and efforts which are not crucial to the daily operation of the country and either eliminates them or cuts back on the revenue allotted to them from taxpayer money. The final step is to balance the outflow of spending with the inflow of cash with any surplus going to debt reduction. Will such a program come with some hard choices? Yes. Will such a program cause some of the current programs or government agencies to either shrink or be eliminated? Yes. Remember, these are difficult and hard choices but necessary ones. If we do not elect to follow such a program voluntarily, we will eventually spend our way into such a corner that a similar program will have to be enacted to save us. It is just a matter of when. At the present, we have choices, later, that will not be the case.
The long-term career politicians populating our government today do not have the stomach for such difficult decisions. They want to go along and get along while they draw their six-figure salaries, partake of their excellent benefits and facilities, and enjoy the luxuries of the world that lobbyist can put before them. These are people who must go; leave Washington and make room for those who are up to the task and willing to stay the course necessary to achieve the goal. This is clearly what a majority of the American people want at the present and a politician running for office would be a fool to defy that desire without incurring the wrath of the people.
No doubt the stock market drops and the dip in financial markets will recover somewhat on the short cycle. There is evidence already that bargain hunters are propping up the sagging stock market with investments into the markets. Enough dust will settle before Congress returns to session for those who populate Washington to tell us that the situation we have just experienced was one of panic caused by the S&P getting their cart ahead of the horse. There will be calls for a wait and see state of mind which will only continue to prolong the time line of the “status quo”. Eventually, there will be those on both sides of the aisle who will attempt to convince the public that we should do nothing more than stay the course focusing on allowing the government to create jobs and stimulate the economy. This, they will tell us, will be all we need to stem the tide.
Unfortunately, Washington has not yet learned that the government does not create jobs or stimulate economies with any real or lasting effect. Government does just the opposite by stymieing growth and regulated the private sector in such a manner as to diminish investment in business expansion. Finally, there will be calls for immediate and greater taxation across the system to create a bigger revenue stream for the government on the short cycle. Of course, even if such taxation is past, it will be spent on something other than debt reduction which is the number one focus and the monster within which will destroy this country as it requires a larger and larger diet to survive. When all out disaster does not come, many Americans will embrace such logic and settle for this reasoning as they fall back into a sense of relief and comfort. A false sense of security will be renewed and the status quo will continue.
There is no magic dust here and no magic words which will fix our current financial situation. The only solution lies in the commitment of the American public to maintain the focus on spending and debt reduction and then hold our elected officials to that line with the promise of a short career for anyone who cannot uphold those duties. Doubletalk and slick methods will only work to hide the problem and create the illusion that things are improved and on the road to recovery. Common sense works in our favor and demands the truth in all cases. Two and two must equal four or someone is pulling our leg.
Organizations and programs which are totally dependent on the federal government for survival may well not survive this next decade of fiscal austerity. Those programs which have merit and are providing a significant service to a sector of our population will find alternatives in the private sector for support. Good organizations will have no problem finding the support in the private sector to continue their efforts. Those which are simply government parasites living off the American taxpayer and doing little in return will finally meet the fate they have so long deserved and will cease to exist.
This is a time in America when one must think with their brain and not their heart. There will be tough choices and some will suffer as a result until alternatives can be found. Our hearts brought us to the spot in the road as we have a federal government that has played on the emotions of the taxpayer at every turn to raise revenue and taxes then in turn spent that money on “feel-good things” which ultimately bought votes. Government assistance to an organization on a temporary basis to achieve start up is one thing; long term existence on the government payroll of the taxpayers is entirely another and we certainly have some examples of this in America now.
Hopefully in the next few months, the American public is going to see a government which attempts to head in a different direction in terms of fiscal reform. Whether the President likes it or not, the country has been put on notice that we need to change our ways and our direction financially if we care about our credit rating and our ability to borrow money. That message is clear and concise and not easily misinterpreted. A new Rasmussen Poll indicates that 69% of Americans no longer believe the government is carrying out the will of the people. That is another clear message that deserves to be answered properly by those elected to serve us with actions which favor the will of the people. We are a democratic, capitalistic republic of people who pay their bills and extend a helping hand. That is what we have been and that is what we want to be.
Those who serve us in elected positions in Washington need to spend some of that “going home money and time” and get in touch with the average American so they can adequately represent our interest in the operation of the federal government. Until that happens, we are a ship without either a sail or a rudder drifting dangerously upon the high seas.
God Bless America!
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