Department of Cost Cutting?

Trump has talked about utilizing Elon Musk as a government efficiency expert.  Musk himself has posted about a Department of Government Efficiency (DOGE), which neatly aligns with a cryptocurrency that is associated with him.  Clever.  The new idea from Trump was a Secretary of Cost Cutting.  Much as I want government spending trimmed, a new department is not the way to do it.  The department might work worders for an administration or two, but it would soon suffer the fate of all government agencies: a desire to grow.  Soon, the trick of cost cutting would match the current definition.

Today, government cuts are made to the rate of growth.  So, if the Department of Superfluous Spending had a budget of $20 million this year and was projected to get a 10% increase, the Department of Cost Cutting could announce a $1 million cut so that the budget for next year is only $21 million.  Yes, all those budget cuts through the years have been of this sort.  The DOGE would adopt this strategy within a decade and become a useless waste of taxpayer money, like most government agencies.

Even if Elon does a miraculous job, it will only be a brief pause in the ever-expanding government.  Congressional action is required to shrink government.  Departments must be eliminated, not merely partially defunded.  Funds will just pour back in down the line.  Follow Argentina's Milei and slash government agencies.

China's Economic Crisis

In 2008, the United States saw a collapse of the real estate market.  Mortgages, which had long been very reliable loans, had been innovated with various market instruments so that they became far less reliable.  All was fine as long as housing prices kept skyrocketing.  Of course, they didn't.  Foreclosures swept the lands and some big companies folded.  However, the houses existed and could be sold by the banks.  The former owners took a hit on their credit scores but were no longer stuck paying a mortgage they couldn't afford.  It took several years, but the economy recovered.

Today, China is seeing the start of their housing collapse.  Throughout the country, citizens have long invested in real estate as the only safe investment.  Somewhere around 70% of all savings goes into real estate.  A little more diversity might have been wise, but the Chinese have been burned by their stock market.  Unlike in the US, the houses on which the citizens are paying mortgages do not necessarily exist.  While the prices were soaring, the builders would sell prospective houses to citizens and then use the money to buy more land where they could promise more buildings.  They would sell these to yet more citizens.  The buildings might be begun but have often not been completed.  Recently, mortgage payers have declared that they will stop paying unless the building resumes.  Evergrande, a major player in the Chinese real estate market, has claimed the unbuilt houses as collateral to secure further loans.  Of course, the non-existing buildings belong to the mortgage payers, not Evergrande.  Shenanigans!  When it collapses, there will be little property to liquidate.  The house of cards that China has built is enormous, dwarfing our 2008 disaster.

On top of this internal catastrophe, China's Belt & Road Initiative is at risk.  It has offered vast sums to other countries in loans to build infrastructure and secure trade partners.  Many of these loans are not performing as hoped (e.g., Sri Lanka's recent meltdown).  Some of the infrastructure is useful (e.g., ports, railways, etc.) but some is purely symbolic (e.g., Lotus Tower in Sri Lanka).  The point of the loans for China should be to increase the income back to China; this is not currently the case.

Given this, China is approaching a crisis that could threaten the government.  It is possible that the government would start a war to divert the populace.  Taiwan beware.

Now Everyone is Qualified

Thanks to Trump's election, everyone thinks they are qualified to get elected to high office.  Dwayne "The Rock" Johnson is pondering a political career.  Oprah suddenly views herself as qualified for political office.  Kid Rock is floating the idea of running for Senate.  Caitlyn Jenner has even hinted at running for office.  When one considers the $20 trillion debt, the eternally collapsing infrastructure that somehow has no 'shovel-ready' jobs, the selective law enforcement, and myriad failures of government, it is clear that these highbrow educations aren't all they are cracked up to be.  As I noted in an earlier posting, we have a lot of Ivy Leaguers for Presidents and Senators.  We are closer to Buckley's less desirable composition:

I would rather be governed by the first two thousand people in the Boston telephone directory than by the two thousand people on the faculty of Harvard University.

William F. Buckley

 

Of course, Buckley was a Yale man so perhaps he was exposing a bias.  Still, the results of the Washington elites speak for themselves.  If there was a 100% sweep, it would do the government good, especially if the new Senators and Representatives were people who would have been unthinkable before Trump.  It is time to usurp the new aristocracy that has presumed the right to rule and return to government of the people, by the people, for the people.

 

Good luck storming the castle!

Debt Limit Reached

The debt limit has been reached and the government can spend no more unless Congress raises or suspends the debt limit.  This could be a huge boon to Trump.  By simply vetoing any efforts to raise the debt limit, the president can hold the line on spending.  As the chief executive, it is up to him to decide where to cut spending in order to hold that line until Congress passes a new budget.  Even with a new budget, that debt limit is a wall on overspending.  The government will have to spend only what it collects in taxes!  Spending within our means!  What a concept!  Let the layoffs begin!

Walter Mondale Redux

During the 1984 Presidential Campaign, Democrat Walter Mondale promised to raise taxes.  What followed was the biggest presidential landslide in almost 50 years.  Bernie Sanders has decided that he wants to give the Mondale strategy another try.

“Yes, we will raise, we will raise the, we will raise taxes, yes we will.”

 

When Walter Mondale declared that he was going to raise taxes, he said this in response to Reagan's historic deficits.  The implication was that he would get our fiscal house in order.  He wouldn't necessarily cut spending but he would raise taxes to equal it.  Interestingly, Bernie has come along in the wake of Obama's historic deficits and calls for tax increases.  Unlike Mondale, there is no hint that this is to be fiscally responsible.  Bernie has outlined $6.5 trillion in new taxes over the next ten years.  However, he has proposed $18 trillion in new spending!  And I thought Obama's deficit was bad.  Though government long ago stopped basing spending on income, which ordinary people are required to do, Bernie wants to take it to a whole new level.  If the budget was balanced and Bernie implemented this plan, the country would add $11.5 trillion in debt.   Bernie has promised fiscal irresponsibility on an unimaginable scale.  We are already spending money we don't have; why not spend all the money we don't have?

 

We are already in serious financial trouble.  The drop of our credit rating should have served as a warning.  George W Bush made matters worse with his new drug entitlement and Obama raised him a healthcare overhaul.  Bernie is going to put virtually everything from healthcare to education on the government credit card.  It takes this sort of sustained recklessness to make Donald Trump a palatable option to so many Americans.

Debt Crisis Yawner

Again with the default talk and the manufactured panic, all to convince the American people to further rob their grandkids to pay for current services.  As I noted in a previous post, a default is when you fail to pay the interest on your debts, not when you stop paying for current services.  The government can layoff several departments worth of employees and that isn't default; that's economizing.  As George Will noted, "Default is a choice."  The government need merely service the debt in order to maintain the full faith and credit of the US.  That is about 10% of the budget...  er... continuing resolution (we don't do budgets anymore despite US law that requires them).  If the debt ceiling is not raised, that puts the ball in Obama's court to pick and choose how the incoming revenues are disbursed.  He would have to CHOOSE to default.  Sadly, I wouldn't put it past him.  He has actually spent shutdown budget repeatedly blocking off National Mall.

The Republicans might be on to something with the shutdown and the debt crisis.  They have long claimed to be the party of small government (disingenuously) and this gives them the opportunity to achieve that.  Failing to raise the debt ceiling will force government to spend within its means and the shutdown can be made permanent.  Heck, the government is still 83% open, hardly a shutdown.

Of note, neither party wants to diminish the power of the Federal Government.  A sizable minority of Republicans - the Tea Party Caucus - have the party over a barrel.  Boehner cannot pass anything without their approval unless he does so with Democratic votes.  Such a move breaks the Republican caucus in half and ends his speakership.  Much as the rest of the Republicans hate that, they understand that to ostracize the Tea Partiers is to cripple their majority.

Back to the Debt Limit, imagine what the last 5 years growth would have been like had it not been raised.  Six trillion dollars of borrowed money would not have inflated the growth numbers.  Consider that gross domestic product (GDP) is defined as follows:

C + I + G + (X - M)

That is, Consumption + Investment + Government + (eXports - iMports).  Note that government spending is reckoned in the figures.  Thus, by borrowing all that money, the government goosed the numbers.  Consider if I took out a $100,000 loan this year and counted that as income.  Wow, this would be a really great year.  That is what the government does every year.  And even so, our growth has been pathetic, hovering at 2%.  Cutoff the borrowing and the truth will out.  Almost everyone in Washington is afraid of the truth.

"Fool me once, shame on you; fool me twice, shame on me; fool me for five years, I'm an Obama voter."

The quote is from Charlie Martin.  Here's a link to the article:

http://pjmedia.com/tatler/2013/10/14/i-told-you-so-obamacare-edition/

Righteous Senator opposed Debt Limit increase

The President asked to raise the debt ceiling and the minority party in the Senate was obstreperous. One senator stood to address that august body thusly:

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 US Government cannot 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 could hardly put it better myself. Who is this wise senator who speaks out against reckless fiscal policies, a debt that weakens America and places a heavy burden on future generations? Why, that would be Senator Barack Obama in 2006. What a difference a few years make.

 

If Obama were Republican, this quote would be thrown at him or his Press Secretary every day. Instead, the media is blissfully unaware of it.

Credit Card Mathematics

Let's suppose I have a credit card.  I have a $10,000 limit on my credit card.  Now, I make a minimum payment each month, which is a small fraction of what I have charged.  However, month after month, the amount I am carrying on the credit card is rising until it finally hits my $10,000 limit.  Now, if I try to charge anything else on that card, it will be refused.  Have I defaulted on my credit card?  Have I defaulted on all my bills unless I can somehow convince the credit card company to raise my limit?  No, obviously not.  I just can't continue to spend beyond my means any longer.

That is the same situation of the Federal Government.  The credit card limit has been reached.  It doesn't mean the country is defaulting on its debts.  It can still pay the minimum payment but charging beyond income must be curtailed.  However, President Obama is demanding the credit card company (in this case, the Congress) raise the spending limit.  Regardless of any current bluster, the Congress will do exactly that in return for nothing.  But it should not be viewed as 'responsible' to raise the Debt Ceiling.

 

Let's go back to the credit card example.  Let us suppose that I have an income $24,675 a year.  I spend $35,405 a year.  My credit card balance is currently $165,000.  Moreover, I have promised to pay $1,222,670 to friends and neighbors who have given me money over the years to invest for their retirement.  Luckily, I just got a raise of $600 a year.  Am I in a good financial position?  Take those same numbers and multiply by 100 million and you have the current position of the government.  The $600 raise is the tax hike from the Fiscal Cliff, which should give some indication that overspending is the problem.

 

These numbers aren't secret.  Anyone who cares to know can look them up.  President Obama didn't just pass a massive new entitlement so he could turn around and slash spending to meet income.  He will push the debt for the next four years and let the next president clean up the mess.

National Default

I am stunned by how many noted economist are reporting that a failure to raise the debt ceiling equals default on the debt.  Somehow, not incurring additional debt equals defaulting on the existing debt.  How does that work?  With the money coming in, the government can easily pay the interest on the $16 trillion debt, send out Social Security checks, pay Medicare, and maintain pensions.  Those would be the debts.  Everything else is just spending that can be cut without risk of default.

 

Stranger still, I read one fellow who said he was opposed to using the debt ceiling as a route to cut spending but was okay with the idea of shutting down the government to put a brake on spending.  Doesn't a failure to raise the debt ceiling do exactly that?  It will cause the government to shutdown all 'non-essential' functions so that it runs on incoming cash rather than the Credit Card of China.  The reason everyone uses 'default' is to instill panic in the populace so that the spending can go on and on.  The spending will stop eventually, on terms we won't like.  Better to stop it now while we still have some hope of digging out of the hole.

 

On a related point, big government tends to slow growth.  Our best hope in recovering is a high growth rate which is becoming more and more out of our reach as government expands.  Look at Europe: massive governments and sluggish economies.  Why go down that path?

The Trillion Dollar Coin

Now that the Fiscal Cliff has been 'successfully' overcome, the next thing on the docket is the impending Debt Ceiling disaster.  Government loves crises because people demand action without thinking things through.  This is why Rahm Emanuel said you 'should never let a crisis go to waste.'  The President had all the cards in the Fiscal Cliff since doing nothing would raise everyone's taxes; he was bound to get the taxes he wanted.  The Debt Ceiling gives the Republicans a better position.  First, taxes are supposedly off the table now that they have only just been raised.  Therefore, time to talk about the spending cuts that were not addressed in the Fiscal Cliff deal.

The president not only doesn't want to cut spending, he wants to increase it.  The Republicans can refuse to raise the debt ceiling and that instantly chokes off further borrowing.  The government would immediately have to moderate spending to equal current tax receipts.  The president, the Democrats, and much of the media claim that this is default.  That sounds ominous and may sway the uninformed.  Default would mean failure to send out Social Security checks and pay the interest on our $16 trillion debt but failure to keep the EPA open is not default.  Nor is closing National Parks or various non-essential government agencies.  We will have plenty of money to avoid default even if the debt ceiling isn't raised.  Now, I fully expect the Republicans to cave and raise the debt ceiling in exchange for more never-to-be-implemented cuts.

That aside, let's consider the argument that it would be a default.  That brings us to a little considered section of the 14th Amendment:

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Obviously, this is a Civil War amendment that allowed the federal government to not reimburse slave owners under the takings clause of the 5th Amendment.  Nonetheless, it declares the US debt to be immune from default, thus offering a potential loophole to bypass Congress.  The Treasury would mint a $1trillion coin out of platinum (Congress has passed laws regarding the minting of coins in other metals as well as paper money) which would immediately be deposited at the Federal Reserve.  Voila!  The debt is paid down by a trillion dollars and spending can continue apace.

 

To my astonishment, I have found economists on both sides of the political spectrum who are either wholly in favor or not particularly opposed.  In effect, it is raising the debt ceiling by other means with similar, if not identical, economic effects.  Both say that it is not inflationary and may have a point.  All the printing (QE1, QE2, and QE4ever) have not resulted in runaway inflation.   Still, I am aghast at the idea.

 

Once the government mints the trillion dollar coin, there will be more such coins with increasing frequency.  Only the Federal Government can be so fiscally irresponsible and have PhDs defend it.  No other institution can mint a coin for a nominal fee and get a trillion dollars in spending from it.  Could we press 16 and pay off the debt?  Somehow I don't think China would accept a handful of platinum in payment.

Debt Crisis dependent on Income

Recently, I have noticed comparisons between Reagan and Obama with the handling of their respective economies.  By some graphs, Obama compares favorably.  For example, Reagan grew the debt by 70% in his first term and almost tripled it by the end of his second term.  By contrast, Obama has increased the debt about 60%.  But this is only half of the story.  It is like learning that Tom has $5 million in debt but not knowing his income.  If his income is $10 million a year, then his debt is very low but if his income is $100,000, he is in serious trouble.  With that in mind, let's look at the income side of Reagan vs. Obama.

In Reagan's first term, the economy grew about 40%.  Yes, the growth in debt outpaced GDP but the debt was only 40% of the economy; the GDP was nearly $4 trillion while debt was $1.6 trillion.  By 1988, the debt had grown to $2.6 trillion, which was 51% of the economy.  Not good, but not a crisis.  The trajectory was in the wrong direction.  Whereas the increase in debt under Reagan was mitigated by GDP growth, Obama has had an anemic expansion of only 7% since 2008.  Thus, his comparatively lesser increase in debt is not offset by economic growth.

Looking at spending, Reagan saw a 44% expansion in the government at the end of his first term.  A large part of that was his military buildup for the Cold War but there was a lot of other spending as well.  Obama is only spending 20% more than was spent in 2008.  That makes Obama sound downright conservative.  But, taking into account the growth in income, Reagan's expansion was only moderately larger than his 41% growth rate whereas Obama's government expansion triples his 7%.  As obvious as it sounds, more income allows for more spending.  Reagan had more income while Obama doesn't.

So, looking only at one aspect, one might commend Obama for holding the growth of debt and federal spending below Reagan.  Image that Fred and Joe both make $50K a year.  Four years later, Joe has $200K in debt while Fred only has $150K in debt.  Sounds like Fred is the responsible one, right?  Until you learn that Joe got a promotion and makes $100K a year while Fred was downsized and now only makes $30K a year.  Joe's debt is double his income while Fred's is catastrophic at 500% of his income.  Changes the story, doesn't it.

Obama has had the misfortune of bad timing. Reagan had room to grow the debt; it was only 33% of the GDP when he inherited the Carter economy. Obama had little room for debt expansion since it was already at 70% and has rocketed over 100% during his term. Moreover, the Baby Boomer retirement is at hand and the income streams of Social Security and Medicare are starting to reverse course.  However, he knew this from the start and wanted the job anyway.

We’ve made sure to do everything we can to dig ourselves out of this incredible hole that I inherited.

Barack Obama, February 23, 2012

The buck stops here.

Harry S Truman

Debt Crisis Ignored by Democrats

I check the US Debt Clock (link in the left column) about once a week.  I first learned of it in November of 2009, when US debt broke $12 trillion, per citizen debt was $39,000, and per taxpayer debt was $111,000.  Things are much worse now:

• US National Debt: $15.7 trillion (source: US Treasury)
• Gross Debt to GDP Ratio: 104% (US Treasury)
• Debt per citizen: $50,827 (US Treasury)
• Debt per Taxpayer: $139,890 (US Treasury; Federal Reserve)
• Budget Deficit: $1.27 trillion (Congressional Budget Office)
• Net Interest on the Debt: $225 billion a year (US Treasury)
• Social Security Liability: $15.8 trillion (Federal Reserve)
• Prescription Drug Liability: $21 trillion (Federal Reserve)
• Medicare Liability: $83 trillion (Federal Reserve)
• US Unfunded Liabilities: $120 trillion (Federal Reserve)
• Liability per Taxpayer: $1,052,598 (Federal Reserve)

These are dire numbers that don't include a fully implemented Obamacare.  The anemic economy, high unemployment, and expanded use of social services make the situation that much worse.  VP nominee Paul Ryan proposed a plan to bring this under control, making spending sustainable.  He has been savaged as a radical and extremist by President Obama and the Democrats.  The President has proposed raising taxes on those making $250K or more a year, which might sate the class warriors but will do nothing for the debt crisis.

According to the numbers, my 6 week-old sons are each $51K in hock and it will get vastly worse when they become taxpayers: $1.2 million.  None of these social programs will survive long enough for them to benefit; in fact, on the current trajectory, they won't survive for me to benefit.  They will pay for them though, through high taxes or a crippled economy.

National Debt eclipses Personal Debt

As of today, the US Debt per citizen is $50,433 and rising by about $12 a day.  The Personal Debt (mortgages, car loans, student loans, credit card debt, etc.) per citizen is $50,428 and falling by about $7 a day.  Imagine all the outstanding debts you have and then consider you owe that same amount or more if we are to pay the national debt.  Let's look at that over time:

When my grandfather was 2 in 1910, his portion of the debt was $28.76.

When my father was born in 1940, his portion of the debt was $325.

When I was 3 in 1970, my portion of the debt was $1,914.

In 1980, the per citizen portion was $4,106.

In 1990, $13,000.

Of course, there has been inflation and today's dollars aren't as valuable as yesterday's dollars.  Still, $30 in 1910 was not the equivalent of $50,000 today.  That $325 from 1940 would be about $4,000 today.   In 1990, the median income for a high school grad was $26,000.  In 2009, it was $32,900.  So, earnings have increased by 26% but per citizen debt has increased by 388%.  Does anyone else see a problem here?

What happened in the last hundred years to explain this explosion of debt?  Many would tell you that it is the wars in Iraq and Afghanistan.  They would be wrong.  The problem is entitlements that have gotten increasingly generous and are on autopilot to grow.  Entitlements are a cancer that is going to kill the patient.

Overwhelming debt has done the European countries no favors, as we can plainly see.  And yet, we are racing down that same path with some naive notion that it will work out for us.  It won't.  We are the moth and government utopia is the flame.  Big government has NEVER worked out well for its citizens but we're going to see if we can be the exception. 

France in Denial

The French have voted out Sarkozy and voted in a socialist.  The citizens of France didn't like the 'austerity' of Sarkozy.  He had caused a wave of protests over his changing the retirement age from 60 to 62.  Along with Angela Merkel of Germany, he had pressed for fiscal sanity within the European Union.  Clearly, Europe is not keen on sanity.  Even the economic powerhouses of France and Germany have more serious debt problems than we have in the US; these are the stable ones.

Whereas the US just broke the 100% mark in GDP to Debt, European nations are much worse:

• Italy 160%
• Germany 204%
• Greece 220%
• Spain 228%
• France 271%
• England 485%
• Ireland 1242%

These are dire numbers, all the more so because the US is, for the first time in more than half a century, not in a position to help.  These countries have all embraced generous social programs and pensions that cannot be sustained.  Austerity is required.  But the citizens have become so accustomed to their government goodies that they view them as rights that must not be infringed.  They have been weaned off of fiscal responsibility and taught to rely on government rather than themselves.  So, collapse is the alternative that has been chosen.

Hollande, the socialist, proposes to raise taxes and restore spending.  Amazingly, many wealthy French are looking to leave France.  Capital can flee a country.  Things will not get better.  Europe is trying to ignore reality.  Good luck.

The Debt

Several family members have pointed out that I used to hold that the debt didn’t matter. They also point out I was saying this as recently as George W. Bush’s presidency. Was it because a Democrat was president that I now had a problem with the debt? Let’s ponder the history of US Debt.

During the Clinton administration, the Debt to GDP ratio fell from 65% to 56%.

During the Bush administration, the ratio climbed above 70% for the first time since the 50s.

During the Obama administration, it has broken 100% for the first time since WWII.

During WWII, the driver of our debt was fighting a world war. In 1941, the debt ratio stood at 45% and rocketed to 122% by 1946. However, when the war ended, government spending plummeted. By 1956, the debt ratio was down to 62%.

Entitlements are the driver of our debt today. Unlike WWII, they have no end date. There will be no post-war government shrinking as we saw in the 1940s.

Certain levels of debt are not a problem and for most of my life, the debt was within reasonable limits. That is no longer the case. Between Bush and Obama, we have added $10 trillion to our debt in just over a decade. I thought Bush was a big spender and Obama has outspent him in less than half the time. The debt is wildly out of control and is now cause for alarm, maybe even panic. Regardless of who wins this year’s presidential election, I will still have a problem with the debt. Until it is on a downward glide path, we should all be concerned.

Who's Unpatriotic Now?

The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.

Barak Obama, April 2008

Today, The US is $15.5 trillion in debt. That is $49,725 for every man, woman and child. Is that responsible? Is that patriotic? Bush took 8 years to accomplish his irresponsible and unpatriotic spending. Obama has already outdone him and it took less than 4 years. And spending on Obamacare hasn’t even begun. The path to insolvency is as clear as day and yet we are not taking action. No tax rate can pay for the promises that government has made. Government WILL renege on its promises because it is bankrupt. The debt is less than half the story.

The government has also promised to pay $15 trillion to retirees through Social Security, $20 trillion for prescription drugs, and $81 trillion for Medicare. A business is required to put these liabilities on its balance sheets but the government doesn’t; that would be a crime under the accounting rules that government has imposed on others. These bills cannot be paid and the longer we wait to reform the system the worse the disaster will be. But every president and congress decides to kick the can down the road. Let the next fellow deal with it.

Paul Ryan has a plan and has been repeatedly savaged for it. He wants to throw granny off a cliff according to a commercial. At least he has the courage to propose a fix. I also like Ron Paul’s plan of cutting a trillion dollars in his first budget. Everyone knows this must be done. MUST. There is no avoiding this. Either cut or go bankrupt. There is no other way.

10 to 1 Cuts vs. "Revenue"

Much has been made of the question in last night's debate where the candidates were asked if they would walk away from a budget deal that promised $10 in cuts for every $1 in tax increases. The candidates unanimously walked away. And so they should. The cuts never happen, as Reagan discovered with TEFRA. He was promised $3 in cuts for every $1 in tax increase. He got the tax increase but future Congresses were not bound by the $3 in cuts which never materialized. No matter the ratio, the tax increase will come but the cuts won't. It's like that email where the Nigerian lawyer promises you a million dollars if you forward him $500. Sounds like a great deal. Do you walk away? What if it was $10 million? $100 million? The ratio is irrelevant.

If you change the tax code, the new tax structure continues until modified by some future Congress. On the other hand, cuts don't have that same structural longevity. If Congress cuts Program B by $1 billion this year, there is nothing to prevent them from restoring it next year. Worse still, the Congress can play the 'We would have spent' game. How does that work? Well, Congress was planning on spending $5 billion on Program C but instead only spent $4 billion. That's counted as a $1 billion cut. A cut should be when you look at what you spent last year and spend less than that amount. Such rarely happens. However, oddly enough, it happened last year. Lacking a new trillion dollar stimulus, 2010 saw a 2% reduction in federal spending. Before that, the last time spending was less was 1955.

If someone offers 10 to 1, one should skip the taxes and just take the $9 in cuts. Same difference, right? If someone offered you $10 if you paid them a dollar, wouldn't it be easier if they just gave you $9? Should give you the same balance, right? But that's not the point. That's not the goal of the person offering 'cuts' for taxes. A tax for cuts deal is doomed from the start and should never be accepted, no matter what ratio is offered.

Debt Ceiling Failure

There is much rejoicing in Washington over the Debt Ceiling compromise. There is much talk that the Tea Party has won, getting cuts but no tax increases. Please! This is a failure. The debt ceiling will rise more than $2 trillion, the largest increase to date. Notice, that was a DEBT ceiling. Debt is increasing under this plan. Oh, but there are cuts, right? No, not really. The promised cuts are in some distant future and, even if they all come to pass, it is a pittance. We have a deficit of more than a trillion dollars but plan to cut a trillion over the next ten years? So, we'll only have deficits of $900 billion? Failure. Epic failure.

The government brings in $200 billion a month but spends $300 billion. That cannot continue. The spending must drop to meet income, the sooner the better. This deal makes it unlikely to happen in the next year and a half. DC is in denial. Bankruptcy looms and the politicians refuse to recognize the obvious. Those few who have tried to honestly address the problem have been attacked by rivals who know it is true. We are on the road to Greece but can't seem to change course.

Debt Ceiling

I am generally a big fan of Charles Krauthammer but his recent take on the looming debt limit crisis is troubling. Why is it an 'adult moment' to get yet another credit card to pile up more debt? Shouldn't the adult thing be to stop spending beyond our means? The Republicans are falling all over themselves with their plans to cut $100 billion of spending. Oooh! Will that reduce the deficit from $1.4 trillion to $1.3 trillion? Wow, that's some cutting. Tragic and painful as it may be, we need to cut a bit more deeply than that. Racing toward the cliff at 75 mph rather than 80 mph still leaves us hurling into the ravine.

There is talk of defaulting if we don't raise the debt ceiling. How does that work? I've already borrowed for my mortgage and I'm on time with my payments but if I fail to borrow more, I'll have my house in foreclosure? No, I don't think so. If the debt ceiling isn't raised, the spending will have to slow down immediately to the rate of incoming revenue. Wow, what a concept! Spending within our means.

Sadly, this is just another political football. If the Republicans try to hold the line at $14.3 trillion, the Democrats will not join in. Economic disaster may follow and the Democrats will blame the Republicans and vice versa. So, what to do? Wait for 2012 and the chance that they win both the Senate and the Presidency? Risky. The car may have already gone off the cliff. I vote to slam on the brakes and shut the government down if need be. The spending must stop, the sooner the better. It will be unpopular no matter when it is done so best to do it right out the gate. The House controls the purse strings and it must choke off the funds. Get on TV every night and say "We don't have the money" over and over again. It has the benefit of being true.