![Default is Inevitable, Part II]()
by Steven Waechter | Jul 26, 2011
Talking points are truly amazing things. They capture the essence of the obsessions of political operatives. The political news has recently been dominated by the talking points surrounding the debt ceiling debate, with the main terms of choice being the assorted variants of “apocalypse.â€
First of all, failing to raise the debt ceiling would not automatically lead to a default on the national debt. The federal government would continue to collect revenue, and could use that revenue to pay debt obligations as they fall due, or in other words, pay the coupon interest on time. This would involve deep cuts to everything else, and if you are a professional politician that is synonymous with impossible, so there is an assumption that default would be the result.
And that default would be “apocalyptic,†“a catastrophe,†“a disaster,†or would “cost us our credit rating,†– which is doomed anyway because it is a mirage; the federal government is borrowing 40% of the money it spends this year and is projected to do so for the next ten. This is not a debtor worthy of a AAA rating, and the only reason we haven’t seen a failed bond auction is because the Federal Reserve has been buying everything in sight.
Professional politicians who never saw a dollar belonging to somebody else that they wouldn’t spend, now lecture us on the importance of borrowing money to pay the obligations on the money they borrowed to spend on political goodies. We are told of the need to increase our debts to stay current on our debt payments.
When individuals pay debts with new debts (called “Surfing†by finance experts) it is usually the last desperate trick before they call a bankruptcy lawyer. When our political overlords do it, they demand to be: 1. Re-elected; 2. Paid more; 3. Given a medal or an honorary Ivy League doctorate.
The apocalypse for the Democrats is that this issue is coming to a head too soon. Over the next ten years, a majority of the baby-boom generation will be enrolled in Social Security and Medicare. And, as the American economy continues to die over the next ten years, it is thought that these voters will be more frightened of losing benefits than of the country collapsing under the weight of the debt. Government dependency is the Democratic Party’s stock-in-trade, and they will be there to defend all government spending with borrowed (or more likely, printed) money.
In their calculation, if they can only delay the eventual tipping point where the economy just can’t take more debt, then as things continue to get worse more voters will fear losing Big Government than losing everything to Big Government.
While we’re talking about Medicare, some time soon you should do a web search for “unemployed college graduates,†and see how many news articles you can find. Think about this: A generation wants to get government-financed benefits, while a younger generation is chronically underemployed and not paying much money in FICA (Federal Insurance Contributions Act), the tax that funds Medicare. No job means no wages; no wages means no FICA; no FICA means no Medicare – unless they print the money and finance it with pure, un-tempered inflation.
The professional politicians cannot get us out of this problem; it is in their best interest to make the problem bigger. The cynicism is downright psychopathic – make sure that so many people depend on your appropriations that you cannot lose power even if the country is completely bankrupted. This, I fear, is what most Congressional Democrats, and probably most Congressional Republicans, intend to do.
It must stop. It is time to stop rewarding politicians who successfully loot the public treasury by affixing their names to schools, institutes, nature trails and wildlife refuges as recognition of their long and illustrious careers of running the nation into serfdom.
I’ve been told that veteran bankruptcy lawyers have a common speech they give to their clients who feel guilty or ashamed about the debts they’ve run up. They say “Stop that. Do you think corporate CEO’s feel guilty when they restructure debt? No! You are Mr. and Mrs. X, Incorporated, and you are getting out of debt.â€
We need to put down the pride, the guilt, and the illusions of prosperity fashioned by self-interested politicians, and declare that we are the United States of America, Incorporated, and we are getting out of debt. If we don’t, we will default eventually anyway either directly or through currency devaluation, but by then our nation will not have a future. At all.
[Note: The first article “On National Debt, Default is Inevitable,†the numbers in the article were from the Monthly Statement of the Public Debt, June 2011, but the link inside the article was to the Monthly Statement of the Public Debt from June 2010. Apologies for the error.]
Photo Becky Stares – Fotolia.com
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by John Bloom | Jul 21, 2011
The Des Moines Register’s Opinion Section on Sunday, July 3, 2011 featured a “Progressives Trifecta†of half-truths and sophistry:
Richard Doak – What if the founders were around today?
Donald Kaul – My favorite 4th of July speech
Dean Baker – Keep Social Security safe from politicians who want to save it
This week I will focus my comments on Dean Baker’s article sub-titled “Real patriotism requires coming to terms with the grimmer side of American historyâ€. Mr. Baker is co-director for the Center for Economic Policy Research (CEPR). The CEPR home page lists 10 funders, mostly far left organizations including the Open Society Foundations, which was founded by and led by George Soros.
Dean Baker-He advises the reader that two thirds of people age 65 rely on Social Security for more than half their income. He notes that “with traditional pensions disappearing and many near retirees losing much or all of the equity in their home, and also seeing 401(k) assets plummetâ€, hence “the next generation is likely to be even more dependent on Social Securityâ€. He then proceeds to explain “Fortunately the program (Social Security) is fundamentally solidâ€. He goes on to summarize various facts about the trust fund and speculates about various ways to further improve the long term health of the program. He says “Many opponents of Social Security insist that its $2.6 trillion trust fund does not exist or that it is “just sheets of paperâ€. He acknowledges that “the trust fund is held in the form of U.S. government bonds, which are indeed sheets of paper. However, investors everywhere eagerly seek out these ‘sheets of paper’ as the safest asset in the worldâ€.
- Public reliance on Social Security-Mr. Baker is not providing a fully accurate picture in his description of the American public’s dependence on Social Security. I checked several sources for my information and found them to be relatively consistent, so I have only referenced three of them. My conclusion is that Americans who have lived within their means, saved money, invested prudently and maintained marketable skills are relying properly on Social Security as a meaningful component of their retirement. Social Security was never intended to be more than that.
- Average U.S. Home Prices[1]
- The median price of homes in the United States in 2004 was $221,000. It peaked in 2007 at $247,900. In 2010 it was $221,800. Baker’s statement about near retirees losing much or all of their equity would only have occurred if they leveraged their home equity for other reasons. If they had been in their home for 20 years, even the depressed 2010 prices reflect a gain of 80%.
Planning to Retire by Emily Brandon[2].
- Americans age 65 and older receive most of their income from four sources: employment, Social Security, pensions, and asset returns, according to a recent Congressional Research Service report. The prevalence of each of these types of income has shifted somewhat since 1980. More Americans now continue working past age 65 and fewer people bring in income from assets. Here’s a look at how the biggest sources of retirement income have changed over the past 30 years.
- Employment. In the 1980s and 90s about 16 percent of seniors worked, a number that steadily increased to 20 percent in 2008. Earnings now make up over a quarter (26 percent) of income for Americans age 65 and older, with the typical senior bringing in a median of $20,000 annually from work.
- Social Security. Social Security remains the most common source of income for people age 65 and older. About 86 percent of seniors receive these monthly checks for a median of $12,437 annually. This entitlement makes up 39 percent of the typical senior’s income.
- Asset income. Just about half of Americans (54 percent) receive some income from assets, down from 67 percent in 1980. But most Americans don’t receive very much in the form of interest, dividends, rent, or royalty payments. Interest rates and dividend yields have fallen since the early 1990s. The typical American made just $1,054 off their assets in 2008. Asset returns account for approximately 13 percent of retiree income, down from 24 percent in 1990. (Writer’s note: The Federal Reserve is “saving the economy” with 0% interest rates. Unfortunately this punishes millions of retirees who saved for their retirement and were counting on fair returns on bank deposits, CD’s etc..)
- Pensions. The proportion of Americans with a pension from a former employer has fallen slightly from 37 in 1990 to 34 percent in 2008. Pensions payout a median of $10,800 annually which makes up about 20 percent of the typical retiree’s budget.
401K Balances Moving Back to Pre-recession levels by David Pitt[3]
- Americans who were afraid to open their 401(k) statements during the recession are finding good news inside the envelope now: For the most part, their accounts have come all the way back and then some.
- Nine in 10 of the popular retirement plans are at least back to where they were in October 2007, the peak of the stock market. Since the bull market began in March 2009, stocks have almost doubled.
- And many investors who kept their nerve and continued putting some of their paycheck into a 401(k) during the market’s worst months are now ahead.
My main issue with Mr. Baker is his insistence that the Social Security Trust Fund is secure. The current crisis over the debt ceiling now exposes that lie completely. President Obama has admitted that checks may not be issued if the U.S. Treasury cannot continue to borrow next month. If the Social Security Trust Fund held real assets, rather than government paper, they could sell those assets and pay benefits independently from the General Fund. As noted above, long term investments in real estate, stocks, bonds, commodities (gold), etc. have real value. Unfortunately all we have is paper made worthless by closet socialists like Tom Harkin and Barack Obama. I wish this were not true. I have paid into these programs at maximum levels for most of my working career. Privatize Social Security? Absolutely. Young people should demand it. The Ponzi scheme is over!
I refer you to the following article, The Fraud of the Social Security ‘Trust Fund’ Exposed by a Most Unlikely Source by Don Boudreaux on July 16, 2011[4]
If Americans choose to accept the misinformation of socialists like Mr. Baker as fact, then they deserve the government and fate that they choose. The Republicans have proposed a plan and until President Obama does likewise, they should be applauded for at least recognizing the problems. Mr. Baker knows better. He is simply a socialist who hopes to use the budget crisis to tax the private sector out of business, redistribute an ever shrinking American economic pie, and secure power for global elites like George Soros.
[2] U.S. News and World Report, January 12, 2010
[3] The Huffington Post, March 21, 2011
[4] http://cafehayek.com/2011/07/the-fraud-of-the-social-security-trust-fund-exposed-by-a-most-unlikely-source.html
Photo: Gino Santa Maria – Fotolia.com
by Paul McKinley | Jul 16, 2011
Though the third longest session in Iowa history has been over for two weeks, Governor Branstad still has until the end of July to sign or veto any of the legislation that was passed.
While there were some notable and very positive accomplishments, Senate Democrats also stood in the way of a lot of positive progress.
Here are a few accomplishments followed by some of the missed opportunities.
1) Sustainable Budget
We finally are back on the path to long-term fiscal sustainability with a budget that spends less than we take in and funds Iowa’s priorities. Is there more we can cut? Absolutely. But it’s a good start and a real break from the problems of the last four years.
2) Rule & Regulatory Reform
We have begun to change the direction of the state when it comes to onerous rules and regulations that are stagnating job creation. Our 11 city “Re-Open Iowa for Business†tour has yielded some great suggestions and opened a lot of eyes. Stay tuned in a few weeks more information on this as our comprehensive report will be made public.
3) Reorganization of Economic Development Department
This reorganization of Iowa’s economic development department, one of Governor Branstad’s top priorities, will give the state more flexibility as it pursues and recruits entrepreneurs and job creators to Iowa. This reorganization, coupled with helping our existing businesses, will be key to continuing to grow Iowa.
What were some of our missed opportunities because of Senate Democrat obstruction?
1) Property Taxes
In order to make our state more competitive for jobs, we must have lower property taxes – for all classes of property. Unfortunately, the property taxpayers of Iowa will not get the comprehensive tax reform that they deserve. We will continue to work hard to find a bi-partisan solution and make next session the session of true property tax reform.
2) Clean Abundant Energy
In order to grow the economy of the future, we must have adequate, clean and reliable base-load energy. Nuclear energy is one excellent source that would create a lot of good jobs in Iowa. The Iowa House passed legislation to continue to pursue possibility of adding additional reliable base-load energy. The votes existed to pass it in the Iowa Senate in bi-partisan fashion, but Senator Gronstal obstructed a vote.
3) Income Tax Relief
Both individual and corporate income tax reductions would help grow our economy, create jobs and stimulate positive economic activity. Once again, it did not happen this session because of Senate Democratic obstruction but count on us to continue to push forward next session.
4) Collective Bargaining Reform
The Iowa House, with broad support, voted to inject some common sense reforms into the collective bargaining and arbitration processes in Iowa. For the long term fiscal sustainability of the state, we believe there needs to be more equity and fairness in the process. As it stands today, over 80 percent of state employees pay nothing for health insurance and most get lucrative benefit packages and healthy annual salary increases that are out-of-line with the private sector. It is not just the union bosses that should be at the table – the taxpayers deserve a seat at the table too.
5) Education Reform
We must once again make education about the children and discontinue the notion that simply spending more money will equal better student achievement. We need to set high standards and hold everybody accountable for the success and achievement of our students.
6) Late-Term Abortion & Marriage
Because of inaction by Senate Democrats, Iowa could soon become the Midwest Capital for Late-Term Abortions. We had the votes in the Iowa Senate to slam the door on abortionists like Dr. LeRoy Carhart who wanted to come into Council Bluffs and open up a clinic, but Senate Democrats refused to do what needed to be done. On the issue of marriage, Iowans sent a strong message last fall with the ouster of the three Supreme Court Justices. We need to keep the pressure on to give Iowans the statewide vote they deserve on the issue of marriage.
Though we made some positive steps forward, much of what we set out to accomplish not yet been achieved. Senate Democrats obstructed much of our pro-jobs agenda.
That is why we must work hard day in and day out to talk to our family, friends and neighbors about the important issues facing Iowa and continue to press forward with what we know will bring the brightest future for all present and future Iowans.
As always, I welcome hearing from you and can be reached by phone at 515-281-3560 or by e-mail at [email protected]
by | Jun 23, 2011
“The Conservative also recognizes that the political power on which order is based is a self-aggrandizing force; that its appetite grows with eating. He knows that the utmost vigilance and care are required to keep political power within its bounds.†– Barry Goldwater
Evidenced by the fact that I recently finished re-reading Barry Goldwater’s The Conscience of a Conservative on a kindle—much has changed since it was first published in 1960. However, by the staggering parallels that its content has to the political realities of 2011, one could say that not much has changed at all.
Anyone who chooses to invest the few hours necessary to read this book will become apprised of the historical context in which the political and ideological battles of our generation fit into the course of our Country’s history. Indeed it becomes clear that the rise of the Tea Party is not the first attempt to reconfigure our relationship with government, but is merely the continuation of a movement first given voice to by Barry Goldwater 51 years ago.
Written with eloquent clarity, its importance rivals, and perhaps even trumps, the documents surrounding our Nation’s founding in importance based on its remarkable relevance to our day. While the theory behind the writings of Thomas Jefferson, The Federalist Papers, and Common Sense are inarguably still viable, Goldwater is able to make his case specifically against things that did not exist in the 18th century, but did both in the 1960’s and today. In fact, if you replace the word Communism with Terrorism, the entire list of topics that he addresses—a growing federal government, National debt, the welfare state, The United Nations, the erosion of personal freedoms, and labor unions—all remain the exact flashpoints of our modern day political struggles. Here are just a few of the many examples.
Federal Spending
“Now it would be bad enough if we had simply failed to redeem our promise to reduce spending; the fact, however, is that federal spending has greatly increased during the Republican years. Instead of a $60 billion budget, we are confronted, in fiscal 1961, with a budget of approximately $80 billion.†– Barry Goldwater
It is slightly comical, and certainly sad, to read Goldwater bemoaning the entire federal spending for a year approaching, in his mind, the absurd level of $100 billion. The reaction of his contemporaries to his concerns on spending were much the same fare that we are fed from our political leaders today—a set of recommendations from the Hoover administration claiming that the government could save the taxpayers around $7 billion a year just by eliminating extravagance and waste. Sound familiar?
This was useless lip-service then, just as it is now, and prompted Goldwater to lay down a far different doctrine—“The root evil is that government is engaged in activities in which it has no legitimate business. . . . The only way to curtail spending substantially is to eliminate the programs in which excess spending is consumed. The government must begin to withdraw from a whole series of programs that are outside its Constitutional mandate . . . and all that can be performed by lower levels of government, or by private institutions, or by individuals.â€
Taxes
“Government does not have an unlimited claim on the earnings of individuals. One of the foremost precepts of the natural law is man’s right to the possession and use of his property.†–Barry Goldwater
Unlike today’s Republican who largely pins their argument for lower taxes on the received benefit of spurring economic growth, to Goldwater the issue was far more a moral one. He asks, “How can he be free if the fruits of his labor are not his to dispose of, but are treated, instead, as part of a common pool of public wealth?†Not only does this argument seem superior to the present day Conservative one, so do his other thoughts on the subject.
While acknowledging that every citizen has an obligation to contribute a fair share to the “legitimate functions of governmentâ€, he quickly does what politicians on the right nowadays fail to do effectively—tie the size of government’s rightful claim on our money to the definition of “the legitimate functions of governmentâ€. Though it seems overly simple, telling a person what they have to gain financially by restricting government is much more effective than making broad Constitutional arguments. One can’t help but think that advocates for eliminating federal agencies, and in general returning to only the expenditures authorized by the enumerated powers, would get much more traction by clearly making the connection that for every function of government that we can do without, you will keep more of your own money.
He also makes it clear that were he alive today he would be leading the charge for the flat tax, by calling our system of graduated tax rates “confiscatory†and “repugnant to my notions of justiceâ€.
The Welfare State
“The effect of Welfarism on freedom will be felt later on—after its beneficiaries have become its victims, after dependence on government has turned into bondage and it is too late to unlock the jail.â€-B. Goldwater
Among the most poignant and impassioned arguments Goldwater makes are against the continued creation of the welfare state. Largely due to the fact that when he wrote the book the programs that make up our welfare state were not yet insolvent, massively-unfunded liabilities, the nature of his resistance is mainly on moral grounds and the effect that he envisioned it having on the recipients psyche. Just as it remains today, he predicted that the emotional impulse of voters and the temptation it presents to politicians would combine to make it a deeply entrenched and ever expanding problem.
Though in its infancy at the time, he saw the building of a welfare state not only as a political strategy by the left to move the Country in a Socialist direction, but as a corrosive practice that placed the individual at the mercy of the State. It was his sense that this relationship would, over time, sap the welfare recipient of the sense of personal responsibility required to be anything but dependent.
His position is not that there be no welfare, rather that it be administered either voluntarily from citizen to citizen or through local institutions and governments. Indicating that the political perils of this position were just as present then as they are today he states, “I feel certain that Conservatism is through unless Conservatives can demonstrate and communicate the difference between being concerned with these problems and believing that the federal government is the proper agent for their solution.â€
Goldwater 2012
Reading The Conscience of a Conservative is in many ways bitter-sweet. Sweet in that it gives such clear voice to our founders’ ideals, freedom, and Conservatism; but bitter in the realization one is left with that had these battles been fought and won in his time, they would not need refighting now. Perhaps the most important thing the reader takes away from this book is a sobering reminder of how high the stakes are in the upcoming election. Armed with the knowledge of what has transpired from 1960 until now, one shudders to conceive of the consequences of not winning the battle this time around.
In further illustrating how worthwhile and relevant this book remains in 2011, let me close with what Goldwater sees as being the moment that Conservatism will defeat Liberalism: 
The turn will come when we entrust the conduct of our affairs to men who understand that their first duty as public officials is to divest themselves of the power they have been given. It will come when Americans, in hundreds of communities throughout the nation, decide to put the man in office who is pledged to enforce the Constitution and restore the Republic. Who will proclaim in a campaign speech: “I have little interest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, for I intend to repeal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Constitution, or that have failed in their purpose, or that impose upon the people an unwarranted financial burden. I will not attempt to discover whether legislation is “needed†before I have first determined if it is constitutionally permissible. And if I should later be attacked f
or neglecting my constituents’ “interestsâ€, I shall reply that I was informed their main interest was liberty and that in that cause I am doing the very best I can.
Goldwater in 2012 indeed.
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by | Jun 8, 2011
The Following piece is the 2nd installment of an ongoing series here at The Conservative Reader. “American Gladiators†is a recurring feature focusing on the defining political issue of our generation: the crucial battle over Federal spending and the debt and deficit it creates.
A favorite saying of both political parties these days is that “elections have consequencesâ€â€”2010 proved that so do primaries. For Republicans no past event has had a bigger impact on the eventual major players and the shape of the fiscal debate’s battlefield than the primaries preceding the 2010 mid-term elections.
Though history now, you may recall at that time an internal debate was raging amongst Republicans. Many influential Conservative thinkers, including Charles Krauthammer, joined a large number of high ranking members of the Republican establishment in warning against selecting “unconventionalâ€, mostly Tea Party backed, candidates to compete against Democrats in liberal leaning districts.
Though admittedly unappealing, this camp made the case that in selected states it would be wiser to support more moderate Republicans who had a greater chance of winning in traditional Democratic strong holds. They particularly took issue with Christine O’ Donnell in Delaware, Linda McMahon in Connecticut, and Sharon Angle in Nevada, all of whom went on to win their primaries but lose in the general election.
While the stand was principled, harnessing a populist movement is difficult, and there is no guarantee a more main stream Republican would have won, it is fair to at least consider this rejection of political pragmatism as an over reach by the Tea Party… and one that had painful consequences.
Working without anesthesia, Dr. Hindsight unmercifully reopens the wounds when one considers how much better Republicans would be positioned with just four more Senate seats. Having a majority in this body to go along with the one already had in the House would have provided Republicans a massive strategic advantage. Specifically, it would have allowed them to not only pass unified bills on spending cuts and the budget, but to bypass the Senate buffer the President currently enjoys and send the bills directly to his desk. Removing this Senate buffer would have enabled Republicans to repeatedly, and at will, draw him out on targeted issues. Imagine a scenario in which every week he was forced to either agree and sign a bill, or veto it and go on record resisting specific cuts.
Any Democratic strategist would tell you that either of these actions would be vastly damaging to his re-election bid. Should he sign, his base would trample themselves in disgusted exodus, while a veto would leave him constantly defending unpopular expenditures, and require him to personally counter-offer with specific proposals (not his strong suit). Such extended exposure on vulnerable ground would have in essence reworded the old political axiom “sunlight is the best disinfectant†into “sunlight is the best infectantâ€.
In spite of these lost opportunities, snapping out of the past and returning to the present finds Republicans still in very good shape. Though it includes a few head scratchers, the polling data on long term budget issues strongly favors the GOP position. The best news is provided by the findings on the debate’s two most fundamental questions: Are budget deficits and the National debt widely perceived as problems? And, do people feel that success from Republican plans is fundamentally possible?
As to the first, a CBS News Poll (March 18-21,2011-m.o.e=+-3) found that 68% of respondents felt that the budget deficit was a “serious problemâ€, while another 26% termed it “somewhat seriousâ€. Only 5% thought it was “not too seriousâ€.
While beyond promising, perhaps the better news comes from a Bloomberg National Poll (March 4-7, 2011-m.o.e=+-3.1) which asked “Do you think it is, or is not possible to bring down the deficit substantially without raising taxes?†The results reveal a clear path to victory. 61% felt that it is possible, while only 37% thought it was not. This is critical because not raising taxes is both the exact approach taken by all the Republican plans, as well as one of the main criticisms leveled against them by opponents.
While it is true historically that the particulars of a proposal are less popular than its concept, starting with numbers this high leaves room for weathering the inevitable loss of points forthcoming now that specifics of the plans have been revealed. If the caustic attacks on the plans as being “extreme†are able to be zeroed out by the number of converted skeptics, there likely would still be ample room to compromise with Democrats on some points, which for passage in 2012 is an absolute must.
While looking back at what could have been is painful, the opportunity to win is still very much within reach. Given that the Tea Party is solely responsible for the fact that we are even having this debate, it is hard to criticize it. That being said, it is wise to note the times that the movement’s fierce purism creates a double-edged sword.
We will never know if different Republican primary candidates would have resulted in a Senate majority, but we do know that winning on an issue this big will require both strategy and some compromise. Going forward it will be fascinating to see to what extent the Tea Party tolerates each to be in play, if at all.
Sometimes the most nuanced political analysis is worthless and the whole issue comes down to a simple question. This appears to be just such an issue and the question that victory hinges on is: “Do the American people believe that remaining on the current path will end in a financial disaster?â€
For the reasons given above, if I was looking at this and was a gambling man—that faint sound you hear would be my chips…smoothly sliding across felt.
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