By Michael Master
Bob Worn, a friend, sent this to me concerning how the government increased the debt ceiling:
“You come home from work and find there has been a sewer backup and you have sewage up to your ceiling.
What do you do……raise the ceiling, or pump out the crap?”
Bob makes so much sense. S&P understands it. That is why S&P lowered the bond rating for USA issued debt. The stock market agrees. It has fallen 16% over the last 10 days. It started falling long before the bond rating was lowered. And now the ratings for Fannie Mae and Freddie Mac have been lowered.
The president owns this. He is the leader. It is all happening on his watch. As Harry Truman said: “the buck stops here” …. Even if Obama continues to blame it on everyone else. But then, Truman was a leader, Obama is not.
Our politicians implemented a compromise by raising the debt ceiling without pumping out the spending crap. And now the politicians are scrambling to blame each other for the problems caused by their compromise. Democrats say it is because taxes were not increased to cover spending and Republicans say it was because spending was not cut to the level of tax revenues.
Both parties blame the debt increases on “entitlements” … which is not true. Social Security would be fine if the government had not raided it for other projects. Alan Simpson, Chairman of the Debt Commission, stated that the Social Security trust fund is full of IOUs from the federal government for when it used Social Security money for other projects like building roads, feeding children before school, fighting wars like Viet Nam, and paying for a list of general projects … and now the government does not know how to pay back the IOUs.
The federal government has been spending money that it does not have since LBJ and his Democrat controlled Congress first raided the Social Security fund to pay for Viet Nam and the Great Society at the same time. The federal government spent away our Social Security Trust Fund and our USA debt rating. So why is it so hard for so many people to understand that our government needs to cut spending?
And for those of you who say that these guys like Tim Geithner and Ben Bernanke have degrees from big time universities so they must know what they are doing, you are wrong.
It was a lot of smart guys from big time universities who said that the P to E ratios in 1999 of 400 to 1 were acceptable as part of a new economic paradigm. People lost a lot of money and America went into a recession because of the “crap” that we accepted from smart guys from big time universities in the late 90s. It worked for a couple of years of the Clinton administration and then fell apart in Clinton’s last year of 2000.
Smart guys make lots of mistakes. The basic economic rules do not change. The rules are like gravity. But smart guys continue to try to convince the rest of us that those rules can be broken. One of those rules is that you cannot spend more money than what you make or else you will go broke. And the USA debt is now larger than its gross domestic product (GDP).
If you change who has the money by taxing some people and then giving it to other people, that does not increase the GDP. It just moves the money around. The only way to cut the debt with a given amount of GDP is to cut spending.
Now for those who say that we can’t cut spending because it will hurt the economy, you are not addressing the root causes to the economic problems. How does government spending help these root causes:
1. The top cause to our economic problems is that there has been too low of a birth rate for white women for the last 40 years. This affects everything from too few workers who are paying into Social Security vs those who are retiring to too few people who are buying houses to too many immigrants who stress our healthcare and education systems.
2. Purchases of foreign oil have depleted our economy by 5% per year ($700 Billion per year).
3. The change to a service economy from a manufacturing economy exacerbated the effect of the manufacturing multiplier on the economy. High labor rates, too few engineering graduates, and too much taxes added to the price of products throughout the supply chain have chased manufacturing out of the USA.
4. Combined local and federal governments increased their portions of GDP (Obama increased the federal portion by 25%) which drains money from the private sector.
As Tom Graves, US Representative from Georgia, stated about why