Have you noticed the tone of all the recent proposals from our most benevolent servants in Washington? All of them propose solutions promoting more debt–both on a national and personal scale.
Consider a condition of the Cash-for-Clunkers program from last year. You need to buy a vehicle that improves the gas mileage, but you’ve got to turn in your old car (equity) in exchange for a new car (the staggering majority financed the purchase). Oh, and your old car will be destroyed, so poor folks cannot purchase it (nearly 700,000 vehicles were destroyed by this program). This program destroyed more personal equity than anything else I’ve ever seen. Nice move. Decrease personal equity to increase personal debt. We also increased the national debt to fund the program, since this wasn’t a budgeted expense.
How about the recently-expired tax credit for the purchase of a home? Buy a home and receive a full $8,000 back in tax credit–even a refund on your taxes–in exchange for financing the purchase. Let’s put some fresh air into the housing bubble and increase our national debt.
Or this new idea–let’s increase the loan ceiling for small businesses from $350,000 to $1,000,000 as Bloomberg reports here! Yes, let’s make even more debt available! The idea is that businesses can use this debt to hire more employees. (Do they need more employees right now? Shhh! Nobody’s supposed to ask that question!)
Do we see any trends here? I see a couple. First, business is good for banks. Second, business is good nowhere else. We’re trying to shore up consumers and businesses with debt–not substance. Just as we saw housing sales halt at the end of the offered tax credit (false growth) and new auto sales halt at the end of the government-sponsored car purchases, why would we believe any other numbers built on this debt increase to represent true growth? And as a country, we’re in terrible shape in terms of personal debt, national debt, and incredible, record-setting budget deficits. How is this helping us?
Some day, some how, we’ll have to pay these debts. There are signs that individual American citizens are figuring this out, but there are no such signs that Washington has any clue. Can’t we eventually tax our way out of national debt? I don’t think so. Our national debt burden, as I posted previously, is now estimated at between $184,000 to $350,000 for every man, woman, and child in the US (to cover all unfunded liabilities)!
So, what do we do? Washington says we must spend even more! How is this rational? Spend more in personal debt and you face quick bankruptcy. Why are the rules any different on a national basis? Answer: because we can always print more money to pay the debt! But won’t that reduce the value of every dollar held by every citizen, bank, or foreign nation? You bet. This is wealth redistribution at its best, and it’s coming soon to our country. Would you like to see some evidence of that?
Have you seen the proposed national budget for 2011 (PDF file)? Lots of grand ideas in the works, as we can see government reach and benevolence expanding yet again. But can we pay for that? No, of course not. This is a time to cut spending, not increase it! Well then, what’s the plan? If you look way down on page 157 of the PDF file, you’ll see the plan. I’ll post snapshots below, for the sake of simpler discussion.
Let’s take a look at the proposed spending:
What category has the largest percentage jump between 2011 and 2015? Net interest! What is sacrificed the most to pay this debt? It looks like “security discretionary” and Medicare to me. (And by the way, what are “Other Mandatory Programs and Disaster Costs”? Is this where the bailouts are budgeted?)
Does all this make sense? These snapshots say quite a lot. First, the debt is very deliberate. In fact, it’s built into the budget. Perhaps this will reduce the budget deficit numbers for 2011, because we can say this debt load was “budgeted”. (I guess.) But I’ve never seen borrowed debt playing a part of a realistic budget, either.
Here’s my big concern. In 2011 we can see a plan where borrowing eclipses personal income tax for revenue. At this rate, it’s simply impossible to pay this debt. It cannot be done. We reduce the portion of borrowing by 2015, but we can see quite clearly that in 2015 that net interest is eating away voraciously as a total of all federal spending (and I think this graph is too optimistic).
If this debt is repaid, how will it be done? The only answer I can see is that the Fed will have to print more money–massive inflation–and inflation is merely taxation without representation. This means each dollar you have now will soon be worth much less–meaning, it will buy much less in the future than it does now. That’s not good news. Are you a Boomer who has been responsible in saving up a nest egg for retirement? Drastic inflation means those dollars won’t purchase what you thought they would. Drastic inflation means you won’t make it through retirement on what you planned (unless you planned for inflation rates over 10% per year, which is what we may need to
pay print this debt).
As you may have heard, those who hold large chunks of U.S. debt are not happy with their prospects of being paid back the value they lent us. After all, the purpose of lending like this is for the value to grow–not shrink.
What about you? Are you happy with your servants in Washington who are so eager to spend your money? Do they know that? You can let them know exactly what you think by contacting them and giving them a piece of your mind. After all, they don’t even read the bills they pass into law–how can you expect them to read your mind?