The problem with paying attention and studying history and economics is that life holds precious few surprises along those areas of consideration for me any more. I pretty much know what is coming next. During the campaign of 2008, when my coworkers asked me what was wrong with the specter of an Obama Presidency, even before it happened, I told them in detail, what exactly the next 4 years would look like. Here we are in 2012, and not a single prediction was off the mark. Stagflation has taken root, new regulations are choking private sector growth, the federal behemoth has grown in size and increased its own scope, and America is seen as a fat bloated paper tiger by some very dangerous and by the way insane tin pot dictators who are hell bent on destroying both Israel and the United States. We have seen a half dozen revolutions by dumb college aged students in several formerly benign Middle Eastern nations in which the hard line Islamists wasted no time in taking over and summarily killed off the college aged flower eyed revolutionaries. One of those new Islamist nightmare states even took the step of taking American citizens as hostages. Something else looms however, and it truly transcends political party lines.
In case you missed it, Timothy Geitner, the tax cheat who we were all told to overlook his felonious behavior since he was the only living American smart enough to lead us out of our economic malaise, admitted the following in his testimony to the House Budget Committee. Our Statutory spending is greater currently than our tax revenue, both now and during any time in the future. That is to say, under our current course of action, there will never be a point in time when that this will not be the case. He also admitted that there is no plan under consideration by the Obama Administration where this will ever be addressed. Addressing the problem is not considered a favorable course of action by these people. He also admitted that our economic collapse will occur in 2027, which for those of you keeping score at home is just 15 short years from now.
Our budget is comprised of two constituent parts. Discretionary spending is what it takes to actually operate our government. Entitlement spending is that portion that is mandated spending as a matter of law, it was voted in by our Congress at some point in the past and then signed into law by a past or present President. We have all sat and listened to people scream and yell about some wasteful program that they want to see cut, but the truth of the matter is that our budget has zero chance of ever being fiscally sane until we change those laws which require the entitlement spending. We can cut every penny of Discretionary spending, end the EPA, Department of Defense, Education, HHS, Labor, Energy, State, Transportation, Interior, all foreign aid, the SBA, and that will still leave us with an unmanageable budget shortfall, which will put off our demise perhaps until June of 2027 rather than January of that year.
Today, our Supreme Court is deciding if one piece of those massive entitlements is in fact Constitutional. If the court does indeed strike that law down, then the crisis will be averted for a decent amount of time, at least on paper, but that is only the beginning. It was Art Laffer who identified the trend with revenues raised through taxation. Our revenue will always be between 19% and 21% of our GDP. No matter how much we soak the rich or stimulate the economy, this level of revenue has always been consistent. During our entire history as a nation, 19% and 21% of GDP has been the limits of money flowing into the federal government. If we place ourselves, as we have done, in the position of spending more than that on our various bag of free goodies from the public largess, we will eventually collapse. Knowing that we can no longer afford to repay those bills, our boys in Washington have taken to printing more paper which looks like money and are easing that into the economy. As a nation, we are shocked that things are beginning to take more of that worthless paper in order to buy things, such as gasoline or groceries.
There is ultimately a problem with this approach to our fiscal problems with this thinking however, and that is that at some point in time, as history has already shown by the way, people around the globe will simply stop accepting our currency for anything other than lining the bottoms of bird cages, lighting fires, or wrapping raw fish with. We will revert to the barter system, or cigarettes will once again become our new money. (From 1777 through 1791, three states used tobacco as the official currency. Tobacco was also accepted as payment by many foreign governments as well.) Fiat money being created by tin pot dictators to pay for their massive appetites is nothing new. Neither is the concept that it has never worked in the past. It may surprise some of you to know that it is not even new here in America. Franklin Roosevelt, Richard Nixon, and Jimmy Carter all took up the practice. What is new in America this time around is the fact that we now have a predicted end date for our demise as a nation. If your child is born this year, he or she will not have graduated high school before the end is reached. We are doomed about the same time as those religious school confirmations of faith will be occurring. That is not what scares me however. What scares me is that the people in charge have just admitted to knowing that this is true, and have told us that they plan to do not one single thing about it. They plan on continuing their spending anyhow. The Federal Government has an appetite you see, and it is large indeed. The sacrifice, in their eyes anyhow, is for we the people to make, and not for them to do with any less. My fear is that we, as a nation have not already risen up to put these people out of our misery.
Those of you who have read my stuff before know that I am not in favor of a standard which ties our economy to a hard asset either. Gold for example, made such a poor currency in the past, that even when we used it, people printed up paper to take its place. We had the exact opposite problems with Gold, which resulted in crippling deflation and depressions. There has to be a solution some where in the middle. The Federal Reserve system was put into place precisely to prevent these people from doing that which they are doing today. Currency in itself, whether it be tied to a hard asset, or just based on faith such as today’s was never more than a substitute for the sum of our labors which facilitated an ease of trade. If you grew Lima Beans and I shod horses, when I wanted windows installed, there was no way in which I could trade my services to the window installer if he wanted steak. Currency allows for me to sell my services of putting iron on the feet of horses, indirectly trading with the entire community as I do so, and making it easy to purchase the services of the window maker who does not even own a horse, and does not like Lima Beans. For this purpose, Gold was chosen as the standard measure of value, and since the beginning of time, its value has been assigned to it by people. Paper can receive the same assignment, except that printing more of it creates its own problems. Gold was too scarce, and paper too abundant. The Fed was supposed to keep our printing proclivities in check, while allowing that supply to grow in pace with the population and the size of our economy, epic failure.
Our system’s breakdown was in the fact that we depended upon our society always being led by sane people. It was when we allowed ourselves to be convinced that only geniuses could lead us that we started down this destructive path. The well educated Ivy League crowd has always been able to explain and spin why the malaise has not in fact been their fault, and indeed someone else’s doing. They have eloquently told us time and again how if we just followed them a little further down the road to our fiscal implosion, that the impossible would somehow become possible. A decade and a half is what we now have left to not only change our path, but to start actually correcting our past mistakes. Other wise, our currency will be canned foods, shot guns, and ammunition. I would rather not live in that world, but one positive thing is this, the hippies would be the first to lose.
Cross Posted at Musings of a Mad Conservative.
Tags: Budget
