Tag: federal spending

USAID – Humanitarianism vs. America First

The new normal: “Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?”

On January 26, less than a week after President Donald Trump took office, the U.S. State Department announced Secretary Marco Rubio was initiating a review of aid programs under the following guidelines:

“Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?”

As the principal U.S. agency funding foreign assistance, the U.S. Agency for International Development (USAID) was the first to be reviewed, and subsequently slated for elimination, reform or consolidation.

A perusal of the Internet readily shows numerous articles lamenting the humanitarian catastrophe that pausing USAID assistance will cause. One really must dig to find articles confirming the problems inherent in USAID. Depending on viewpoint, this might be because USAID has no problems or because mainstream media is biased. Or all of the above.

In spite of rhetoric about the ills of wealth redistribution, mainly coming from the right, today’s average Americans do observe charity. The National Philanthropic Trust says, “Per capita, Americans voluntarily donate about seven times as much as continental Europeans.”

This humanitarian spirit spills into governmental policies. Therefore, it should not be surprising that U.S. foreign aid agencies have been giving generously to populations in need whether friend of foe. A hungry child in Taliban-controlled Afghanistan experiences the same suffering as a hungry child in the Philippines.

Unfortunately, this humanitarian spirit causes U.S. aid agencies and other parts of government to work at cross purposes, one part spending money and effort on an adversary and the other part spending money and effort combating that same adversary. Here is an example:

The influx of undocumented individuals into the U.S. has become a cause for concern, particularly in conservative circles. Another cause for concern has been reform district attorneys whom conservatives associate with rise in crime. However, USAID funded East West Management Institute, an Open Society Network organization focusing on judicial reform. Also in the Open Society Network is Welcoming America, an organization that empowers “supportive residents of local communities—immigrants and U.S.-born together—to disseminate positive messages about local immigrants.”

This is most probably just one of many examples of cross purpose foreign assistance that does not sit well with the new White House, prompting the swift actions we all have witnessed.

Indeed, as supporters of USAID point out, government spent in fiscal year 2023 only 1.2% of its budget in foreign aid – not a lot to worry about. However, one of the reasons the nation is $36 trillion in debt (121% of GDP) is that members of the U.S. Congress have been either asleep or busy campaigning, while nickel and diming the nation into fiscal unsustainability.

Supporters also have expressed angst that China, our current competitor on many levels, will gain ground if USAID work is paused. Such concern borders on wishful thinking. While USAID focuses on food and social justice, China focuses on roads, hydro power, transportation, and other hard “aid.” The U.S. Government Accountability Office in its October 2024 post says,

“China is the world’s largest debt collector, with outstanding borrower debt sitting between $1.1 and $1.5 trillion. But countries receiving Chinese investments may end up with unsustainable debt that leaves them no choice but to support Chinese global goals.”

Sounds like while the U.S. is playing checkers, China is playing 3-D chess.

Although it is good for the American people to remain charitable and the U.S. to remain engaged in the needs of less fortunate nations, we need to refrain from being naïve. Our legislative leaders have done very little besides bicker and campaign. It is time for somebody to make our government efficient and focused on America’s best interests.

Picture: The former USAID headquarters in Washington DC. USAID employees also occupied a 38,520 sq ft annex building, also located in Washington DC.

With a name like DOGE it’s got to be good

Wasteful government spending is nobody’s secret. Neither are ways to curtail that spending. However, the debt ceiling is raised every year, the spending continues, and the national debt keeps rising. Maybe DOGE, named after a meme coin featuring Kabosu the dog is weird enough to succeed!

We are living in a brave new world of memes, soundbites, and billion-dollar campaign war chests. Thus, chances are media savvy billionaires calling themselves DOGE might succeed in saving this nation from eventual bankruptcy, when other fiscal Cassandras were and are ignored.

Some reminders

As of December 31, 2024, the U.S. national debt was $36 trillion. As of September 30, 2024, the debt to GDP was 123%. What the country owes is greater than what the country produces to pay its debt.

For the last several decades, Congress – keeper of the nation’s purse strings — has shown no interest in cutting spending. Members feign anguish about raising the debt ceiling every year at budget time, then go ahead and raise it.

Voters seem content re-electing spenders and having their giggles at news of any ludicrous government expenditures.

Three outstanding producers of much giggle but little action

The late Senator William Proxmire (D-Wisconsin) issued 168 “Golden Fleece” awards from 1975 to 1988, informing the public of questionable ways Congress was spending taxpayer money. One of his best choices was a 1978 $97,000 ($400,489 today) study by the National Institute of Mental Health of activities in a Peruvian brothel.

Retired Representative Ron Paul (R-Texas) served in the U.S. Congress for 12 non-consecutive terms. While in Congress he was known as “Dr. No,” since he would not vote in favor of any proposal not expressly authorized by the Constitution. Imagine how much leaner, better, faster, cheaper government would be if every member of Congress did the same!

Current Senator Rand Paul (R-Kansas) has somewhat followed his father’s footsteps in speaking out against our big, expensive government. So far, Rand Paul has issued 10 annual “Festivus Reports” to acquaint voters of the frivolous ways their hard-earned tax money is spent by Congress. Judging by press reaction, one of the most giggle-worthy expenditures in the 2024 report is National Endowment of the Arts funding for ice-skating drag queens.

Enter DOGE

Soon after his presidential victory, Donald Trump appointed entrepreneurs Elon Musk and Vivek Ramaswamy to lead an extra-governmental group tasked with dramatically reducing the federal budget and the national debt. These objectives are to be accomplished by drastically curtailing government spending, downsizing the federal workforce, and radically cutting regulations. This yet to be configured group has been named DOGE, an acronym for Department of Government Efficiency.

Never mind that, in addition to the government waste warriors mentioned above, we already have the Government Accountability Office and the House Committee on Oversight and Accountability shouting from the rooftops about the incredible amount of taxpayer dollars wasted by various and sundry federal government activities.

Never mind that DOGE will need to dodge all manner of pelts that will surely come its way – claims of extra-constitutional actions, challenges from the legion of entities feeding at the public trough, lawsuits from axed civil servants, dissatisfaction from the forever-growing mass of government-dependent voters, and reluctance from Congress members not willing to upset established sources of donations and votes.

How could DOGE miraculously succeed when others have failed?

  • The power of constant soundbites

Most people these days tolerate (or welcome) a ceaseless stream of breaking news and social media notifications. Shortcuts into the populace’s conscious abound. So do media influencers who successfully promote or ruin products, people, and ideas. Just look at your Facebook or X account, and no further indication of this truth is necessary.

DOGE comes with the power of Elon Musk’s frequent soundbites in the news. It comes with the power of X. It comes riding on the waves of a populist movement made credible by the success and high visibility of leaders like Javier Milei of Argentina and Nayib Bukele of El Salvador.

  • The power of ubiquitous memes

Evolutionary biologist Richard Dawkins coined the word “meme,” short for the ancient Greek word “mimeme” meaning cultural copying. Dawkins characterized memes as,

“… melodies, ideas, catchphrases or bits of information that leap from brain to brain through imitation, expediting their transmission.” The surprising power of internet memes, 09/28/2022.

Unsurprisingly, DOGE is a meme coin, Elon Musk’s favorite crypto currency. The coin came into being when a photo of a Shiba Inu dog named Kabosu went viral, and crypto innovators riding on the popularity of Bitcoin produced the DOGE featuring Kabosu. Take your pick as to whether DOGE stands for DOG-E coin or not.

Kabosu, RIP, died May 24, 2024, at the age of 18. But she will forever be remembered thanks to the Kabosu monument built in 2023 in her honor in Sakura City’s Sakura Furusato Hiroba riverside park. See featured image of this article, showing Atsuko Sato (who rescued Kabosu from an animal shelter) cuddling Kabosu at the Sakura monument.

May the fiscal salvation offered by the X owner and frequent poster come to pass.

  • The power of excellence.

Elon Musk and Vivek Ramaswamy are of the intellectual elites of our times. In the old days we had Nicolaus Copernicus, Isaac Newton, John Locke, Benjemin Franklin – minds that operated outside the accepted norm and thus produced what was unimaginable before they came along.

Nowadays with excellence justifiably comes monetary rewards. Musk and Ramaswamy are billionaires. And with money comes power. Musk contributed $259 million to groups supporting Trump’s 2024 campaign, most certainly because he did want to do what he proposed during an X interview with Trump: cut government waste.

One would be naïve to think members of Congress are not aware that plying ball might translate into re-election support.

  • The power of sudden epiphanies.

Today, January 6, is Epiphany, also called the Day of the Magi and the 12th Day of Christmas. The word epiphany means a sudden realization of something, an unexpected grasp of reality.

Let’s hope that voters, Congress, and the legacy media soon come to the realization that the current national practice of borrowing to support spending is not sustainable.

Grocery prices too high? You can fix that!

When inflation gets so high that voters complain, politicians can dance around the challenge by implementing price controls, breaking up big corporations, or trying other gimmicks that have never worked. Or they can refrain from pressuring the Federal Reserve, and allow them to bring inflation down by increasing interest rates and decreasing the money supply.

The working middle and modest-income classes in the United States are struggling with rising prices and stagnant incomes. They are also hoping government will “do something” to ease their pain. Unfortunately, most often government is the cause of the pain, not the cure.

An article dated November 2013, on the website Federal Reserve History, has some interesting things to say about the Great Inflation of 1965-1982.

Here are a few quotes from that article:

“The Great Inflation was the defining macroeconomic event of the second half of the twentieth century … It was, according to one prominent economist, ‘the greatest failure of American macroeconomic policy in the postwar period.’ “

“In 1964, inflation measured a little more than 1 percent per year. It had been in this vicinity over the preceding six years. Inflation began ratcheting upward in the mid-1960s and reached more than 14 percent in 1980.”

“While economists debate the relative importance of the factors that motivated and perpetuated inflation for more than a decade, there is little debate about its source. The origins of the Great Inflation were policies that allowed for an excessive growth in the supply of money—Federal Reserve policies.”

“The late 1960s and the early 1970s were a turbulent time for the US economy. President Johnson’s Great Society legislation brought about major spending programs across a broad array of social initiatives at a time when the US fiscal situation was already being strained by the Vietnam War.”

“A more disruptive force was the repeated energy crises that increased oil costs and sapped U.S. growth. The first crisis was an Arab oil embargo that began in October 1973 and lasted about five months. During this period, crude oil prices quadrupled to a plateau that held until the Iranian revolution brought a second energy crisis in 1979. The second crisis tripled the cost of oil.”

“The Nixon administration introduced wage and price controls over three phases between 1971 and 1974. Those controls only temporarily slowed the rise in prices while exacerbating shortages, particularly for food and energy. The Ford administration fared no better in its efforts. After declaring inflation “enemy number one,” the president in 1974 introduced the Whip Inflation Now (WIN) program, which consisted of voluntary measures to encourage more thrift. It was a failure.”

“In 1979, Paul Volcker, formerly the president of the Federal Reserve Bank of New York, became chairman of the Federal Reserve Board.”

“By this time, it was generally accepted that reducing inflation required greater control over the growth rate of [bank] reserves specifically, and broad money more generally. … Lending activity fell, unemployment rose, and the economy entered a brief recession … But the Volcker Fed continued to press the fight against high inflation with a combination of higher interest rates and even slower reserve growth … Unemployment peaked at nearly 11 percent, but inflation continued to move lower and by recession’s end, year-over-year inflation was back under 5 percent.”

The meaning, summarized:

*Government spent too much thanks to the Federal Reserve’s generous increase in the money supply and its failure to change monetary policy when inflation started to rise significantly.

*There was no oil price gouging. The significant increase in the price of gas and energy was the result of shortages caused by the Arab oil embargo and by the Iranian revolution.

*The Nixon administration’s wage and price controls did not work. They resulted in massive shortages of goods and an inflation rate of 11%.

*The Ford administration’s measures to encourage corporate and consumer thrift did not work either.

*What did work in bringing inflation down to 3.66% by 1987 were the policies of Paul Volcker, Federal Reserve Chairman from August 1979 to August 1987. He raised interest rates as high as 19.08% and decreased the money supply.

*The Federal Reserve continuously plays a balancing act in abiding by its objectives of maximum employment and price stability.

The Somewhat Great Inflation of 2022-2024.

The 9% inflation rate of 2022 pales by comparison to the 13.88% 1980 rate.

However, just as spending on the Vietnam war and the Great Society fueled inflation, spending in response to the 2019-2023 pandemic did as well. In 2020 federal spending increased 45% from 2019, as compared to a 18% increase in spending in response to the Great Recession of 2008-2009.

The Nixon administration price and wage control did nothing to stabilize prices. So far, neither has the Biden administration Inflation Reduction Act. However, interest rate increases have made a difference.

The unadjusted 12-months ended July 2024 inflation rate for all items of goods and services was 2.9%, down from 3.2% in 2023 and 8.5% in 2022. The decrease is thanks to the Federal Reserve Bank steadily increasing the Federal Funds rate from 1.68% in July 2022 to 5.33% in July 2024.

Other factors besides spending.

There are certainly other factors besides excessive government spending without significant increase in production that can trigger inflation. The factors that contributed to the current inflation are mentioned in these two studies:

*A study reported in July 2024 by MIT Sloan School of Management indicates the following triggers and their relative influence on the current inflation:

Money supply 2.90%
Yield curve 3.30%
Wages and salaries 4.80%
Personal consumption 6.20%
Producer prices 10.10%
Interest rates 14.30%
Inflation expectations 16.90%
Federal spending 41.60%

Federal spending outweighs all other influences. Interestingly, money supply is not a significant contributor according to this study. Although, this paragraph from Statista Research dated May 14, 2024, disagrees.

“While between 2000 and 2019, the M1 money supply increased at a slow pace, there was an exceptionally sharp increase in 2020, which was the result of the Federal Reserve’s quantitative easing in response to the COVID-19 pandemic. The sharpest increase took place in May 2020, when the M1 money supply was increased from 4.8 to 16.2 trillion U.S. dollars.”

*And from Brookings Institution research dated June 13, 2023:

“The pandemic-era inflation has been a complicated phenomenon that involved both multiple sources and complex dynamic interactions. Ultimately, as many have recognized, the inflation largely reflected strong aggregate demand, the product of easy fiscal and monetary policies, excess savings accumulated during the pandemic, and the reopening of locked-down economies.”

Additional factors.

Indeed, the current inflation is complex, with many variables. One variable that the above-mentioned studies do not emphasize because it does not play a major role in inflation is corporations’ ability to raise prices in a consolidated market. Microsoft and Alphabet are examples of near monopolies that are often accused of setting rules and prices largely undisturbed by competitors.

Although those accusations are partly true (Procter & Gamble’s recent report of sales decline attests that the company’s ability to raise prices is not unlimited!), the clamor that government “do something” is laughable, since it is government’s “easy money” that allows formation of such monopolies. Remember, buyouts are mostly leveraged, facilitated by low interest rates.

In conclusion.

Once upon a time, the U.S. dollar was backed by gold. In those old days, politicians could not get re-elected by just spending unlimited amounts of government fiat money giving their constituents the moon – today they can.

Unfortunately, unbridled spending brings on inflation. When inflation gets so high that voters complain, politicians can dance around the challenge by implementing price controls, breaking up big corporations, or trying other gimmicks that have never worked. Or they can refrain from pressuring the Federal Reserve, and allow them to bring inflation down by increasing interest rates and decreasing the money supply.

Thankfully, politicians do not simply step into their roles – they get elected by voters. Thus, voters can fix things that go wrong, like inflation, by voting wisely.

Biden’s 2024 Budget: 5 loaves and two fish

The current trajectory of the U.S. national debt could be attributed to Keynesian Economics or to Modern Monetary Theory. However, a more accurate description would be Kicking the Can Down the Road.

Annually, our national leaders repeat the ritual: The President presents a budget, Congress frets over it, after a lot of fretting the budget is adopted, and a couple of trillion dollars are added to the already unsustainable national debt.

Democrat President Joe Biden presented his generous $6.8 trillion spending plan on March 9, 2023. $4.7 trillion in taxes on corporations and high earners is also in the budget. As is a promise to cut deficits by $3 trillion over the next 10 years. Republicans controlling the House of Representatives immediately declared the budget dead on arrival.

Many articles have been written on how this budget would achieve its goal of reducing deficits (the shortfall between revenues and expenditures: $722.6 billion so far this fiscal year). Some have pointed that this budget will not reduce the national debt (the accumulation of years and years of deficits: $31.4 trillion as of 03/16/23).

Here, it will suffice to say that Jesus fed 5,000 people with 5 loaves and two fish (John 6:1-14), and perhaps President Biden truly believes he can accomplish something similar.

Barring miracles, can the U.S. sustain its current debt?

In its Financial Report posted on January 31, 2023, the U.S. Department of the Treasury, Bureau of the Fiscal Service, said the following,

The current fiscal path is unsustainable … The debt-to-GDP ratio was approximately 100 percent at the end of FY 2021, and under current policy and based on this report’s assumptions is projected to reach 701 percent in 2096.

The national debt is the nation’s credit card.

Just like an individual’s credit card, the national debt can avoid immediate full payment of obligations. Also, just like an individual’s creditor (the bank or credit union that issued the credit card), creditors that hold U.S. debt (China, for instance), will not lend indefinitely. At some point, creditors start worrying about losing their money and stop lending.

Credit card companies watch your credit balance in relation to the money you said you make. This will give them an idea whether you can pay down your balance or not. Creditors of the United States do the same. They watch the U.S. national debt as a percentage of the U.S. Gross National Product. By traditional metrics, when the Debt to GDP ratio reaches 77%, its time to worry. The U.S. Debt to GDP at the end of the 4th quarter 2022 was 120%. When there is not enough money in the kitty to pay creditors, “full faith and credit” does not mean much.

How about infrastructure and benefits?

The higher the national debt, the more revenue goes toward paying interest on the debt, and less revenue goes toward infrastructure or benefits like healthcare.

Lowering interest rates makes it easier to pay back debt but will unleash inflation. The current rising interest rates will suck money away from other government expenditures.

Why is it practically impossible to lower the national debt?

Politicians depend on donors and voters to keep their job. Dependence on government largess is widespread, and nobody likes to pay taxes.

The most a President and Congress can do is prepare a complex budget that promises to lower deficits over 8 or 10 years (which means nothing when a new President and new Congress comes into power), raise the debt limit each year, and hope that when the day of reckoning arrives they will be long dead.

Accepted economic theories

The current trajectory of the U.S. national debt could be attributed to Keynesian Economics or to Modern Monetary Theory. However, a more accurate description would be Kicking the Can Down the Road.

$15 Wage – We’re from the Government and Here to Help

Without robust competition why would businesses pay workers good wages. They don’t.

Minimum wage

In July Congress passed legislation that gradually raises the minimum wage to reach $15 by 2025. Why would Congress feel the necessity to engage in the price control of wages? Since there are already probably as many answers to that question as there are wage earners, it will not hurt to add one more.

Say you sell soap, people love your product, and buy great quantities of it. You have the opportunity to raise your prices confident your sales will remain high. On the other hand, suppose you make a mediocre soap that people do not particularly like. You will be lucky to sell some of it at a low price.

Same with your abilities in the marketplace. If you are good at what you do and have abilities that are on demand, people will pay good money for your services. If you do not, you will be paid little, assuming someone will hire you. A mandate on how much people must pay for soap would be called price control. So would a mandate on how much people must pay for abilities.

Leaders resort to price controls when their jurisdictions lack a functioning market, either by misfortune, incompetence, or conscious choice. A functioning market encourages competition and efficiency from all participants – businesses and workers alike. Absent a functioning market, leaders must resort to ever increasing levels of interventions such as price controls.

Although the U.S. talks about a free market, it really does not have one. Leaders have slowly stifled it, starting in earnest with Roosevelt’s New Deal. Today, there is economic intervention in every nook and cranny of the economy. If some law or regulation is not mandating subsidized housing for those who cannot afford to live where they want to live, it is mandating subsidized electric cars to fight climate change.

As legislators spend more than they collect in taxes to ensure today’s equivalent of Herbert Hoover’s chicken in every pot and car in every garage, the national debt explodes, the Federal Reserve decimates interest rates so as to afford the servicing of the debt, and cheap money allows businesses to buy out competitors.

So now, with less competition, why would businesses worry about paying workers good wages? They don’t.

Meanwhile, the economy needs lots of purchasers of goods and services in order not to collapse. The solution is a mandated minimum wage, sometimes over and above what workers with inadequate or unneeded skills are worth.

So, there is a reason why Congress passed the $15 minimum wage.

End the Fed!

Who benefits from the Federal Reserve? Would the banking elite that created the Fed worry about your well being?

Recommended Book: Creature from Jekyll Island

G. Edward Griffin wrote Creature from Jekyll Island in 1994. This 600-page book is now on its 5th printing, on Amazon, and all hard-core liberty-minded folks quote from it. It is not an easy read, but a project for maybe several months. However, because it reads like a thriller, you will be enthralled enough for how long it takes. By the end of the book, you should have a clearer idea why some people go around carrying signs at rallies reading “END THE FED!” You will know where the money to finance the U.S. endless wars comes from, and you will know how we have gone from a nation of pioneers to a nation of supplicants.

occupy-wall-street-protesters

Not a Horror Movie – Just Real Life

Ask a random number of people where or what is Jekyll Island, and most will respond with some association to Dr. Jekyll and Mr. Hyde. Most will be surprised that Jekyll Island is a very real, beautiful state-owned park off the coast of Georgia, managed and conserved by the Jekyll Island Authority, a self-supported state agency funded by the island’s leases, fees, and amenity operations. It acquired its name in 1733, when British colonial leader General James Edward Oglethorpe named the island in honor of Sir Joseph Jekyll, a financial backer of the colony of Georgia.

Jekyll Island went through several iterations and owners. However, the owner that interests us here is Christophe Poulain DuBignon, who consolidated his ownership of the island in 1794. He and his descendents owned the island from 1794 until 1886. John Eugene DuBignon, together with his brother in law Newton Finney, got the ball rolling in our story when they turned Jekyll Island into a private hunting club. Finney had contacts in New York among the monied social elite, and the likes of J.P. Morgan, Joseph Pulitzer, and William K. Vanderbilt invested in the new club. In 1886 Eugene DuBignon sold the club to the Jekyll Island Club Corporation.

They Did Not Go Duck Hunting

The plot thickens when in November 1910, Senator Nelson Aldrich from Rhode Island gathered some banking and finance folks — among them representatives from the U.S. Treasury, J.P. Morgan & Co., National City Bank, and Kuhn, Loeb & Co. – to go duck hunting at the Jekyll Island Club. Apparently, they did not hunt any ducks, but instead, under a cloak of great mystery that was not revealed until the 1930s, they wrote a plan to reform the nation’s banking system. Thus the Federal Reserve Bank was born.

The fact that the Federal Reserve was born on Jekyll Island backed by the cream of the banking elite, it enables a debt-based economy, and it finances wars is freely acknowledged even by the Federal Reserve. However, saying for instance that the Federal Reserve worked closely with the U.S. Treasury to sell Liberty Bonds to help the War Effort is different than saying the Fed enables eternal wars for oil and Wall Street. Therefore, The Creature from Jekyll Island is often relegated to conspiracy theory for stating the latter.

The banking elite did not really go duck hunting in November of 1910. What did they really do and why? What would be the purpose of a central bank in 1910, or in 1791? What track record of predecessor U.S. central banks was the banking elite considering in 1910? How do the writings of other people affirm what G. Edward Griffin said in Creature from Jekyll Island?

Bankers Reforming Banking

Observe that at Jekyll Island, bankers wrote the plan to reform banking. Since presumably these bankers were human, we need to assume their native instincts prompted them to benefit banks. In his 2012 article Who Benefits From The Federal Reserve Charles Hugh Smith asks “Cui bono–to whose benefit?” He then lists what the Federal Reserve does or enables others to do. Here is a summary list:

* Setting of interest rates at zero or near zero – Allows banks and other already powerful financial institutions to borrow great quantities of money. With this money such institutions concentrate their wealth and ensure their perpetuity by buying up competitors and becoming too big to fail. The high debt to equity ratio pushes earnings towards debt servicing, and away from productive investments, innovation and workers’ benefits.

* Accepting ever-expanding debt leveraged by questionable collateral – Normalizes junk financial tools such as derivatives and sub-prime mortgages. The proliferation of such financial tools spreads debt and leveraging throughout the economy. Households learn to survive on debt generated by mortgages and credit cards. Students and their parents become dependent on student loans that can limit the financial and emotional well being of young people for a long time.

* Supporting an inefficient and exploitative banking system – The Federal Reserve is sold to the general public as protection against economic panic caused by bank failures. Businesses fail when they are mismanaged by inept or bad-intentioned handlers. Banks are no exception. However, they have learned that if they are big enough and powerful enough they can behave as they please, since the Federal Reserve and the FDIC will be there to bail them out when they behave exceptionally poorly.

Predecessor Financiers

* The Fist Bank of the United States

The Bank of the United States, a national bank promoted by then Secretary of the Treasury Alexander Hamilton, was established by Congress in 1791. The bank was authorized to operate across state borders, and was intended to foster economic growth. It collect revenue, lent money to the U.S. Treasury, sold bonds to investors, and it helped to pay off the huge national debt created by the Revolutionary War. However, Thomas Jefferson and his followers viewed this central bank, as well as all other indication of federal expansion, with extreme distaste; they succeeded in causing the closure of the bank after 20 years of its operation.

* The Second Bank of the United States

Debt mounted again as a result of the War of 1812, but this time, Congress knew of a quick fix, and charted the Second Bank of the United States in 1817. To the dismay of central banking advocates, President Andrew Jackson, a foe of central banks which he viewed as benefitting Northern industry to the detriment of Southern agriculture, vetoed the re-chartering of the Second Bank of the United States in 1836.

Interestingly, central banking advocates blame a shortage of gold and silver currency and the ensuing economic panic of 1837 on Jackson’s elimination of the Second Bank of the United States. Why was there a shortage of hard money? Because the Second Bank of the United States encouraged debt instead of gold and silver.

Bottom Line: How are you better off with today’s central bank?

Widely distributed prosperity for the citizenry results from increases in real income that flow from productive investments and higher productivity that’s passed on to workers. The Fed’s model of “prosperity” is to enrich the banks and incentivize workers to take on more debt to boost their consumption and their purchase of phantom assets in stock bubbles, housing bubbles, etc.  Who Benefits From the Federal Reserve?  by Charles Hugh Smith, September 2012.

How many members of your household need to work outside the home to make ends meet?  If you own a home, how are you managing repaying your mortgage?  We send you our heartfelt wishes that you do not depend on your credit cards to pay your rent.

Balanced Budget Amendment: “Definition of Audacity”

House Representative Thomas Massie said the Balanced Budget Amendment proposal was the definition of “audacity.” “It’s got a loophole you can drive a truck through.” The provision to which Representative Massie refers says that if 60% of both the House and Senate vote to waive the amendment, they can pass an unbalanced budget. The 2018 unbalanced budget passed by 60% in the House and by 65% in the Senate. Tell us how a BBA would have prevented the 2018 $1 billion increase to the U.S. budget.

Following up on the Just Vote No Blog previous articles on profligate spending by the U.S. Congress, and on the “solution” of a Balanced Budget Amendment, here is an update.

On March 23, 2018, Congress passed the “Omnibus Bill,” a budget plan to allow the federal government to continue “functioning” until September 30, 2018. The bill totals $1.3 trillion, and adds about $1 trillion to the already gargantuan U.S. budget of around $4 trillion. How could the cost of running the country increase by $1.3 trillion? Easy. Legislators need to say they “did something” about everything that happened during the previous year, so they provide for a myriad of new funding. Roughly, the 2018 budget calls for $695 billion in defense spending and $591 billion in non-defense spending. Here are a few highlights of the 2,232-page bill:

* School shootings: $2.3 billion in new funding for mental health, training, and school safety programs at the Departments of Justice, Education, and Health and Human Services.

* People overdosing from opiods: $4 billion in treatment, prevention, and law enforcement efforts.

* Potholes: $21 billion for infrastructure projects across the country, including transportation, energy, water, and “cyber.”

* Porous borders: $47.8 billion for the Department of Homeland Security to bolster border infrastructure, add more “boots on the ground,” increase detention space, and improve surveillance technology.

* Waning hegemony: $654.6 billion in both base and Global War on Terror/Overseas Contingency Operations funding.

“The Definition of Audacity”

Surely it is known to all members of Congress that a constantly growing national debt now standing at around $21 trillion is not sustainable. Surely they know that at some point voters might catch on that the Ponzi Scheme could cause the nation’s economic collapse. Therefore, after voting for yet more spending by passing the Omnibus Bill, legislators felt they must “do something.” Four days after House Representative Robert W. Goodlette voted “Yes” on the Omnibus Bill, he introduced the Balanced Budget Amendment (BBA).

House Representative Thomas Massie (R-Ky) said the BBA proposal was the definition of “audacity.” “It’s got a loophole you can drive a truck through.” The provision to which Representative Massie refers says that if three-fifths (60%) of both the House and Senate vote to waive the amendment, they can pass an unbalanced budget. Well, the 2018 unbalanced budget was passed by 60% of House members and 65% of Senate members. Tell us how a BBA would have prevented the 2018 $1 billion increase to the U.S. budget.

Thomas Massie 3

Thankfully, the BBA was too audacious even for Congress members, and it was voted down.

Are State Legislators So Different?

State legislators claim U.S. legislators need to be reigned in because they are growing the federal government and spending too much. Therefore, they also need to do something: A Convention of States under Article V of the U.S. Constitution to propose a balanced budget amendment among other things.

Do you trust your state’s proposal to amend the Constitution of the United States any more than you should trust the U.S. Congress’ “definition of audacity?”

Federal Debt: Who Will Be Left Holding the Bag?

Today’s federal debt is around $21 trillion, $64,724 for every man, woman, and child in the U.S., and growing every second.

Today’s U.S. federal debt is around $21 trillion, $64,724 for every man, woman, and child in the country., and growing every second. So, who cares, you say, as long as domestic production is so wonderful. That is what the experts tell you. What they don’t tell you is that you are paying for that debt in one way or another, by way of taxes, foregone services, or risk. Also they don’t tell you that at some point the folks who have been lending the U.S. all that money will get spooked at the size of the debt and bail out.

How did we get to owe $21 trillion to individuals, foreign countries, and even our own Federal Reserve Bank? Because we elect our representatives based on the largess they promise to deliver. We make sure we get subsidized healthcare, education, housing, food, childcare. We want security.

Trends in Spending and Deficits

* The Congressional Budget Office says that in 2016, the federal government took in $3.3 trillion in revenues, and spent $3.9 trillion. The difference between revenues and expenditures is the federal deficit.

* 2007 – 2017 Spending and Deficits:

Spending and Deficits

Quick Review of Borrowing: 

Federal DebtWhen job pays you less than you spend, you borrow from credit card companies, banks, credit unions, family, or friends. The federal government does the same thing – it borrows when it spends more than it earns. Here is a picture of the federal steadily-growing debt 2007 – 2017, showing debt in December 2017 at $21 trillion.

There are two main debt categories: Intra-government holdings (in 2017, this was $5.6 trillion borrowed from 230 government agencies; $2.801 trillion of which borrowed from Social Security), and debt held by the public (in 2017, $14.7 trillion borrowed from foreign countries, the Federal Reserve, mutual funds, state and local governments pension funds, private pension funds, banks, insurance companies, the general public, and other entities).

If the U.S. finds it owes so much money, and has to pay so much interest that there is little money left for any federal operations at all, then the country will have to either stop spending, raise taxes to astronomical levels, or default. If default had happened in 2017, guess who would be left holding the biggest bag? Look at foreign vs. domestic debt:

Foreign borrowers lent the U.S. federal government $6.004 trillion. Domestic borrowers, mostly folks contributing or receiving retirement money, lent $8.696 trillion.

How about the “Debt doesn’t matter” Argument?

Experts like Paul Krugman and Robert Reich used to tell us that debt does not matter since GDP made the country grow, debt or no debt. However, they seem to be clarifying their stance these days.

“Today’s debt is about 77 percent of our total national product. The reason it’s a problem is it’s growing faster than the economy is growing, so it’s on the way to becoming larger and larger in proportion.” Robert Reich

“What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.” Paul Krugman

It is difficult to tell whether these two gentlemen, champions of progressive politics, suddenly saw the light or they saw a Republican administration in Washington DC.

GDP is not supporting the debt, so what to do?

Military Spending 2
Forbes Stats: From Infographics

The U.S. debt-to-GDP ratio on December 29, 2017, was 104%: $20.493 trillion debt divided by $19.739 trillion GDP.

We could print more dollars to keep up with the debt and hope our creditors don’t mind their increasingly worthless investment.  We could hope we will be dead by the time the Ponzi scheme collapses.  Alternatively, we could bite the bullet and start fixing the mess by cutting spending and not giving tax cuts to billionaires.

We could start the spending cuts by bring our defense spending in line with everybody else in the world.

Article V Convention: Not Worth an Even Break

Certain ideas so defy logic that it is difficult to determine whether proponents aim to make suckers out of the unsuspecting or are being made suckers themselves. Such is the case with the currently proposed Article V Convention. Proponents either intentionally or credulously are placing the very nature of our Republic in peril. Therefore, as W.C. Fields would ask, why give suckers an even break?

WC FieldsCertain ideas so defy logic that it is difficult to determine whether proponents aim to make suckers out of the unsuspecting or are being made suckers themselves. Such is the case with the currently proposed Article V Convention, under which states would gather to propose amendments to the U.S. Constitution.  Proponents either intentionally or credulously are placing the very nature of our Republic in peril. Therefore, as W.C. Fields would ask, why give suckers an even break?

What is an Article V Convention?

The Founding Fathers built into the U.S. Constitution many protections against federal government overreach. One such protection is Article V, which says,

The Congress, whenever two thirds of both houses shall deem it necessary, shall propose amendments to this Constitution, or, on the application of the legislatures of two thirds of the several states, shall call a convention for proposing amendments, which, in either case, shall be valid to all intents and purposes, as part of this Constitution, when ratified by the legislatures of three fourths of the several states, or by conventions in three fourths thereof, as the one or the other mode of ratification may be proposed by the Congress; provided that no amendment which may be made prior to the year one thousand eight hundred and eight shall in any manner affect the first and fourth clauses in the ninth section of the first article; and that no state, without its consent, shall be deprived of its equal suffrage in the Senate.

Under this Article, states, with or without Congress’ consensus, can call a convention of states to propose amendments to the Constitution. Once such amendments are ratified by the legislatures or by conventions of three fourths of the states, the amendments become part of the constitution.

Who is interested in Article V these days?

* There are currently 28 states with active applications for an Article V Convention. Eight applications were submitted in 2017, and eight in 2016. Twelve were submitted in prior years.

* Most applications so far call for a balanced budget, restraining of the federal government, and overturning of the U.S. Supreme Court Decision on Citizens United vs. Federal Elections Commission. Conservative states support the first two subjects, and progressive states the third. Within both factions, there is opposition. Conservative Eagle Forum and liberal Common Cause have expressed deep concerns.

* Proponent money is coming from prominent groups, such as the American Legislative Exchange Council and the WolfPAC.

Where do the Suckers Come In?

* Article V only says that Congress must call a convention when a certain number of states apply, and proposed amendments become part of the Constitution once a certain number of states ratify.  Details, whether they abide by the intentions of the Founders or not, are left to the states.  Where does it say the convention needs to be limited to a specific subject? Interestingly, applications are somewhat vague. Reining in the federal government could mean anything. It could mean getting rid of the 2nd Amendment or of Roe vs Wade. For example, Hawaii’s application only requests Congress to “convene a limited national convention under article V for the exclusive purpose of proposing an amendment to the United States Constitution that will limit the influence of money in our electoral process.” Any money? A certain amount of money indexed for inflation?

* The U.S. National Debt is around $20 trillion. Debt to Gross National Product is 104%, and the tipping point (when a country is in peril of default) is 77% according to the World Bank. Pretty soon we will all be working and paying taxes just to pay interest on the debt. So, yes, a balanced budget amendment would be great – if folks at the convention agreed to cut the military budget, Social Security, Medicare, and other major federal entitlements and expenditures in half, and double the taxation rate, either all at once or over the next 15 years.

Then there is the ratification process. Red state legislators would be thrown out of office if they touched any entitlements or perhaps came back without “clarifying” the 2nd Amendment. Blue states legislators would have to find new jobs if they expected significant cuts to the military or to Social Security.

How about the manner in which the ratification process would take place? Where is the requirement that ratification needs to be by one state one vote, as proponents claim?

The Alternatives

If states are truly concerned about federal fiscal mismanagement, they could incentivize candidates for federal office from their state to come to Washington prepared to cut spending significantly or lose their state’s support. They could encourage voters within their state to elect or re-elect only candidates who truly desire a balanced federal budget. If states are truly concerned about Citizens United vs. the FEC they could simply limit campaign contributions across the board within their states, including contributions from unions.

If none of these alternatives are happening now, why would we be made to believe they would miraculously happen in the context of an Article V Convention? Defies logic.