Tag Archives: federal spending

WWI Poster about Liberty Bonds

Biden’s 2024 Budget: 5 loaves and two fish

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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

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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!

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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”

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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?

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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

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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.