Friday, July 29, 2011

Out Of Control Spending In Washington

It's worse than we thought. The out of control spending in Washington is so bad that Apple Computer has more money than the U.S. Government. Yes, that's right. Uncle Sam is so flat out busted that one private company has more cash on hand the the U.S. Treasury.

Apple currently has $74.4 billion in cash on hand, but the Treasury Department now has only $73.7 billion (as reported by the BBC).

How did Apple mange to accumulate a larger cash horde than the U.S. Government? Apple routinely, month in-month out, year in-year out, spends less than it takes in.

Friday, July 22, 2011

Why is there a debt ceiling?

As I watch the circus in Washington with regard to the Federal government’s so-called “debt ceiling”, I‘m now thinking that this issue is strange in one very fundamental, basic way.

We see various high ranking government officials and other supposedly smart people running around like Keystone Cops and hyperventilating about why we must, absolutely must, raise the Federal government’s debt limit on August 2 (not August 3), and that if we don’t, then the economy as we know it will cease to exist. We’ll drop off a cliff. The worldwide economy will implode, and we’ll never recover. It’ll be over, the end, fini, sayonara, the fat lady will sing, Armageddon will happen, etc. So we’re told by all of those people who are so much smarter than us.

Now here is the strange part. Ponder this: Why does the federal government have a debt limit, if once we reach it, we have no choice but to raise it? Why is the “debt ceiling” there in the first place if it’s not a ceiling at all?

“Debt” is, of course, borrowed money. That means it will have to be paid back some day. Think about buying a new truck. If you don’t have the cash to buy it, you can usually get a loan, and then you pay monthly payments, often for a long time, to pay the loan back.

Suppose you also buy a nice, new boat with another loan. Now, you have more monthly loan payments.

How about a house? Nobody has enough cash to buy a house, so you get a mortgage. More monthly payments.

And then there are those credit cards. Still more monthly payments.

If this keeps up, a person may reach a point where they just can’t make all of those monthly payments, and that’s a real problem. Foreclosure, repossession, nasty debt collectors calling, and other such unpleasantness will most likely ensue.

So the concept of limiting one’s debt seems like a good idea. Depending on the household income level, some specific number representing the total debt that a person or family can carry is established, and then they know not to go above that number in their total borrowing. This “debt ceiling” serves as a restraint on their borrowing, which is a good thing. It keeps them from getting “over extended”.

In concept, that is what a debt ceiling or limit is. It’s a tool for exercising basic, sound financial management by making sure that one doesn’t borrow too much money.

Currently, the federal government borrows about thirty-two cents out of every dollar it spends, so the debt is piling up. Right now, the total national debt is about fourteen trillion dollars, a lot of money to have to pay back to the lenders.

Let’s put that number in perspective.

The federal government currently is spending $3.8 trillion a year; of that, $1.2 trillion is borrowed. Percentage wise, thirty-two percent of the federal budget is borrowed.

The $14 trillion total national debt represents 3.6 years of the total federal government spending. In other words, if Uncle Sam did nothing but pay down the national debt, it would take 3.6 years to do it. Of course, that scenario is very hypothetical, since it means that all spending on the military, Congress, government agencies, Social Security and other entitlements, and everything else the federal government does would have to stop, which they won’t. In fact, because the government is borrowing money as described above, that total national debt figure isn’t going down at all; it’s going up.

Congress apparently realized that unlimited borrowing and spending on their part would lead to some very bad financial consequences. So Congress set a national debt limit, meaning that Congress couldn’t borrow more than that amount of money. I guess the intent was to force some self-restraint in borrowing and spending. But here we are, up against the $14 trillion debt limit and rising.

The big money sinks in the federal budget are Social Security and Medicare. The Social Security trustees estimate that, left on it’s current course, Social Security alone will run a deficit of $3.76 trillion in 2075. Add in Medicare, and you have a one-year deficit of $4.80 trillion, for just two entitlement programs. Those estimates are under an “intermediate” scenario, not a worst-case or best-case scenario.

Gross Domestic Product (GDP) is the total value of all goods and services produced in the entire country. That $4.80 trillion deficit will be somewhere between 24% and 50% of 2075 GDP, depending on the assumptions made.

Think about that. On the current trajectory, in 2075 we will spend between 24% and 50% of the value of everything produced in the country on two entitlement programs.

For you “sustainability” advocates, that is not sustainable.

Here are two conclusions we can draw from all of this.

First, since debt is caused by spending more money than is coming in, when a pre-defined debt limit is reached, shouldn’t spending be reduced?

Second, the only way to have any significant impact on federal spending is to make structural reforms to Social Security and Medicare.

No, raising taxes on the "rich" won’t solve the federal debt problem, especially something as meaningless as closing a tax loophole for corporate jets or some other such silliness. In previous columns, I have discussed who pays the most federal taxes, and space doesn’t allow me to repeat all of that here. But consider two factoids. One: In 2008, the last year for which IRS data is available, the top 50% of income earners paid 97% of all federal income tax. Two: If the feds took all of the taxable income of all people earning over $200,00, it would only pay the Social Security – Medicare - Medicaid bill for 2012, but not for any one year in the future since the costs of those programs are expected to rise rapidly. So increased taxes won’t do it.

Now we know the answer to the question. The debt ceiling is there to keep the Federal government from borrowing excessively, and once the limit is hit, spending needs to be cut.

Tuesday, July 19, 2011

The Great Toyota Hoax

Do you remember the Toyota Crisis of 2010? It was one of the biggest stories of the year. There was a grave danger in Toyotas: Some electronic gadget in the cars was causing them to suddenly lurch forward at high speed. They couldn’t be brought under control even with the brake pedal; millions of people were at risk due to these demon machines. It was such a threat to so many Americans that no less than the Secretary of Transportation Ray LaHood announced that “Toyotas are unsafe”. The Democrat controlled Congress jumped into action to avenge this death threat that had been inflicted on the American people. Hearings were held. Toyota executives were accused of lying and covering up the problem. The nation’s leading newspapers, news magazines, and television networks ran numerous stories on the “killing machines” theme. Toyota was fined $48.8 B for what the Obama administration called its inadequate response to the crisis. Toyotas stock price and market share declined.

Well, never mind. Earlier this year, after an exhaustive study by that very same Ray LaHood’s transportation department, assisted by NASA engineers, the U.S. government officially concluded that there was no evidence – no evidence whatsoever – of any mechanical or electronic defects in Toyotas that would cause sudden, unintentional acceleration.

Will their $48.8 billion be refunded?

Thursday, July 14, 2011

Eat Your Peas

President Obama has been telling us for some time that there must be shared sacrifice throughout the country, that we will all have to feel a little pain in order to solve the nation's problems. Now we know specifically what he means. We must all eat our peas.

Wednesday, July 6, 2011

More Environmental Dishonesty

Recent news headlines: “As sea levels increase more rapidly, new report cites global warming”.

This news article talks about how the ice of Greenland and the Arctic is melting faster than expected, sea levels will rise more than previously projected, Florida will be under water, New York City subways will be flooded, etc. according to a report from the Arctic Monitoring and Assessment Program, the scientific arm of the eight nation Arctic Council. At the very end of the news article, in the very last sentence, we see this: “The melting of Arctic glaciers and ice caps, including Greenland’s massive ice sheet, is projected to help raise global sea levels by 35 to 63inches by 2100, the report said, although it noted that estimate is highly uncertain.”

Did you catch the “highly uncertain” part of that? Even the global warming wackos, in order to try to maintain some modicum of honesty, are forced to admit that their projections of doom are “highly uncertain”, but they bury this admission at the very end of the article after big headlines and the body of the article portray it all as established fact.