Category Archives: Federal Budget/Debt Limit

One Banana, Two Banana …

As the political pundits and state apologists breathed a sigh of relief over last week’s deal in Congress to end the government “shutdown” a subtle wrinkle in this deal went largely unnoticed. But this wrinkle, like the proverbial butterfly whose flapping wings results in a hurricane, sets the stage for the transformation of the American Empire into a banana republic and with it the ultimate collapse of that empire. How could this go unnoticed? As with all new government initiatives it is cloaked in the innocence of being “temporary.” As the astute observer of history Milton Friedman once observed, “there is nothing so permanent as a temporary government program.”

The deal that was rushed through Congress last week is, like Obamacare, now withering under the light of public scrutiny of those very details our overlords wished to keep hidden. Although laced with several “special deals” in order to buy the votes of particular congressmen, this deal carries with it something far more sinister than the usual run of the mill horse trading. It carries with it the “temporary suspension” of the debt limit until February 7, 2014. What does that mean in practical terms? Quite simply that the US Treasury may issue an unlimited amount of debt between now and February 7. They could issue treasury bonds for tens of trillions of dollars if they wished and it would all be nice and legal. Now is it likely they will do that? Not really. That is not the source of the hidden danger. The real danger lies in the fact that this “temporary” suspension of the debt limit will never end. This is because through procedural gamesmanship this component of the deal was added in such a way that it will take a two-thirds (!) majority of both the house and senate to reverse it. Considering both sides of the aisle are too craven to face the hard choice of reducing spending or increasing taxes you can lay down good money on the fact that they will never vote against something that would require them to ultimately face that quandary of a decision.

So although there will still technically be a debt-limit on the books, it will for all intents and purposes not exist since all who are bound by it have agreed to simply ignore it. Once this new reality becomes the status quo there will be absolutely NOTHING holding back Congress from spending as much as they desire. As they further inflate the currency through more and more debt creation, prices will rise year after year. This will further devalue the purchasing power of the dollar. Eventually, one day soon the United States’ largest creditors (foreign governments) will decide the US dollar is simply not an asset worth holding (would you continue to own a stock whose price dropped every year?) and will cease buying US Treasury debt and will also begin selling the debt they do own (further plunging the value of the dollar). Once that happens it will be declared a “crisis” by those in power who will once again clamor for a “temporary” suspension of even the most tenuous of rules that support the façade of separation between Fed and State. Currently it is illegal for the Federal Reserve to directly purchase US Treasury bonds (although they can do so indirectly through “the market”). However if no one is willing to buy our debt that leaves just one customer standing: the customer that has the legal monopolistic right to create counterfeit money out of thin air – the Federal Reserve. Once the Federal Reserve is “temporarily” permitted to begin buying US Treasury debt, that will be the last nail in the coffin of the American Empire. History has taught us clearly time and time again that once a government starts printing its own currency with no restraints of any kind, hyperinflation is not very far behind.

Perhaps this might seem like hyperbole to some, however if we combine the lessons of history along with our current government’s unwillingness to cut spending and face the economic failures of their socialist inroads into our economy (i.e. subsidization of ANY economic activity) there is simply no other plausible outcome. So get ready, the roller coaster is poised to plunge straight into the ground. And it all begins not with a “bang” but a mere unnoticed whimper.

The Giving Tree of Debt

It’s that special time of year once again – The Giving Tree in Washington DC sheds its last few monetary leaves as fall approaches. The congressional summer recess has left the tree starving for the one thing it needs to flourish and produce those precious greenbacks: BS. As the pontificating blowhards in Congress resume their duties there is once again a renewed hope that The Giving Tree will be restored to health via the abundance of manure spewed forth by inept congressmen and a credulous media who act merely as an amplifier for Washington inspired propaganda.

That’s right, it’s time to raise the debt ceiling. I could write an entire book on what is wrong with the system (although there is little need to do so as Tom Woods’ “Nullification” leaves no stone unturned in that endeavor) and why we are in the mess we’re in. However, space constraints compel me to simply address the two most salient points of disinformation making the rounds of the mainstream media outlets.

Fallacy 1: We have to raise the debt ceiling because we as a country are legally committed to making good on all financial obligations made by our government. It’s like agreeing to pay your credit card bill after you charged the goods on it.

FALSE: No, no, no (sound of head banging desk). It is not at all comparable to agreeing to pay your credit card bill (i.e. committing to purchases AFTER funds are secured). The more apt example would be signing a contract to buy a house BEFORE you have secured the ability to pay for it and then going to the bank and demanding a loan because you “have made a commitment buy the house.”  Clearly, the only result of raising one’s credit limit every time one goes over said limit would be to instill an overriding sense of restraint and fiscal responsibility. Even if one subscribes to the flimsy moral precept that one has a duty to repay financial obligations made by total strangers who happen to reside in the same geographical region as yourself, one must agree shifting the burden of that repayment onto one’s children is the act of a coward. If you believe we have this obligation, fine, then don’t use debt to pay for it, use taxes – raise them through the roof. Because were the present generation to bear the full financial burden of the government programs they pine for they would quickly come to realize they are not so necessary after all.

Fallacy 2: If we don’t raise the debt limit then the US government will be in default and (insert scare tactic) that would undermine confidence and collapse the financial markets.

FALSE: This is the same line of fallacious reasoning employed by Obama when he compared the only possible outcome of not raising the debt limit to being equivalent to a homeowner simply deciding to not pay his mortgage. So apparently the concept of prioritization has never occurred to Obama? Naturally if one has a pay cut or loses their job their first instinct is to cease their mortgage payments so that they can continue paying their cable bill and manicurist. Duh, no, you prioritize and pay your food, housing and utilities first, then you cut off all non-essentials remaining. So if the projected 2014 budget were $1 we see that the government now collects 84¢ in taxes and can pay out 67¢ to fully fund all debt interest, Social Security, Medicare, Medicaid and defense payments. Yes, the remaining 33¢ of spending would have to be economized over the 17¢ of remaining revenue, but the point is it would not be the “essential” obligations that for some bizarre reason are perennially assumed would hit the chopping block first.

Continuing to give the addict money because you’re afraid he won’t buy food provides him no incentive to end the addiction because it insulates him from having to make the choice between the addiction or eating. With the money he can have both. Without it, a choice must be made.