Monday, August 9, 2010

We, the People, deserve better! - Part II

The problem is so much larger than Republican vs Democrat, and China is only part of the problem.

However, as the following document from the Treasury Department will show, China may be the largest holder of treasuries, but they are not the only ones. Is it cause for concern? Absolutely.

A point that many Republicans and Democrats disagree on is tax cuts. Tax cuts spurred the economy and created growth. In fact, the Dow Jones hit it's all time high of over 14,000 in 2006. Unemployment was at all time lows.

Jack Kemp, Bob Doles' 1996 vice presidential nominee, once told me that if the government taxes at 0% the government will receive no revenue (obviously). If the government taxes at 100%, the government will also receive no revenue. The reason - nobody wants to work for free. The question isn't whether someone is willing to pay taxes. There are a few who, wrongfully, insist that the government shouldn't tax anyone - yada yada, but they are a very small minority. The question should be what is the tax rate that garnishes the most benefit for the people, businesses and the government. What is the maximum rate that will allow the economy to grow and employ more people, while at the same time maximizing revenues to the government and simultaneously allow people to keep a good sized portion of their revenue? He said this because when the tax rate is too low, the government doesn't receive enough revenue to provide for the common defense and the welfare (not the welfare programs, mind you) of the people. If the tax rate is too high, government revenues go down because people start moving their capital overseas or placing them in tax shelters. He estimated (in 1997) that the maximum tax rate should be around 18%.

However, there is still another factor to be considered - the monetary policy of the Federal Reserve. I'm not one of those who wants to End the Fed, and don't believe there is this vast conspiracy of the Federal Reserve. Yet we have since learned that when the Fed doesn't do it's job properly, it severely impacts the economy by creating inflationary bubbles - aka Alan Greenspan keeping the interest rates artificially low. This was a contributing factor into the recent housing crash, which bled into other sectors of the economy.

Ultimately, if we are to continue to exist as a nation, we need to get our spending under control. We need to insist that the budget be balanced. Prior to the Obama administration, the largest yearly deficit was $465 billion dollars. Out of a then $3 trillion budget, I'm sure we could have found ways to cut $465 billion in a given year through eliminating waste, fraud and abuse; streamlining government by eliminating duplication of services among Federal agencies, ended antiquated programs and departments - and then, if there is still a need to trim, start cutting programs and services.

If we were to eliminate our National Debt by paying it off, we would then be bargaining with China out of a position of strength instead of economic weakness. Ask any Congressman what he/she would do with an extra $500 billion each year and I'm sure you would find a wishlist a mile long. If we were to eliminate the National Debt, our economy would grow and we could then take that extra $500B and invest it into more social programs, better military equipment, save social security, expand the S-CHIPS program and still have money left over.

Until We, the People, see this, nothing will change regardless of what party is in power. 

We, the People, deserve better!

As more Americans discuss the economic State of the Union, I've heard a lot more people offer comments like "G.W.B. put our Country in a huge amount of debt to one nation we should never be in debt to...China." 

After studying the National Debt quite in-depthly for the past six years, it's time to take a look at not only the accuracy of statements like this, but what "We, the People" as a whole fail to understand about the National Debt.

The people who put our country in a huge amount of debt is Congress. The National Debt was established in 1791 as a way of paying off all of our war debt from the Revolutionary War (side note: Since some states had already paid off their share of the debt, and others hadn't, there was a lot of bargaining going back and forth between Alexander Hamilton and the representatives of Pennsylvania and Virginia, primarily. In exchange for these hold out states financially uniting with their geographical brethren, the U.S. Capitol was moved from New York to Philadelphia temporarily until a new national capitol was built from land previously owned by Virginia and Maryland on the banks of the Potomac river. Washington D.C. would never been established where it is except for the war debt agreement, but I digress.)

The national debt rose and fell from 1791 to 1959. It was nearly paid off in two consecutive years - 1835 and 1836 - before the Specie Circular was released by Andrew Jackson, demanding all land grant payments to be made in gold or silver only - no greenbacks. In fact, in 1830 Jackson vetoed the "Mayville Road" project in Kentucky because it would have required federal funds going into a road - something that was unheard of at that time. Our country was on the course to eliminate the debt and our leadership wanted to accomplish that goal. (For more on the "Mayville Road" click here)
The last year that the debt was paid down was 1959, when President Dwight Eisenhower was still President. It has risen every year since then - at astronomical proportions. Even during the Clinton years the debt still grew, despite the rhetoric out of ill-informed Democrats who insist that the debt went down during the Clinton era. It grew by a "paltry" (and I use that term lightly) $17 billion in 1999 - it's smallest growth since 1959.

The reason behind this is compound interest and the refunding of the debt. Neither party takes this problem seriously.

We don't understand the fact that when you print money, every time a bond is issued on the market, the value of the dollar goes down in relation to other currencies. We don't understand that when bills, bonds and notes mature, new bills, bonds and notes are taken out to pay the principle and interest on the old ones. We don't understand the fact that in the month of June 2010 alone (per, we taxpayers paid over $106 billion in interest payments. In the entire fiscal year to-date (Oct. 1, 2009 - July 31, 2010) we paid over $375 billion in interest payments with two months left to go. The entire debt in 1969 was $368 billion.

If we, the people, would actually get serious about shedding debt and making government live within its means, then the "deficits" would be eliminated almost immediately. One could argue about earmarks, percentage of debt to GDP, money accounted for in the "out" years, lack of double entry bookkeeping and GAAP standards - but the truth is - WE, the PEOPLE, don't understand the debt. (I've studied it in-depthly for the last six years)

Since President Obama was inaugurated, the national debt has increased over $3 TRILLION. This is a combination of excess government spending, not enough income plus the interest payments that are off-budget. This is the same amount of increase in 18 months that it increased in the entire 8 years of GWB.

The problem, again, is not Republican or Democrat. It's an AMERICAN problem. Neither party wants to admit their fault. Both parties want to blame the other guy. Personally, I blame Congress because they are the ones that are constitutionally mandated to have the power of the purse. All revenue bills originate in the U.S. House of Representatives. And, my friend, they have all let us down.

We, the People of the United States of America (including those living abroad) deserve better!

- Jeffrey S. Williams
  Founder, National Debtbusters

National Debt Clock