Thursday, July 21, 2011

My View

Random ruminations from your resident curmudgeon...

This will be a little bit different post today. Hang on for the ride.

As we approach the arbitrary August 2nd deadline to resolve our debt ceiling "crisis", there are several things I want each of you to keep in mind. What I am about to point out is apolitical: it is not slamming the left and favoring the right. It is factual, and hopefully it will help cut through the clutter, nonsense, and heated partisan rhetoric that surrounds this very important issue.

First: the government will not turn out the lights, shut and lock the doors, and stop doing business if nothing is resolved by August 2nd. We as a nation may be better off if they did, but that is not going to happen. What will happen is that the government will have to make choices about where the money is spent, just like you and I have to do every day. If we reach our debt ceiling, all that technically and legally happens is that the printing press that the Fed has used so profligately over the past three years stops printing new dollars.There is money there to pay Social Security benefits, contrary to the threat President Obama made that there would not be funds to do so.

Secondly, notice the push back by many in Washington against a balanced budget amendment and amendments that tie budget growth to growth of the economy. Why? Those types of amendments exact a financial discipline that Washington has been unable to self impose, and it prevents politicians from spending and making fiscal commitments that have no real benefit except to reward their patrons and boost their re-election chances.

Finally, and this is the most important aspect of this entire matter, the debate in Washington over monetary matters is not really a debate about fiscal policy. It is a debate about the depth and reach of government over our lives. Know this, the ferocity of attack by some elected officials and by the entrenched bureaucracies is because they see their lifeblood- our tax dollars- being curtailed and fiscal discipline being exerted, and this terrifies those entities. If power- financial and political- reside with us rather that being centralized in Washington, then the trend to an ever growing government is going to be slowed if not reversed, and this threatens the financial and professional existence of  the governing class. This debate is really about who has the power in this country. Will it be Washington and the sycophantic bureaucrats that surround our elected officials, or will it be you and me, knowing intimately what is best for our families, our jobs, and our local communities?

If you think that last statement is a bit of hyperbole, consider this: President Obama said in his interview with Scott Pelley on CBS last  week that he could not guarantee that Social Security Checks would go out if the Republicans did not raise the debt ceiling. President Obama said,
"This is not just a matter of Social Security checks. These are veterans checks; these are folks on disability and their checks. There are about 70 million checks that go out. I cannot guarantee these checks go out on August 3rd if we have not resolved this issue."
Refer to the paragraph above. The only way those checks do not go out is if Washington decides to play political football with them and refuses to send them. But here is the salient point of that entire quote, and the reason that I put it in bold font: there are 70 MILLION checks being mailed out each month to recipients of some form of government payment, and those 70 million checks represent payments to approximately 48% of the population So in this debate about how to bring our national spending under control and become more fiscally responsible, realize that nearly half of the people in this country will not be affected by any change in tax rates and primarily want to see the payments from the government continue. This has become a power struggle between those that work and produce and those that receive the benefit of those efforts without working.

Several of my clients have said that they worry that the United States is becoming a socialist nation. Read that paragraph above. We are not becoming a socialist nation.

We ARE a socialist nation.

So how did this happen?


The President proposes a budget to Congress, where it is debated, ratified, and sent back to the Executive Branch for approval. Appropriations (read: where we want to spend money) originate in both the House and Senate and are added into the proposed budget, which can, and often has, created a deficit. The Executive Branch, as part of their approval process, can veto the entire budget. The tax structure to pay for our nation's debt originates in the House Ways and Means Committee. This powerful group writes the laws that establish the provisions of the tax code.

Here is the point of this quick civics lesson: the financial mess that we have in this country rests on the shoulders of 435 Representatives, 100 Senators, and the President. No, not just this group of folks that currently hold these positions, but their predecessors as well. The financial well being in our country today and for future generations rests on the shoulders of these current occupants of elected office in Washington. It is this group of elected officials who, over the years and with a calculated political goal in mind, have created this power struggle, and those that reside in Washington have been the beneficiaries of this confrontation.

It is going to be critical that these elected officials in Washington, many of whom have never run a business and felt the pressure to meet a payroll, realize that money "doesn't just happen" as Michael Filozof says. This takes a fundamental shift in the attitude not only of Washington, but in the entitlement constituencies that Washington has cultivated.

This will not be easy.

Do not get me wrong, there are people that have legitimately earned benefits and are entitled to them. They deserve them and should continue to receive them. What has to change in Washington first and then the rest of the nation is the attitude that "money just happens", whether we print it or we extract it from producers through the tax code. What that means for our nation is what it means for every wage earning household in this country: there is a limit to what can be spent and some things just cannot be bought.

That sounds simple, and in principal, it is. But we are talking about politicians and their desire to be re-elected and remain in the ruling class. This will take courage, conviction, and statesmanship to look at a constituency and say, "We can't afford it". Generally, that has been lacking among our elected officials.

Perhaps even harder is to re-align the attitudes of many in this country for whom "money just happens". Government funds don't just happen, and although for decades they seem to have done so, a day of reckoning is looming. To avoid that, we are going to have to change attitudes in this country and re-introduce a foreign concept called "sacrifice". All of us will have to participate in the detox of the wanton spending that has occurred throughout the years.

The recovery from our dire financial straits will not be easy. It will require politicians to set aside their own self interest and become statesmen, thinking first about the well being of our country and not about being re-elected. That will not happen if we as the electorate do not force them to do so. It will also require us a citizens to realize that the recovery back to good financial health will not be easy. In fact, it will be as if we were recovering from major surgery: painful, arduous, and at times frustrating. It will require sacrifice and giving up some of our own self interests.

It can be done.

It will be done.

The choice we have as a nation is if we will do it ourselves, or if the market will do it for us by ceasing to buy our bonds and refusing to lend us money to perpetuate our profligate spending. If the markets correct our financial errors, the consequences of that will be beyond ugly.

Pay close attention to what is happening in Washington, and don't just hope that we start to make the steps to bring our financial house in order. Be involved. Communicate with your elected officials. Most of all, let them know you are aware and will hold them accountable.

It is the first step toward getting our nation back to fiscal health.

And that, my friends, is my view.


  1. Great article..I agree that to solve the spending stupidity of the past will require pain for everyone. And I mean EVERYONE. The problem as I see it, is that everyone wants the government to cut back, so long as the cuts don't affect them. The rich want benefits to the poor cut, the poor want the rich to be taxed more.

    Not to complicate an overly complex issue, but the problem isn't just government debt. I read an article recently that brought forward total federal, state, city, county, business, and personal debt for the country. It was something like 275 trillon dollars. It is not just a federal problem.

    As I see it, the solution requires 3 things. Massive tax increases (after WWII taxes went up to 70% for the wealthiest earners). It requires balanced budget amendments, and lastly, massive spending cuts. Spending should be dropped by 20% accross the board. Together with the increase in taxes, the debt should crumble. However, so will the economy for a period of time until businesses and individuals adjust to a new world without excess.

    Sounds easy, doesn't it..Too bad nobody has the willpower to do it. Like I said, everyone wants change, so long as they aren't financially affected.

  2. Thought-provoking stuff as always, Mark.

    If we're a socialist nation, I'd say we're a pretty lousy one, given the widening income disparity and declining living standards for a broad segment of the population.

    I do agree that Washington is pretty much completely broken, and it's a systemic issue that plagues both parties. 10-12 years ago the two sides had to work under pay-as-you-go rules that left both sides unhappy about not getting everything they want, but yielded a budget surplus for a while.

    If only the discipline had remained to keep that surplus in place for a few more years, a chunk of the debt could have been paid down and permanent, structural tax cuts could have been responsibly enacted as a result.

    Instead, the current political climate has both parties demonizing anyone who dares to cross over the aisle and constructively engage with the other side. That, to me, is the fundamental problem.