Friday, October 18, 2013

My View

Random ruminations from your resident curmudgeon...

As expected, Congress went to the brink before pushing the problem of extending the debt ceiling down the road to next February. Congress did nothing constructive about reining in spending or establishing a framework whereby constructive discussions and budgetary adjustments can occur. Oh, wait, Mitch McConnell, the Senator from Kentucky did get a $2 billion appropriation for his state for waterway and dam improvements- the "Kentucky Kickback"- for delivering the Senate  Republican vote. And in a jaw dropping move by Congress, the debt ceiling has been lifted for the next 16 weeks until February 7th. A provision in the latest debt ceiling deal prohibits the Treasury Department from enforcing the debt limit, which has until now kept Congress and the White House from getting totally out of control with their spending. So Congress can accumulate as much debt as it wants between now and February 7th, and there is no restraint from any source. Some experts guess that our legislators will rack up around $300 billion in new debt. I think it will be more. Look for a new farm bill to amass huge appropriations of our tax dollars as more and more Americans receive food stamps. And if Obama and the Democrats ram through an immigration bill granting amnesty to the roughly 11 million illegals in our country, debt could be more. Much more as they draw on government benefits. Right now, Congress has no restraints on their spending, and the next 16 weeks could (will) be a time where our elected leaders can dole out the pork to their districts and favored groups with impunity. And you and I will be the worse off for it.

A man came to my door and asked if I could donate for a community swimming pool. I gave him a glass of water.

Here is a chart that emphasizes the problem we have with government spending:

Since 1970, median household income has risen 24.2% from $41,358 to $53,360. Now look at the increase in government spending. Federal spending was $926 billion in 1970 and has risen 287.5% to $3.6 trillion in 2010. Incomes have averaged an annual increase of .8% while federal spending has had an average annual increase of 9.5%. This does two significantly negative things to the economy: government spending, especially at these levels, tends to crowd out private investment and drain resources from the private sector; and it creates an enormous tax burden on those that pay taxes. Longer term, the continual printing of dollars to finance this deficit spending has the potential to seriously debase the value of our dollar, which means that everything you and I purchase will become much more expensive. As citizens, we must engage with our elected leaders and tell them this profligate spending has to stop. Fail to do so, and the result for our country will be awful and painful.

They say each day is a gift. If so, does anyone know where I can return Mondays?

Our country holds an extraordinary and enviable position among all other countries. We are considered the paradigm of safety and stability, and as such, our dollar has become the world's reserve currency. This simply means that most foreign transactions are conducted in dollars and that foreign investors will buy our dollar denominated treasury bonds for their safety and the confidence that each investor will be fully repaid. By being the de facto world reserve currency, this has allowed our government to print a lot of dollars- a LOT of dollars- because there was always demand for them. And because their was high demand, our interest rates that we paid on these dollars (our debt) has typically been one of the lowest rates in the developed world. This latest budget impasse and the inability of Congress to show any fiscal discipline and restraint has caused some in the global economic community to take a second look at our dollar. Imagine if our credit rating is down graded. Fitch's Rating Service (similar to Moody's and probably a bit more accurate) has already threatened a credit rating downgrade. This means interest rates will go up and we as a nation will pay more interest. Those additional dollars will come from you and me in the form of higher tax payments. And our dollar will lose value as  more are printed and if other countries decide to not treat our dollar as a reserve currency. And this will have the greatest impact on all of us as our buying power is diminished by the weaker dollar. Our country is headed toward a fiscal train wreck, and it is going to be imperative that we press Congress into making significant changes to avert this disaster.

A friend of mine said that onions were the only food that could make you cry. That's not true. I hit him in the head with a coconut and he started crying.

And that, my friends, is my view.

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