George Rebane
Our friends on the left are overjoyed with President Obama’s latest gambit to keep the country going toward bankruptcy. He has floated a hazy vision of $4T spending cuts that comes with at least $1T of tax increases that add on to the $1T tax increases required by Obamacare – our new nationalized healthcare system that is now providing the country with a new bombshell a month in additional costs, reduced care, and rationed services.
Supposedly this rejects Speaker Boehner’s new proposal to cut spending by $2T with no new tax hikes.
And now Minority Leader Sen McConnell’s desperate response (with sparse Republican support) is to pass a law allowing Obama to unilaterally increase the debt limit by $2.5T in three tranches with equivalent TBD spending cuts. The only caveat is a no-caveat that these debt limit increases could be over-ridden only by super majorities in Congress. This puts the ball back in the Democrats’ court, and they would continue to own the country’s downward spiral as 2012 rolls around.
In all of this back-and-forth few seem to be paying attention to the realities –
1. The country’s real financial obligations are many times the $14.3T current national debt. The most hopeful estimates put the total federal obligations at around $64T, and more realistically above $110T.
2. Our current GDP is around $14.7T and estimated to grow very slowly for the indefinite future. The federal budget is 25% of GDP (around $3.6T). Even at this rate the federal revenues are only $2.2T, forcing us to borrow about forty cents of every dollar we spend. Current plans call for annual deficits in excess of $1T indefinitely.
3. No one (Republicans or Democrats) have a plan to pay off the national debt, let alone the country’s total near-term entitlements obligations outlined above. The only thing that the tea party movement has been able to do so far is bring this situation into the national debate.
4. No plan put forward reduces the national debt; all they hope to do is slow down its growth by some insignificant amount like $4T over ten years. Recall that ‘deficit’ is the annual growth of ‘debt’.
5. US will default (delay debt service payments) only if Obama so orders it. Our annual debt service is less than $300B, and receipts are $2.2T. The US has defaulted on its debt and delayed debt service payments several times in history, this would not be the first.
6. Progressives (Democrats) tell us that GDP growth is not affected by either taxes collected or the level of government participation in the economy. Obama’s plan is to make the current 25% participation the new norm as compared to its historical 19%.
7. Progressives believe that raising tax rates increases government revenues for the long run. The EU countries, led by Greece, Portugal, Spain, Italy, Ireland, Belgium, give lie to that principle, as does our own history.
8. Greek debt is junk, Portugese debt is junk, Ireland’s just became junk, Italy’s is about to become junk. The European Central Bank has only one recourse, to denigrate the rating agencies out of one side of its mouth, while putting forward a plan to screw private lenders to these countries. And that is not even a sustainable solution. Result: the eurozone will disintegrate.
9. The United States is solidly on track to follow its leftwing-hallowed European socialist models into financial chaos.
Few are astute enough to ask, if such tax increases don’t affect GDP and will, in fact, increase government revenues, why are the progressives so willing to postpone them until after the election. Occam recommends accepting the simplest explanation that has always accounted for all the observables – the purposive demolition of the dollar and downfall of America, first as a hegemon, and then as a sovereign nation-state.
In the meantime, while American progressives are popping corks for what they consider Obama’s latest coup, the lenders are all playing musical chairs with how they manage their loans to the various fiscally irresponsible countries. No one wants to lend very much, and everyone is moving their money around trying not to be where the next default(s) will come. And yet there are some high yields out there that may still have some life in them, as long as the politicians do their part and continue to obscure the onrush of reality with their fog of lies. What to do, what to do?
Exit question: Anybody been keeping track of precious metals and commodities?
[15jul2011 update] My voice has long joined those having explained to the innocent true believers in the Social Security Trust Fund that there is nothing there but IOUs – nothing that anyone can spend with which to buy a single apple. For years the Dems have been telling their sheeple that SS is fully funded to some misty date in the future. Many of these same simpletons live in these mountains. A reader reminded me that if there were an actual SS Trust Fund, then we could tap it like the Strategic Oil Reserve. And then the President wouldn't have to spew his bullcrap about not being able to send out SS on 3 August.
Well, it turns out that no progressive wants to point out the truth that the SS is bust, there is nothing there but another $2.3T of unfunded debt that will explode in the coming decaded – here is more in the San Francisco Examiner.
rebanesruminations.com 
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