The Iceberg

Thanks to technological advances like radar and satellite tracking, icebergs aren’t the bane of shipping that they once were, but we can still learn something from them.  Most of the mass of an iceberg is under water, which is why people refer to the “tip” of an iceberg.  Well, the national debt is like an iceberg in some ways.

We see a number, right now over 19 trillion dollars.  That number is so large that nothing in our everyday experience helps us to comprehend it.  It’s almost doubled in less than eight years under the progressive Obama administration and there’s no reason to think that Democrats would curb that growth.  That’s an annual increase of around 9%.  Are your CDs paying that?

What we don’t see is what lurks beneath that number; the impact on our economy and national security.  Like any other debt, the national debt isn’t free; the government must pay interest on that debt to the bondholders.  Interest rates have been at record lows for years but they won’t stay there forever.  As interest rates rise the government will have to pay higher interest on new debt as it’s issued.  This is one part of the debt iceberg we don’t see.  Debt interest is paid from tax revenues, so as the debt rises the government will either have less money to spend on national defense, social programs, and environmental protection or it will have to raise taxes.  A second part of the debt iceberg that’s largely hidden is that the debt eventually has to be repaid as the bonds mature.  This is a huge and growing mortgage on future generations.  Of course that debt can always be refinanced at a higher interest rate but we all know where that leads: bankruptcy.  The third, and least conspicuous hidden part of the debt iceberg is that trillions of dollars in US debt are held by foreign countries.  That gives these countries leverage to demand special treatment and even an economic weapon to use against us in case of a conflict.

Here’s something to think about.  The national debt is now over 105% of the US GDP.  That’s right, it’s higher than the total annual output of our nation.  Anyone who thinks this can go on forever must believe that money grows on trees.

Here’s what we need to bring this situation under control before the iceberg of debt sinks the ship of state:

  1. Responsible elected officials who recognize the problem and are actually willing to do something about it.  This means keeping spending within revenues and actively reducing outstanding debt.
  2. A plan to reduce the outstanding debt.  If we ever get real tax reform (not just more pages of rules) this should be part of it.  For example, under a flat tax we could have Flat+1, where the flat portion covered expenses, 1/2 of the extra 1% goes to debt reduction, and the other 1/2 of the extra 1% goes to upgrading our infrastructure (see “Infrastructure: Circulatory System of a Nation” for more on this issue).
  3. Limits on both the total amount of debt that can be held by foreign countries and the portion of that amount that can be held by any one country.  See “The More You Owe Me the More I Own You” for further discussion of limits on foreign debt.

 

Advertisements

How Has That “Hope and Change” Worked Out?

No more mister nice guy!

I’ve suggested ways to help the economy and pointed out problem areas, but now, as we approach an election that will determine the fate of our nation, it’s time to start looking at the current political situation in more detail. A good place to start is to see where the Obama administration has taken the country in the past 7 plus years. It’s pretty much the wrong direction.

One obvious fact is that the national debt has more than doubled and is now topping 19 trillion dollars. That’s a sum that even billionaires can’t comprehend. That’s an enormous debt to pile on our children, their children, and generations to come. Even worse, the debt escalation shows no sign of slowing as Democrats just can’t stop spending, even on low value programs. It’s a cancer that could cripple and bring down our republic.

Second is the complete lack of accountability in this administration. I addressed that in my “No Accountability, No Consequences, No Problem” article. The idea that so many people in high responsibility, high paying jobs aren’t held responsible for incompetence, lying, or outright wrongdoing is unacceptable. How many “average workers” enjoy such protection?

The nation is dangerously divided racially and economically. This is unfortunate because our first black president should have been able to heal many differences. Instead he has worked like a community organizer and divided the nation. You can refer to Saul Alinksy’s “Rules for Radicals” for the list of community organizer tactics.

There’s also more tension between police and civilians, with increases in both random attacks on officers and fatal shootings of unarmed suspects. This is dangerous for both sides and comes at a time when cooperation is vital to counter gang and terrorist threats.

The economic stimulus that was supposed to lift the country out of a severe recession didn’t help a lot of people. The top 1% enjoyed huge stock market gains thanks to Fed policies while working people saw stagnant wages and retirees still get zero interest on their savings. Too many people are working below their abilities or working several part-time jobs to survive. Good paying manufacturing jobs are being replaced by low wage service jobs. American IT workers are being replaced by H1B visa holders (even though that’s illegal). Welfare has expanded and programs have seen no reform to make welfare a hand up, not a handout for life.

The US is experiencing an unprecedented drug addiction epidemic, with overdose deaths reported every day.  This is a clear sign that people are unhappy, depressed, frustrated, or frightened by the direction the country is taking.  Since existing actions aren’t curbing the epidemic and the government isn’t willing to secure our southern border to cut off the flow of illegal drugs it’s taking the one-size-fits-all approach of intimidating doctors and making it harder for legitimate pain sufferers to get medication.

The signature ACA is just a numbers game to get more people on insurance rolls. It has given people insurance plans that they can afford to buy (thanks to subsidies), but can’t afford to use (thanks to sky high deductibles), yet insurance companies are losing money. That’s not a sustainable way of doing business. Once taxpayers have to bail out insurers and families can’t use their policies the country is on a path to a single payer system. While the simplicity of single-payer seems attractive, would you trust the government to manage it after the way the VA has treated our veterans? One basic failure of the ACA is that it does nothing to control costs; the other is “one-size-fits-all”.

The unconstitutional Department of Education has asserted even more control over public schools through Common Core, which, like the ACA, is a “one-size-fits-all” program. States, communities, and parents are being phased out of public education (except to pay the bills).

There has been no reform in taxation, immigration, or criminal justice; areas where both parties should be able to find some common ground.

Our infrastructure is deteriorating. Our electric grid and communications systems are vulnerable to cyber attacks. We are relying on luck, and when a hostile nation or terrorist group strikes, it will run out in an instant and we’ll learn about life in the Middle Ages.

We have seen erosion of our Constitutional rights, privacy, and even private property as the government finds more ways to seize property without adjudication..

We have seen the rise of two state “religions”: climate change and political correctness. Climate change is a matter for scientists; political correctness is simply stupid.

Our foreign policy has been inconsistent; our objectives unclear. Our support of “change” in the Mideast to oust repressive dictators hasn’t brought people freedom; it’s led to violence. The world has seen the rise of the most brutal terrorist organization in recent history, ISIS. It is anything but a “JV Team” and as more groups with similar goals pledge allegiance to ISIS this threat won’t be stopped anytime soon. Our military is seen as weakening as powerful nations like China extend their military influence and North Korea is testing ballistic missiles. If a large scale war breaks out the US cannot afford to be on the losing end.

Many people in this country are angry. The “hope and change” hasn’t made their life better. Can things get worse? Definitely! The Democrats’ favorite candidate, Hillary Clinton, has promised four more years of the current administration’s failed policies and attacks on our rights. She’s been a liar her entire career, but Democrats ignore that fact because she’s “entitled” to be president. Since when is any public office an entitlement? The last person to rule our soil as an entitlement was King George III.

Security II

Economic security at the national level is basically sound money management, including setting priorities, managing budgets, and limiting debt.  Congress doesn’t seem to be too good at these.  Well run companies carefully manage their capital structure.  Government at all levels doesn’t bother because it can always raise taxes.  Debt can reach a point where raising taxes alone won’t work.  Can anyone even conceive of how much $17 trillion is?  How are our children and grandchildren supposed to pay this off?  True, it’s not all due at the same time, but as some debt is retired we keep adding more so the trend is upward.  Has foreign debt given other countries too much leverage in setting US policy, or could it be used as an economic weapon?

At the personal level economic security starts with a good education that leads to a decent paying job that leads to a secure retirement.  This was an improving trend in our country but that trend seems to have reversed as the middle class is in decline.

Emotional security is simply the feeling that things are good in this country.  For generations many parents found emotional security in seeing their children do better than they did.  I was the first in my family to go to college and my parents were proud.  For immigrants from oppressive countries emotional security may come from freedom from the fear of a brutal government.  Emotional security contributes to the “pursuit of happiness”.

There’s an economic metric that retailers watch called the Consumer Confidence index.  It’s a measure of both the economic and emotional status of the population.  Higher confidence means consumers are more likely to spend than when they’re worried.