A New Era of Culpability sign now

A New Era of Culpability
Seth D Clemons
[email protected]
February 28th, 2009

Like a page from Ayn Rands Atlas Shrugged, this past week President Obama had the audacity to propose a 2009 budget with a deficit of 1.75 trillion titled A New Era of Responsibility. Including the bailout deficit spending, the United States is projected to increase our national debt forty percent this fiscal year alone, rising from 10 trillion to 14 trillion dollars.

Even taking into account the proposed massive tax increases on corporations and households who earn $250,000 or more and individuals who earn at least $200,000, the projected deficit by the end of Obamas first term will still balloon to 16.6 trillion dollars. This projected deficit is highly optimistic and could be much worse as it assumes two improbable events: that congress will not request additional stimulus money; and that the recession will have passed by the end of 2009.

Before people hunker defensively for a political battle, know that Democrats and Republicans have both paved this road to fiscal irresponsibility. The congress for the past 8 years and former President George W Bush recklessly raised our debt from 5.7 to 10 trillion dollars. But even before the ink has dried declaring Bush the worst fiscal President in history, this Obama-led congress will have surpassed the last eight years of deficit spending in just 18 months.

So, who cares if we overspend? Excluding a handful of the last forty years, our country has borrowed money every year to fund the government. Even in years of surplus, in times of abundance, not a single dime has been paid to lower our debt. Here is where we need to shed light on why the past generation of irresponsible credit spending is quickly coming to a painful end.

The government has no wealth. It only has three options to access cash for spending money: taking it from taxpayers; selling Treasury bonds that require future taxpayers to repay the principle and interest; or simply printing more money. Adjusting for inflation, tax revenues have increased by approximately 400\% over the past 40 years, but our seemingly insatiable need for government services has increased even faster. We have been making up for this yearly shortfall by selling U.S. Treasury bonds (primarily to China), indebting us to future additional tax payments.

Lets put this into perspective. In the 2008 fiscal year, the interest alone on debt has grown to an astounding 450 billion dollars per year. This mammoth amount is greater than the combined budgets for the Department of Agriculture, Department of Transportation, Department of Labor, Department of Education, Housing and Urban Development, Department of Energy, Department of Homeland Security, and NASA. Out of 300 million in the United States, only 140 million pay federal income taxes; this means that the first $3214 of averaged taxpayer revenue is used to pay the interest from previous years of overspending. By the end of Obamas first term, the tax burden incurred by our debts interest will amount to at least $5335 per year for every taxpayer, larger than the amount we spend on national defense or social security. Think about that for a moment. If we had zero debt, and therefore no interest, the yearly savings would pay for the entire Social Security Administration! According to Obamas targeted budget projections, our interest payments by the end of his second term would be larger than the entire budget of any department, including Health and Human Services, the largest government department which includes the FDA, CDC, and Medicare.

How can we possibly pay that interest and continue to fund our ever-growing government? In short, we cant. In 2008, that 450 billion dollars of interest was paid by borrowing an additional 549 billion dollars. This is equivalent to you or I opening a credit card every year to pay the interest accrued from our other credit cards. This could go on for quite some time until eventually credit issuers would no longer agree to extend additional credit, resulting in financial collapse. It is a Ponzi scheme. At some point, and indications are that this point is sooner than later, the risk of lending money to the U.S. government will exceed the reward.

A financial analyst with the Anbound Group wrote in China Business News on February 23, 2009, The rapidly expanding national debt of the US will affect the credit rating for US Treasury bonds. US Treasury bonds may be hard pressed to keep their AAA rating US Treasury bonds are supported by the nations credit but US national credit has been tainted in the financial crisis. In the short term, however, the US government cant break away from the current borrowing-bailout-more borrowing cycle. The US Treasury bond bubble is ballooning and is set to burst.

On February 28th, 2009, Warren Buffett wrote in his annual letter to Berkshire Hathaway shareholders, When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

This past week, Secretary of State Hillary Clinton spent her time meeting with Chinese leaders trying to convince them to lend substantially more money to the U.S., even as they grapple with whether to increase exposure to our increasingly risky debt or instead invest in much needed Chinese infrastructure.

All of this is leading to a logical and not-too-distant conclusion: with no ability to borrow more money from other countries and no ability to pay even the interest on previous loans, we will be forced to print currency to pay our debts. Given the massive amounts of interest and debt that we owe, this would destroy our currency and lead to an era of hyper-inflation like we have never before seen in our countrys history. Our homes, investments, cash, and assets will quickly be devalued and our standard of living dramatically diminished.

This is not a call to despair. This is a call to action. How many of us would run our homes or businesses the way our leaders have chosen to run our government? We may differ in our opinions on how to appropriate the funds we provide to our government, but how many of us approve of the shortsighted and dangerous approach of consistently choosing to sacrifice the future rather than making the hard choices today? This is not an ideological issue belonging to a particular political party, but one that should be embraced by all Americans who share in the benefits of our great Democracy.

In the late 18th century, Alexander Tyler, a Scottish professor at the University of Edinburgh wrote, A democracy will continue to exist until the time that the voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority will always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

Will we as a people have the courage to elect leaders that will honestly tell us the reality of our situation, no matter how much it hurts? Will we accept that there are services from our government that we simply must cutback or forgo for the long-term betterment of our country? Or will we continue to remain blissfully ignorant while our elected representatives absolve themselves as they bankrupt our future in the name of giving us what we ask for today?

Our congress is void of leadership dedicated to fiscal responsibility, on either side of the aisle. Despite Republican rhetoric about repenting from their free spending ways, out of the thousands of pork barrel projects included in the stimulus package, forty percent are still going to Republican Senators.

If this issue resonates with you, regardless of your political affiliations, please take 15 minutes to do your civic duty and contact your Senators, Representatives, and Governor. You will find their contact information through the following link:

Please forward this letter to them with this request:

We can no longer afford to live beyond our means, both as individuals and as a society. As my representative, you should know that my vote and financial support goes to those who exercise fiscal responsibility. Pushing our national debt to the next generation is no longer an acceptable solution. We want to begin repaying our debts, even if it means a severe reduction in government services. What are you doing to get our nation out of debt? Simply balancing the budget does not reduce debt. Take action to liberate us and future generations from this treasury bondage.

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