Obama's Money Tree and Washington's Ponzi Schemes

February 21, 2011

The latest news out of Washington indicates that our fearless leaders have not let the recent financial meltdown lessen their affection for Ponzi-type schemes. It may be recalled that the 2009 stimulus act saw the federal government lending the most bankrupt state governments billions of dollars to postpone their imminent financial crises. The loans were interest free for two years and "easily" financed by the feds because they can just print money as needed!

However, on this past December 31 the two years were up, 30 states owed $42 billion, with interest now accruing, and their resident businesses faced with increased mandated federal payroll taxes to help repay the loans. It appeared that the Ponzi scheme might unravel. The states are too broke to make any substantial repayment, and the Administration is leery of hiking taxes on the beleaguered business community. So, a tough and courageous decision was called for. Guess what we got?

The apparent "solution" will apparently come in President Obama's 2012 budget where he will propose waiving the tax increase and postponing the interest charges for two more years. Presumably he could also lend them more money and defer repayment till some future undesignated date. Thus the money tree at the Federal Reserve takes on the State deficits as well as the federal deficits. The problem is thus postponed, true to its Ponzian roots, and the escalating debt will only come home to roost at some future time.

We can only hope that some intrepid, brilliant, and unscrupulous Goldman Sachs employee will accumulate these "sub-prime" notes, securitize them, and sell them to the Chinese. Otherwise they will not go away quietly.

Could Compromise and Non-partisanship Make a Better Congress?

Retiring Sen. Evan Bayh recently warned that Congress needs harmony and must drop its rampant partisanship. In a nationally broadcast interview, the Indiana Democrat said, "The extremes of both parties have to be willing to accept compromises" in order to accomplish things for the national good. He added that voters are in a mood to turn out many incumbents "until we change this town, until we reform Congress." Doesn't that sound grand? But haven't we heard such nonsense before, many, many times?

The American political scene has never been harmonious nor has political ambition ever taken a back-seat to civility. Such mere "words" have proven meaningless in the actual conduct of affairs of state. What is needed instead of harmony and fancy words is a rational and non-ideological approach to solving the problems facing the nation. And the biggest problem now and for the forseeable future is the economy. The recent record of government oversight and management of the economy has proven disastrous so a change is both obvious and essential. And the change needed is so drastic that "compromise" cannot be the answer.

Congress and the Presidents have been compromising over spending, taxes and the budget forever, and recently those three vital areas of government have spun out of control. The annual spending deficits and the national debt have escalated so grotesquely that the restoration of fiscal sanity should be the first order of business. Sadly, the goal of even the most prudent observers is to merely "reduce' the deficit within some 5-10 year future period, and THEN to reduce the debt. That is hogwash. It is merely defering the problem off conveniently into the future. That has been the modus operandi for too long. It does not work.

Partisans can argue over the merits of every conceivable government program and policy until the cows come home but the programs themselves are not our major concern. The major concern is that the programs, whatever they may be, must be paid for out of current receipts. A balanced budget provides a self-limiting control over the nation's finances. It doesn't matter whether we believe that all government spending is essential or totally wasted--just as long as it is covered by revenue and nothing is added to our national debt. It would be nice to think that our elected officials could streamline government, simplify and eliminate overlapping inefficient programs, and eliminate corruption, expensive junkets, pork, and bribery. But it is more important right now to just live within our income. We could actually survive with waste and pork if it was paid for without issuing phony paper money! Fighting over the way it is spent is just a diversion and hides the real problem of how do we pay for it.

A balanced budget that included actuarial computation of deferred mandate expenses would force a large reduction in spending and a big tax increase. The difference between what Congress is committing for and actual income is too huge not to require both. Such a policy would provide an important wake up call about how serious the problem is. And voters would be made vividly aware of both the curtailment of expenditures and the added burden of taxes. They would then be in a position to evaluate the issues at stake. But we would have stemmed the bleeding. Think of a gaping wound and the need above all else is for a tourniquet.

At present, the arcane chicanery of the Federal Reserve and its compulsive printing of money and issuing debt hides the perilous situation we face. What we have been doing is allowing foreign nations to own more and more of our national debt which will eventually give them an inordinate control over us. And hardly noticed, the escalating interest on that debt further burdens the annual budget, and grows larger every year.

Sen. Evan Bayh says partisanship and gridlock made it time for him to quit. It would have been better for him to enter legislation to keep all spending within the amount of revenue taken in. Then Congress would be free to fight over whether those expenditures would go to farmers, single moms, the aged, the injured, the homeless, the military, or the schools. Where it went would be secondary compared to the fact that we would be living within our means and the costs would be visible to everyone. To gain this essential situation every voter should look chiefly for a politician's pledge to balance the budget "now, not in the future sometime." The candidate's stated position on gay rights, foreign aid, welfare, and the war on terror, will not be terribly important if America goes bankrupt and is owned by foreign nations that have learned to save rather than just spend.