The Budget is the Issue. Kavanaugh is an Important but Temporary Distraction!

By Rich Kozlovich

With all the news being sucked up into the media's vacuum of the Kavanaugh hearings it seems clear to me we're not watching the bigger issues.  Which is just another indicator of how vacuous the media are when it comes to the proper dissemination of important information, and I think for two reasons.  They're lazy ideologues and they're not the brightest pebbles in the brook. There's a much bigger and more important story brewing. 

It seems to me there’s going to be a battle royal between President Trump and the Congress over spending. I think it’s important to outline the reality of this battle, the debt, the obligations of the government, government shut down (which is a misnomer as the government doesn’t really shut down) and what’s to be done about it.

On October 1 Hunt Lawrence and Daniel J. Flynn posted the article, Rachel Mitchelling the Debt, saying, "The new fiscal year gets off to an ominous start."  While it’s clear Trump resented, and regrets, signing their last spending bill saying he would never sign another like it again, we’re finding he’s had to sign a continuing resolution bill that funds all the things he’s opposed to, that will fund the government until December 7, to the tune of 854 billion dollars.

Remember that’s to cover spending from now until December 7. And let’s try and get this clear. The problem is spending! The article goes on to say:

“Federal spending amounts to about 21 percent of GDP. Federal revenues come in at about 17 percent of GDP. You do the math………….. But compounding this inherited problem — and during a time of prosperity — does not reflect well on those currently in power.”

We all have to understand that good economic times never last. There’s always going to be a downturn in the economy, and generally those downturns, in a capitalist society, are the fixes, and if allowed to hit bottom those fixes restore the prosperity.

It’s when government intervenes, such as the Smoot Hawley Tariff passed during the Hoover administration and his interference with how companies operated after the crash of 1929, they turn a recessions into depressions.

Before the stock market crash of 1929 the unemployment rate was around two percent. After the crash it only went up to eight percent…..eight percent…..that’s it. Most people didn’t own stocks in those days, and if allowed to hit bottom it’s most likely, based on the history of past recessions, that economic downturn would have lasted around two years.  Smoot Hawley triggered a worldwide trade war and unemployment shot up to fifteen percent. Franklin Roosevelt then out Hoovered Hoover in his interference and spending and unemployment hit twenty five percent, averaging fifteen percent from the beginning of his administration in 1933 until the beginning of WWII in 1941. Hoover's and FDR's interferences caused the Great Depression to last over ten years.   

The authors went on to note:

“The Congressional Budget Office estimates that the United States returns to a trillion-dollar deficit in the fiscal year starting Monday. The president’s adversaries point to the tax cuts passed in late 2017 to explain the disparity between outlays and expenditures. But revenues remain somewhat constant, stuck at about $3.3 trillion for several years running. This leaves spending, which grows more burdensome as a result of increased healthcare obligations tethered to an explosion in total expenses, a boost in the defense budget, rising rates on servicing a larger debt, and the decrease of workers to support an increase of Social Security recipients.”

They go on to say:

“Discretionary spending amounts to somewhere around a third of federal spending. Even if Congress were to cut all non-military related discretionary spending, the federal government would run deficits in the hundreds of billions of dollars annually.”

The fix is a wholesale restructuring of America’s taxing,spending and economic principles practiced by the nation’s governments, and that includes not only the federal government, but state and local governments, whose debt obligations to state employee’s pension plans are impossible to fund, especially in California.

“They involve structural issues pertaining to mandatory and defense spending — the stuff of third rails. Exploding healthcare expenses beyond what the government spends (that nevertheless helps determine what the government spends), a Social Security system built for when the average American died at 61, and a defense budget equaling what the rest of top-ten largest militaries spend on defense combined.”

According to this site the interest in the national debt is over 300 billion dollars. However, the site Treasury Direct claims the debt payment by the end of 2018 will amount to $494,035,947,609.30.  That’s just a little under a half a trillion dollars.

That’s just to service the national debt, and that doesn’t include the debt owed to the Social Security Administration, which is at least two trillion dollars, (although I’ve read higher figures) since they make no interest payments on “their” own money.   Which is particularly troubling since it’s claimed Social Security will no longer be self-funding after 2020, and will run out of money entirely by 2035.

But the reality of this is really much worse than what I’ve presented here.

According to John Mauldin in his article, Your Pension Is a Lie: There's $210 Trillion Of Liabilities Our Government Can't Fulfill,  noting:

“An old statute requires the Treasury to issue an annual financial statement, similar to a corporation’s annual report. The FY 2016 edition is 274 enlightening pages that the government hopes none of us will read.  Among the many tidbits, it contains a table on page 63 that reveals the net present value of the US government’s 75-year future liability for Social Security and Medicare. That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion. Yes, trillions.”

“Where will this $46.7 trillion come from? We don’t know.”

And it gets worse:

“A 1960 Supreme Court case, Flemming vs. Nestor, ruled that Social Security is not insurance or any other kind of property. The law obligates you to make FICA “contributions.” It does not obligate the government to give you anything back. FICA is simply a tax, like income tax or any other. The amount you pay in does figure into your benefit amount, but Congress can change that benefit any time it wishes. Again, to make this clear: Your Social Security benefits are guaranteed under current law, but Congress reserves the right to change the law. They can give you more, or less, or nothing at all, and your only recourse is the ballot box.”

Let’s face it, under the current system of taxation and spending it seems to me we’ve reached a point of no return. So, what’s to be done? First and foremost, freeze spending. As for the rest, in 2013 I published an article entitled, Get Out of Debt Card!

This is a multi-pronged solution. After freezing spending, cut regulations. It costs the American public (in 2013 figures) 1.75 trillion dollars to pay for the regulations imposed by the federal government, which according to according to Warner Todd Huston on January 16th there has been an increase of $518 Billion in Regulations Since Obama Took Office.

Third, sell off federal assets.

On January 17th 2013 John Hayward wrote an article, ‘Uncle Sam’s hoarded, wasted wealth, noting that it is impossible for Washington to go bankrupt due to lack of assets. He went on to say:

"Washington is not really “poor.” It is very rich in assets, which it could sell or lease to pay its bills, without raising anyone’s taxes. Many of these assets would produce health economic activity in the hands of private investors, while Uncle Sam leaves them strewn carelessly across the landscape, like toys he refuses to put away after playing with them."

I went on to point out, The Institute for Energy Research just released a new study that inventories these “vastly underutilized” federal assets:

“In fiscal year 2009, federal agencies reported 45,190 underutilized buildings, an increase of 1,830 underutilized buildings from the previous fiscal year. In fiscal year 2009, these underutilized buildings accounted for $1.66 billion in annual operating costs, according to the General Accounting Office (GAO). The majority of federally owned and leased space is held by the Departments of Defense and Veterans Affairs, the U.S. Postal Service, and the General Services Administration (GSA). For example, the federal government’s landlord, the GSA, owns or leases 9,600 assets with more than 362 million square feet of workspace. According to the GSA, in a 2009 report, almost 40 percent of its assets were under performing. In October 2010, a congressional study evaluated the savings that could occur based on better administration of the government’s above ground assets that totaled over several hundred billion dollars.” How much is all this worth?  

“IER estimated the worth of the government’s oil and gas technically recoverable resources to the economy to be $128 trillion, about 8 times our national debt. Further, the Congressional Budget Office (CBO) estimated that state and national coffers could generate almost $150 billion over a 10 year period from royalties, rents, and bonuses if these resources were immediately opened to oil and gas leasing. The CBO study estimates are considered to be conservative when compared to historical data and estimates by other analysts and do not consider the earnings from taxes paid by these industries. IER estimated the government’s coal resources in the lower 48 states to be worth $22.5 trillion for a total worth to the economy of fossil fuels on federal lands of $150.5 trillion, over 9 times our national debt. Most of the coal resources in Alaska are deemed to be federally owned and are estimated to be 60 percent higher than those in the entire lower 48 states but are not included in these estimates.”

So why are we in debt? The other thing that is discussed a great deal is the Debt Ceiling and Default. Both of which are apparently not being reported properly.

On January 14, 2013 J.D. Foster, Ph.D. wrote this article.  “Debt Ceiling: Default Not at Issue, Federal Spending Is”, saying:

“The only way the federal government would default on its debt in the event the debt ceiling remains unchanged is for the Treasury to choose to default…... Suggestions to the contrary in the press and elsewhere are simply inaccurate and shameful. The amount of debt the federal government is allowed to issue is set by statute. Federal spending is similarly established by law. Treasury is at once prohibited by law from issuing additional debt above the limit and obligated by law to spend certain amounts for designated purposes. …..If the federal government exhausted its financial management tools, then government spending would be limited to incoming receipts. At that point, the law setting a debt limit and the laws in place directing government spending would conflict—something would have to give…... Very simply, reaching the debt limit means spending is limited by revenue arriving at the Treasury and is guided by prioritization among the government’s obligations. How the government would decide to meet these obligations under the circumstances is a matter of some conjecture."

One thing is clear. When those in responsible positions don’t tell the truth and those in the media don’t report the truth we have to ask why? It is clear that the national debt could be paid, the money owed to the Social Security Administration could be repaid, and Medicare and Medicaid could be solvent. Admittedly there would still have to be changes, but when we also realize the interest on the national debt in fiscal year 2011 was $454 billion, the highest ever in spite of the lowest interest rate in 200 years. It must become clear that ending the national debt is the first necessary goal to be attained.

And apparently that can be done.