June 30, 2011

The Election Deal

Our Federal Government is going through another game of “Fool the public” with a “raising the debt ceiling” dog and pony show. They may think we don’t know what’s going on, but they’re wrong. It’s the 2-4-6 election game. Tell the public what they want to hear and do what we want. Make a deal that looks good even if it doesn’t solve any problems. Deficit, debt ceiling unfunded liabilities? Here are the facts.

Congress – the House of Representatives – has a responsibility to see that America handles her finances responsibly. It’s a part of the “purse strings control.” One of the checks and balances provided for in the Constitution. It is a tool intended to insure that we do not spend beyond our means. Spend more than we can afford. A tool rarely used as intended. Electioneering has replaced responsibility.

Right now the debt ceiling is about $14.2 trillion dollars. As a nation, we already owe $46,000.00 for each man woman and child in America. Most of it to foreign countries like China. At 5%, the interest on that amount is about $767.00 a month for a family of four. Being paid right now out of our taxes and borrowed money. Many economists believe we are near the point of no return. If we increase the debt ceiling in order to continue our out of control spending, we will never be able to catch up and pay it down. It is crucial that we hold the line and find ways to cut our spending to match our income. Cut up the national “credit card.” Isn’t that what you would do if your family was in that shape? Haven’t many of us had that experience or had children who spent more than they could manage? What are some of the consequences of our current spending binge? You have already been effected, even if you may not be aware of it. The immediate consequence is inflation. Another one of those words that sometimes is hard to define. The effect of inflation simply is the loss in buying power of your money. And the loss of value of your assets. Last year the estimated rate of inflation was about 8%. You can verify this by looking at your grocery receipts. Actually groceries have increased at a substantially greater rate because of some questionable decisions by our government. Such as the use of corn for fuel which increases the cost of almost all of our food supply. Last year a package of a particular brand of cookie cost me $1.48. Yesterday, $2.12. Last year a can of vegetable soup cost 59 cents. Yesterday, 98 cents. The effect of these increases is compounded by the fact you no longer get any interest on your savings. This year they are predicting an inflation rate of about 10%. If you had savings of $50,0000.00 two years ago the buying power of that savings account would be less than $42,000.00 today. No Interest either. Saving for retirement? You have lost a lot of ground. The second penalty is this. Our children will pay is an unbearable tax burden which will prevent them from saving and accumulating wealth. So it is important for each of us to stop the out of control federal spending. The way to do it is to refuse to increase the debt ceiling. That would force cuts in political spending for entitlements. Current spending must match current revenues. No Deals that don’t meet that criterion. The only deals should be in how our income is allocated. Debt service should be sacrosanct. Followed by portions of our military. The politicians will try to use reductions in unfunded liabilities to fool us. They either think we don’t know the difference or don’t know themselves (DUH!!)

Unfunded liabilities are the entitlement promises made by politicians that will come due in the future. Beginning tomorrow. According to an article in USA Today, those liabilities now exceed $61 trillion and are increasing at a rate of $5.5 trillion a year. Of that $5.5 trillion, Medicare accounts for $1.8 trillion and Social Security another $1.4 trillion.

So, there are two related problems. Out of control current spending. And Commitments for future “entitlements” we cannot meet. The current spending problem cannot be solved by token reductions in future unfunded liabilities. It can only be solved by stopping the spending NOW. The future unfunded liabilities can only be resolved by changing the ground rules to make the major entitlements actuarially sound and “pay as you go.”

Several plans have been proposed to deal with the unfunded liabilities. Representative Ryan has offered legislation to change the basic nature of Medicare to a supported insurance program. It would not effect individuals over age 55. The Heritage Foundation has proposed what it calls “Saving America’s Dream.” It is available in great detail on the web. Together they represent legitimate starting places for resolving some of our financial problems. The missing element is the willingness of the political establishment to recognize or understand the scope of the problem enough to abandon the traditional “buy the votes” spending. Maybe it will take a complete new set of representatives. We already have seen signs that the Republican “establishment” intends to make a deal that does not balance spending with income. A “look good” deal that will require an increase in the debt ceiling. I hope I am wrong because this may be our last chance to get things right.

To me, getting things right means to stop out of control spending NOW. Balance our spending with our income. It means reallocating income to insure we service our debt. It means to rebuild our Medicare, Medicaid, Social Security and pension plans so that they are fully self funded. It means having a systematic plan to pay down our debt. Getting things right means having a government that is fiscally responsible. We, you and I, must tell our Representative this and insist they “Get it Right.” Complaining won’t get it done. Finally, I am convinced that the international community would look with favor on America’s commitment to fiscal responsibility, a balanced budget and paying down our debt. And very unfavorably on raising the debt ceiling in order to keep spending money we don’t have. What do you think?

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