Thought you might be interested in this "Introductory" extract from a program my husband is working on....FYI.... It is intended to be a non partisan analysis - viewed from the perspective of an American concerned for his Country.
Introduction
Events over the past several decades have evolved to the point that the viability and survivability of both the United States and world economic and financial systems have come into serious question. Out of control spending, debt and unfunded entitlement programs have combined to create an unprecedented state of turmoil and distress. The resulting impact on the average citizen and investor has been to confront them with challenges to their financial security and a high probability of financial system collapse thereby ruining them through the playing out of events not of their making or in their control. The size of the "problem" and the scope of the potential negative consequences that appear to be unfolding have created a climate of fear and indecision as the government and financial institutions struggle to cope.
As a result, increasingly aggressive governmental actions have been taken to reduce interest rates to near zero to reduce government cost and spur economic growth. These actions have, in turn, impoverished millions of people in or near retirement age as their income from savings and investments has "dried" up. At the same time, the government has taken actions to "create money" through the Federal Reserve System thereby increasing inflation with the result that the value of everyone's savings, investment, personal property and income have been eroded. The combination of these two primary developments has led to a crisis atmosphere throughout the world as it becomes clearer and clearer that the magnitude of the problems appear to be potentially beyond the ability of governments to cope with them.
The initial reaction of most (informed) people to the current state of affairs is captured by the question:
How did we get into this mess anyway?
The real answer to this question is complex.
There are several aspects of our current situation that, when properly understood and considered, can only be described as an analogy to the Middle Age challenge that the Knights of yore faced as to “Who can untie the Gordian Knot?". The main problem with the current mess centers on the legacy financial/political/governmental system "abuse" visited on the respective systems by the "powers that be" as they wantonly pursued their own self interest over the past several decades.
The situation has finally evolved to a point where all these out of control factors are “coming to a head” all at the same time. Unfortunately, at this point, the results of theses excesses are incredibly huge, intractable and multi-faceted. They are comprised of many diverse elements – some financial/some political/some cultural/etc. A final solution will require that the “sword” be taken out to cut through all the "BS"/Special Interest distortions/etc. and in effect, push the "Reset Button" of the US financial and political systems.
This will not happen as a matter of conscious choice in my opinion. The issues are simply too large and intractable given the dominant political mindset(s)/ self interest, hyper-partisanship and relatively low quality/capacity of most of the individuals currently in office. The current crop of politicians, by and large, seem pathologically unable (or unwilling) to discriminate between party interests vs. the country’s interests and needs in the short to mid to long term. It will require a catastrophe (i.e., financial collapse) to concentrate the minds of the powers that be to finally stand up to taking the actions that required to resolve the "mess" we find ourselves in. It would appear that we are well on our way to that eventuality. Unfortunately for you and me, it will probably happen in our lifetime.
Basically, we have come to a point where the country is confronted with bankruptcy and financial insolvency. In the mid to long term, the levels of the financial problems and negative trends simply transcend the ability of anyone or any faction to deal with them given the current state of affairs (i.e., economic low growth, destructive tax system, strangulatory regulatory system, etc.). The "political class" spenders (i.e., of other people’s money) continue with their unbridled destructive profligate policies either through ignorance of economic reality, self-interest or by design. In any case, their conduct is cumulatively destructive, reprehensible, unsustainable and unlikely to change until, hopefully, a defining event occurs before the looming total collapse comes to pass. It is very much like addictive behavior writ large – narcissistic behavior, state of denial, insistence on instant gratification / getting one’s own way, no sense of propriety, etc.
Consider:
At this time, politicians' over-promising of entitlements has led to a point where entitlement expenditures constitute 80% of the federal budget. The unfunded liabilities of these programs (i.e., Medicare, Medicade and Social Security et al) totals more than $49.3 TRILLION NET PRESENT VALUE or "NPV". These programs, as currently constituted, are immune to revision and are on automatic pilot for continued increases (accelerating). More and more individuals (mostly unqualified previous non-participants/non-contributors) are continuously being added to the programs by the tens of millions.
In summary, the financial status of these programs constitutes an UNSUSTAINABLE unfunded liability that promises to crash the whole financial system if major changes are not adopted post haste. The time for "kicking the can down the road" and deferring accountability is at an end as the federal budget spirals into disarray.
All this is playing out in addition to the $15.1 TRILLION national debt already accrued (plus $7.1 TRILLION of Fannie Mae (FMA)/Freddie Mac (FRE) mort-gage agency debt guarantees and the ~$16 TRILLION in unreported loans made by the Federal Reserve to both foreign and domestic banks and financial institutions.
These previously unreported "off book" Federal Reserve System funding activities have been hidden from the Congress and the public ever since its founding in 1913 due to its intransigent resistance to submitting to an audit of its affairs. Continued persistent demands from Congress for an audit of the "Fed" finally resulted in a recent partial audit which finally uncovered these excessive funding activities which have served to significantly exacerbate the financial crisis the country finds itself in and make any recovery more problematic.
In addition to the "Fed's" liabilities and excesses, the ANNUAL governmental budget deficit is $1.5 TRILLION + PER YEAR and promises to continue at that level as far as the eye can see. The interest on the rapidly increasing national debt promises to grow drastically from its current ~$275-400 billion per year to a much higher number ($800 billion - $1 Trillion + ?) as interest rates finally return from the current artificially low .25% Fed funds rate to their historic norms (~3.5-6%) – thereby putting additional significant upward pressure on the annual debt level.
Think about it:
If we set out to pay only the national debt off at the rate of $100,000,000 PER DAY, it would take 39 YEARS to retire the debt with no consideration for payment of accrued interest over the payment period. At 5% interest, the time to pay it off would grow to about 8 times as long or 300+ YEARS. And that is just the $15.1 trillion portion of the national debt – not the unfunded liabilities on the table for FRE/FMA agency debt guarantees or the entitlement programs. On top of that, these numbers do not include any consideration for the continued growth in the national debt which currently amounts to $4 BILLION PER DAY (40 X the aforementioned assumed DAILY pay down payment) - an amount that, again, is projected to continue and grow as far as the eye can see into the future.
On the citizen - governmental front, we are confronted with the question as to just what is the relationship of the average citizen to the power of the central government. There is only so much power in any society (i.e., economic, social, etc.). As the government has grown to take, either directly or indirectly, increasingly large portions of your work/ investment compensation (i.e., taxes, inflation, etc.), mandate the shower head you can use, the toilet you can use, the light bulb you can use, the mileage of your car, your medical care choice or lack thereof (i.e., Obamacare), etc., etc. etc., there is a very real problem re the erosion of all of our personal liberty. At this point, the original power balance with the majority of the power in the hands of the citizen has been turned on its head as the government has come to exercise an arguably dominant role on all fronts.
The advent of the so-called "Progressive" movement with its introduction by Teddy Roosevelt of his "Trust Busting" initiatives (government assumption of social/political power) and the subsequent growth in government acquisition of power/encroachment by Woodrow Wilson into a final "launching" for real of the so called "Progressive" agenda by FDR with the "New Deal" (government assumption of social/economic/political power), "alphabet soup" of regulatory agencies and other New Deal progeny started the government usurpation for real. These developments have been aided and abetted by the government's further intrusion into the citizen's affairs - first via the imposition of the income tax (and unaccountable Federal Reserve System) in 1913, later with increasingly onerous governmental mandates of personal behavior and lifestyle options (see above) and finally the move to a fiat currency under President Nixon when he took us off the Gold Standard in 1971 hereby removing a key discipline on the political class's spending excesses. These intrusions have all grown at the expense of our personal freedoms, economic well being in real (i.e., non-inflationary) terms and "citizen power" and free choice.
Additional lamentable considerations:
· Our body politic has migrated into a state of hyper partisanship that threatens to make the country ungovernable. Total focus is on hyper partisan party politics and the demonizing of the "opposition" on a personal basis (i.e., Bill Clinton’s “Politics of personal destruction”) is the norm irrespective of what they say or stand for. This reality pervades the body politic as extreme elements of both parties blindly pursue their narrow self interest at all costs and damn the country and its pressing interests. It is essentially impossible for any serious politician (or person) to make an honest effort to come to grips with this emerging disaster without being demonized and vilified in the press with the most vile dishonest (mostly fabricated) personal attacks imaginable - never mind the substance of the issue being proposed. God forbid that the discourse would be focused of the merits of the proposals in question. Representative Paul Ryan’s recent proposal for a comprehensive solution worked out with and vetted by the Congressional Budget Office is a case in point. It’s one thing to disagree and debate on the merits of a proposal. It’s another to totally ignore the substance of the matter and go directly to ad homonym attacks on the individual in a blatantly transparent attempt to avoid at all costs a serious discussion of the issue(s).
· 90%+ of incumbent Senators and Representatives are reelected as a matter of course (both parties) due to the gaming of the system by incumbent politicians. This, combined with the exorbitant cost of challenging an incumbent with all his (or her) built in advantages (franking privileges, lobbyist support et al) that has evolved over the past several decades makes the Founder's concept of citizen participation and the rule of "common sense" appear quaint and laughable in retrospect.. Accordingly, there has been an elimination of transparency of actions and accountability for office holders as they pursue their self-interest and enrichment in office. This, in turn, has violated a fundamental assumption of the Founding Fathers that counted on informed individual citizens (as opposed to political parties or “groups”) to maintain a viable Republic through periodic elections to hold the government accountable. Unfortunately, this trend has been aided and abetted by an abdication of the press on their responsibilities to “ride herd” on the system, expose nefarious behavior and inform the body politic. The press, in effect has ceased (by and large) in reporting the news and become proactive advocates (propagandists) for the Statist point of view. The bottom line is that the government grows stronger and the individual citizen grows weaker in his freedom and ability to protect his own self interest or influence events.
· At the same time, we have reached a point where those of a “Statist” mentality have advanced their agenda since the 1930s to the point that 80 % of the budget is represented by entitlement spending (read government dependence/narrow group interest politics) that is "untouchable" and on automatic pilot with excessive and unsustainable increases built in as far as the eye can see. This, despite the obvious negative results of these policies (i.e., the destruction of the Black family unit, high unemployment, persistent inflation, etc.). On top of that, we now have almost 50% of the people paying no income tax (i.e., no "skin inn the game") and about 43,000,000 people on food stamps (up 5,200,000 in the last year)/ "nutrition" subsidy programs - all subject to government dependency. The so-called poor still number at the same level as percentage of the population as they did when the "Great Society" was conceived in 1967 before $8-10 TRILLION was subsequently spent to alleviate their condition - all apparently to no avail at great cost in dollars (i.e., capital - the "mother's milk" of our financial/free enterprise system) and lost opportunity to us all.
Whatever happened to personal responsibility?
All this the end result of the political class gaming the system in the pursuit of votes NOW and, again, damn the country and its need for sustainable finances and wealth creating free enterprise incentives that do not erode our personal liberties and the intent of the Founding Fathers Republic. I’m reminded of Benjamin Franklin’s response when queried by a citizen as he left the final constitutional convention meeting. To wit: “Mr. Franklin, what have you brought us?" His answer, "A Republic if you can keep it.”
All things considered, it appears at this point that we probably can not "…keep it."
· At the risk of repeating myself, a key trend bearing on our current dilemma has been the balkanizing of the country by the political class into multiple politically malleable interest “groups” (i.e., Blacks, Hispanics, Gays, “Rich”, feminists, “Jews”, the "millionaires and billionaires", etc.). This started principally in the 1030 with the advent of the "New deal" and was followed up in the 1960s with the advent of the Great Society et al. As these self serving initiatives grew, they become the reality of the day and increasingly replaced the original system wherein control was primarily exercised by the independent individual citizen as envisioned by the Founders.
This emergence of “Group” politics (i.e., mass man Groupthink "democratic" mob rule) is exactly contrary to the original precept of the country which enshrined the individual citizen as the political unit possessing inalienable rights et al with the capacity to act as a final check and balance on the central government's excesses. This has been done to facilitate the politicians “you are a victim and I am your benefactor” group strategy that has prevailed lo the past 60-70 years to curry favor and get votes by spending "other people's money". In effect, the “Statists” have essentially succeeded in repealing the country’s founding principal of “E Pluribus Unum” (from many citizens, one "American" identity) with individual responsibility for one’s affairs and well being and imposing a corrosive "Group Think" mindset on the body politic. This is a perfect example why the founding Fathers feared political parties. They were convinced that it was just a matter of time before party interests trumped the country’s interest as cared for by the informed free man citizen exercising his innate independent reflective thinking and analysis capabilities beholden to no one. Any objective review of the current state of affairs in the country has to conclude that their fear was legitimate and prescient.
· The free enterprise system has been hobbled in a manner analogous to “Gulliver” and the Lilliputians. The combination of taxes, regulations, litigation risk, non-availability of capital, etc. have finally combined to choke the Golden Goose of small business (i.e., < 500 employees/$ 5 million revenue) which accounts for essentially ALL the new jobs created contrary to what most people believe. If you don't believe this, just go talk to a small business man or try to start a company on your own.
· Tax system atrocity:
Super complex (77,000 pages) not understandable, contradictory, costly to comply with, administered by an organization that is, in fact, based on coercive fear in the “Land of the free and home of the brave” and is indistinguishable in key ways from the Nazi Gestapo in the power and actions they possess and assert (much without due process protections) with the presumption that the tax payer is guilty until proven innocent (if he can afford to defend himself). Essentially, the IRS can only be viewed as anti-American as viewed by the Founding Fathers concept of limited government and the primacy of the free independent individual citizen. Not only do they frequently operate outside of due process protection without any oversight or accountability but they bring, frequently highly arbitrarily, the full force, power and intimidation of the government down on hapless citizens who are ill equipped, at best, to protect themselves. Just think what goes through your mind when you get a letter from the IRS. Bottom line is that the current tax system is un-American, grossly unfair and destructive of both our freedoms and our free enterprise system (i.e., the historical Golden Goose). It has almost totally succeeded at this point in bringing the system to its knees.
In light of the foregoing, an effective program to deal with the problems outline above with a chance to succeed would require, at a minimum, a plan for recovery involving the following elements:
Repeal the income tax. Institute a "Flat Tax with ALL citizens participating (i.e., with skin in the game). Eliminate the Federal Reserve / return responsibility for currency management to Congress where it belongs. Eliminate the IRS and its Statist extralegal over reach operation through fear and coercion. Impose term limits on Congress (i.e., 2 - 6 years terms in the Senate / 3 - 4 year terms in the House). Eliminate the Capital Gains Tax. Eliminate the Corporate Income Tax. Shrink the size of government by about 40% on an orderly basis. Redefine / reconfirm government functions consistent with the 17 limited government "legitimate" functions specifically laid out in the Constitution. Rescind the overreaching laws and regulations emanating from over regulation and the tortured expansion of the "Commerce Clause" interpretation (i.e., mandated Obamacare insurance purchase / costs under penalty of law, light bulbs, toilets, market interference, bail outs, et al). Etc., etc.
I realize that this seems radical. That just goes to show how far we have strayed from our roots. Even a partial implementation of the above would serve to reignite the proven miracle that is the envy of the world and the "City on a hill" promise of the United States as President Reagan stated it. As it is now, we have encumbered and weighed our system down to the point that it can not function. Our only hope is to rely on the private enterprise resources to grow our way back to financial sanity.
The chances for implementation of these (or any similar) actions would appear to be nil given the state of denial, pursuit of self interest, lack of vision, hyper partisan politics and lack of political will characteristic of out current crop of governmental officials. In summary, the above is some of what Benjamin Franklin meant when he said "…if you can keep it."
There is much more that could be said in response to this However, in the interest of brevity, this answer to the first question posed above will be closed with the observation that it appears that we are on a fast track to a financial collapse. The writer truly see no one who can step in and take the actions required to return sanity to our public affairs.
I hope I’m wrong but fear I’m not. |
