We have had several bubbles before, but if the Obama administration has their way, “you ain’t seen nothin’ yet.”  Currently the budget for the federal government is $4 trillion dollars.  That’s right, your federal government will spend approximately (which means probably more) $4 trillion in one year.  Of that amount $202 billion is interest on the national debt.  In an article in the New York Times today by 2019, a mere ten years from now, the portion of the budget directed to interest payments will be over $700 billion, or three and a half times what it is today.  Many people have trouble grasping how much a trillion dollars are, and within ten years we will be paying three-quarters of a trillion dollars just to cover the interest without paying off any of the principle.

Family Budget Analogy

We all understand the dramatic effects of too much debt, as the point has been driven home every day throughout this financial crisis.  Bankruptcy filings, home foreclosures, bailouts, all resulting from more debt than we can pay the interest on, let alone pay back the principle.  You see commercials on television every day for companies that will help you renegotiate your credit card debt, your mortgage, intervene on your behalf with the IRS.  None of those programs are available to the federal government as a debtor. 

Obama’s Out of Control Spending

The Obama administration seems oblivious to the problem.  As bad as it is they just keep on spending or want to spend more:

• Stimulus package — $787 billion.  Despite evidence that it is not working and widespread opposition from the American people, the Obama administration is simply declaring that it is working and we need to do it again with a second stimulus
• Cap and Trade — this is a program that will drive energy costs through the roof for no real benefit.  After all if, as is becoming more and more apparent, global warming is not man made then it cannot be stopped by man either.  Higher costs will lead to businesses closing down, laying off people, and generating less tax revenue from both the businesses and the individuals it laid off.  Result — an increase in the deficit.
• Health Care — another $1 trillion of IOUs piled on our children’s back and if Medicare’s history is any guide, these numbers are well below what will really happen.

The Truth About Government

The truth is that government doesn’t create anything.  They don’t generate income.  Everything that government has to spend comes from you and me.  The government takes it from us (or throws us in jail for tax evasion) and then spends it.  If they can’t get enough from us, they borrow the difference.  But somewhere down the line, that money has to get paid back.  A news report today said we have the opportunity to just write a check to the Treasury if we are concerned about the deficit and want to help pay it down!  Let’s see how many of Obama’s wealthy supporters sign up for that program.

Runaway Train

Our federal government is a runaway train and if we don’t stop it very soon and pare it back to the functions enumerated in the Constitution, we will get hit with a bubble so big, that there is no Hollywood screenwriter that could even begin to conceive of how to portray it.  $700 billion folks, that’s $2,059 in INTEREST for every man, woman and child in America.  Ask yourself this, if you are a family of four are you prepared to write a check for $8,235 to the federal government for interest alone?  You don’t get anything for your money, it just keeps your government from defaulting on what they already borrowed. This will be on top of your regular tax bill. And the next year you will have to pay it again and probably more.  It’s time to stop the madness.  It’s time to stop the spending.  It’s time to stop the expansion of government and start shutting down departments.  It’s what you would do at home in a financial crisis, it’s what a small business would do in a crisis.  This is a crisis that we can still get under control, but if the debt continues to grow to the point where we can no longer afford to pay even the interest, America will be a footnote in history.

Do I have your attention now?

President Barack Obama held his first press conference last night and did a masterful job of controlling the communication while dodging any hint that he let this stimulus package spin out of control, at the hands of Nancy Pelosi.

Elkhart, Indiana

I found it curious that President Obama chose Elkhart, Indiana, the RV capital of the world, as the backdrop for the current economic situation.  After all, in the campaign he said that driving SUVs and RVs was irresponsible.  What kind of gas mileage does an RV get?  He campaigned on Cap and Trade.  What would Cap and Trade do to the good people of Elkhart, Indiana if implemented?  How many people are going to out and buy an RV, which can cost up to $600,000, with the $10 per week tax cut President Obama is proposing.  Remember, he is dead set against across the board tax cuts, which could actually prompt an evil “rich person” to buy an RV.  It reminds me of the 10% tax on luxury yachts sales that killed the boat building industry and put many blue collar people out of work.

Disaster by Design

Of all the schemes tried over the years, from the Great Depression forward, to stimulate the economy, why does this President insist on going with the ones proven not to work?

No less an authority than FDR’s Treasury secretary and close friend, Henry Morganthau, conceded this fact to Congressional Democrats in May 1939: “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”

Spending in the Great Depression didn’t work and that is according to the guy doing the spending.  Last night President Obama mentioned the lost decade in Japan.  However, all of the massive public works spending in Japan during that decade didn’t work.

What did Japan get from sustained and massive public works spending by the LDP after a real estate bubble burst in the late 1980s?  According to a recent article in the IHT, one thing is clear:  taxpayers ended up being saddled with the largest public debt in the developed world, totaling 180 percent of its $5.5 trillion economy.

While there are disputes over how to view the results, the Japanese appear to have learned a lesson, while US officials like Treasury Secretary Timothy Geithner, who spent time as a financial attaché in Japan after the collapse, appear to determined to repeat it on a larger scale

President Obama alluded to the “failed policies of the last eight years,” as if tax cuts created this mess. But today, Treasury Secretary Geithner opened his remarks on the bank bailout by basically saying that government action or inaction coupled with Wall Street excesses caused the financial debacle not tax cuts.  They were:

• Interest rates too low for too long – driving up home prices
• Complicated financial intruments that no one understood bundling mortgages
• Failure of government oversight
• People being encouraged to borrow beyond their means (by government)

But we are supposed to believe that only government can get us out of this.  So, government created the mess, they are ignoring what has worked in the past (tax cuts: Kennedy, Reagan, Bush), choosing those things that were proven failures (spending: Great Depression, Japan) and we’re supposed to be angry at Republicans for putting up a goal line stand to protect us from this impending disaster.

If this passes, be afraid, be very afraid

Early this morning I was listening to a news broadcast where they said that this fiscal year’s federal budget deficit (October 2008-September 2009) will top $1 trillion which is more that triple the largest budget deficit in history.  That sounded pretty bad even considering the financial bailout that the government was undertaking to keep the money flowing.

Reading later in the day in the Wall Street Journal, Obama is quoted as saying, “We’re already looking at a $1 trillion budget deficit or close to a $1 trillion budget deficit, and potentially we’ve got $1 trillion deficits for years to come,” {emphasis added}.  Years to Come?  This is hope? This is change? I’ll give you a moment to try to wrap your mind around that statement before I continue.

If we see trillion dollar deficits for years to come, That’s All Folks!, our economy is gone, G-O-N-E.

Now I understand he may have just been saying that for the shock effect because he follows that statement with the another about the necessity of budget reform.  Budget reform? People, budget reform is not going to close a trillion dollar shortfall, and the very fact that the president-elect even utters the words is like shouting FIRE in a crowded theater.  Does he think that is leadership?  Here is where Obama’s lack of executive experience is on full display, and the man is yet to take office.

In an excellent piece on Cafe Hayek, Russ Roberts explains that if you cut taxes but you do not cut spending by an equal or larger amount, you are not really cutting taxes.  All you are doing is moving them around.  To put it another way, if you cut taxes today and spend the same or more, you are just deferring the taxes to later.  The debt will eventually have to be paid and it is paid through taxes.  So with trillion dollar budget deficits on the horizon, there will be a tax bill coming due that will crush the economy for us or for our children.

Someone needs to take Obama aside and tell him never to make such a public statement again, lest someone throw a net over him and carry him off to an asylum.  Second, he needs to get with his advisors and start hacking away at the size of the government and I recommend starting with the Department of Education.  Although it took 28 years for that department to spend a trillion dollars, it’s a start.  But this is not going to be fixed by tinkering or eliminating earmarks.  Our government has gotten too big and is meddling in too many things, causing many of the problems it is now trying to fix.  Government needs to be cut down to size.