Tag Archives: fiscal responsibility

Why the Federal Debt and Deficit Matter

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In 2007 while he was campaigning for President, Barack Obama called George W. Bush irresponsible and un-patriotic for adding $4,000,000,000,000.00 to the US debt during his eight years in office.

President Obama was correct in his estimation. That has not prevented him, however, from increasing the debt by $5,000,000,000,000.00 in less than half the time it took George W. Bush.

Why does it matter? Why all the gloom and doom about ever increasing debt and deficits? The government can just print more money, so why does it matter?

The problem goes to the definition of the word inflation.

in·fla·tion
   [in-fley-shuhn] noun
1. Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency ( opposed to deflation).

By definition, increasing the money supply (printing money, now called quantitative easing) is inflation. It is inflating the money supply. Anytime the money supply is increased, the value of each dollar is lessened, causing prices to increase.

Suppose instead of dollars, we traded in slices of pizza. You get paid at the end of the week in slices, and when you go to buy gas at the service station, you pay with slices of pizza.

Now consider the term value. Suppose the value of a whole pizza cut into six slices is what a tank of gasoline costs for your car.




= One tank of gas






All of the sudden, suppose the government decides that pizzas will be now cut into eight slices instead of six. You get paid in slices, remember, not pizzas. The value of things has not changed, however. A tank of gas still costs a whole pie, meaning you now have to earn two more slices to fill up your tank.





= One tank of gas

Each slice is smaller now, and buys less. This also means that if you have loaned the government pizza slices, by buying treasury bonds, the slices you get back when you cash in your bonds are worth less than the ones you lent them. With interest rates kept artificially low, as they are now, it may even mean that the slices you get back including interest will buy less than the slices you lent them.

Since the dollar is no longer tied to anything of physical value, like gold, its value is purely arbitrary. It depends only on the total number of dollars in circulation. As our government continues to spend money it doesn’t have, it has to borrow the difference, either by selling treasury bonds to it’s citizens, to other countries or to the federal reserve. In order for the federal reserve to purchase enough debt to keep the country going without interest rates going up and greatly increasing taxes on everyone, it has to print more money. At some point, price inflation will start to increase rapidly, what is known as hyperinflation. Prices will skyrocket as in the case of Brazil in the early 1990’s. At its peak, Brazil’s inflation rate was somewhere around 4,000%.

In America, we are already seeing prices on food and energy rise rapidly. There is no question that a fair portion of the rise in energy prices is due to the decreasing value of the dollar. As energy prices rise so does the cost of everything else, especially food.

This relation to quantitative easing (printing money) and price inflation can be illustrated quite easily by comparing the value of silver to the value of gasoline. In 1907 an ounce of silver would buy about 3 gallons of gasoline. In 1984 gasoline was about $1.20 per gallon and silver sold for about $8.14 per ounce meaning that 1 ounce of silver would buy about 6.8 gallons of gas. Today gasoline sells for about $3.83 per gallon and silver for $30.27 per ounce meaning that 1 ounce of silver today will buy 7.9 gallons of gas.

By the gasoline example we see that if silver were used as money, the cost of a gallon of gas today would actually be less than HALF of what it cost in 1907!

In a report titled “The Realities of Modern Hyperinflation” produced by the International Monetary Fund, authors Carmen M . Reinhart and Miguel A. Savastano point out;

“Chronic high inflation does not necessarily degenerate into hyperinflation. But, in the five countries reviewed here, hyperinflation did ensue, triggered by an uncontrolled expansion in the money supply that was fueled by endemic fiscal imbalances.”

One of the reasons for Ron Paul’s insistence on a return to sound money is to avoid a hyperinflation cycle brought about by an ever expanding money supply. If we continue to spend money that we do not have at the federal level, we are headed for exactly the kind of hyperinflation which is devastating to the poor and middle class. Simply taxing the rich will not fix our debt and deficit problem. The rich only have enough money to keep our government spending at its voracious rate for several months at best, even if we confiscate ALL their money.

Currently all revenue the federal government receives is spent on mandatory programs, social security, medicare, medicaid, food stamps, welfare and debt service. All discretionary spending including defense, is borrowed money. If we do not deal with the entitlement programs we are doomed to an inflationary spiral that will quickly spin out of control.

The IMF report leaves us with seven lessons to remember about hyperinflation.

Policymakers would do well to bear in mind the seven lessons that emerge from this overview of modern hyperinflations.

1. Hyperinflations seldom materialize overnight and are usually preceded by a protracted period of high and variable inflation.
2. Stabilization may take years if fiscal policies are not adjusted appropriately. Even when fiscal adjustment is implemented, it takes time to achieve low inflation, especially when money is used as the nominal anchor.
3. Sharp reductions in fiscal deficits are always a critical element of a stabilization program, regardless of the choice of monetary anchor.
4. Unifying exchange markets and establishing currency convertibility are often essential ingredients of stabilization, irrespective of the choice of main nominal anchor.
5. Output collapses during, and sometimes in the run-up to, hyperinflation. Although stabilization measures cap the implosion in economic activity, there is little evidence to suggest that they kindle a robust rebound in economic activity.
6. Hyperinflations are accompanied by an abrupt reduction in financial intermediation.
7. Stopping a hyperinflation does not restore demand for domestic money and domestic currency assets to the levels that prevailed before the hyperinflation began. Capital returns to the country when high inflation stops, but dollarization and other forms of indexation dominate financial intermediation for many years.

Why to Vote for Romney

Honestly, Mitt Romney was not the first choice as GOP presidential nominee for many voters. They preferred a handful of candidates to Romney. Despite Ron Paul’s many brilliant positions on fiscal responsibility, lower taxes, smaller less intrusive government, balanced budgets, and protecting American sovereignty, due to absolutely irreconcilable differences with him on matters of foreign policy, he was not among that handful of candidates.

The forces against America, be they global governance, environmental extremism, communism or islamo-fascism are interwoven and inter-linked on large scale international fashion in a world made much smaller by modern technology. These forces are unrelenting. For the sake of deterrence, America must be ready, willing and equipped to fight them on each and every battlefield. A return to an eighteenth or nineteenth century foreign policy would not foster that necessary capacity. Sad to say, “progressive” Woodrow Wilson destroyed that era of American foreign policy when he entered the USA into WWI.

That being said, the defeat of barack obama remains of paramount importance.

obama and his ideologically driven co-conspirators have spent a century erecting a bureaucratic shadow government (within the EPA, the DOE, the DOI and other departments) and big government dependency programs considered by too many Americans as “entitlements”, not to mention the now obscene number of illegal “czars”. These “czars” and bureaucrats answer to the Executive Branch, not to voters. Congress has not lifted a finger to stop the erection of this illegal shadow government. Rather, over the years they have voted for it. Thanks to this shadow government, Congress is quickly becoming irrelevant. If obama is re-elected, he will not hesitate to bypass what he clearly sees as Congressional “obstruction” by exploiting that shadow government to fully implement plans to “fundamentally transform the United States of America”.

obama MUST be removed as Chief Executive.
The survival of America is at stake. obama and his Occupy sympathetic “progressive” Democratic allies are hostile to America. In order to demonstrate 100% allegiance to America and not to Occupy, vote for the GOP candidate. Since his victory in the Texas Primary ensures he will have enough delegates to win the GOP nomination, vote for Romney. Every American is urged to demonstrate their commitment to removing obama by contributing to the inevitability of his defeat by voting for Romney.

Pledge allegiance to the flag of the United States of America. And to the Republic for which it stands. Do not pledge allegiance to any politician.

http://mjfellright.wordpress.com/2012/06/04/why-to-vote-for-romney/

Gov. Scott Walker Will Survive

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Gov. Scott Walker's Political Career Will Be Decided June 5th

On June 5th, the battle will be over.  Will citizens of the Badger State vote to keep their ongoing prosperity or revert back to the old policies that drained the state of economic vigor?  Currently, the massive multi-billion dollar budget deficit has been balanced, unemployment is down, and property taxes have decreased for the first time in over ten years.  Hence, the reason why Gov. Scott Walker has maintained a healthy lead over his Democratic challenger, Milwaukee mayor, Tom Barrett.   This will mark the second time unions have tried to alter the balance of power in Madison.  The first being the $35 million dollar state senate recall election last summer that saw Republicans maintain control of the chamber.   After all mainstream media coverage and the protesting inside the capitol, the results of that election were the very definition of anti-climatic. Now, with this effort to oust Gov. Walker himself, I expect the same result, but with far more political ramifications.

DNC chair Debbie Wasserman Schultz has called this recall election a “dry run” for Obama come November.

CANDY CROWLEY, CNN: If the Republican governor should retain his seat up there, what will it say about the power of unions who have been fighting him and what will it say about putting Wisconsin in play this fall?

REP. WASSERMAN SCHULTZ: Well, I am going there Tuesday to campaign with Mayor Barrett. I think that he has a real opportunity to win. We have put our considerable grassroots resources behind him. All of the Obama for America and state party resources, our grassroots network is fully…

CROWLEY: But are there national implications?

WASSERMAN SCHULTZ: … engaged. And — well, I think what’s going to happen is that because of our on-the-ground operation, we have had an opportunity in this election, because especially given that Wisconsin is a battleground state, just like we did in the recall elections a year ago, to give this a test run.

And so what I think the implications will be is that ultimately I think Tom Barrett will pull this out, but regardless it has given the Obama for America operation an opportunity to do…

CROWLEY: Test run it.

WASSERMAN SCHULTZ: … the dry run that we need of our massive, significant, dynamic grassroots presidential campaign, which can’t really be matched by the Romney campaign or the Republicans because they’ve ignored on the ground operations.

I think Ms. Schultz and the rest of the institutional left are going to be disappointed this coming Tuesday.   Radio host Tony Katz gave his insight, and took down former Sen. Byron Dorgan in the process, into the absurdity surrounding this recall.  Stating how this “dry run” is costing the Wisconsin taxpayer another $20 million dollars and how Walker’s fiscal reforms are exactly what America is yearning  for in this anemic economic recovery thanks to the Obama administration. However, let’s see why the far left thinks Gov. Scott Walker is so evil.

 

Well, he attacked the parasitic relationship between government and public sector unions and curbed their collective bargaining rights.  That sounds scary,  but as Peter Ferrara wrote in The American Spectator, it was solely directed towards salary negotiations.  It didn’t touch benefits or safety regulations and rules.  It gave the local county governments the buffer it needed to maximize efficiency and curb deficits without laying off workers or putting the distribution of state services at risk.  How much of a difference would that make?

According to Ferrera, “since Walker’s reforms removed benefits from collective bargaining, government employers were freed to turn to competitive bidding on the open market, where many have found their coverage at substantially reduced costs. For school districts so far, the savings from this competitive bidding alone have amounted to $211.47 per student. Statewide that would add up to nearly $200 million in savings.”

This new economic elasticity derived from Gov. Walker’s reforms has benefited the Wisconsin taxpayer in other ways.  Indeed, “the state has also used this flexibility to halt fraudulent sick leave abuses that unions used to inflate overtime expenses. Workers had called in sick for their own shifts, and then worked the next shift on overtime pay. School districts have also been freed to pay teachers based on performance and not just seniority, and to keep better performing teachers rather than longer term time servers who have long given up caring about their job performance.”  Now we know why teachers were so irate.  After all, interjecting competition into a cartel, which is what a union is at its heart, inevitably leads to dissolution and “what a shame that would be for our children.”

Gov. Scott Walker also decided to put the lid on the cookie jar.  As Chris Christie has done in New Jersey, he made public employee unions contribute more to their pensions and health care plans.  Unlike what unionized labor may tell you, the contributions are beyond modest.  Ferrera writes:

After all the yelling and screaming in Wisconsin, in the end these government workers were only required to contribute 5.8% of their salaries towards their pensions, which is matched by their government employers (taxpayers), and 12.6% of the costs of their health insurance, with the other 87% paid by taxpayers. This compares to private sector workers paying on average 21% of the cost of their company health insurance, with most private sector workers having no pension at all.

The state budget reforms also made payment of union dues voluntary for government workers, empowering these workers to each decide for themselves if they want to be full dues paying members of the public employee unions. That is a potential savings for families of $1,000 a year for each government worker in the family. This forces the public unions to focus on serving their members and convincing each one that their services are worth the dues, just like every other private sector institution in American society.

After seeing union leadership blow $35 million in a state senate recall election, I WOULD HOPE those employees would be ecstatic seeing their dues be spent responsibly, or better yet, opted to keep more of their hard earned money.  In conclusion, the results have been “disastrous.”  A whopping $1 billion in savings in the first year alone with not one one cent raised in taxes to balance the budget.

Concerning property taxes, an issue that forced my family to flee New Jersey, the rates have fallen for the first time in twelve years. According to the Wall Street Journal:

the property tax bill for the median home fell by 0.4% in 2011, as reported by Wisconsin’s municipalities. Property taxes, which are the state’s largest revenue source and mainly fund K-12 schools, have risen every year since 1998—by 43% overall. The state budget office estimates that the typical homeowner’s bill would be some $700 higher without Mr. Walker’s collective-bargaining overhaul and budget cuts.

The median home value did fall in 2011, by about 2.3%, which no doubt influenced the slight downward trend. But then values also fell in 2009 and 2010, by similar amounts, and the state’s take from the average taxpayer still climbed by 2.1% and 1.5%, respectively. In absolute terms homeowners won’t see large dollar benefits year over year, but any hold-the-line tax respite is both rare and welcome in this age of ever-expanding government.

The real gains will grow as local school districts continue repairing and rationalizing their budgets using the tools Mr. Walker gave them. Those include the ability to renegotiate perk-filled teacher contracts and requiring government workers to contribute more than 0% to their pensions. A year ago amid their sit-ins and other protests, the unions said such policies would lead to the decline and fall of civilization, but the only things that are falling are tax collections.

As the new jobs report showed we only added 69,000 jobs last May and prompting the unemployment rate to go up to 8.2%, Wisconsin has seen its level of unemployment fall below the national average.  As Jason L. Riley of the Wall Street Journal wrote, “Wisconsin’s unemployment rate is 6.7%…according to the Bureau of Labor Statistics, the state added more than 23,000 jobs last year. And a recent survey found that Wisconsin employers were eager to hire—an indication that Mr. Walker’s policies have made the state more business-friendly.”

With unemployment down, property taxes at its lowest in over a decade, a $3.6 billion dollar budget deficit completely wipe out, and $1 billion in savings; I  hope the smart Wisconsin voter would know who to vote for and who saved them from economic catastrophe.  That narrative has gained traction with Gov. Scott Walker leading Democratic Milwaukee mayor Tom Barrett 52%-45%.  The far left and some elements in the mainstream media have tried to put forth this “war on workers” narrative aimed at Gov. Scott Walker and conservatives. That is grossly, spectacularly, and demonstratively wrong.  We’re freeing union workers to make decisions with their own finances.  As a result, union membership has dropped, not due to belligerent smashing tactics, but because it removed the coercive nature of union dues and membership.  As Investors Business Daily aptly noted, it’s really big labor vs. taxpayers in this fight.  Big labor being a cornerstone of support for a particular left-leaning party and its effete leader who currently occupies the White House.  In all, these reforms:

 Together…ensure that unions can’t deliver much in the way of economic benefits, and they give workers a way to respond accordingly. They present workers with an easy choice: When dues don’t buy you anything and they compete with the cable bill, why pay them? So it’s no surprise that the unions now appear to be losing members — and, of course, money. According to the Wall Street Journal, membership in the Wisconsin branch of the American Federation of State, County and Municipal Employees fell from 62,818 last March to 28,745 this February

That’s a good thing. This isn’t a war on workers, but a liberation of them.  This isn’t the fall of Wisconsin, but the resurrection of it.  I’m confident Gov. Scott Walker will remain the state’s chief executive and thereby vindicating his agenda.  In the process, hopefully, giving unionized labor the knock out punch that leads to the day where the American taxpayer can celebrate in their final destruction.  This is a test run madame chairwoman and I expect it will be the harbinger that lifts our nominee to the White House and initiate a Wisconsinite reform of Washington D.C come January 2013.

(h/t Tony Katz)

Speak Up Young America!

At a recent graduation speech President Obama challenges students to speak up, to march, to lobby and to vote. In 2008 many students were drawn to Obama’s Hope and Change ideals.

Today more high school and college age young people are realizing that entitlement programs are not free and that the national debt will fall onto their shoulders. One group of high school students has organized in concern for the growing debt. Their website S.O.S. Liberty invites other young voters to join their fight for fiscal responsibility.

On their website is a short interview where the organizers of this group articulately explain their concerns and positions. They stand in sharp contrast to the Occupy Wall Street protesters.

 

I encourage you to visit their website and share it with your young friends. The future of this great country will soon fall into their hands.