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• A Contradicted Thesis

• The Natiional Debt

• The Day China Stopped Lending

• Thoughts On the Feast of Consumption

• We The People/This Bill Is Owed to You

A CONTRADICTED THESIS "Trickle-down economics - social liberal style" - R.K.

Response to Letter-to-editor as published - September 30, 2011

Diane Mulroy's thesis that federal infrastructure spending will reverse the economic downturn is contradicted by the article on home sales in the same issue.
Governmental spending only stimulates the economy for as long as it lasts, and even then only as long as it outpaces inflation. The theory that spending results in more spending and greater tax receipts which results in more jobs and so on sounds like a Democrat's interpretation of Reagan's "trickle down" economics, i.e., substituting increasing spending for reducing taxes. What is ignored is that what Congress spends, it has to collect through taxes, and that borrowing is the most expensive way to spend. Guess who pays the taxes.
But current history once again proves that governments can only influence an economy, but not override it. For example, the Federally financed housing boom last year evaporated as soon as the money stopped. To quote John Gerhard in the housing article, "We borrowed from the future a little bit...we had some demand that we created artificially, and now that's gone." Housing demand has since returned to a normal, consumer-driven pace.
Normal?! Well, no. Now, because of voracious Congressional borrowing since 2008 for many similar programs to prop up the economy, each citizen now owes about $42,000 (per capita share of the national debt), and Congress now borrows one dollar for every two dollars of taxes it takes in. That is the equivalent of a family earning $40,000 borrowing $20,000 each year to maintain its lifestyle. What is not self evident to us citizens are the coming taxes to repay Congress's loans (taken out in our name), which will provide no services or infrastruture.
Build those roads well. Money to repair them will be hard to come by.

Letter-to-editor by Diane Mulroy - September 21, 2011

It is the theory of some that job creation means throwing more money at the "off-shore" job creators, hoping that some day, when our wages get low enought, they might create jobs here in the United States. This is pauperizing our middle class.
President Barack Obama wants to put thousands of people back to work repairing our deteriorating infrastructure.
The advantages to that would be: Thousands of people rehired and paying taxes, lowering our debt; contractors make more profit and pay more taxes, lowering our debt; newly hired people spend more money, increasing demand for goods and services; businesses make greater profit and pay more taxes, lowering the debt.
More people hired to meet demand...on an on.
So...resume spending, increase demand, increase hiring, pay taxes.
As a bonus, we'd get safer, more functional infrastructure, avoid the additional costs of further deterioration and save billions (and lives) by avoiding calamities. This is the perfect time, when there are so many qualified people needing work and interest rates are low.
The most important thing right now is getting our people back to work and our economy functioning again... and that we do it ourselves, instead of waiting for the "job creators" to decide it's the right time for this country to be back in the game.
Let's get behind this president and continue to help the American people be all that we can be.

THE NATIONAL DEBT "He who loans ya, owns ya." - R.K.

Letter-to-editor version - July 30, 2011

The Public, not Congress, has a problem. We want Congress to provide more services but to shield us from the costs. We are addicted to government money and cannot refuse it any more than an addict can forego his next hit. We "could" refuse, but we don't. Instead, we keep hoping for a painless way to have the high without experiencing the consequences.
We now buy our hits for $3 but only spend $2 of our own money. Who pays the difference? Nations, like people, must borrow when they spend more than they take in. But lenders only loan against what they have confidence will be repaid. If they loose confidence, the loans stop. If the loans stop, the spending stops. It happens to the Public; it happens to Congress.
Congress currently spends $3 for every $2 it takes in. Which third of the budget should we eliminate to balance it? One-third is Medicare/Medicaid/Social Security, one-third is the judiciary/military, and the rest is regulatory agencies and discretionary programs. Should we eliminate one of those completely? If we make cuts across the board, which third of Medicare recipients do we turn away, or of criminals do we not prosecute, or of the military do we disband, or of the economy goes unregulated? But if we continue borrowing, we will become no better than black sharecroppers after Reconstruction, having to borrow to eat today and never able to get out from under.
Or we can take the hit now while we can still get out from under, and start relying on ourselves instead of the federal nanny to take care of our neighbor. Adults don't need nannies. You don't really want to live under a nanny state?! If you do, know that you will loose everything just to have your daily bread(crusts).

Letter-to-Congressmen version - July 13, 2011

To Congressman XYZ
Concerning the debt ceiling and budget balancing:
I vote AGAINST raising the "debt ceiling."


The problem is not lack of revenue, but too much spending beyond Congress's means. Congress is currently spending $3 for every $2 it takes in. No citizen can sustain that rate of growing debt. Lenders will not cooperate. Nor can governments get away with it - we are all holding our breath watching the EU crisis. Lenders only loan against what the borrowers can repay, and in this case, it is what the taxpayers can repay. Government can create money, but cannot create wealth. An involuntary pushing of goods and services upon people creates no value where there is not reciprocal demand. Services produce no wealth - just cash flow, which gets siphoned off by those who take a "profit" or money handlers (government taxes and banks for example). Only what people make or improve creates value, i.e., creates wealth.


The belief that one can borrow one's way to prosperity has been proven, AGAIN, to be both FALSE and disasterous. Yet that is how Congress has behaved the last two years. We are now at the precipice. Either Congress must reign in its spending and experience a temporary recession, or be forced to cut expenses against its will and experience an impoverishment of the entire economy when lenders refuse to make us loans, with a resultant decline from world preeminence like what Great Britian experienced.
The first course of action is preferrable because it would only result in a natural economic rebalancing act. In a natural economy, cash flow is based on voluntary demand for goods and services. Once government spending ceases, the economy reverts to one based on true demand. But in a government intervention economy, that flow is distorted by a forcible taking of cash (taxes and "fees") and an autocratic involuntary infusion of cash based on goverment choices and not the consumers'.
The second course is not preferable because of the difficulty reducing expectations against one's will, and because human nature will make greater and greater demands on government to fix things - things which, really, government cannot control.


In summary, if we do not NOW resort to self discipline and sacrifice, then history says Congress will only pay lip service to calls for cutting the budget before resuming its creation and funding (and borrowing at usurious interest) new programs.


I am upset with calls from congressmen to practice spending restraint when they supported the unprecedented debt-building budgets of the last two years! I understand and believe that you want to do good things for your constituents. But a congressman who caters to calls to "help" the citizens by finding new ways to give them other people's money is NOT a public servant concerning himself with the good of his constituents as a whole. It is no different from an indulgent parent who cannot say "no" to his pleading child for the child's own future good. Besides, taking care of one's fellow citizens is best done by citizens who know the person's circumstances and character. Government does not do that task well.


I especially recoil at the growing reality of a nation of citizens economically dependent upon the national government. I do not want to live in a socialist model like Russia or China, and the European model does not work without a strong economy like the United States to prop up their economic prosperity and their militry backbone. If it were so, they would have dominated the world already. Instead, we are now wading into the mire to join them, descending as it were to their level of economic subjugation.



Congress needs to cut its budget by one-third (remember you have voted to spend $3 for every $2 you take in)! That is what a budget consultant would advise a household in over its head. Roughly speaking the budget can be divided into thirds:
  1) the judiciary and military,
  2) social security and Medicare/Medicaid, and
  3) all the rest of the programs.


The first thing a consultant tells you is to cancel new purchases and even return items one still owes on. That means pretty much every new program from the last three years. That means especially the new health care legislation ("Obamacare" as it is called on the streets). This is NOT the time to burden the government and the economy with a program that will grow to gargantuan proportions. If medical care is already 1/7 of the economy, you can only guess how much bigger it will become once government money starts flowing more readily into that sector. Just look at the history of Medicare/Medicaid. Just look at the situation with nationally financed higher education. Education has grown three times faster than the economy - even during recessions. THAT is the power of autocratic government funding. That is how much it distorts the citizen-driven demand economy.


Then one should make cut in programs. Cuts should be implemented there to make up the difference after having cut all new programs. My rough guess is that programs will be cut in half or more.
Eliminate all subsidies. Remember - they distort consumer demand and the economy. If something were desirable, the private sector would take care to meet the demand without any help from government. Ethanol is a case in point. Why are we financing something that costs money and requires more energy to produce than it yields and can be sold for?
Finally, get rid of all tax loopholes. This would be a good time to implement a flat tax. That should produce a sizeable cost savings by reducing the size of the IRS bureau. It also keeps Congress from the temptation to manipulate the code for special purpose interests and programs. And the citizens would better know the true cost of their demands on government.
You may want to leave Social Security and Medicare/Medicaid for last, but realize that these programs are unnecesary benefits and not rights. They were legislated into existence, and only recently. For most of the life of this country and certainly during the Founding Fathers generation, these types of programs were anathema. And for good reason. They both result from and propagate the corruption of civic morality. If they were a savings plan, that would be one thing. But since they pay out far more than any one citizen pays in (unless he dies prematurely), then this fits the definition of a Ponzi scheme. It is not insurance if the end result is bankruptcy and payers being unable to get back what they paid in. It is voting oneself other people's money. And it is addicting. It plays to the selfish side of human nature - trying to get something for nothing. That attitude is why we are in our current economic straits.
Here is a better attitude, a more noble attitude. My generation, the baby boomers now need to step up and practice the self-sacrifice their parents had to practice during the Depression and WWII. e have never had to sacrifice like that. Now we must if we want to pass on the opportunity for a better future to our grand children. Let US take the hit. Let OUR benefits be reduced or eliminated so others may have a chance for a better future. If we do not, then we seal their fate. We will have lived thru the best of times.


The judiciary and military are CORE Constitutional functions and should be the last to be cut. If you want to cut the military, then it is time to take back your responsibility under the War Powers Act. Remember, it is Congress's duty to declare war, not the President's prerogative to unilaterally carry out acts of war. The abrogation of that responsibility, one given to Congress by Congress, just leads me to conclude that Congress has no backbone. What is shows is that all Congress truly believes in is Compromise and not Principle.


So, it is your time to act to change the direction and veer away from the outcome that awaits us. If you do not act now, then the consequences will very shortly be upon us. If ever there was a time for you to lead after the model of George Washington, that time is now. Reexamine what you believe about the purposes of government and choose those ways that call out the best character of the citizens - not those ways that turn them into wards of the state.

THE DAY CHINA STOPPED LENDING "It's closer than we think!" - R.K. - April 14, 2011

As Congress grapples with the budget and was willing to shutdown the federal government over its differences, as the price of gas climbs steadily to five dollars a gallon, as unemployment grudgingly pulls back from 10% unemployed, as salaries stagnate and recede while inflation mounts; as it becomes near impossible to find made-in-America consumer goods, as federal payments and benefits become so common that no income is adequate without them, then in that context we can ask ourselves the question, are we now hostage to our federal public debt? Currently, the US has a public debt load of 97% ($14.2 trillion) of the yearly total economic activity ($14.6 trillion). That percentage is double what it was in 2003, roughly matching the rate of inflation. Think of debt as $45,900 per citizen - man, woman, and child. Currently Congress is spending 38% more than it collects and is increasing the public debt by one fifth each year. By 2015, the interest alone on the federal debt will be $1 trillion, more than one quarter of today's federal budget. Currently in the EU, countries on the verge of default have debt loads between 93% (Ireland) and 130% (Greece) of their GDP. Surprisingly, healthy EU countries are between 75 and 100% of GDP. The US falls between Ireland and Greece. The difference between us and them is the faith of our lenders. Currently the lenders to whom we are most indebted are China ($1.1T) and Japan ($880B, whose own debt is 170% of their GDP). Foreign governments now own 32% of our public debt, up from 13% in 1988. And currently, the fiscal reasoning is that the US is too big to let fail - we are all in this together, both debtors and the indebted - because if the US goes down, then it takes the entire world with it. So currently there is no reason to change our debt load nor our spending habits, unlike what is being imposed on the the insolvent EU countries.

Or ARE we too big to fail?

Are we really free from economic discipline by the hand of those who hold our debt? Are we really free from the fiscal chastisement of the marketplace? Are we free from being blackmailed economically by those who do not like how we dominate the world scene? And there ARE many who do not like the US!
If the current reasoning is true, then even our enemies and rivals cannot disturb the gravy train lest they suffer worse than we will. If the current reasoning is true, then we have achieved an era envisioned by those who inaugurated the new world order at Bretton Woods after World War II. If the current reasoning is true, then we are living in a time when all nations and peoples are interdependent and must hold each other up or all fall down.
But if the reasoning is wrong... well, how COULD it be?
Could there be something wrong with thinking that everyone else thinks like we do? Is there something wrong with thinking that others have the same values as we do? Could there be something wrong in thinking that unpopular political systems can be subverted by wealth creation through trade treaties? Could there be something wrong with thinking that a fist full of dollars is mightier than a gun pointed at the dollar holder's face? Is there something wrong with thinking that we can buy our way out of trouble - that bribery is stronger than brutality? Is there something wrong in thinking that dictators and tyrants hate war as much as merchants? Is there something wrong with thinking that we can give away all our economic strength to our enemies and still have the means to overcome them? Is there something wrong with thinking we can borrow from our friends, our enemies, our savings, and even our children and not have to pay it back?
But "Oh" you say, "nations are not like people! You cannot force a nation to pay back like you can an individual. To do so would mean war and then NO ONE gets anything back. More would be gained by continuing to trade."

Or would it?

History is replete with examples of peoples and nations who were not satisfied with advantageous trade. Instead, they wanted the entire enchilada. They wanted to OWN the other country and enslave it to completely enrich themselves. History is replete with examples of peoples and nations very willing and wanting to go to war. They were made up of people, and people have not changed over the millenia. For countries that are not primarily market-based, war IS an option. It IS a tool in international relations! And it IS used to satisfy greed and pride.

So what about China and our debt?

China currently owns most of our domestic consumer goods manufacturing. China currently holds a larger and larger share of our national debt (now about 20%). China currently disdains the political and individual and economic freedoms we prize, and has shown its willingness to impose its control over all aspects of human society, i.e., the individual has no abiding value in the face of its rulers. And China certainly has and does see itself as the preemiment society on earth, even if that has not been true the last century. It believes it should dictate world affairs. It practices a political calculus of pragmatism and patience believing that history proves that western democracies will fall by their own inherent weaknesses, unlike China which has demonstrated it has found the formula for political longevity measured in millenia. China invests and grows its strength. China awaits opportunities. And one is knocking on its door - the US reliance on growing debt.
Consider what dire predictions are made should we cut back our federal spending a couple of percentage points. And how much would we have to cut back if we had to make cuts to eliminate deficit spending every year? How many would become instantly unemployed? How many would lose their income from federal payments? How many industries would be prepared to cope with the loss of subsidies? Can you see where this is heading?
China HAS a trump card that will instantly eliminate our superpower status. If it suddenly stopped buying our debt, we would be obliged to cut our federal budget to match the funds it takes in. The cuts would be massive and abrupt. The economic dislocations would be as bad or worse than the Great Depression, and about as long to begin to recover from. What is worse, there would not only be unemployment, but nowhere to re-employ people nor to manufacture goods. The factories would have to be reconstituted and labor retrained and the materials infrastructure recreated. Even when we had an infrastructure in place, it took nearly three years to build industries and production in World War II.
And China would become the de facto world power.
And it would be our own selfish, self-centered, short-sighted, live-for-today--tomorrow-will-take-of-itself fault.

Either we rein in our debt on our own, or it will happen to us thru natural economic consequences. The laws of economics are not overridden, only demonstrated.

THOUGHTS ON THE FEAST OF CONSUMPTION "A Good Buy or a "Good-bye"?" - R.K. - December 10, 2010

I understand that people want the protection and the services of government. In short, in spite of complaints about its intrusions, people want more government-bigger government. And because we are so attached to the operational word "freedom," we also want it for free. It's our human nature to want to have it both ways, to want something-even everything- for nothing. For most of us, government operates like a light switch: you want light? you flick a switch and then go into the kitchen and get your snack.
I recognize that the calculus of our innate motivation for self aggrandizement wants gain without pain. At the extreme, we can now wage war without declaring it, and walk away from it when we want, without so much as an apology. Closer to home, we ant not only free services, but goods that cost less and less- all the while we get paid more and more. This is our foumula of how our standard of living rises and out quality of life improves. So, if a product costs too much, well then, make it elsewhere where the wages are far less. And in a land where "quality is job number one," durable goods are by definition those that last five years. Some things just have to be made here, though; things like houses and food and service. So because we want good paying jobs (we worked for it, right?) but the goods and services would be too expensive if they employed us (and too hard if we did do the work), then we'll bring the workers from elsewhere to here. It's funny thing how we have very vocal immigration laws and a silent immigration program that doesn't lead to citizenship.
I have to acknowledge that we cleverly learned to get what we want when we want it. We have learned how to get more labor for less. We have also learned how to get more buying power for less money... Charge it! It used to be that a man's wealth was measured by the property and goods he owned. But now, well, it's measured by how many goods and properties he has that the bank owns. The more credit he has, the more credit they'll extend to him. In an age when our three-car garages are crammed with stuff, the amount of cash I can borrow is worth more than all of the goods I can buy. Once they're bought, they're worthless-you can't give 'em away!
So, which is more worthless: the goods I bought or the cash that buys worthless goods? What is wealth when all I buy is merely consumed? What is the quality of my standard if Life is just living? But truly disturbing questions arise when I ask myself how will I live when they send my job elsewhere? How will I buy all those worthless goods and services? Ahhhh but I have a 500 pound hammer-my government! I'll just flick the switch and viola!
So I flick the switch and viola- someone must give me a job. Viola-every job I work must pay me what I think I should be earning. Viola- the prices of my new company's products just doubled and tribpled and quadrupled. So viola- excessive profits are taxed and prices capped, and oh, by the way, there's a pay raise in it for me to make up for the cost of living increase. Oh, and viola- to maintain the goods and services that used to exist before the price increases resulted in an economic downturn, the company is now government subsidized and regulated and is the only one we can buy from.
There were more violas as things progressed. The government bought my house for me when things got tough, so now I rent it back from it. In fact, it built many more for others, all tightly packed on top of each other. They called it a Big Urban Residential Project, or BURP for short. It also bought the big energy producers so it could subsidize more efficiently my utilities and transportation. There's only one company to complain about now, and because the government owns it (and the government is we the people), I guess we only have ourselved to blame. And just wait until the Fed loosens the money supply and devalues the dollar- all those foreign government banks willl be left holding the bag. Of course, they'll be holding it over our heads. It's amazing how expensive all those cheap foreign goods became. We'll just have to raise the price of our intellectual properties... or make movies.
Wait a minute... that's how to improve our standard of living- go to the movies!

We The People/This Bill Is Owed to You

Two very short mediations on the underlying foundation to our form of government... and a word of warning from James Madison.
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