Tag Archives: national debt

The Real Solution To The Debt Problem?

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In his famously doleful, dystopian novel, Nineteen Eighty-Four, George Orwell described a world enthralled to what was functionally a “permanent war economy,” an “economy existing by and for continuous warfare.”

Today, on the heels of a debt ceiling increase calculated to forestall a federal-government default, we both are witnessing and are yoked to the many indispositions of what could be characterized as a permanent debt economy.

The Federal Reserve System, as the radix and arguably most defining component of the American economic paradigm, is fostering a scourge on productive activity that has metastasized through society to a now-catastrophic degree.

As a malignant growth eating away at the foundations of prosperity and freedom, the state, together with its parasitic courtiers, could not survive without the debt and insolvency that Congress’s latest actions have endorsed.

Behind the spurious language of compromise and pragmatism, the Washington power elite have damned Americans to what a talk by Mises Institute president Doug French styled “The Culture of Debt and Despair.” The state’s fraudulent system, grounded on the fool’s paradise of an ever-expanding monetary base, is perfectly adapted to engender an indissoluble condition of dependency in the great majority of Americans.

Though mainstream commentators scarcely ever acknowledge it, there is a critical causal relationship between the banking system that prevails in the United States and the ballooning federal debt; the two are intimately linked in both theory and practice, a fact that has been well understood by free-market economists — and particularly the Austrian School — for generations, and that manifests itself today.

As Professor Jörg Guido Hülsmann observes in The Ethics of Money Production, within a fiat-money system, public debt increases “at a much faster rhythm” than even the distended money supply. Pointing to the United States since 1971 as an example, Professor Hülsmann notes that while the money in circulation “increased by the factor 6,” the federal government’s debt grew by a factor of 20.

This imbalance is not a coincidence. The warped incentives of the cartelized banking environment encourage the precarious imbalances of the state-privileged banker class, existing completely outside of market discipline. The commercial banks collude with the central bank in a symbiotic partnership, one in which the former group gorges itself on government-debt bonds while the bonds furnish easy money at no cost and backed by no value. We cannot hope, then, to address the problem of a snowballing federal debt without first confronting the underlying infirmity bedeviling the economy, the centralized banking framework.

In 1817, the English free marketer and opponent of protectionism, William Cobbett, percipiently recognized the unique connection between government debt and central banking. In Paper Against Gold, he wrote:

[I]t was soon found, that to pay the interest of its Debt, the government needed something other than gold and silver; which, indeed, any one might have foreseen, because the Debt itself necessarily arose from the want of gold and silver within the reach of the government. It was, therefore, supreme folly to suppose, that the government, who had borrowed people’s guineas from want, would long have guineas enough to carry on wars and to pay [its creditors] too.

In a cycle through which one illusion is built on and follows from the next, the free market’s inherent protections against systemic breakdown are overturned by the state. In a true free market,

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Obama Speech Calls For Compromise On National Debt Crisis

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Seeking to reclaim leadership on debt talks, President Obama on Monday night made a strenuous, last-minute pitch that tax increases be included in any deal, but Republicans’ top negotiator, House SpeakerJohn A. Boehner, said the president himself is now the chief roadblock to reaching an agreement.

In a hastily-arranged prime-time speech from the White House’s East Room, Mr. Obama tried to rally voters to demand Republicans compromise, warning of “sparking a deep economic crisis” if the GOPdoesn’t cave.

“The American people may have voted for divided government, but they didn’t vote for a dysfunctional government,” the president said in a hastily arranged prime-time speech from the White House’s East Room. “So I’m asking you all to make your voice heard. If you want a balanced approach to reducing the deficit, let your Member of Congress know. If you believe we can solve this problem through compromise, send that message.”

Mr. Obama’s 15-minute speech — in which he used the word “compromise” six times — came three days after Mr. Boehner said he was walking away from talks with the president, and would instead negotiate directly with Senate Majority Leader Harry Reid, Nevada Democrat.

Those talks have produced two different plans:

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House Refused To Raise Legal Limit On Government Borrowing

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By  and , Published: May 31

With an August deadline looming, the House overwhelmingly refused Tuesday to raise the legal limit on government borrowing, setting the stage for a long, sweaty summer of haggling over the shape of the largest debt-reduction package in at least two decades.

Not a single GOP lawmaker voted for the measure to raise the limit on the national debtfrom $14.3 trillion to $16.7 trillion — a sum sufficient to cover the government’s bills through the end of next year. Republican leaders said their troops would reject any increase without a plan to sharply curtail spending and, thus, future borrowing.
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Obama Commission Warns: US Out Of Money And Better Start Thinking

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A plan offered by the leaders of President Barack Obama’s commission to reduce the federal deficit might work. It just won’t happen.

The co-chairmen proposed a $3.8 trillion deficit-cutting plan yesterday that would trim Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction. It would reduce the annual deficit from $1.3 trillion this year to about $400 billion by 2015 and start reducing the $13.7 trillion national debt.

“Mathematically it apparently works,” said Stan Collender, a former Democratic House and Senate budget analyst and managing director of Qorvis Communications in Washington. “Politically, it is going to have a lot of trouble getting support from more than just the two co-chairs.”

The plan would raise the gas tax, slash defense spending and farm subsidies and bring down health-care costs by clamping down on medical malpractice suits. The Social Security retirement age would rise to 68 in about 2050 and 69 in about 2075.

Its release created instant opposition from Democrats, some Republicans and groups such as the Mortgage Bankers Association and the Aerospace Industries Association.

Democratic House Speaker Nancy Pelosi called the targeting of Social Security and Medicare “simply unacceptable,” and Republican Representative Jeb Hensarling of Texas expressed opposition to proposals to raise taxes.

Obama Reaction

Obama, in Seoul as part of a 10-day tour of Asia, said he had yet to read the plan and that critics should withhold their judgment until the final report. He urged congressional leaders to match rhetoric with action and join him in making difficult decisions about taxes and spending.

“So before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts,” Obama said at a press conference with South Korean counterpart Lee Myung-Bak. “If people are, in fact, concerned about spending, debt, deficits and the future of our country, then they’re going to need to be armed with the information about the kinds of choices that are going to be involved.”

Panel co-chairman Erskine Bowles, former chief of staff to President Bill Clinton, joked that he and co-chairman Alan Simpson, a Republican former Wyoming senator, would have to enter a “witness protection program.”

‘Harpooned Every Whale’

“We have harpooned every whale in the ocean and some of the minnows,” said Simpson. The plan, he said, is sure to be unpopular. He and Bowles said the proposals should be viewed as a starting point for negotiations. The panel meets again next week to consider changes.

“Is America ready for an adult conversation on the deficit?” said Representative Jim Cooper, a Tennessee Democrat. “It’s ‘put up or shut up’ time.”

None of the proposals would take effect next year to avoid disrupting the economic recovery. The savings would come between 2012 and 2020, cutting the deficit from the current 9 percent of the nation’s gross domestic product to about 2.2 percent in 2015, exceeding Obama’s goal of a reductions to 3 percent of GDP.

$8 Trillion

The government is projected to run $8 trillion in deficits over the next 10 years, which would push the national debt to more than $20 trillion. If the proposal were adopted without change, the government still would have deficits of $350 billion a year.

“It puts out there how big and real the problems are,” said Oklahoma Republican Senator Tom Coburn, a member of the committee.

Under one option, income-tax rates would be reduced to three levels: 8 percent, 14 percent and 23 percent. Now there are six tax levels ranging from 10 percent to 35 percent. The corporate income-tax rate would be cut to 26 percent from 35 percent.

The plan includes two less sweeping alternatives to ending all tax breaks, including one in which a pared back mortgage tax deduction would be retained. Under that proposal, homeowners could not take the break for second homes, mortgages worth more than $500,000 or home equity loans.

Wiping out all tax breaks, including the home mortgage- interest deduction, while lowering rates would cost taxpayers $100 billion a year. Members of the panel could decide to keep some of the breaks by offering offsetting cuts, Bowles said.

‘Not the Time’

John Courson, chief executive officer of the Mortgage Bankers Association in Washington, said eliminating or reducing the mortgage deduction would drive down home values.

“Of all the times to do it, now is not the time,” he said in an interview.

Still, Michael Ettlinger, vice president for economic policy at the Center for American Progress in Washington, said the fact that the deduction disproportionately benefits wealthier homeowners might create political will to revise it.

Overall, yesterday’s proposal would raise taxes by $751 billion over 10 years, including a 15-cent increase in the gas tax that would be phased in starting in 2013. Farm subsidies would be cut by $3 billion a year.

The plan calls for discretionary spending to be cut by $1.4 trillion over 10 years, while mandatory spending — including Social Security, Medicare for the elderly and Medicaid for the poor — would be reduced by $733 billion.

John Rother, executive vice president for policy at the senior citizens’ group AARP, said his group would oppose the plan because it would be “dramatically lowering benefits over time” in Social Security and Medicare.

‘Drop Dead’

Bowles and Simpson “just told working Americans to ‘drop dead,’” said AFL-CIO President Richard Trumka. “The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”

The plan spells out $100 billion in defense cuts, including freezing Defense Department salaries and noncombat military pay at 2011 levels for three years, cutting overseas bases by one- third and doubling proposed cuts in defense contracting.

The Aerospace Industries Association, the trade group for U.S. defense contractors, said it had “grave concerns” about proposals to reduce funds for purchasing, research and development. “We cannot abandon the security of future generations,” said the group, which represents Lockheed Martin Corp., Boeing Co., and Northrop Grumman Corp.

Bowles said about three-quarters of the savings would come from spending cuts, with the remainder from tax increases.

Freeze Federal Salaries

It would reduce congressional and White House budgets by 15 percent, freeze federal salaries for three years and cut the federal workforce by 10 percent. House Republican leader John Boehner of Ohio, who will become speaker in January, said before the plan’s release that he supported a freeze on federal hiring and government workers’ pay.

The proposal would also end government funding of National Public Radio and the Public Broadcasting Service, begin charging fees to visitors to the Smithsonian Institution museums in Washington, raise fees at national parks and merge the Department of Commerce with the Small Business Administration.

It would eliminate the Office of Safe and Drug-Free Schools, whose budget Obama proposed more than doubling from 2008 levels. The plan said that “while school safety should be protected, violence and drug abuse are problems that occur far less on school grounds than elsewhere.”

Agreement Needed

The panel needs agreement from 14 of its 18 members before a plan can be sent for an up-or-down vote in Congress.

Dan Seiver, a finance professor at San Diego State University, said the plan’s strength is its attack on many budget areas long considered untouchable. “You’re not really going to get fiscal sanity without goring everybody — everybody has to sacrifice,” he said.

Orin Kramer, general partner of hedge fund Boston Provident Partners LP and a Democratic Party fund-raiser, said he doubts an agreement can be reached.

“The most central question that somebody should ask is: ‘What are the prospects for a grand bargain that will change the path of federal fiscal policy?’” Kramer said. “And the chances of that under current conditions are zero.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

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Impact Of Social Security On National Debt

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The purpose of this essay is to explain a complicated and important issue in practical terms. For those who are interested in the technicalities, the footnotes contain detailed documentation to complement and substantiate the main text. All financial data is based on figures produced by the U.S. government. Since these figures are constantly changing, for the purpose of uniformity, the year 2000 is used as a baseline.

The Impact of Social Security on the National Debt >

By James D. Agresti and the Staff of Just Facts

As of December 2000, more than a trillion dollars of the U.S. national debt is owed to the Social Security program.[1][2] This amounts to $3,600 for every man, woman, and child living in the United States.[3] By 2015, this figure is projected to reach $9,000 per person, burdening young people with a debt that they had no part in creating.[4][5] To make matters worse, some politicians are pushing a proposal to “save Social Security” that would increase this figure dramatically.

This essay will explain and substantiate the following points:

Citizens are being misled about the national debt.

Despite what you’ve been told, the budget has not been balanced for the past 3 years.

Every dollar in the Social Security Trust Fund is matched by a corresponding dollar of national debt.

What is referred to as “raiding the Social Security Trust Fund” has no effect on the Social Security Trust Fund. Its real effect is to raise the national debt.

What is referred to as “putting Social Security into a lockbox” has no effect on Social Security.

Some politicians are promoting a plan to “save Social Security” that could add 9 trillion dollars to the national debt.

Privatization would block politicians from using Social Security as a smokescreen to run up debt behind the backs of citizens.

Citizens are being misled about the national debt

More often than not, when a politician or reporter uses the term “national debt,” they are not really referring to national debt. They are only referring to a portion of it. The United States government divides the national debt into two categories:

Money that it owes to federal entities such as the Social Security program.

Money that it owes to non-federal entities such as individuals who have purchased U.S. Savings Bonds.[6]

As of December 31, 2000, the national debt looks like this:

Debt owed to federal entities
2.7 trillion

Debt owed to non-federal entities
3.0 trillion

National debt (total)
5.7 trillion [7]

The debt owed to federal entities accounts for more than 45% of the national debt, yet it is often dismissed or ignored. The excuses that people use to justify disregarding this portion of the national debt generally run along the lines of, “This is just money that the federal government owes to itself. It’s only a bookkeeping device. It’s as if you owed money to yourself.” This line of reasoning ignores the fact that U.S. taxpayers have to pay for this debt. The federal law that governs the payment of the national debt draws no distinction between money owed to federal versus non-federal entities. Both must be paid with interest.[8]

A prime example of downplaying the debt owed to federal entities appears in a 207 page economic plan published by the Bush administration. Not until page 201 is there any mention of the full national debt. This plan states that Bush will retire “$2 trillion in debt over the next ten years.”[9] The problem is that this figure only applies to the debt owed to non-federal entities.[10] What about the rest of the debt? Buried in a table on page 201, we find that the debt owed to federal entities increases by 3.8 trillion dollars, and the overall national debt increases by 1.5 trillion dollars.[11]

Worse than this, some people completely ignore the debt owed to federal entities, but have no problem with including it in the assets of the federal programs to which the money is owed. During the 2000 presidential race, the Gore-Liebermann campaign released a 192 page economic plan that contained over 150 uses of the word “debt.” This plan does not mention or even acknowledge any of the debt owed to federal entities.[12] Yet, the plan states that the Social Security program will remain solvent until 2037.[13] Contrast this assertion with the fact that in 2015, the Social Security program is projected to start spending more money that it collects in taxes.[14] This is a 22 year discrepancy. How does Social Security stay solvent for 22 years while spending exceeds tax revenue? It collects on the money that it has loaned to the federal government; i.e. the debt owed to federal entities. If Gore and Liebermann want to dismiss the debt that the federal government owes to Social Security, to be consistent, they would also have to state that the program would become insolvent in 2015. But they don’t do this. They pretend as if the federal government doesn’t have to repay the money that it has borrowed from Social Security while simultaneously including this money in the assets of the Social Security program.

Members of both political parties have distorted this issue on numerous occasions, and the vast majority of news reports on the subject that have been reviewed by Just Facts contain varying degrees of misrepresentation or inaccuracy. A simple rule of thumb to keep yourself from being duped is to be familiar with the numbers. As of December of 2000, the national debt is about 5.7 trillion dollars and the annual interest on it is about 373 billion dollars.[15] If your favorite newspaper or public servant cites figures that are significantly different, be aware. The U.S. Government keeps an up to date accounting of the national debt at http://www.treasurydirect.gov/NP/BPDLogin?application=np [Revised 9-27-09]

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