Loose Change

If you purchased an item for $20.00 in 1913, the same product would cost you $459.93 today. That represents a 2199.6% rate of inflation. Is the product worth more than two-thousand times its original value? Probably not…. because the worth of the product has not varied, but the value of the money used to acquire it has gone down.  In other words….the (formerly) high prices for real estate and homes and nearly every other purchase in our market baskets are a result of our money becoming worth less…..and closer to becoming worthless. The decreasing value of our currency means that most people are constantly scurrying to earn enough so as not to lose too much ground.

Though conventional wisdom states that inflation or weakening currency is good for borrowers because they repay with cheaper dollars than those they borrowed, every other aspect of life for the typical individual buyer increases in price thus rendering the payback gains as negligible.  Besides, borrowing money should be a thoughtful process that weighs the probability that the use and value of the product outperforms the capital cost and carrying charges. If one borrows money merely to benefit from a cheaper-dollar payback, the underlying reason for the initial purchase is probably of questionable value. The scrambling that is necessary just to outrun the inflationary cycle could consume more energy than the minimal gains that are realized.

The economic uncertainty that results from an accelerating inflation cycle lures investors and business owners into unwise decisions. If the “chickens come home to roost” the faulty decisions will be exposed, and various sectors of the economy could be negatively impacted. Inflated money demonstrates the unreality of a currency or coinage that is based on nothing. There are no precious deposits that insure the stability of the money, and there is no underlying basis for valuing it. The value of an inflationary currency must ALWAYS be relative to other currencies and their purchasing powers. As nations and their economies ebb and flow the relative positions of their monies will change based on the underlying strength of each nation. It is an unstable system that allows for nefarious manipulation (see Soros, George). A sound money supply must be backed by a stable valuable commodity in order to assure a predictable and consistent value for the money in good times and bad.

There is another factor regarding devalued money that is rarely addressed in the mainstream. A nation whose currency undergoes a long-term pattern of devaluation must be, to some degree, a nation in decline. Currency manipulation, purchasing decisions and business plans become hurried “under the gun” activities rather than thoughtful and systematic. Long range planning becomes difficult because of the unreliable nature of the money supply and value. Consequently, the short view takes precedence in the offices and boardrooms of the nation, and most gains are ephemeral. Living for the short term can be costly, and especially so for nations and businesses. One misstep….one miscalculation can have a devastating economic outcome. Long term vision allows for tweaking, nudging and redirecting the plan, but the short duration reactionary action plan is similar to rolling the dice for the big payoff…. or bust.

When our medium of exchange (money, gold, barter) is volatile, people become either overly cautious or dangerously risky. The uncertainty that follows a widely fluctuating currency undermines citizens’ confidence in their government, their economies and their futures. The impact on the national psyche could conceivably be more damaging than the harm that is done to the economic well-being of the nation. Imagine for a moment if you were a citizen in Greece. Greece….the birthplace of democracy ( a very limited version) is functioning like an economic bungee cord. The citizens have lost faith in the government and justifiably so. The Greeks, however, have been major contributors in their government’s fragility because of their vociferous resistance to necessary austerity measures. The angst arising from the failure of the Greek economy, the turmoil among the people and the fragility of the Euro have combined to create a nation that seems to have lost hope and expectations for a better future. Unfortunately the United States is traveling a similar path.

Our inflated dollars have distorted the true value of goods and services produced in the U.S.A. Our profligate spenders in governments at all levels have contributed to the inflation by over spending and over borrowing. Although our local governments are forbidden from running deficits, they are too eager to issue bonds for underwriting large chunks of spending…..especially capital expenditures. Debt is deadly whether it’s in the household the business or the statehouse. As debt increases and inflation takes hold, more funds are required to finance the continuation of the enterprise…..whether public or private. Thus begins the cycle for the issuance of more money. If our currency were based on a solid measurable standard, the excessive indebtedness in the public and private sectors would not be possible. Borrowers would have to compete for loans and stand in line to wait their turns. Our money, our economy and our sleep would all be more stable.

cearlwriting@hotmail.com

www.littlestuff-minoosha.blogspot.com

Tightening the Beltway

All levels of government should be required to join “Slim Fast” because most of them operate “Half Fast.” The size and intrusiveness of our governments at all levels has been a consistent theme in these columns, but how is this massive monstrosity fueled? What feeds it? Obviously the taxpayers and compliant lenders are the greatest sources for satisfying the voracious appetite of government. Don’t overlook the licenses, fees and fines the various agencies levy….seemingly arbitrarily. If you are one of the few remaining Luddites who still has a landline telephone, scan your next bill very carefully to find the layers of fees and taxes collected by government…..many of which you have not noticed over the years.

Total Spending by Function

Function -yr 2012 +yr Total Spending $6.2 trillion Pensions $1.0 trillion Health Care $1.1 trillion Education $0.9 trillion Defense $0.9 trillion Welfare $0.7 trillion source: guesstimated2

Click chart for table of Spendings or click: 2010 2011 2012 2013 2014

Note:
1. Federal spending after 2010 is budgeted.
2. State spending after 2009 and local spending after 2008 are “guesstimated” by projecting the latest change in reported spending forward to future years

From: www.usgovernmentspending.com

You may suspect that there’s an error in the chart shown above because it lists $6.2 trillion in government spending versus the $2.2 trillion dollar budget that is thrown around in the national dialogue. So, if we’re borrowing in the neighborhood of $1.3 trillion to $1.7 trillion in order to meet our obligations, where does the other money come from? Also, you will note that interest payments on the debt are not included in the disbursement totals. If we get an increase of a couple of basis points, interest costs would soar. Even with tighter spending controls, the National Debt will increase to nearly $22 trillion by 2014. That’s assuming that Congress stays within its budget….which isn’t likely.

Click chart for briefing on Federal Deficit. For deficit as %GDP from 1950-2015 click here.

Click chart for briefing on Government Debt. For debt as %GDP from 1950-2015 click here

One of the measures of economic freedom for a nation is the percentage of the Gross Domestic Product (GDP) that is consumed by the non-productive public sector. That percentage is a very good indicator of a nation’s prosperity.

GDP / Spending

Click chart for chart of Gross Domestic Product. For Real GDP from 1950-2015 click here.

Click chart for briefing on Total Spending. For Spending as %GDP from 1950-2015 click

If these glide paths continue, then government will absorb 38% of the GDP in the United States in 2014. Historically for the past century or so, government has consumed 18-22% of GDP. In other words the government’s consumption and wasting of our productivity will nearly double in the next two years. This is a prescription for disaster on two fronts: 1) private sector wealth and prosperity will be more difficult to acquire because government is gobbling resources;2) individual freedom and opportunity will be more severely restricted because of the enormity of the government apparatus. So total government spending….local, state and federal will claim 40cents out of every dollar’s worth of value produced in the United States….if interest rates ratchet upward as is likely, then the figure is higher.

We are headed for economic, fiscal and social upheaval. As government continues the current path of growth, the resources available for research, development, investment and job creation will wither. The overall GDP of the nation will shrink, and governments’ shares will grow larger. It’s a downward spiral toward collapse. Politicians are fond of saying that spending must be controlled, but they are too clever by half. Government spending must be severely REDUCED in order to service the massive public indebtedness. There is another lurking danger to our economy and our way of life. Personal and commercial indebtedness is higher than normal. If taxes, fees and other government revenue streams are increased, private sector entities will have fewer funds available for their debt service thus further compounding the problem.

One of the ironies of expanding government is that the interdependence created by the growth destroys the so-called “safety net,” and places every sector of the nation in economic risk when government falters. It’s the ultimate “all your eggs in one basket” illustration. For too long we have lived under the illusion that government cannot and will not fail. For too long we have been deceived…..or self-delusional. As the charts clearly show, our government, our nation’s economy and our personal and economic freedom are approaching the “tipping point” at warp speed. Once government begins to consume half of the GDP of the nation, freedom becomes a quaint historical concept and prosperity will be limited to the “black market” underground. In most business organizations…51% means you have control. For the moment we are out of control, but government’s share grows by the minute, the hour and the day.

Our fearful political leaders fail to understand the enormity of the problem, or if they do, they lack the courage to forthrightly address it. To save our nation’s plunge into mediocrity and socialism requires massive spending cuts, elimination of entire agencies and departments, and repeal of numerous laws, rules and regulations. The mantra for many in this election cycle is ABO (Anybody but Obama). That’s “OK,” but it is not enough. Review the charts….whoever succeeds Obama will be in power when the economic wheels fall off our country---unless they have the brains and the courage to use chainsaws instead of scalpels when attacking government spending. If they don’t vigorously reduce spending, they may be succeeded by someone more deadly than Obama because of the chaos we will encounter. Be careful what you wish for.

Comment: cearlwriting@hotmail.com

www.littlestuff-minoosha.blogspot.com

Pull it or Prolong it.

Pulling teeth is an uncomfortable proposition….for the person whose teeth are being extracted. It can be a painful experience. If you can remember back to when you were young, and your adult teeth were replacing your “baby teeth,” you may recall that a wiggly tooth generated some pain, but you may have been hesitant to face the momentary onslaught of agony that would come as a result of pulling the tooth. You may have chosen to allow the smaller pain to linger rather than confront the immediate discomfort of a swift extraction. You now know that if you had allowed the baby tooth to remain in your jaw for too long of time, you could have negatively affected the oncoming adult tooth. So it is with our national fiscal crisis. Over spending must STOP, but many of us are too needy and dependent to wish it to do so abruptly.

Some of us understand the need for removing the affected tooth. We wiggle and maneuver it unceasingly, but remain too fearful to apply the one big “yank” that will allow the incoming tooth to fully extend itself. The fiscal and political parallel to this scenario is the budgeting scheme that attacks our fiscal problems in a piecemeal fashion. They may, if resolutely followed, ultimately resolve the spending/budget/debt problems we face, but they do increase the risk for our national fiscal security for the time they are in place. Slow-walking the remedy could create a hazardous recovery for the nation because of the opportunities lost and the diverted capital. The prospect of a “glide path” course correction may be appealing because of its minimizing of economic pain, but the recovery that succeeds it will be less robust because for years the private economy continues to compete with the government for resources. Many sectors, industries and businesses may not survive in such an environment. They will not be in place when the economic engine is re-ignited and capital, training and finances will be necessary for “re-inventing the wheel”…..many times over.

The soundest method for dealing with the tooth whose time has come is to grip it firmly and pull decisively. The higher level of momentary pain will subside rather quickly, and the replacement chomper will have the freedom and the space to develop quickly and straightly.

RON PAUL “PLAN TO RESTORE AMERICA”
Source: ronpaul2012.com

Click HERE to download the PDF version SYNOPSIS: America is the greatest nation in human history. Our respect for individual liberty, free markets

Dr. Paul’s medical training, his constitutional fidelity and his grasp of reason are evident when one reviews his plan. Pulling the offensive tooth now is the best and safest remedy for dealing with a severe problem….especially if the tooth and gum are infected. He understands, however, a transitional time will be necessary to restore the United States to a firm fiscal footing. As a man of integrity, Dr. Paul will NOT leave the heavy lifting to his successor, but he does resolve the issue in one presidential term….straightforwardly, unabashedly, patriotically.

Pulling the tooth quickly will be painful. Playing and wiggling with our nation’s fiscal health will probably be deadly. Let’s get on with it. Dr. Paul is the ONLY candidate on the scene who has a plan and the will to resolve our current crisis. Others have offered piecemeal defunding and cuts but have not dared to offer a bold design for restructuring our fiscal house. A new metaphor: tacking plywood on the broken windows of our fiscal house does not enhance its value. Removing the dangerous broken glass (government), replacing the sill and frame (the economy) and replacing the glass and glazing it (liberty and free markets) will preserve the value of our fiscal house.

Friends, tiptoeing and tap dancing will not save this nation. Failing to squarely face our spending issues and allowing the geometric growth of our federal government will destroy the promise and potential of the United States for our progeny. Bold decisive action is required to restore some sanity to our national (and global) madness. Dr. Ron Paul of Texas is the ONLY candidate for President of the United States who has the plan, the integrity, the courage and the will to do what must be done.

Comment:  cearlwriting@hotmail.com

www.littlestuff-minoosha.blogspot.com

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Baseline Bamboozle

For several years I was an umpire for baseball and softball games. We had two clearly defined baselines and two more subjectively defined base paths. To compound the issue, the foul line is in reality a fair line. So, let’s discuss government and clarity of language regarding the term “baseline.” A baseline as defined by the federal government is not as firm or as permanent as a 3” line of white chalk that runs from home plate to first base or from third base to home plate. The government’s baseline is repositioned every year, and, on occasion, is moved more than once per year.

Our inspired leaders of the federal government have apparently determined that the budgeting process is too difficult and acrimonious. To expedite the process they have implemented the baseline budgeting system wherein each item in the budget automatically qualifies for a nearly 8% increase from the previous year. Through the magic of compounding, a simple annual increase of 8% will result in a given line item appropriation nearly doubling after 10 years. This increase continues without regard for the efficacy or necessity of the program. Baseline budgeting is the fiscal version of the “In-laws from Hell” who come to your peaceful home to visit but refuse to leave. In baseline budgeting terms the words “merit and value” are alien concepts. Since the “Control Act of 1974” our elected public officials have allowed this fiscally irresponsible and politically unaccountable method of budgeting drive our nation toward the cliff of financial and economic disaster.

Clearly thirty-seven years of a failed mechanism that is unresponsive to economic conditions or to actual requirements for government sustainability is long enough. The GOP House majority should make baseline budgeting a sensible target for elimination…..not tweaking, eliminating. If an agency, program or department cannot justify and detail budget items on an annual basis, they do not warrant any funding….let alone an automatic 8% increase. If the Members of Congress believe that requiring justification for every agency or program would be too time consuming for the budgeting process, then obviously the government and the budget are too large. No one, I repeat, no one….no Corporation, no household has the benefit of an “automatic pilot” annual increase in funding. To the contrary most of our citizens and companies must struggle year after year in an unfriendly taxation environment and coping with an overburdening regulatory situation. Government should not ever enjoy an imperial status that far exceeds the circumstances of the people.

The baseline budgeting system immunizes government and government beneficiaries from all of the many intervening disruptions those of us in the private sector regularly encounter. It creates an artificial justification for additional and usually excessive government spending. An historical and efficiency analysis of many government programs or agencies would discover that their effectiveness and usefulness are of minimal value. Yet…the money train continues running as their budgets escalate with no consideration of the programs’ value or need. That’s no way to run a railroad, but our elected officials are too lazy and uninspired to thoughtfully examine each line item and appropriation, so they set them on automatic pilot. Most of us are either personally or anecdotally familiar with the public agency that scrambles to spend its excess at the end of a budget cycle in order to qualify for the increased funding of the next budget. Those types of fiscal and mental gymnastics are a direct result of the baseline budgeting madness.  Thus, the two primary motivations for implementing such a stupid and irresponsible system are: cowardly politicians and big-government advocates…..neither of which serve the best interests of the nation, our fiscal security or individual freedom. In essence, the baseline budgeting system guarantees that the cost and size of government will routinely grow without any justification….feeble or valid.

There are thirteen congressional committees that deal with various appropriations throughout the federal government. The chairs of those august committees are euphemistically described as the “Cardinals” because of their power to impact our lives through the appropriations process. It seems however, that they are opposed to reducing expenditures and budgets because their power may be diminished. Baseline budgeting has given the “Cardinals” the cover to allow for automatic increases in spending and power, and it also offers the flexibility to insert individual expenditures to bolster the reelection chances for members (baseline plus pork). The additional targeted expenditures merge into the baseline to ratchet the base upward for the next budgetary cycle. The pork spending is added to the automatic increases to form a new “minimum” for the following budget. But that’s not all…..

President Obama’s politically-laden stimulus spending was dispersed through various departments and agencies. In every case the additional funding through borrowed stimulus funds increased the baseline for the affected department, agency or program. In effect, our excessive indebted spending has been radically increased with no inherent mechanism for reducing it. Fiscally, this is a tragic and deadly consequence of Washington’s spending addiction, but even more troubling is the failure of the GOP House to address this travesty. They promised to repeal ObamaCare, and they have not. They haven’t even attempted to defund it. All of the facets of the Healthcare monstrosity are integrated into the baseline budgeting system. Also, we have not heard anyone from Congressional leadership suggest that the budget-busting 1974 Act should be repealed. Why not? Are they contented with this system and the growing power over our lives that it promotes?

Bottom line: If the GOP House leadership were absolutely serious about reining in our spending explosion, they would seek to repeal The Control Act of 1974 and defund Obamacare and other budget-busting programs, agencies and departments. The power of the purse should be used to change the direction of our country….not on a glide path, but with a “180” directional shift. Government bureaucracies should be put on notice that the gravy train has been sidetracked, and the Constitution of the United States is the new sheriff in town. Duty calls, Congress, please stop ducking your responsibility.

Comment:    cearlwriting@hotmail.com         or       www.littlestuff-minoosha.blogspot.com