July 31, 2011
Marie Lozito is a Registered Nurse, Licensed Massage Therapist, wife, mother, grandmother and life-long conservative. She wrote a text on medical massage and taught at New York College of Health Professions.
Interested in, and observing politics since 1960, she
ran for elected office in 2010.
Money Is Still Making The World Go
As have most of us, I have been listening to many "experts" and politicians and what they have been saying about the debt ceiling and the deficit. It has been interesting to hear some of those who are politically left-leaning commenting on the scare tactics that President Obama and Treasury Secretary Geithner have been using. Tactics ranging from: insulting, i.e. Obama saying the American people don't understand the debt ceiling (Every household and business I know of has to work with their own debt ceiling!); to threatening i.e. Obama saying they might not send out Social Security checks or pay the military; to the fiscal insanity of threatening to default. These scare tactics are designed to force Congress to act in the way they would
like... raise the debt ceiling and increase taxes. In other words, more of the same failed Keynesian economics that got us into this mess to start with!
Veteran financial journalist Charles Gasparino vented his frustration on ABC's
This Week with Christian Amanpour by saying "it's irresponsible for Geithner to go out there to talk about default. If he's worried about the Asian markets tonight, why does he mention default? We are not going to default. We have cash on hand to pay bond holders."
But scare tactics is the political game the White House is playing—and it's a dangerous one. Investment adviser James Rickards wrote to
Politico's Playbook , "Geithner and Obama are foolish to try to ‘scare' markets over the debt ceiling. Markets are already scared. They're looking for reassurance and a more mature dialogue."
Heritage Foundation economist J.D. Foster, Ph.D. points out: "Both immediately and long after it reaches the debt limit, the government would have far more than enough revenue coming in that the Secretary of the Treasury could use to pay interest on the debt. Nor would preserving the current debt limit put at risk the full faith and credit of the United States government, as the President's chief economic adviser has claimed. The government would continue to pay net interest as it comes due."
But of all the speakers, the one I have heard that most rationally and intelligently lays out the problem clearly is Veronique de Rugy, PhD. She actually is an "expert" on the federal budget and taxation. In the lecture I listened to, she explained about August 2 being an arbitrary date that the Secretary of the Treasury set. Remember May 16th? That was the original debt ceiling date Secretary Geithner set. We didn't hit the ceiling then because he did
some things that the Secretary of the Treasury has the power to do. Apparently there are many things the Secretary of the Treasury can do, if he chooses to do them, that could prevent our hitting the ceiling on August 2. Even if we do hit the debt ceiling because the Secretary does not do anything else to postpone it, that does not mean that the United States must default.
The $2.2 trillion of revenue income in 2011 are more than enough to pay the interest and principle of debt that comes due, as well as Social Security, Medicare, Medicaid and military salaries. Secretary Geithner can prioritize payments. Also, the Treasury is not restricted to just the use of revenue (taxes). Indeed the Treasury has many assets that it can use,
IF the Secretary should choose to use them. So, your tax dollars and the corporations' tax dollars are not the only money the Treasury can use to pay the bills.
She explains how there has been "an absolute lack of leadership" in the government. Since the debt ceiling was instituted in 1917 (to allow borrowing of money to fight WW1), it has been raised 100 times! The politicians have acted irresponsibly by giving short term giveaways to sections of the public without regard for the long term effects or costs to the society as a whole . The irresponsible explosion of spending, especially with the "auto pilot" programs
like Medicare, Medicaid and Social Security, have caused the problem. She clearly explains why the solution has to be spending cuts and true institutional reforms.
Spending cut "packages" will not work – historically they have never worked. Following congresses have either radically changed them or just ignored them. Even "hard caps" have been ignored as the congresses abused their "emergency spending" power.
There are only three ways to cut the debt: decrease spending, increase taxes, or inflate money. (Inflation happens when there is a decrease in the value of the dollar caused by printing paper money without having an increase in precious metals such as gold held by the Treasury. Every dollar is worth less and purchases less.) There is a limit to how much you can tax before there is a diminishing return. (One of the reasons that previous tax cuts under JFK, Reagan and Bush actually brought more revenue into the Treasury than came in with the higher tax rates.)
If Congress raises the debt ceiling and does not make effective spending cuts, the buyers of our debt will know the debt is riskier than it was before. Hence the threat of raised interest rates which will affect all of us in one way or another.
As Ayn Rand once wrote: "Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people's savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments."
(A statist government has a strong, controlling central government, like what Washington D.C. has become.)
Veronique de Rugy feels that Cut, Cap and Balance is a start in the right direction and acknowledges that the entitlement programs will be hard to change. As she says, "Once you get something, even if it's a bad deal, you are reluctant to give it up." Right now 50% of the people in America get something from the Federal government and 47% pay no Federal income tax.
I liked her optimism that this debt crisis brought on by reckless and irresponsible spending "is an opportunity for today's politicians to be statesmen and reform the incredible spending appetite of the Federal government." Let's hope some of them are statesmen and provide the leadership to start fixing the mess our Federal government has needlessly created.