Will Federal Spending Put Us At a Tipping Point By 2015

In 2011, the Democrats of the Senate Budget Committee put together a power-point presentation with regard to this nation's accumulated debt and spending.  The very first slide of that presentation showed a U.S. dollar with 40% of it being covered up by the word "borrowed"; meaning that for every dollar of spending, 40 cents is with borrowed money.  At the time of that presentation, our debt was still under $14 trillion but quickly approaching $15 trillion.  Today, our debt is 10% higher with it above $16 trillion.  This means that the 40 cents in that presentation is now 10% higher; probably around 44 cents.

Now, here's an important thing to understand.  Obama's own Treasury Department is now projecting that the federal deficit will hit $20 trillion by 2015.  Or, in other words, our debt will be 33% higher than it was in 2011 when 40 cents of every dollar was being borrowed.  If that becomes fact, it means that we will have already hit a disastrous tipping point where our government's operation will be majority run by borrowed money; 51 cents or greater for every dollar of spending. What that, then, means is that we will literately have to borrow money to pay off what we've already borrowed.  This is a death spiral.  It is how Greece became the economic mess it is today.

There's no single way that a country can get itself out of trouble when it reaches this kind of debt situation; especially when dealing with debt that is in the double-digit trillions of dollars.  One way is to print more money.  But, that will just cause massive inflation; forcing the economy and tax revenues to stall out.  Another way is to raise taxes.  But, raising taxes can, too, weaken the economy and result in lower tax revenues.  The best way is to cut spending.  But, nobody is going to want their pet spending cut. That's why we are seeing the riots in Greece as the government tries to implement austerity programs. 

The bottom line is that we are heading for serious trouble and its not far away.  Obama has literately steered this country into disaster.

--- Democrats Power Point Presentation on Debt and Spending:  http://budget.senate.gov/democratic/index.cfm/files/serve?File_id=68c4deb6-ac22-4b0d-bd31-df69512f8607

--- Real Clear Politics: Debt to hit $20 Trillion by 2015: http://www.realclearpolitics.com/2012/10/18/us_borrowing_amp_spending_is_at_a_crisis_point_293445.html

Obama: Not Class Warfare. Its The Math.

After raising the level of deficit spending by $4 trillion in just 2-1/2 years, Obama claims his "tax-the-rich" plan will reduce the deficit by $3 trillion over the next 10 years. He claims that it's not class warfare, it's the math. (Click here to See the CBS story: "Obama: Plan not class warfare, it's math")

Well, to me, the President's math really stinks. Over the next 10 years, we'll be spending $1.6 trillion more per year than when Obama took office. Then, against that spending level, his plan proposes to save a mere $300 billion per year. That then leaves a continuing spending deficit of $1.3 trillion, every year, over the next 10 years. Obviously, his "taxing-the-rich" scheme is only a pin prick when compared to the massive spending legacy of this Presidency. Therefore, I don't really think it "is" about the math. And, if it's not the math, then what? Class warfare, maybe?

Another Slap In The Face For Obama

At the G20 meeting, Obama stood alone against the other member countries with his "spend more" ideology to beat down the world wide recession. After all, his policies have worked so well for this country, now haven't they? (choke!)

Now, the International Monetary Fund (IMF), too, has scolded Obama for his spending by telling him (and us) to cut expenses and raise revenues in order to reduce the U.S. debt to a more manageable level (Click here to See Story: IMF calls for deficit cuts in US). To be fair, the President did get a few "attaboys" from the IMF on how well the recovery is going in the U.S. Although, I'm not sure how much of the recovery is even attributable to anything that Obama has done. But, on the downside, they warned of a double-dip in the housing market and the economy if deficits weren't roped in from current levels.

To me, all this does is give Obama and Democrats a green light to raise taxes in order to lower deficits with the full international approval from the IMF. But, don't expect that "cut spending" recommendation to ever happen. Genetically, that concept isn't part of a Democrat's DNA. That's why, through time immemorial, Democrats have always been known as tax and spenders.

You Can Just Feel The Winds of Change

It now appears that, whether you are a Democrat or a Republican, the voters are angry and, if any politician is irresponsible in spending, taxation, or both, they will be soundly defeated at either the primary level or the mid-term elections this Fall. The change that Barack Obama touted during his candidacy is well underway and not in the way that this President seemed to have planned for. In fact, he is the catalyst and not the implementer of the change that we will see in Washington next year.

We are now more ideologically divided than ever; with the Independents increasingly moving to side with the GOP and leaving the Democrats to stand alone with their liberal tax and spend philosophies that may very well bring this country to its knees.

First, we saw it in the ouster of former Senator and then-Governor, Democrat Jon Corzine, in the heavily Democratic state of New Jersey. At the same time, Republican Bob McDonnell successfully retook the Governor's Mansion in Virginia. Then, the "iconic" seat of Democratic Senator Ted Kennedy was amazingly and "irreverently" seized by the Republican, Scott Brown.

But, it isn't just the Democrats who are in danger. For his embrace of the Stimulus Package and his appearance with Barack Obama, Florida's Republican ex-Governor Crist was forced by the upstart challenger Marc Rubio, to drop out of the running for the GOP Senate nomination. The once-popular Crist, in desperation, is now running as an Independent.

Yesterday, Republican Senator Bob Bennett of Utah found out the voter's sentiment the hard way when he was tossed out of the GOP convention; abruptly ending this three-term Senator's bid for re-election. Like Crist, he was too cozy with the Democrats in Health Care Reform. He also was a big spender when it came to garnering earmarks for his state.

In the case of both Crist and Bennett, the Tea Party showed its strength by backing the opposing candidates against these once-popular mainstays of Republican politics. For these politicians and many others, the winds of change are blowing right into their faces. The cowards who have seen the handwriting on the wall -- mostly Democrats -- have already announced that they won't run for another term; and, that list is getting longer with the most recent "retirement" of the powerful Wisconsin Democrat, David Obey. It is looking more and more like we will have a blood bath in the fall for all those business-as-usual, tax-and/or-spend politicians; no matter what party they belong to.

A Debt Reduction Commission - Or - Just A Sneaky Way To Break A Tax Promise

Yesterday, Obama's Debt Reduction Commission held their first meeting to decide what measures should be taken to reduce this nation's spiraling deficit. According to the Republican Co-Chair, former Senator Alan Simpson, "everything is on the table". Of course, for me, the best debt reduction action that could be taken right now would be to fire this President and send all Congressional Democrats home. But, maybe in the Fall?

The problem with the Debt Commission is that it will be used to raise taxes; and, nothing else. Everyone on Capitol Hill, Republicans included, knows damn well that any "program eliminations or reductions" would take an act of god to happen. For a politician, cutting any program and possibly losing even a single vote is anathema. So, my prediction is that only tax increases will be implemented out of this commission's December recommendation.

For Obama, the tax recommendations from this "bi-partisan" commission will be particularly beneficial. That's because (and I predict) that commission will recommend some form of tax that will hit the middle or lower classes of this country; thus giving Obama cover to break his promise of not taxing anyone below $200,000. Afterall, that's why he really created the commission. Duh!

Everyone on Capitol Hill knows what has to be done to save this country from collapsing under its own debt. But no one wants to make the hard choice because, in doing so, some voters are going to be offended. But, having a bi-partisan commission, not made up of current office holders, is just the ticket. Now, if the voters get angry, they'll have to get angry at the commission and "not" any particular elected official. How gutsy!

America's Credit Score at Risk

For you and I, it is our credit score -- our FICO score -- that determines whether or not we're credit worthy enough to get a loan or another credit card. People with poor FICO scores will generally pay higher interest rates if they are even able to get a loan.

For an entity like the U.S. Government, the equivalent of the FICO score is the Moody's Investment Rating. Right now, America's investment rating is the highest possible at AAA --- meaning that America is an excellent credit risk. Earlier this week, Moody's Investment Service warned that the United States' high rating is now at risk because of it's massive and unsustainable deficits and it's failure to come out of recession (Click to See Full Story: "Moody's warns nations to cut spending or risk AAA ratings"). This is the second warning issued to the United States by this premier rating's agency in just so many months.

Just as if your personal FICO score was lowered, the United States will have to pay higher interest rates for all the massive debt we've accumulated if we lose that AAA rating. Currently, about 40 cents on every dollar that is collected by the IRS goes to just pay off the interest. If our credit rating is lowered, that amount that goes to interest could be as high or higher than 50 cents on each dollar. That's because the people who hold the debt (such as China) will demand higher rates to offset the higher risk of default on the loans. Increasingly, we are getting to a tipping point where there isn't enough money in our entire economic system to pay off our debt.

As a point of reference we now owe $14 trillion dollars. With 7 billion people in the world, that means that, if we could spread that number across the entire world, each and every living person on this planet would owe approximately $2,000. As it is, our debt is so great that each American citizen owes about $181,000. If that amount took into consideration all other liabilities such as the unfunded portion of Social Security, that number soars to nearly $350,000 in debt per person in America. (Click to see the national debt clock)

When you really think about, if we didn't have our current and future debt, our government could provide the same amount of services with nearly half the same amount of taxes being collected. Or, in other words, without this burden, all businesses and individuals that are currently paying taxes could see a 40% reduction in the taxes. That alone would make our products more competitive in the world market place and we would see a growth in jobs that would be unbelievable. We would actually regain many of the manufacturing jobs that we have lost over the last 40 years.

Let Inflation Begin!

Pure economic theorists will tell you that you shouldn't have inflation when an economy is being staggered by a recession. But, in reality, an economic situation, called stagflation, can happen and create inflation during a time when it shouldn't happen and when the economy is in the worst shape to absorb it -- like the current recession. Typically, stagflation results from too much micro and macro management of the economy that forces external factors to have a greater effect on the economy than would otherwise be seen.

Stagflation can be disastrous during an economic downturn because it can either exacerbate or lengthen the recession. It hurts the poor and the lower classes the hardest because their salaries are unable to rise as fast as prices are rising. This is because recessions and high unemployment have a heavy impact on salaries because there are just too many unemployed "workers" available in the market place to replace those who are not willing to work for less. Further, because prices tend to rise faster than salaries, the consumer winds up with less money in their pockets to buy stuff.

Right now, stagflation and the potential of excessive inflation is at our doorsteps. Despite falling demand, oil prices have more than doubled to the current $73 a barrel from a previous low of around $32 a barrel in just less than 6 months. Corn prices are up by 37 percent. Gold is up 50% from $700 an ounce in just a few months. Similarly, other strategic metals such as silver, palladium, and platinum have had also had 50% gains in the last few weeks. Other grains and rice are also on the rise.

The rise in oil is especially troubling. This is because its rise affects almost everything we buy or do. For example, gasoline prices have jumped a full dollar in pricing at the pump from a low of $1.61 a gallon. Oil is also heavily used in plastics, paints, and fertilizers. Everything has to be shipped to its point of sale and, for that reason, the high cost of oil affects the price of all products that are being sold throughout the US. For sure, grocery prices will be going up because of the heavy influence of energy costs and the costs of fertilizers.

Oil is being driven by three factors.

First, proven reserves for oil began dropping this year (for the first time in 10 years) because no new oil reserves have been found this year. In fact, our Congress passed a bill earlier this year to protect known reserves in this country from being drilled on. This means that production will be declining as the demand keeps rising. Like anything with high demand and with limited supply, this makes oil very valuable. Further, Obama's plans for "oil independence" are being shirked-off because his plans for wind turbines, solar panels, and high mileage vehicles won't really reduce this country's and the world's dependence on oil.

Because of this, we have the second reason why oil is on the rise. There are mammoth amounts of cash in this world that are just sitting idle and not earning much money at all. This cash is the money that was pulled from the housing market and the stock markets when the recession reared its ugly head. That money is now finding its way into oil futures; thus, driving the prices up. Some say this is speculation. However, the people buying those tankers full of oil in terms of oil futures know exactly what they are doing. True speculation implies that traders blindly buy into something without any real knowledge of what they are buying. The people driving the price of oil know exactly what their doing and see only limited risk. If oil goes down, they can turn on a dime.

Lastly, oil is increasing in value because the U.S. dollar is falling. In fact, in just the last month, the U.S. dollar has been cheapened against other world currencies by about 16 percent. The dollar is losing value because of our high debt load under this President/Congress and because of the increasing possibility that we can't repay that debt. Since most of our oil is imported, the devalued dollar causes the importation price of oil to rise. That in turn, causes all oil in the world marketplace to rise. Besides oil, everything we import becomes more expensive. Because we import more than we export, this means that most everything we buy will be sold to us at a higher cost.

The massive accumulation of debt since Obama took office is the driver that could ultimately cause hyperinflation and, at the same time, destroy any possible recovery from this recession. Too much debt means that the one generating the debt becomes a higher risk and, because of that, will have to pay higher rates of return to compensate for that risk. That's why high risk credit card holders are charged a higher rate than low risk holders. The same is true with this country's increasing debt. In the recent weeks, the 10-year U. S. Treasury bond has jumped from a low of 2.56 percent to a high, just this week, of nearly 4%. This is because our bonds lack buyers; buyers not sure about the risk. The 10-year bond is key to the health of our economy because it is integral in setting mortgage and other credit rates. In essence that jump in rates from 2.56% to 4% will cause any new $100,000 mortgage loan payments to increase from about $398 a month to $477 a month on a 30-year basis. That is almost $1000 more per year for a $100,000 mortgage since Obama took office. This will ultimately keep marginal home buyers out of the market for new or existing homes. And, let us not forget, it is the housing market that got us into this recession and it is the housing market that has to become healthy in order to lead us out of this recession. Rising mortgage rates aren't going to make that happen.

The inflated costs for home loans is just the tip of the inflation iceberg. Obama's plans for "Cap and Trade" will impose high costs on everything that we manufacture and sell in this country. The average family might get hit for as much as $6000 more per year in inflated energy and product prices. The green technology effort will be more expensive than today's well-established energy pricing components. That too will add to the cost of everything that is made and sold in America. Obama's health care plan will probably cost the average family in excess of $1000 or more per year for the things they buy. Furthermore, if the full cost for all these Obama programs isn't passed onto the consumer, then that means that tax revenues will go down with profits going down and less taxes will be paid. That will only result in the need to raise taxes on everyone. That's inflationary too.

Lastly -- speaking of taxes -- taxes are being raised at a rapid rate by state and local legislators as a means to offset the loss of tax revenues during this recession. Real estate taxes, auto fees, sales taxes, and income taxes are all being raised and that is inflationary.

It really doesn't matter if it's high gasoline prices or if it's higher taxes or if it's higher prices for products we buy, all of these things put together are impinging on the buying power of the consumer. That's why this recession is probably going to be with us for a long, long, time.

What Is Obama Up To?

I don't know what Obama is up to but, on two separate occasions he has, in effect, criticized his own outrageous spending habits. On May 14th, he said that the current deficit spending is "unsustainable" and could result in skyrocketing interest rates for money being borrowed from other countries (See Full Story). Then, two days ago, in an interview with C-Span, the Drudge Report is quoting Obama as saying that "we are out of money" (See Full Story).

This guy is a sly politician; too sly to have slipped his tongue twice about his own excessive spending and the huge new deficits that he, himself, is largely responsible for. My guess is this is a "setup" for new taxes coming down the pike. For sure, he will probably "not" want to wait until 2010 to allow much of the Bush tax cuts to expire. Instead, expect him to call for a repeal of those cuts this year. These statements could also be a forewarning that all taxes, even those on the middle class, will have to be raised. If so, the Obama promise to not raise taxes on the middle class will just go down the toilet; just like so many other broken promises that he has made. Mark my words!

The Forgotten Millions

In the 2008 election, 231 million out of a population of 300 million were eligible to vote; but, only 57% or 132 million actually did. A total of 53 percent of those, who actually did vote, voted for Obama. That means that, on the basis of actual votes, only about 70 million people or 30 percent of this country's 231 million eligible voters actually put Obama into office.

For sure, Obama won the election. But, by the sheer numbers of that election, he did not win by some massive voting majority. There was no mandate in his election. A plus three percentage majority is hardly a mandate. Yet, when you listen to the members of Obama's team, like David Axelrod, the millions of Americans who disagree with Obama's policies should just shut up because they didn't win. In other words, and in the minds of the left, those who didn't vote for Obama have completely lost any and all representation in Washington, D.C. So, in essence, the losers should just accept all this spending and the new taxes this government is dishing out.

The original Tea Party, the one that was held in Boston in 1773, occurred as a result of the British imposed taxes that resulted from the Tea Act of that same year. In essence, it was a revolt against taxation without representation. Many on the left argue that those who are conducting today's Tea Parties have no understanding of history and what the original Tea Party was all about. To those who think that, I would say their sense of history is misplaced. This Obama/Reid/Pelosi government is fervently implementing taxation while totally forgetting the millions who didn't vote for them. Furthermore, they are attempting to use seldom-implemented and end-around Congressional procedures so that a two-thirds majority Senate approval, as mandated by the Constitution, isn't needed to approve all their tax and spending plans. That to me, this is nothing less than taxation without representation.

The Tea Parties are an expression of opposition as mandated by the First Amendment of our Constitution and our Freedom of Speech. They are a non-violent means of expressing an objection to all the taxes and spending that is being imposed on this country. It amazes me how reactionary the left is against these expressions of free speech. David Axelrod, himself, said that they were unhealthy (See Full Story). Yet these same people thought nothing of the abject war protests by Code Pink and Moveon.org at a time when we were trying to win a war in Iraq. Apparently, that wasn't unhealthily; even though those protests probably gave our enemy the impetus to press on.

Someone should tell the Democrats, especially David Axelrod, that the suppression of speech is what is really unhealthy. No political party should ever have a blank check for spending and their hands completely wrapped around our wallets. The Tea Party movement is gaining strength because Americans are concerned over the direction of our nation. The polls are reflecting that. Obama still has a personal popularity that is slightly above the mean, but when America is polled about his individual policies, the polling reflects something well south of 50%; more often than not, below 35%. This kind of disconnect is serving Obama well, right now, but it will ultimately hurt him in the future. This is what happened to Jimmy Carter while he was president; and, history should not be ignored. Just like Obama, Carter had a majority in both Houses of Congress and had an overly aggressive social agenda. That was his downfall and the reason that Reagan won and the Democratic majority in Congress receded. This stupid belief that millions of Americans should be silent for the next 4 years while Obama is President is just ridiculous.

I seem to remember that the left, feeling that Bush stole the election from Gore, was hardly silent from the day that George Bush took office.