Is the administration accusing ITSELF of running a Ponzi scheme?

Back in January, Austan Goolsbee of the White House Council of Economic Advisers started chanting for public consumption that if Congress fails to raise the debt ceiling this May the “impact on the economy would be catastrophic,” due to the fact the government would have to stop borrowing money and might default.

On Jan. 6, Bloomberg Business Week reported the Treasury might be able to shuffle funds in order to stave off the crisis for as much as an extra three months — till August– but cited Treasury Secretary Timothy F. Geithner also saying lawmakers must raise the federal debt limit in the first quarter of 2011 or “risk a default on U.S. debt and a loss of access to global credit markets.”

A failure to act would cause “catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009,” Mr. Geithner, who proved unwilling to pay the taxes he insists the rest of us owe, said in a letter to Speaker of the House John Boehner, Senate Majority Leader Harry Reid and all others. Lawmakers should act before a default becomes “imminent” because damage from even a short-term disruption “would last for decades” Mr. Geithner said.

Does anyone else find this a tad irresponsible, if not downright weird?

In the first place, all parties — including Barack Obama, who voted against raising the debt ceiling when he served briefly in the U.S. Senate, but who signed the last bump-up a mere 15 months ago — agreed at the start of 2010 that $14.3 trillion is all we’d EVER need to borrow.

What emergency has since arisen? Has our fleet been sunk at Pearl Harbor, again? Are hordes of maddened Canadian suicide troops pouring across the border? Has a huge meteorite wiped out Detroit? (And if so, how could they tell?)

But at a time when foreign investors — think China — are already dumping U.S. dollars, albeit quietly, and declining to buy Washington’s bonds at anywhere near the volume they used to, leaving the Federal Reserve to buy our own debt like a snake swallowing its tail, who in his right mind would tell overseas investors that unless we can borrow more we’re likely to default?

For one thing, to say that the inability to borrow any more money will immediately cause you to default amounts to an admission you’re borrowing to cover what you owe yesterday’s creditors — a prima facie admission that you’re running an unsustainable Ponzi scheme. Goolsbee, Geithner et al. might as well shout “Run for the hills!”

But secondly, it’s likely not true, and surely there should be at least a GRAIN of truth in such official pronouncements.

The British magazine the Economist reported, also back in January, “Almost everyone takes it for granted that a failure to raise the debt ceiling will eventually force the United States to default on its Treasury debt. This notion is superficially puzzling…

“A default would result from failure to pay principal or interest. The debt ceiling doesn’t bar either. Treasury can roll over maturing issues so long as the overall stock of outstanding debt doesn’t rise. … As for interest, even in today’s straightened circumstances, revenue is more than enough to cover interest charges. … In every month this year, projected cash receipts comfortably exceed interest payments; the narrowest margin comes in November, when receipts exceed interest by $131 billion…

“What this clearly means is that Treasury can easily remain current on existing debt, provided it is willing to suspend some non-interest outlays…,” “G.I.” of the The Economist went on. “Failure to raise the debt ceiling need not entail default; but it would still ding Uncle Sam’s credit rating.”

But even that analysis fails to take into account the most sensible alternative to a default.

A COMPARISON, ADMITTEDLY INEXACT

Imagine your family has been living way beyond its means for the past several years, simply by running up credit card debt.

You’re now in the process of closing on a brand new speedboat which you hope to take to the lake for a big vacation this summer. But it occurs to you these plans will “max out” your credit cards, again. So you call the credit card company and ask for your debt limit to be raised, again.

But — oh, no! Instead of saying “Yes,” as they always have, they refuse. Not only that, they warn you they’re getting a bit nervous about your paying “interest only” they now want you to start retiring your principle, as well.

Do you shout out, “In that case I’m going to default!”?

I suppose some might do that. But to most responsible souls, surely that would be a last resort. And — even if you think you may have to do so — not a very wise thing to say out loud.

What would make more sense is to sit down with your family and say, “Listen, we’ve been living way beyond our means, and the credit card people won’t finance that anymore. Here’s a budget I’ve drawn up showing our current income, the larger payments the credit card company wants after we’ve cut up our cards, our mortgage payment, utility bills, enough gas for the grown-ups to get to work, and an adequate amount for food.

“We’ll be eating more beans and rice, and a lot less steak, but we won’t starve, and I THINK we can keep this roof over our heads.

“However, for the next couple of years this means no more movies or restaurant meals; I’m canceling the cable TV. We’re also canceling the purchase of that new boat, as well as our summer travel plans. We’re going to have to sell both of the new SUVs, and replace them with a 10-year-old used car that gets better gas mileage. You kids will have to give up most of your after-school activities and take part-time jobs. I at least want you to earn lunch money and enough for this year’s Christmas presents …”

This is a conversation millions of American families have had in recent years. In some cases, it includes NOT being able to keep the house. No one enjoys it, but after some squealing and foot-stomping, reality generally prevails.

So why can’t government do it?

“Oh Vin,” some will say, “that’s simplistic. You think the federal government can save enough money to live within its means just by canceling its cable TV service? Most of the thing the federal government does are vital.”

Really? Then how come federal spending has doubled to $3.7 trillion since 1990 (about 40 percent of it borrowed), and nearly tripled since 1980? Was starvation widespread under President George H.F. Bush in 1990, or in the last year of the Carter administration, 1980? Were women denied the vote and were black Americans working as slaves on the plantations? Were our skies black with soot?

Who the heck woke up one morning in 1980 and said, “Darn it, we need to triple the size of government in the next 30 years, even if it means borrowing till we’re bankrupt?”

YOU CAN START ANYWHERE

The federal budget is so easy to cut that to say otherwise is just plain nuts. If Congress won’t do it, an honest Supreme Court could and should throw out two-thirds of what the federal government now does, under the 10th Amendment alone. All they need is a plaintiff.

We have troops in more than 100 countries overseas, but no one has attacked us in years — unless you count the invasion of illegal alien laborers, about which Washington City refuses to do much of anything.

The Constitution doesn’t merely instruct Congress to “roll over” the funding of expeditionary forces every two years, which would accomplish nothing. The provision was clearly intended to prevent a “Roman empire” situation, in which legions serve in foreign provinces for entire lifetimes. It means that after two years, they’re de-funded. They come home.

We got bin Laden, now bring them all home.

I’m proud of our blue-water Navy, too, but having all those carrier groups just tempts ANY occupant of the White House into “extending our power” to places like Libya, where we have no business being. Mothball half of them.

Medicaid is charity, which is not an authorized function of government under the Constitution. End it tomorrow. If you’re afraid poor folk won’t be able to get medical care (the cost of which has been enormously driven up by existing government interventions), just allow doctors to write the cost of any pro bono care they provide the poor off the bottom of their income taxes. In fact, any doctor who can document having provided $200,000 worth of free medical care to the poor should be able to file that documentation IN LIEU of any other income tax filing.

Not enough people have health insurance? Wipe away all the state-imposed mandates, allowing insurers to sell “catastrophe-only” coverage across state lines.

Want the poor to go to work? End all welfare programs — including government checks for all the newly invented “mental disabilities” — and along with them the withholding tax, the minimum wage, and every other mandate that requires an employer to even TELL the government he or she has hired a new employee.

People had a lot less trouble finding work back when hiring someone didn’t turn a would-be employer into an uncompensated tax collector, liable to lawsuits or even jail for “doing things wrong” — an economic intervention of the central government within our states and local communities that the Constitution doesn’t allow, anyway.

Close the Department of Education, under which the government schools primarily produce graduates lacking complex literacy, just as John Dewey and Horace Mann publicly said they intended them to. Close the Departments of Energy and Agriculture and the EPA, allowing industry to get back to providing us with cheap power and farmers to get back to growing only what’s profitable.

End the “War on Drugs,” which is barred by the Constitution and which costs us billions just to imprison non-violent offenders.

“But all my friends will make fun of us if we don’t have the latest, newest brands of stuff!”

Wait, was that the kid at the kitchen table, complaining the family now has to live within its means and we can’t buy him a new palm pilot and the latest color of sneakers every month, or was that Barack Obama and Harry Reid complaining we don’t have nifty high-speed trains, like socialist France or bankrupt Japan — without bothering to consult a chart on “relative population density”?

SELLING THEIR BEST TOOL FOR A HANDFUL OF BEANS

The best tool we have to slash government spending is the debt ceiling. Yet Republicans say that before they raise the debt ceiling THIS time, they’re going to extract some really special double-cross-your-heart promises to really, really cut spending, reeeeal soon.

Anyone who says that has no intention of cutting spending. Why negotiate away the very mechanism which could force huge spending reductions now, over the next three months, at a time when no other crisis looms, in exchange for “promises” to limit spending (which really means “play a numbers game that will convince the morons we’re cutting spending”) someday?

Mind you, if the crooks in charge in Washington City want to default, it’s fine by me, precisely BECAUSE it would cause them “a loss of access to global credit markets” for decades to come.

I’m just wondering why they would want to claim that’s their first and only option.

One Comment to “Is the administration accusing ITSELF of running a Ponzi scheme?”

  1. MamaLiberty Says:

    End the theft. The spending would be taken care of. You don’t ask a thief to stop… you make him stop. Neither the theft nor the spending will stop as long as we politely “ask” for it.