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America's house of credit cards

Posted on December 21, 2009 by Troy Keith

Troy Keith, The Armchair ConservativeIt seems like only yesterday we were basking in the warm glow of Thanksgiving's Tryptophan euphoria.   Unfortunately, any hope of an afternoon nap, much less a Detroit Lion's victory, was abruptly cut short as the clang of alarm bells began sounding throughout the country before the gravy-laden dishes had even been cleared from the table.   Merchant's desperate for cash were calling; it's Christmas time again.

As we move through another holiday season, our sensibilities will undoubtedly be lulled to sleep once again as an endless stream of advertisers assure us that the realization of love and happiness may only be attained by spending money and going further into debt.

This is the way of capitalism.   The message has been ingrained since our childhoods and it's hammered home daily by marketing executives across the land.   A pinch of greed, a dash of self-entitlement and a few hairs from the lapdogs of envy that keep us competing with our neighbors comprise the potion that has fueled our economy for the better part of a century.

For the most part, I fully support the concept as long as it's tempered with a healthy dose of reality and a sense of basic responsibility, but this year is a little different.   Given our nation's current financial crisis and the difficulties facing so many, the idea of our citizens being expected to obediently acquire their traditional shares of Christmas debt seems superficial and somewhat hypocritical.

Our government refuses to live within the constraints of a balanced budget so perhaps it's not entirely unreasonable for them to assume that we should do the same.   The main difference, aside from the fact that we would go to jail if we behaved as Congress does,  is that a majority of Americans will work hard throughout the coming year to pay off their newly acquired holiday debt.

Perhaps Thomas Jefferson expressed the perils of debt best with the following quotes:

I sincerely believe that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.

But with respect to future debt; would it not be wise and just for that nation to declare in the constitution they are forming that neither the legislature, nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19 years.

This is not a partisan issue. The exploratory snowball that President Bush tossed carelessly down the hill has simply gathered momentum — picking up a billion or two in government debt here, rolling over a private company there, crushing the occasional right or freedom unlucky enough to stand in its path.   If left unchecked, it will soon become self-sustaining and unstoppable as it cuts a path of destruction through the heart of our nation.

Our new President and the Democrat-led congress are clearly at the helm right now, but the same careless mindset has afflicted our elected officials for years.   We looked the other way when our irresponsible leaders wrote thousands of "rubber checks" during the house banking scandal.   We pretend the Social Security coffers are not stuffed with worthless IOUs and we ignore the basic, common sense notion we all know in our hearts to be true: that spending more money is not the way to get ourselves out of debt.

Taking more than 200 years to dig ourselves $6 trillion into the red in 2002, our country's national debt has doubled in just seven short years reaching an astronomical $12.1 trillion.   Congress will be voting soon to increase the debt ceiling to $13.6 trillion with current estimates placing the United States national debt of 2012 upwards of $16 trillion.

As our debt continues to soar out of control, the Fed is working overtime to keep the paper flowing, but with each midnight run of the printing presses we lose a little more value in our ever-declining dollar.   Glen Beck has graphical representation of our latest money printing endeavors here.

For another sobering look at the value of our dollar compared to the currency of other countries, click here.

Other nations have begun to take note of this disturbing trend as both Russia and China have recently called for an overhaul of the world's current US-based economic system as reported in the Financial Times:

China's central bank  proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

Zhou Xiaochuan, governor of China's central banks said that the goal would be to create a reserve currency "that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.”

This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money, said Qu Hongbin, chief China economist for HSBC.

Responding to Chinese concerns, Chief investment officer of Nine Points Capital Partners, Damon Vickers, has predicted a global currency crisis on CNBC stating,

If the global currency crisis unfolds, then inevitably you get an alignment of a global world government. A new global currency and a new world order, so we may be moving towards that.

Governments and individuals around the globe are racing to deploy their own golden parachutes should the US economy be forced into early retirement.   India recently purchased 200 metric tons of gold from the IMF as reported by the India Times:

For India, the purchase, apart from signaling that its economy has come full circle, is a way of spreading its assets which are said to be currently over-weighted with foreign currency, mainly in the form of sovereign US Treasury bonds. In other words, it is a hedge against a falling dollar.

As noted by the Washington Post, the projected deficits through 2019 are as follows:

President Barack Obama has repeatedly claimed that his budget would cut the deficit by half by the end of his term.   But as Heritage analyst Brian Riedl has pointed out, the Obama stimulus package nearly quadruples the previous deficit so cutting it in half is not exactly a noteworthy accomplishment.

Offering further explanation and culpability that spans both political parties, Reidl notes:

President Bush expanded the federal budget by a historic $700 billion through 2008. President Obama would add another $1 trillion.

President Bush began a string of expensive financial bailouts. President Obama is accelerating that course.

President Bush created a Medicare drug entitle ­ment that will cost an estimated $800 billion in its first decade. President Obama has proposed a $634 billion down payment on a new government health care fund.

President Bush increased federal education spending 58 percent faster than inflation. President Obama would double it.

President Bush became the first President to spend 3 percent of GDP on federal antipoverty programs. President Obama has already increased this spending by 20 percent.

President Bush tilted the income tax burden more toward upper-income taxpayers. President Obama would continue that trend.

President Bush presided over a $2.5 trillion increase in the public debt through 2008. Setting aside 2009 (for which Presidents Bush and Obama share responsibility for an additional $2.6 trillion in public debt), President Obama's budget would add $4.9 trillion in public debt from the beginning of 2010 through 2016.

In the words of CBO director, Douglas Elmendorf, this is simply unsustainable.

I concluded the talk by emphasizing that fiscal policy is on an unsustainable path to an extent that cannot be solved by minor tinkering.

To make matters worse, our nation's employment outlook continues to decline as business owners tighten their belts and brace for the next wave of regulations and oversight to descend from Congress.   We were recently told that we had to spend nearly a trillion dollars to save our economy and prevent the unemployment rate from climbing above 8%.   As the current rate hangs at 10% (due to figures gathered over Thanksgiving, it’s down slightly from a recent 10.2%), our nation has lost millions of jobs since Mr. Obama's promise to create 3.5 million new ones by 2010 as the following Heritage graph illustrates.

While the government's own job statistics posted on revovery.gov seem to offer a rosier picture, recent investigations cast some serious doubt on the claimed effectiveness of the stimulus bill as Reuters reported recently:

The data collection and reporting from those who received money from the $787 billion U.S. stimulus plan is riddled with errors and inaccuracies, according to a federal audit of the report released on Thursday.

After a long and arduous climb lasting several decades, our country currently stands upon the precipice of financial collapse.   The prudent would naturally take a step back from the edge, the fiscally acrophobic would flee in terror, but the vast majority of our nation's collective lemming troop seems to be steeling themselves for one final leap into the abyss.

A far cry from “ask not what your country can do for you,” our current financial policy is starting to resemble that of the esteemed Wimpy J. Wellington from the old Popeye cartoon strips.   As we gorge ourselves on a seemingly endless supply of Federal Reserve burgers today, we can only hope that our children will "gladly pay for them next Tuesday".

Once the frenzy of the holiday season subsides, we will be faced with the stark reality of fresh statements arriving for our national credit card.   We all know what needs to be done, our elected officials clearly do not.   The same principles of responsibility and common sense used every day by average Americans who balance their checkbooks at kitchen tables throughout the country should also apply to our national bank accounts.

Government and more government is not the answer to our financial problems.   Printing and spending more money is not the hidden secret to creating wealth.   Our nation is rapidly transitioning from the world's leading economy to its largest charity case.   Our exports now consist mainly of promises and debt while we import truckloads of Chinese cash.   Free markets will provide real solutions and incentives for the true producers of our economy that go to work everyday at the task of creating jobs and profit.   It's small business, capitalist ideals, competition and yes, failure, that will save us if they're allowed to.

In just a few short weeks, when the champagne bubbles of New Year's Eve have unceremoniously evaporated and our thoughts turn to resolutions for the future, many that sought a new age of open and enlightened politics will be left with nothing more than the bitter taste of old wine in their mouths and hope's unrelenting hangover.

For a real-time reality check, take a look at the National Debt Clock.

  • Ed Hahnenberg

    As a former award-winning global issues teacher, I watch the news rapaciously and I am convinced that former Bush supporters have distanced themselves from his administration.

    They haven’t gone so far as to say that Bush was complicit in 9/11 according to loons like Van Jones, former Obama czar, or that Bush caused Katrina or that Bush lied about WMDs in Iraq or that Bush stole his own election or that Bush loved to listen in on phone conversations of U.S. citizens. However, some former supporters are suspicious that a careless Bush caused the recession. Let’s face it. For progressive revisionists, for the rest of our natural lives, George W. Bush has been, is, and will be the primary cause of everything bad in America.

    Frankly, while I watch Glenn Beck and credit him with exposing the crazy czars and socialist agenda of our current President, I am getting tired of him, every other day or so, denouncing George W in the same breath as he rails about Obama. It sounds like you have picked up on his theme a bit.

    I, for one, maintain that the first stimulus package initiated by Paulson, Bernanke, and Bush was essential to save the banking industry. Granted that its primary purpose was to free up credit in frozen banks, but the second half of the Bush package was left up to Obama and the victorious Democrats to spend. This led to the many debt-numbing actions of Stimulus No. 2.

    We can all look back in hindsight and think we have the solution to “what should have been,” but when faced with the possible collapse of our economy and that of the world, I think credit has to be given to our former President and his economic advisors.

    Bush never called for the major healthcare entitlement that we are facing now. He never apologized for our role in world affairs. There has been no major attack on the U.S. since 9/11, nor would he have brought its mastermind to New York for trial. He was, as he said he would be, the compassionate conservative, looking for ways to deal with the yet unresolved situation of ten million Hispanic illegals in this country.

    If the ‘tea baggers’ become the movement that some have suggested should become a third party, I find that idea counterproductive. Despite the entrenched practice of both parties packing big spending bills with pet project, at least the Republican party has consistently opposed the Obama spending spree, it pro-life, and is not afraid to speak out about the crises the agenda item to follow Obamacare…cap and trade.

    I am not convinced that imposing upon ourselves an economy-crippling monetary cap and trade policy at this time is good either for us or the world. If we are unable to sustain increased borrowing and spending, the dollar’s value will continue to shrink and, as the old saying goes, “as GM goes, so goes the economy.” GM has already been bailed out more than once. Who will bail out the U.S.? China is stepping away from its commitment. A global economy without the foundational dollar would be catastrophic.

    So, while Beck and others have called George W. Bush the worst president since Hoover, I strongly disagree. We haven’t seen anything yet.

  • troykeith

    Support for President Bush continues to be grounds for social quarantine in this day and age, but I continue to defend all of the policies you’ve mentioned above. I still think he is a man of character and respect the fact that he did not once stoop to the petty/childish levels that demean the stature of the office as we so often see now.

    WMD’s were used in Iraq and they were found by our troops although it was not widely reported. Monitoring calls between the Middle East and the states is just basic common sense (Obama apparently thinks so as well) and whatever may be said about the man, he kept the country safe in many ways that are not widely known or appreciated.

    That being said, things definitely began to fall apart in the last year of his presidency. Poor judgment or misguided advisors may have been a factor or maybe it was simply an overwhelming need to prove that Republicans are indeed compassionate and proactive human beings. Rather than a Skull and Bones type of New World Order conspiracy, I tend to view the bailout mania of last year as typical political positioning. It’s not just Rahm Emanuel that loves a crisis – our government as a whole seldom lets such opportunities go to waste.

    We will never know what would have happened had the banks not been “saved”, but many were strong-armed into accepting money that they neither wanted nor needed and Bush himself has questioned effectiveness of the strategy in recent months.

    Until our elected officials acquire some intellectual honesty and the brass to tell the American people that they will have to sacrifice a bit in the years ahead, we will never break out of this pattern – at least not until the floor of this glass house collapses or China’s repo men are knocking at the door.

  • Ed Hahnenberg

    As a former award-winning global issues teacher, I watch the news rapaciously and I am convinced that former Bush supporters have distanced themselves from his administration.

    They haven’t gone so far as to say that Bush was complicit in 9/11 according to loons like Van Jones, former Obama czar, or that Bush caused Katrina or that Bush lied about WMDs in Iraq or that Bush stole his own election or that Bush loved to listen in on phone conversations of U.S. citizens. However, some former supporters are suspicious that a careless Bush caused the recession. Let’s face it. For progressive revisionists, for the rest of our natural lives, George W. Bush has been, is, and will be the primary cause of everything bad in America.

    Frankly, while I watch Glenn Beck and credit him with exposing the crazy czars and socialist agenda of our current President, I am getting tired of him, every other day or so, denouncing George W in the same breath as he rails about Obama. It sounds like you have picked up on his theme a bit.

    I, for one, maintain that the first stimulus package initiated by Paulson, Bernanke, and Bush was essential to save the banking industry. Granted that its primary purpose was to free up credit in frozen banks, but the second half of the Bush package was left up to Obama and the victorious Democrats to spend. This led to the many debt-numbing actions of Stimulus No. 2.

    We can all look back in hindsight and think we have the solution to “what should have been,” but when faced with the possible collapse of our economy and that of the world, I think credit has to be given to our former President and his economic advisors.

    Bush never called for the major healthcare entitlement that we are facing now. He never apologized for our role in world affairs. There has been no major attack on the U.S. since 9/11, nor would he have brought its mastermind to New York for trial. He was, as he said he would be, the compassionate conservative, looking for ways to deal with the yet unresolved situation of ten million Hispanic illegals in this country.

    If the ‘tea baggers’ become the movement that some have suggested should become a third party, I find that idea counterproductive. Despite the entrenched practice of both parties packing big spending bills with pet projects, at least the Republican party has consistently opposed the Obama spending spree, is pro-life, and is not afraid to speak out about the economic crises the agenda item to follow Obamacare will bring…cap and trade.

    I am not convinced that imposing upon ourselves an economy-crippling monetary cap and trade policy at this time is good either for us or the world. If we are unable to sustain increased borrowing and spending, the dollar’s value will continue to shrink and, as the old saying goes, “as GM goes, so goes the economy.” GM has already been bailed out more than once. Who will bail out the U.S.? China is stepping away from its commitment. A global economy without the foundational dollar would be catastrophic.

    So, while Beck and others have called George W. Bush the worst president since Hoover, I strongly disagree. We haven’t seen anything yet.

    • troykeith

      Support for President Bush continues to be grounds for social quarantine in this day and age, but I continue to defend all of the policies you’ve mentioned above. I still think he is a man of character and respect the fact that he did not once stoop to the petty/childish levels that demean the stature of the office as we so often see now.

      WMD’s were used in Iraq and they were found by our troops although it was not widely reported. Monitoring calls between the Middle East and the states is just basic common sense (Obama apparently thinks so as well) and whatever may be said about the man, he kept the country safe in many ways that are not widely known or appreciated.

      That being said, things definitely began to fall apart in the last year of his presidency. Poor judgment or misguided advisors may have been a factor or maybe it was simply an overwhelming need to prove that Republicans are indeed compassionate and proactive human beings. Rather than a Skull and Bones type of New World Order conspiracy, I tend to view the bailout mania of last year as typical political positioning. It’s not just Rahm Emanuel that loves a crisis – our government as a whole seldom lets such opportunities go to waste.

      We will never know what would have happened had the banks not been “saved”, but many were strong-armed into accepting money that they neither wanted nor needed and Bush himself has questioned effectiveness of the strategy in recent months.

      Until our elected officials acquire some intellectual honesty and the brass to tell the American people that they will have to sacrifice a bit in the years ahead, we will never break out of this pattern – at least not until the floor of this glass house collapses or China’s repo men are knocking at the door.

  • Bob

    Hello TK

    Good to see you back. Chock full of numbers as always. So tell us please how are you betting? Will the dollar fall as the world’s reserve currency? I think the notion of an International currency controlled by the IMF is nonsense. It is either the dollar or gold nothing else out there makes any sense. Who are the holders of all that paper counted in dollars?

    US debt holders: http://www.treas.gov/tic/mfh.txt

    Gold holders:
    1 United States 8937
    2 Germany 3749
    1. IMF 3539
    2. Italy 2697
    3. France 2690
    4. Gold ETFs (investor demand) 1714

    Gold producers:
    http://www.dani2989.com/gold/goldprod0509gb.htm

    I do not see who stands to gain by blowing a hole in the dollar (perhaps Canada). If someone wants to start the race it would seem we are in better shape than one would think. That assumes we actually have the gold we say we do. http://globalwarming-arclein.blogspot.com/2009/…

    So TK are you buying gold? If the dollar falls the first ones in the gold pool win! If the dollar is to fall shouldn’t we run the presses as long as there is some fool willing to take unbacked dollars? It is not like the nukes stop working when the money is worthless. As long as we are willing to welsh on our debts the number doesn’t matter. It would be nice to find I am wrong and that we do care.

    The debt would be much less scary if we were buying capital goods with it. I would suggest the way to think of it is like a 30yr motgage, rather than Jefferson’s 19. I would prefer we started paying it off, or at least stopped adding to it. Switch to a pro-growth national policy and let the GDP growth make the number meaningless would be enough.

  • Bob

    Hello TK

    Good to see you back. Chock full of numbers as always. So tell us please how are you betting? Will the dollar fall as the world’s reserve currency? I think the notion of an International currency controlled by the IMF is nonsense. It is either the dollar or gold nothing else out there makes any sense. Who are the holders of all that paper counted in dollars?

    US debt holders: http://www.treas.gov/tic/mfh.txt

    Gold holders:
    1 United States 8937
    2 Germany 3749
    1. IMF 3539
    2. Italy 2697
    3. France 2690
    4. Gold ETFs (investor demand) 1714

    Gold producers:
    http://www.dani2989.com/gold/goldprod0509gb.htm

    I do not see who stands to gain by blowing a hole in the dollar (perhaps Canada). If someone wants to start the race it would seem we are in better shape than one would think. That assumes we actually have the gold we say we do. http://globalwarming-arclein.blogspot.com/2009/11/faking-gold-bars.html

    So TK are you buying gold? If the dollar falls the first ones in the gold pool win! If the dollar is to fall shouldn’t we run the presses as long as there is some fool willing to take unbacked dollars? It is not like the nukes stop working when the money is worthless. As long as we are willing to welsh on our debts the number doesn’t matter. It would be nice to find I am wrong and that we do care.

    The debt would be much less scary if we were buying capital goods with it. I would suggest the way to think of it is like a 30yr motgage, rather than Jefferson’s 19. I would prefer we started paying it off, or at least stopped adding to it. Switch to a pro-growth national policy and let the GDP growth make the number meaningless would be enough.

    • troykeith

      Hi Bob.. I’m not an economist and I don’t play one on TV, but silver has always looked good to me. The old standard is 10% in metals, but I don’t see how you can lose by going with a little more than that – at least in this economy.

      Cash is being horded right now, but if it’s dumped into the market you’d have to think we’d see an inflationary spike. Hyperinflation? Germany and Zimbabwe probably didn’t see it coming either, but I’m not so pessimistic as to predict that for our immediate future. Either way, we’ve got a wood stove, chickens and a pretty big garden.. Not sure about those “city folks”.

      The path we’re on is not sustainable. We can attempt to walk away as you suggest, but in the long run that may prove to be even more costly than attempting to pay our creditors.

      The national books are cooked to such a degree it’s hard to tell what the real numbers are, but we’re probably closer to 35 trillion in debt. People don’t seem to care much either way.. as long as new TV’s, laptops and the latest cell phones affordable. Maybe we’d start to feel differently if taxes weren’t withheld and we had to actually write a check once a year.. or if the gov’t switched to an “honest” accrual accounting system and we actually knew what was going on.

      http://www.presidency.ucsb.edu/ws/index.php?pid=14611&st=delivery+of+gold&st1=

      • Anonymous

        i have no background at ALL in economics and all of this is pure gobbledegook to me. BUT, from looking at those charts it would seem that as Bush’s stock falls, Clinton’s stock rises – from a pure economic standpoint that is. Go Clinton!!

      • Anonymous

        PS. i don’t own a credit card, so i can’t participate in the credit frenzy, sorry.

        • Bob

          Never fear Jeff, just like that Bob of TV commercial fame, I have enough debt to make up for your failure to help out the economy.

          Your selection has taught the conservatives well and good just how much they miss a Clinton in the oval office.

  • troykeith

    Hi Bob.. I’m not an economist and I don’t play one on TV, but silver has always looked good to me. The old standard is 10% in metals, but I don’t see how you can lose by going with a little more than that – at least in this economy.

    Cash is being horded right now, but if it’s dumped into the market you’d have to think we’d see an inflationary spike. Hyperinflation? Germany and Zimbabwe probably didn’t see it coming either, but I’m not so pessimistic as to predict that for our immediate future. Either way, we've got a wood stove, chickens and a pretty big garden.. Not sure about those “city folks”.

    The path we’re on is not sustainable. We can attempt to walk away as you suggest, but in the long run that may prove to be even more costly than attempting to pay our creditors.

    The national books are cooked to such a degree it’s hard to tell what the real numbers are, but we’re probably closer to 35 trillion in debt. People don’t seem to care much either way.. as long as new TV’s, laptops and the latest cell phones affordable. Maybe we’d start to feel differently if taxes weren’t withheld and we had to actually write a check once a year.. or if the gov’t switched to an “honest” accrual accounting system and we actually knew what was going on.

    http://www.presidency.ucsb.edu/ws/index.php?pid…

  • jeff4

    i have no background at ALL in economics and all of this is pure gobbledegook to me. BUT, from looking at those charts it would seem that as Bush's stock falls, Clinton's stock rises – from a pure economic standpoint that is. Go Clinton!!

  • jeff4

    PS. i don't own a credit card, so i can't participate in the credit frenzy, sorry.

  • Bob

    Never fear Jeff, just like that Bob of TV commercial fame, I have enough debt to make up for your failure to help out the economy.

    Your selection has taught the conservatives well and good just how much they miss a Clinton in the oval office.

  • thrashertm

    This blog cracks me up. Talking points from Rush Limbaugh and Fox News every time, now that worrying about the deficit is back in fashion with a Democratic Congress. Nevermind that the GOP was almost as spendthrift when they were in charge.

    The bailouts were and are unconstitutional and morally reprehensible. Bush, Obama and all of the politicians that supported them should all be tarred and feathered and certainly ridden out of office for participating in the biggest theft in history. I can't believe you guys are buying into the scare tactics being promulgated by the mainstream media in claiming that they were necessary. Life would go on without Fannie Mae, Citibank, Bank of America and General Motors leeching resources from the productive parts of the economy.

    You guys *really* need to start listening to Ron Paul, because he's been proven right on pretty much everything so far. Beyond the futile and counterproductive stimulus and bailout spending, we are spending up to $1 trillion a year on an unsustainable foreign empire. We should pull our troops out of the 130 countries we are occupying, defend our homeland (and airplanes apparently) better and get back to Constitutional government on all levels. That means eliminating 99% of the leviathan.

  • Anonymous

    This blog cracks me up. Talking points from Rush Limbaugh and Fox News every time, now that worrying about the deficit is back in fashion with a Democratic Congress. Nevermind that the GOP was almost as spendthrift when they were in charge.

    The bailouts were and are unconstitutional and morally reprehensible. Bush, Obama and all of the politicians that supported them should all be tarred and feathered and certainly ridden out of office for participating in the biggest theft in history. I can’t believe you guys are buying into the scare tactics being promulgated by the mainstream media in claiming that they were necessary. Life would go on without Fannie Mae, Citibank, Bank of America and General Motors leeching resources from the productive parts of the economy.

    You guys *really* need to start listening to Ron Paul, because he’s been proven right on pretty much everything so far. Beyond the futile and counterproductive stimulus and bailout spending, we are spending up to $1 trillion a year on an unsustainable foreign empire. We should pull our troops out of the 130 countries we are occupying, defend our homeland (and airplanes apparently) better and get back to Constitutional government on all levels. That means eliminating 99% of the leviathan.

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