The Petro Currency System

The reserve currency issue is an issue that should transcend partisan politics, as leaders of both parties have ignored this issue over the years to our country’s possible peril.  I want everyone to really think about this issue, because the financial storm that would ensue following the end of our reserve currency status and the eventual collapse of the dollar would make the 2008 housing crisis look like a spring shower. Here’s an excerpt from a 2011 article from CNBC warning of the prospects of losing reserve currency status:

“I think you could see a 25 percent reduction in the standard of living in this country if the US dollar was no longer the world’s reserve currency. That’s how valuable it is.”

That was a comment made back in 2011, and since then we have added a few more trillion dollars of debt, and printed a few more trillion dollars of QE (quantitative easing), “stimulus” money. For those of you unfamiliar with QE – this is a policy that started in 2009 wherein the federal reserve is literally printing and pumping into the economy approximately $80 billion a month, and the mere mention from Bernanke that he was going to slow down the printing presses made the DOW tumble a few hundred points. He quickly backed off that statement. QE is not only used to prime the DOW but it is also used to keep inflation and interest rates in check. In the article, it is mentioned that if the CPI were adjusted for actual economic realities, we would see 5% – 7% inflation on food and energy prices.

Fast forward to 2013. Recent international economic signals do not bode well for the continuance of our reserve currency status:

– China’s subtle dumping of the dollar — using bilateral trade agreements with other developing nations and, more recently, major economic powers like Germany and Japan

– The massive gold-buying spree undertaken by China and Russia — even in the face of extreme market manipulation by JPMorgan Chase and Co. and CME Group Inc.

– The dumping of long-term U.S. Treasuries by foreign creditors in exchange for short-term Treasuries that can be liquidated at a moment’s notice.

– The fact that bonds now are supported almost entirely by Fed stimulus. When the stimulus ends, America’s ability to honor foreign debts will end and faith in the dollar will crumble.

–  Blatant statements by the International Monetary Fund calling for the end of the dollar’s world reserve status and the institution of special drawing rights (SDRs) as a replacement.

These bullet points were taken from another excellent article on this issue found here, (hat tip to Spook for sending me this article) and it is a must read. Why the loss of faith in the US dollar? The fact that our government spends approx. $1 trillion more than it brings in, the fact that our government does not work within a defined budget and funds the government from continuing resolution to continuing resolution (CR’s), the fact that our debt to GDP ratio is now 101%, and the fact that there are no imminent signs of financial discipline or restraint by our federal government. This year our federal government is expected to bring in approx. $2.5 trillion in revenue, which would equal an historical high, yet they are spending $3.6 trillion and they say they need more. So the next time you hear a politician say that we need more money for education, and/or more “investment” in infrastructure, know that they are pushing us closer to the brink of financial collapse.

In spite of all of this, I remain the eternal optimist. We can avoid the loss of reserve currency status and the eventual collapse of the dollar but it will require that our elected officials define our nations priorities, put in place a budget that reflects those priorities and operate within it. It will also require that we aggressively act upon the impending economic boom of the 21st century and that is – energy. We must tap into our domestic crude oil and natural gas reserves to not only fuel our current society, but also to become a net exporter of these resources. That will generate the money necessary to put our country back on sound financial footing, but will also fuel the eventual transition to a new, greener, more sustainable energy platform.


The Bankrupt States of America

From USA Today:

…The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.

The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books… (emphasis added)

The report goes on to note, among other things, that for Social Security to be solvent we’d need to have $22.2 trillion set aside and earning interest.  Clearly, that is an impossible sum – we don’t have it and we can’t get it, ever.  And that is just Social Security – it doesn’t count the cost of Medicare, Medicaid, the upcoming ObamaCare bill, other entitlements and, of course, all the other bloated, wasteful spending which is built in to our government.  And it entirely leaves aside the amount of debt our State and local governments have accrued.  The bottom line:  the United States is bankrupt.

For now, we’re able to play around with this – pretend, that is, that we’re not bankrupt and that money will be there for everything.  But the reality is there – Paul Ryan is right:  we’re heading for the most predictable financial disaster in human history.  Unless we take charge of our nation and reform our taxing, spending and regulations, we’re doomed to an economic wipe out which will make the Great Depression seem like small potatoes.  If you want to see where we’re heading, look at Greece…and land of riots, bank runs and a government which can’t even pony up for the prescription drugs they promised the people of Greece; and I don’t mean “having trouble paying”…the Greek government simply stopped paying for the drugs.  They are out of money.

We’re probably three to five years away from that point…maybe as many as 7 years if we really go flat out with money-printing and financial gimmicks (which would also be disastrous in terms of rapid inflation and other dislocations).  But unless we fundamentally change how things are done, we’re doomed sooner or later (and I think sooner – the latest data from Europe and China indicates they are in recession and I bet we’ve been in recession for a couple months now, but the data are being fudged…they were being fudged in Europe and, especially, China, too…but you can’t “hide the decline” forever).  This is why November 6th is so crucial – a re-elected Obama, even if he’s set with a fully GOP Congress, simply will not make any move to disturb business as usual.  Even if he’s not able to increase spending the fact that we won’t have a filibuster-proof majority in the Senate will prevent any budget from being passed…and we’ll be saddled with year after year of “continuing resolutions” which lock in place the bonanza of extra spending Reid and Pelosi piled on in 2009.  Obama must go if America is to avoid catastrophe.

Romney, on the other hand, is enough of a business man to know we can’t go on like this – and while he might want to compromise more with the left than we’d like, an increasingly conservative/libertarian Congress will ensure that a lot of really good policies are enacted.  Additionally, the force of circumstances will push Romney and the Congress towards the radical solutions needed.  It won’t do anyone any good getting a good write-up about bi-partisanship in the Washington Post if failure to act responsibly leads to35% unemployment in 2014.  With their backs against the wall, a GOP government has a good chance of doing something worthwhile.

This is serious, good people – we’re in quite a fix and like Obama’s old preacher used to say, “America’s chickens are coming home to roost”.  We’ve spent too much for too long while harrying wealth creators with a regressive tax and regulatory system.  It is change it, or die.


The Obama Plan: Raise Taxes and Fake Spending Cuts

From the AP:

…The president on Monday will announce a proposal that includes repeal of Bush-era tax cuts for the wealthiest taxpayers, nearly $250 billion in reductions in Medicare spending, $330 billion in cuts in other mandatory benefit programs, and savings of $1 trillion from the withdrawal of troops from Iraq and Afghanistan, the officials said…

…Key features of the proposal:

–$1.5 trillion in new revenue, which would include about $800 billion realized over 10 years from repealing the Bush-era tax rates for couples making more than $250,000. It also would place limits on deductions for wealthy filers and end certain corporate loopholes and subsidies for oil and gas companies.

–$580 billion in cuts in mandatory benefit programs, including $248 billion in Medicare and $72 billion in Medicaid and other health programs. Other mandatory benefit programs include farm subsidies.

–$430 billion in savings from lower interest payment on the national debt…

According to the linked article, 90% of the Medicare cuts will be in the form of reduced payments to providers – and while beneficiaries are expected to pay more, they won’t pay until 2017…in other words, not until after Obama finishes his putative 2nd term.  How much you want to bet that once the providers scream – and/or start refusing Medicare cases – that the cuts never materialize?

A trillion dollars of the “cuts” are from not fighting in Afghanistan…in other words, not money already appropriated and now cut, but a mythical figure placed on the table bearing no relation to what might actually happen in Afghanistan.

Lower interest payments on the national debt?  Fine – that’ll work until we hit 16 or 17 trillion in debt and our bond prices go “Greek” on us.

This proposal is nothing but a crock of political horse manure.  For cynicism it is hard to beat. We’re on the brink of economic and fiscal disaster and Obama comes up with a plan which doesn’t fix the budget and doesn’t help the economy.  All it does is provide him with some MSM/DNC talking points in his effort to make the 2012 campaign about Congress rather than himself (the tax hikes won’t fly and the spending cuts will be resisted by his own party…so when the plan fails to pass, Obama can say, “I tried to do it, but those dratted  Republicans stopped me!”).  The United States can go drop off a cliff…Obama has more important things to do, like getting re-elected!

2012 really can’t get here fast enough…and it won’t work, Barry.  We’re all on to the scam.  Twist things as much as you like – go ahead and go through your motions.  We’re still going to crush you and liberalism next year.  We’ve all had enough of this garbage.


A Doomed Ponzi Scheme

From CNS:

There were only 1.75 full-time private-sector workers in the United States last year for each person receiving benefits from Social Security, according to data from the Bureau of Labor Statistics and the Social Security board of trustees.

That means that for each husband and wife who worked full-time in the private sector last year there was a Social Security recipient somewhere in the country taking benefits from the federal government…

This cannot be sustained – even when you throw in government workers (who are paid out of tax dollars, of course) you still don’t get enough total workers paying in to support those who are taking out.  You probably have to get to at least 4 total workers for each beneficiary for it to be financially stable; and likely 5 or 6 private sector workers per beneficiary.  And it is only going to get worse – even after the Boomers all retire and start to exit the system via death, our rapidly declining birth rate ensures there will be no significant improvement in the worker/retiree ratio.

A Ponzi scheme, just to clarify it for our liberals, is a system where early beneficiaries are paid out handsomely from the proceeds of later entrants.  It all works well until you stop getting enough new people to sustain the generous payouts.  Social Security was first implemented when most people only lived a few years beyond 65 and there were a couple dozen workers for each retiree.  Now we live past 80 as often as not and there are less than 2 workers for each retiree.  This a classic example of a Ponzi scheme…and it is failing just like any other Ponzi scheme.

To be sure, Social Security is too deeply ingrained in American life to be easily or quickly done away with…but it must be deeply reformed just to ensure that older people can get retirement pay and younger people can build up independent means of retirement.  The time to do it was, of course, after the 2004 election…but a combination of Democrats wanting a campaign issue and Republicans who lacked backbone ensured that the Bush’s modest reform proposals were killed.  Now it is 7 years later and things are worse…and they will do nothing but get worse from now on, unless we change.

Additionally, any attempt to get our overall fiscal house in order requires Social Security reform (as well as Medicare/Medicaid reform).  The whole economic future of the United States rests on our ability to develope the courage to act.  Democrats will never do anything but “fear and smear” on the issue, so it is up to Republicans to lead the way…and our first step is to (a) bring the subject up and then (b) so badly beat the Democrats in 2012 that they can’t stand in the way of reform.

We Can’t Touch Social Security, Unless…

…Obama needs a tax cut and his liberal base won’t let him cut taxes that need cutting.  Jim Quinn over at Zero Hedge explains the problem:

…The party that presents Social Security as a well run outstanding example of government at its finest has decided the best way to create jobs is to double down on you paying even less in payroll taxes than you did this year. We know for a fact the average person will get between 25% and 125% more than they paid into Social Security. The Obama plan last year and again this year is to drastically reduce the amount paid into the Trust fund, so you can have the privilege of consuming the same amount of food and energy at a much higher price. Brilliant plan! It is amazing how liberals and Keynesians can have such disregard and scorn for future generations who will be handed this bill with no means to pay.

The Republicans went along with the 2011 payroll tax cut of 2%. They will go along with the 3.1% payroll tax cut. You see, this is how politics works. Since the payroll tax was “temporarily” cut, whoever lets the payroll tax cut expire will be declared a tax hiker. Therefore, the “temporary” payroll tax cut will be extended indefinitely, further impoverishing future generations. Meanwhile, how many jobs did the first payroll tax cut create? How many will the extended and increased payroll tax cut create? None! Obama is using the George Bush tax rebate check method of destroying the country. Both decided to address a government spending problem by reducing revenues. This is par for the course and explains why the economy is teetering on the verge of collapse…

And we really shouldn’t go along with Obama’s next installment in “temporary” payroll tax reductions.  I know, I know – for us GOPers, a tax cut is always a good thing…and it is, at the end of the day, better that people keep more of their own money.  But if we go along with this, then all we’ll have done is allow Obama to get a campaign talking point while further shoving us in to bankruptcy.  We must balance our budget – this is not a thing we can kid around with or kick down the road.  We have, at most, three or four years before the whole thing falls apart and our government finances become like Greece’s.

For us in the GOP, our duty is to demand massive, across-the-board budget cuts – and, yes, demand tax reform, too; but budget cuts come first.  And in the end, balancing the budget is so important that we must not even shy away from tax cuts…but not until at least $500 billion is reduced from spending.  And I don’t mean “over ten years”…I mean that in FY 2012 (which starts October 1st) we must spend at least $500 billion less than we spent in FY 2011.  If we can’t get at least that, then no tax increase in any way, shape or form can be agreed to.

To call this a serious moment in our nation’s history is to downplay what we’re going through.  Our economy and the global economy teeter on the brink of collapse.  If it does collapse, then hundreds of millions of people will begin to suffer very gravely.  In spite of asinine stories about China replacing us, the fact is that unless the United States pulls out of recession, no one really will.  Only America, properly governed and with a rational economic policy can do what needs to be done.  Our payout if we don’t act properly will be poverty and, very likely, a rapid rise in global tyranny leading to eventual war.

This is not the time for gimmicks – but that is likely all we’re going to get from Obama.  But we, of the Republican party, must have none of that – we must stand for solid, responsible policies which will actually cure the illness…and we must be courageous enough to go in 2012 on such a platform.  Let Obama and his liberals play games, let us save America.

Obamunism! $4 Trillion in New Debt

From CBS News:

The latest posting by the Treasury Department shows the national debt has now increased $4 trillion on President Obama’s watch

The debt was $10.626 trillion on the day Mr. Obama took office. The latest calculation from Treasury shows the debt has now hit $14.639 trillion

It’s the most rapid increase in the debt under any U.S. president.

The national debt increased $4.9 trillion during the eight-year presidency of George W. Bush. The debt now is rising at a pace to surpass that amount during Mr. Obama’s four-year term…

Obama has been President for 2 years, 7 months and 3 days…I calculate this works out to about $4 billion dollars in new debt each day Obama has been in office.  That is just an incredible figure – and made worse by the fact that all we’ve got for it is money for liberal interest groups.  No real economic growth, no real jobs, no real wealth creation.  Its all been a bust – and a bankrupting bust, in to the bargain.

So, what is the new plan, liberals?  Start piling up $8 billion in debt per day?  Would that work?  You tell us…how much further in to debt do we need to go in order to make liberal economic policy works?  And can you give us a date certain while we’re borrowing that much where we’ll be done and prosperity will result?

2012 can’t get here fast enough…

Who is Bankrupting America?

Tino over at Super-Economy has the chart:


There is simply no arguing with this – Obama has massively increased spending since he took office.  It isn’t just a slight difference, it is night and day.  He’s gone on a binge of spending – and that means that if we want to get our deficit under control, the only rational thing to do is at least return it to the average.

The reason Obama and his Democrats won’t do this is because when they finally gained full control of the government in January of 2009 – for the first time since 1994 – they were determined to pump up all the spending they couldn’t get when all or part of the government was under GOP control.  They pined away for this…for years they dreamed of the day when the Treasury and the printing press would be entirely theirs and they could spend to their heart’s content.  They aren’t about to give it up.  First off because a reduction in spending would reduce their immediate power (they ability to buy votes with taxpayer money), secondly because they have vastly enriched their cronies and don’t dare take it away.

This isn’t about tossing granny over the cliff – cutting spending is about taking Democrat special interest groups and crony-capitalists off the government teat.  That is what the whole debate really comes down to – will we reduce the spending, save our economy and rebuild our nation?  Or will we continue to lavish money on Democrats and their hangers-on until America is destroyed?

The fight is on – 2012 will decide it; but as we fight it, don’t for a minute let Democrats tell you they are helping granny…they are just helping themselves and greedily and senselessly want to keep doing it no matter what happens.