President Obama’s Truth about the Debt Ceiling

Almost three years into Obama’s term, my opinion about him has changed. He’s one of our better Presidents because he has told the truth and exposed all of the myths about our monetary policy from each side of his mouth.

For the past several weeks, I have listened to the smoke and mirrors game being played regarding the debt ceiling. Republicans are pretending to act like fiscal warriors…never mind the fact that size of our debt doubled in President Bush’s 8 years, and MANY Republicans voted to RAISE the debt ceiling during their reign in Congress. Their recent “heroic” acts certainly do not cut any ice with me, especially because spending has still been escalating since their 2010 takeover.

Let us now return to President Obama since the man has been telling the truth since 2006. It’s too bad that we do not have Senator Obama’s ideas from 2006. This particular Obama voted against raising the debt ceiling; and he had this to say about the fiscal status of our nation:

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck’ stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

This side of Obama is one who may have engaged in a libertarian acid trip…yet another reason to end the war on drugs! On a more serious note, let’s give him kudos for confessing the fact that the United States has been engaged in reckless monetary policy. Now, shall we examine his recent rhetoric?

Obama claims that if we do not raise the debt ceiling, the U.S. will not be able to pay the interest on its loans which would result in default. Our debt rating will be downgraded. Disaster will ensue! How many of you would like to raise your debt ceiling when you cannot pay your bills? Being fiscally responsible isn’t any fun! Why cut spending when you can just borrow more? So…what truth has Obama revealed? He is saying that the United States does not have the desire nor does it have to engage in fiscal responsibility since it owns a printing press. What the President should be doing is assuring our creditors that the United States will meet its obligations; however, if he doesn’t SCARE people and the markets into believing disaster will occur, then he cannot carry on the same reckless fiscal policies.

Obama must be convinced that the real disaster will not come during his watch. The day will come where our creditors will create a debt ceiling for us. After all, Obama’s recent confession shows just how close we are to being capped. He’s basically confessed that we cannot pay our bills without having to borrow more money. The printing press cannot print forever either for those of you who are naïve enough to think inflation has been averted.

When the going gets tough, the tough don’t have to get going in Washington. All they simply need to do is scare the daylights out of old people. It works like a charm every time, and it has political clout since our seniors comprise a major voting bloc. If President Obama is telling the truth that money will run out by August 3rd to issue social security checks, then he has admitted that there are no social security trust funds! Furthermore, this proves that social security is nothing more than a government-run Ponzi scheme. Bernie Madoff went to jail – he should have worked for the government.

As always, it’s up to the American people to change things. The U.S. government is in this predicament because so many people have become dependent on government programs. Politicians do not care about the future of the country. They care about staying in office; and they are not going to cut programs that their constituents depend upon unless people decide to cut the government umbilical cord themselves.

For a new nation, thing have changed awfully fast – especially over the past 100 years. We’ve allowed the monopoly. We have sold out. We now want government to make the decisions for us, even for the most critical things in life like medical care and retirement planning. We also protect the world by offering free security at the taxpayers’ expense. The endless foreign wars we have been engaged in both now and in the past have reached astronomical costs. We have successfully surrendered our freedoms, and as a result, we have an out-of-control tyrannical government that has weakened our status as a nation.

We have traded a free market for a sickening version of statism with regulatory policy to “protect us” being written by the very lobbyists who are publically despised. This has allowed several big corporations (our large banking institutions and General Electric among them) and major universities that corrupt our young adults to become nothing more than another extension of government.

History does not lie. Countries have been down this road before. The fiat currency system is failing. Ireland needs another bailout, and the Eurozone, as a whole, is becoming increasingly unstable. America cannot pay its bills without plunging further into debt.

Maybe it’s time for people to abandon the TV remote and pay more attention to the major loss of freedoms we as a nation have endured. I say this because there are still a vast amount of politically challenged people out there. For example, those who still believe there is a difference between Democrats and Republicans simply because they focus only on meaningless rhetoric.

How many people believe what President Obama is saying about the debt ceiling, when he had the opposite position four years ago? How many knew his position four years ago? How many seniors are scared to death that their social security will stop? The majority of the American population doesn’t know what constitutes the left and right wing since most will say the “evil right wing” is taking away their social security. In America, social authoritarians and war hawks are called right wing. Amazing! For a better understanding of the political spectrum, give this video seven minutes of your time:

The Political Spectrum Explained

On the brink of the 2012 election, the GOP’s top priority comes from a radical Christian group in Iowa asking candidates to sign a pledge which is not only horribly discriminatory, but it is the antithesis of the principles in which this country was founded. If that’s not bad enough, I am at a loss for words to explain how Mitt Romney, the father of universal healthcare, could be one of the top contenders. Also at the top is Michele Bachmann who seems to think homosexual couples are more dangerous than the power of the Federal Reserve.

Politicians could never get away with such lies and treachery if the ‘masses’ were a bit more educated; yet some people believe that libertarians like me are the ones who lack insight. Libertarians who stand for social and economic liberalism are the true champions and defenders of freedom.

The World’s Big, Fat, Greek Bailout

…will soon become a Greek tragedy. Currently, the very short sighted markets are celebrating. Markets around the world have rebounded ever so nicely, as once again irresponsibility has been bailed out. The world’s largest banks need not worry. It is of no concern that the big banks of France and Germany were over exposed to PIIGS (Portugal, Ireland, Italy, Greece and Spain) debt. They can continue to loan money, and politicians can continue to promise all things to all people to keep them nice and dependent. However, these celebrations and fantasy living will soon come to an end since this move has only added fuel to the impending storm.

The European Union and the International Monetary Fund have coughed up some cash to the tune of $1 trillion, and the Federal Reserve has found yet another way to monetize its debt. Just as it did in 2008, the Fed will swap Euros for dollars. The Fed will then use the Euros to purchase the debt of “Eurozone” nations. This will simply be a contest between the European Central Bank’s printing press and the Federal Reserve’s. In addition, the same excuse that was used to bail out Fannie Mae and Freddie Mac is being used to make a case for the current situation. The bailout will ease market volatility and assure that large banks remain solvent. Take no notice of the fact that Fannie and Freddie are now asking for billions more, as they have disclosed horrendous first quarter losses. However, no one is concerned with those pesky little details.

One may ask what Greece and other European nations are doing to get a handle on the situation. Greece seems to think that raising taxes is the answer. Apparently, Greece seeks to expand its underground market that vacuums almost 30 percent of eligible tax dollars. The old saying “blood cannot be squeezed out of a turnip” applies here. Never in history have tax hikes added life to a stagnant economy, but what would we expect from a country that hasn’t yet figured out that socialism doesn’t work?

This measure is a devastating blow to free markets and sound fiat currencies. What is going to happen when the $1 trillion given to the Eurozone is swallowed up in less than a year? How many more billions should Fannie Mae and Freddie Mac receive? What’s going to happen to individual states such as California, New York and Illinois as they begin to default? How much longer can Asia prop up Europe and the United States? China has a bubble on the brink of bursting, as they have learned to live off the cheap credit hog. Japan also has a debt problem along with an aging population and a healthcare crisis that lies ahead.

Americans won’t stand for bailouts around the world, as no one is going to let go of their entitlements. People who are concerned about the values of their 401ks and taxpayer dollars going overseas are blind to the bigger picture. All of Asia has been financing the United States’ reckless monetary policy for quite some time. The printing presses will never run out of gas; but the currency will be worthless, as the world will see an inflationary storm that it has never seen before. Investments and entitlements aren’t worth anything if the currency in which it is valued is worthless. Am I suggesting people flee equities and bonds completely to hoard gold? No, although I believe gold has not yet peaked out. However, the world had better wake up to the fact that the battle of the printing presses, expanding entitlements and bailing out irresponsibility cannot continue. Either we go down the horrendous inflationary road and continue with statist governments calling the shots at the expense of people’s freedom; or people realize that we need to endure a severe global recession, and let government return to its proper role. The former is certainly worse than the latter. In either instance, recession and inflation is unavoidable; however the sooner we take our medicine, the better off the long-term picture will be.

On the Brink of a Financial Storm…

It is too much to hope that world leaders, especially in the United States, realize that Greece’s current predicament will not only spread to other parts of Europe, but the same circumstance will happen in the United States if the current economic policies remain the status quo. It is indeed possible for the United States to go bankrupt. I don’t enjoy writing attention getting “gloom and doom” columns, but I haven’t sharply criticized and warned about absurd economic policy for the past decade and a half to get attention. It is a harsh reality that people had better wake up and recognize.

First, one must ask how Greece found itself in the current situation. It’s no secret that Greece’s economic policies mirror the socialist Western European policies. Politicians are elected, and they promise the world to people…healthcare for everyone, generous retirement benefits and lavish salaries/retirement plans for public sector workers. Top that off with a strong pro-union environment, and we have the perfect recipe for disaster. There are no policies that encourage business to grow and expand, which would yield the production necessary to sustain robust economic growth. If that were the case, then people wouldn’t need the politicians to survive. There’s no better way to sew up votes than to have everyone work for the government and depend on government programs!

Years go by and the anti-growth, high tax policies have brought Greece to its knees. Rather than pursue growth policies, nations seem to think that borrowing money to pay for all of the promised entitlement programs is the way to go. Now, the problem is that Greece is out of money and cannot meet its financial obligations. The PRODUCING nations, such as Germany, are expected to help out. What does this say about the future of Europe and the Euro? Are producing nations going to be expected to bail out irresponsible nations? Are Spain, Italy and Iceland next in line? Moves of this nature will be devastating to the Euro, and inflation will rear its ugly head.

For those applauding the recent appreciation of the U.S. dollar, please don’t be so naïve. The short-term shelter seeking will not last. The dollar is still falling against REAL money – gold. The only thing that is happening now is that the Euro has a bleaker near-term outlook. It certainly doesn’t mean that the medicine that the United States will eventually have to swallow will taste any better.

The United States has been following Greece’s footsteps. Economic policies in the United States have been of a statist nature since the New Deal. Bailouts for irresponsible companies; quasi-public companies that encouraged and guaranteed reckless lending practices; heavy regulation that creates barriers to entry and impedes competition; the creation of new entitlement programs when the existing ones cannot be paid for; and a printing press that runs 24/7 are very anti-capitalist in nature. Greece’s debt as a percentage of GDP is projected to be 149 percent by 2013. The United States current debt to GDP is nearing 90 percent. Government spending over the last decade has increased more than 80 percent. Our very large budget deficit is currently 9.9 percent of GDP (compared to Greece’s 13.6 percent) and continues to grow. If the status quo is kept, debt as a percent of GDP will easily surpass 100 percent during President Obama’s term and will exceed 200 percent within the next 20 years.

There are some who make the argument that since the dollar is the world’s reserve currency, it is impossible for the United States to go bankrupt. Nothing could be further from the truth. The Federal Reserve could just continue to print money, and even if there are no buyers, monetization is always an option. However, what will the state of the economy be if the currency has no worth?! The only key here is that the United States has the back-door, less obvious path to bankruptcy as it gets to create hyperinflation.

The longer the world’s borrow and spend spree continues, the more severe the correction will be. It is comical that news reports state that Greece’s situation threatens the global financial recovery. There was no recovery. The only thing that has grown since the 2008 crash is GOVERNMENT. Stimulus plans that focus on politically connected industries in which money is borrowed to generate growth is not real growth. If you borrow money on your line of credit or credit card, is that money income to you? Has your net wealth increased? Of course not. Once government induced growth is backed out of the recent positive GDP numbers, it winds up negative.

Iceland is bankrupt and Spain, Italy and Portugal are not far behind. America is headed towards the same political paralysis. Regardless of which party is in power, government continues to grow. The ties between lobbyists and government strengthen, which creates impossible obstacles for new investors. The recent healthcare bill will destroy many small businesses, which means the larger, connected corporate competitors will not have any challenge. Statism is alive and well. As far as entitlement programs are concerned, no one will dare touch them. George W. Bush’s pathetic attempt to “reform” social security was over before it began because it’s political suicide.

There is going to come a time, which will be sooner than later, when investors investing in America are going to demand a higher return. Inevitable inflation will demand it. Then, the Federal Reserve will either be forced to raise interest rates or buy the bonds. The latter will create an inflationary environment that will make the 1970’s look mild. If the status quo is kept, the United States will feel the effects of the ugly truth within the next five years. The crash in 2008 was simply a preview of coming attractions, as the real financial storm has yet to strike.

One Step Closer

Just freakin' fantastic:

The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".

This is the future of Europe. The path the EU has taken since its inception two decades ago has been one of authoritarianism and political usurpation. From Spanish courts being given the right to prosecute non-nationals (Americans) in the name on “international law” to the undemocratic passing of the Lisbon Treaty by most European governments and now to taking away Greek sovereignty, the foreshadowing couldn't be any clearer. Michelle and I took on the question of the US and EU months ago. We concluded:

If a constitution is not devised as a mechanism to preserve individual freedom and reign in the powers of government, then the creation of such a document serves no purpose. Constitutions should not be devised to band nations together to create a super-power rival to other powerful nations with the “power-elite” in control. Constitutions written with such motives lead to oppression and tyranny. If the EU wishes to follow the footsteps of America’s Founding Fathers, then the framers of the EU Constitution must recognize the importance of localized power, and adhere to the rights of the individual nations’ liberty.

I guess the EU doesn't want to follow in the footsteps of the Founders. It has plenty of its own history.

Michelle and I will keep up on this frightening issue.