Cincinnatus BLOG *** Political Commentary - Social Commentary

“Rather go to bed with out dinner than rise in debt” - Benjamin Franklin.

President Obama is attempting not merely to expand the role of the federal government but to put it in such a dominant position that its power can never be rolled back. Obamanomics is the means to that end. Obamanomics represents change with unconscionable trillion dollar annual deficits leading us to the brink of national insolvency. And to what end - to remake the United States into a mirror image of a European social democracy?

The prospect of Treasury flooding the world with dollars to support trillion dollar annual deficits for the next decade is alarming, and the world is rightly getting nervous. If China and other foreign creditors lose their appetite for U.S. debt, the result will be catastrophic for the dollar, U.S. interest payments, the U.S. economy and the world. The dollar’s reserve currency status carries special obligations. The U.S. isn’t conducting monetary and fiscal policy only for itself but for much of the world. If the U.S. succumbs to the temptation to debase its currency, it will send shockwaves through the entire global economy.

Deficit Spending!

Perhaps the fiscal 2009 deficit of $1.75 trillion should be viewed as an anomaly since it’s the direct result of the $700 billion Bush TARP plan and the $800 billion Obama Stimulus Plan, both implemented to ameliorate the effects of the financial crisis and recession. But how can we justify an average deficit of $700 billion annually from 2010 to 20019, which, according to the Obama budget, will be boom times? GDP will likely rise to an eye-popping $23 trillion in 2019 based on the Obama budget. However, expenses will grow to nearly $5.2 trillion and “taxing the rich” will not pay for it.

Obama Administration Budget (In billions of dollars)

The Congressional Budget Office (CBO) has concluded that, if the Obama budget were approved, the federal government would actually run even larger deficits averaging nearly $1 trillion a year over the next decade. The cumulative deficit from 2010-19 would be $9.3 trillion, according to the report - $2.3 trillion more than the administration’s forecast. The main reason for the difference in budget estimates is a difference in economic growth, with congressional views of long-term growth less optimistic than those of the White House.

How do we pay?

Tax!

The top 1% of US taxpayers earns 22% of the income and pay nearly 40% of all income taxes. The bottom 50% pays just 3%. We are told that this is unfair, and the “rich” should pay their “fair share”. It would probably not overburden the top earners to pay 43% and eliminate all taxes on the bottom 50%. After all, it would only take a 5.5% increase in the amount the top 1% already pays to eliminate the need to collect from the bottom 50%. Can the rich afford it - yes, but can the poor.

Could a house so divided prosper? Given the class-warfare rhetoric from the administration and Congress it appears that this is just the country they wish to create. Use tax credits for the bottom 50%, increase marginal rates for the top 1-2% and voila the American taxpayer becomes a minority.

“When the people find that they can vote themselves money, that will herald the end of the republic” - Benjamin Franklin.

Realistically, we cannot reverse the inequality of income distribution by merely creating a tax scheme that redistributes income; we need to change the dynamic. There will be no “high paying” jobs in the 21^st century for unskilled laborers. Education and training are the only answer. It takes longer, it’s harder and we will not have instant gratification, but it is the only answer to this dilemma.

“The Constitution only gives people the right to pursue happiness. You have to catch it yourself” - Benjamin Franklin.

Borrow!

The existing national debt is $11 trillion. Presently, debt held by the Social Security Trust Fund and other governmental agencies is $4.4 trillion, plus the remainder of the debt (owed to citizens or “foreign” owners) is $6.6 trillion. Approximately 50% of US debt is owed to foreigners, up from 31% in 2000, and this debt will undoubtedly continue to climb. Deficits will grow at an astronomical rate, if we use the Obamanomics budget figures as a guideline. The national debt will exceed $15.5 trillion in fiscal 2012, and annual interest payments alone will rise to over a trillion dollars. By 2019 the national debt will easily exceed $20 trillion.

In an ironic twist of fate, it may be the fiscally responsible communist Chinese who save capitalist America from its budgetary excesses. Tough love from the Chinese and other foreign creditors may be the prescription that rescues America from impending financial doom.

What impact will Obamanomics have on the national debt? Debt held by the public as a share of current-dollar GDP ran at 58.7% in 2009. Yet, even based on the President’s rosy scenario, the outstanding debt is projected at 67.2% of current-dollar GDP by 2019. Will China and other foreigners, on whom we depend, find us to be a credit-worthy borrower?

“Rather go to bed with out dinner than rise in debt” - Benjamin Franklin