Copyright 2012 by John T. Reed

One of the groups working on destroying the federal government are the debt deniers. People who claim U.S. deficit spending and the national debt are nothing to worry about. Ezra Klein of is one and was quoted in the 4/20/12 issue of The Week.

Klein says

John T. Reed says

U.S.’s least worrisome problem It is one way or the other the cause of most of the other problems, including economic stagnation and impending loss of superpower status and it will end in a financial crisis worse than the depression. In the depression, money was hard to come buy but when you had it you could buy things with it. In the hyperinflation that results from too much borrowing and printing dollars, the things you want to buy not only cost thousands of dollars more than they do now, but the producers will not even send them to the stores because they are not interested in your dollars
it goes away on its own

The book This Time it’s Different by Reinhart and Rogoff says only one country, Tanzania I think, ever grew its way out of a banking crisis. Just do the math. Our growth rate averages about 1.5%. Last year it was 2%. It has to be at least 1% to just match population growth. If we had great growth, like 5%, it would mean 5% x $15 T GDP = $750 B of additional gross domestic product. Hauser’s Law says that no matter what politicians do to the Internal Revenue Code, the tax take of the federal government is always 19.5% of GDP. Call it 20% 20% x $750B = $150 billion. That is a mere 11% of our current deficit of $1.3T. In order to solve the deficit-debt crisis, we need to lower the nation’s debt-to-GDP ratio. With actual current growth rates, we would have to run budget surpluses to see significant reduction in that ratio. Running a surplus means knocking more than 100% off the deficit, not 11%. One of the deliberate deceits of liberals is they figure, accurately, that the American people have no sense of proportion. Only such people believe that growth or “taxing the rich” will change our current financially suicidal course.


Bush tax cuts will expire at the end of this year Like they were supposed to expire in 2010 and 2011? What will be different at the end of 2012 to make them expire? Will Obama be reelected and regain control of the House and a supermajority in the Senate? Few are predicting that. Also, who says the expiration of the Bush Tax Cuts (only for the rich remember—Obama will extend them for everyone else) will bring in more revenue. The Congressional Budget office is required by law to assume that everyone will behave the same after their tax rates are raised as they did before. Of course that is the opposite of reality, well known as the Laffer Curve. In tax rates, mass transit fares, and the house’s take in gambling, raising the rates, fares, or take eventually arrives at the peak of the Laffer Curve and additional increases in rate, fare, or take cause people to change their behavior, e.g., buy municipal bonds, start carpooling, stop gambling at that casino. As a result, increases in tax rates beyond the peak of the Laffer Curve result in DECREASES in government revenue, which make the deficit worse, not better. Also, there is Hauser’s Law. The federal government only gets 19.5% of the GDP regardless of what politicians do to the Internal Revenue Code. That is, it will get 19.5% of the GDP if it extends the Bush tax cuts for the rich again, and it will get 19.5% if it does not extend them. The Laffer Curve is the explanation of why Hauser’s Law is true. The Laffer Curve is better known as human nature. If you keep raising your price, people eventually avoid you.
major cuts in defense and domestic spending will go into effect at the end of 2012 I know there is a law passed by the failed deficit panel to do that but I will believe it when I see it. Politicians do not cut federal spending.
Projected increases in medical care spending are “silly” because of future innovations like pacemakers, oral contraceptives, and chemotherapy

Say what!? Show me the graph of medical care costs per capita in the U.S. that says those costs went down when those things were invented. Pacemakers, for example, raised the cost of health care in America. First, they cost money. Second, they keep people alive who would have died. Living people have health care costs; dead ones do not. Heart attack is the best cause of death for health care costs. Almost all the other causes of death rack up huge costs on the way to death. How much of a moron must Ezra Klein be to claim that the invention of the Pacemaker lowered health care costs? He can’t tell the difference between longer average life spans—which also raise the costs of Social Security—and health care costs. Obama has argued that preventive care will lower health care costs. Charles Krauthammer, an MD, says preventive care has the opposite effect. For one thing preventive care costs money itself. Second, it causes people to live longer. The longer they live, the more they spend on health care. Duh.

The only way to make health-care costs go down is to get government and insurance regulators out of it. When people have to pay out of their own pocket, and medical companies and doctors have to compete for business, Q-tips will stop costing $50. As long as bureaucrats pay for $50 Q-tips, costs will go up.

Pointing to the last 70 years, Klein says “we muddle through”

When our oldest son got admitted to an Ivy League college, the cost took our breath away. And the football coach who recruited him informed us we had “no need” for the financial aid we applied for! “No need!? Like you guys think we toss $50,000 a year into our savings account?” We decided to muddle through. I actually used that phrase in an article I wrote at the time. What did that mean? Our son had to borrow the max he was allowed. He is still, at age 30, paying it off. I also required him to send me a check for $140 a month from whatever job he could get when the football team was not practicing. He also had to get a summer job with higher pay. He worked for me on Christmas vacation. I made our younger sons start cutting the grass instead of a gardener. I bore down in my self employment to make it more profitable. We managed to muddle through and he played four years of Ivy League football and graduated on time. But note that our muddling through included various austerity measures. Klein says we will do it with “small-bore, imperfect deals.” Again, no sense of proportion. Our family borrowed something like $150,000 for the Ivy education—about $50,000 each spread over my wife and I and our Ivy son. My wife and I are Harvard MBAs who make affluent incomes. The U.S. national debt is now $138,152 per taxpayer, which for our family of five adults would be 5 x $138,152 = $690,760. Plus it does not include unfunded liabilities for Social Security, Medicare, Prescription Drug liabilities of $118.5T or $1,044,807 per taxpayer (5 x $1,044,807 = $5,224,035 for our family). Furthermore, those unfunded liabilities do not include federal retiree pensions and health care, ObamaCare, Medicaid, federal guarantees of mortgages and deposits, etc. etc.

I’m confident we’ll [muddle through] again.

The American people have NO HOPE of ever paying our national debt and unfunded liabilities. They long ago got way too big.

Our current debt-to-GDP ratio is 104%. Did we handle that during our last 70 years of “muddling through? Yeah. In the early 1950s, it was 122% because of World War II. How did we “muddle through” then? We cut federal spending 60% by discharging 12 million military and drastically cutting military spending which was about the only kind of federal spending then. Are we going to cut federal spending 60% now? NO freaking way! There is no proposal to cut federal spending at all from anyone except Ron Paul. Paul Ryan’s plan would balance the budget in 30 years! That means spending and the national debt will continue to increase until then. We don’t have 30 years. We only have about 3 to 5 years. Ryan himself actually said that.

Yes, America has gotten itself out of a lot of big messes like World War I and the Great Depression and World War II and the Cold War, but—sense of proportion—the unprecedented monster current debt and unfunded liabilities, and the lack of political will to take the necessary steps—60% spending cuts—doom us to a massive near-term financial crisis when the world bond market stops buying our bonds. It appears that crisis will be worse than the Great Depression, which was mainly deflation, because hyperinflation (no usable money) is worse than deflation (usable money but not enough of it).

I subscribed to BusinessWeek for about 40 years. Then it became Bloomberg BusinessWeek. After the first Bloomberg issue, I sent an email to the magazine saying that I was going to cancel if they ever sent me another load of pro-Obama propaganda like that again. In the next issue, the first sentence of the first article was some absurd, second-grade level Obama propaganda. I canceled.

Apparently The Week, which chose to designate Ezra Klein’s column described above as a “Best Column” of the week, is also an Obama propaganda publication. Obama propaganda is ubiquitous in the media. You should not be paying for it. You’ll get it for free if you stop paying for the likes of Ezra Klein, Bloomberg, and The Week. And it will be worth the price.

John T. Reed