Uncle Sam’s debt is getting “interest”ing

That which cannot go on forever, ceases:

Interest payments will make up 13 percent of the federal budget a decade from now, surpassing spending on Medicaid and defense.  Finding the money to pay investors who hold government debt will crimp other parts of the budget. In a decade, interest on the debt will eat up 13 percent of government spending, up from 6.6 percent in 2017.

Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.

Some members of Congress want to set the stage for even more red ink. Republicans in the House want to make last year’s tax cuts permanent, instead of letting some of them expire at the end of 2025. That would reduce federal revenue by an additional $631 billion over 10 years, according to the Tax Policy Center.

Despite the tax cuts pushed by the Trump administration, the Federal government collected a record amount of tax revenue from October 2017 to August 2018. Washington doesn’t have an income problem. It has a spending problem.  Roughly a third of the Federal Budget in any given year is financed by borrowing money.  A family that ran its household budget that way would soon be bankrupt.  The Federal government has creative ways of masking its increasing insolvency, but it’s there nonetheless.  The spending spree of the past two decades was possible mainly due to low interest rates across the economy.  As the economic outlook in the U.S. turns upward, so will those interest rates.  A single percentage point increase equates to about $160 billion, given the official government debt of just shy of $16 trillion.  (Counting the ongoing raid of Social Security Funds — listed innocuously as “intragovernmental holdings” — the actual debt is over $20 trillion.)

In short, next year the government will spend close to $400 billion just to service the debt.  Not a penny of that amount will improve the infrastructure of our nation, modernize our military or provide services for our citizens.  It will simply go straight into the pockets of those who hold pieces of our country’s debt.

That debt has increased eight times faster than the government’s annual budget.  In 1981 — 37 short years ago, the U.S. debt hit $1 trillion for the first time.  That was an accumulation of more than two centuries.  In less than 40 years, that debt increased 1,600%.  The Federal budget over the same period increased from $1.9 trillion in 2015 dollars* to $3.8 trillion in 2015 — a “mere” doubling in spending.

We’ve been running like the cartoon coyote in thin air after leaving the cliff.  Gravity — in the form of normal historical interest rates — is about to kick in.

It will not be pretty.


* People are so used to hearing about inflation, and the need to “adjust for it” when comparing years, that few stop to ask what drives it.  The standard explanation is that basic market economics causes it.  Not true — government deficit spending does.  By flooding the market with dollars to enable his spending sprees, Uncle Sam diminishes the value of each individual dollar.  It is, in effect, a “stealth tax” on the spending power of Americans.  The value of a U.S. dollar remained remarkably stable from 1787 to 1913, with a directly convertible exchange rate of $20 to an ounce of gold.  Only after creation of the Federal Reserve, which enables this gorging on debt, did that change.  As of this writing, one ounce of gold is worth about $1200.  That represents an 85% loss of dollar value in just over a century.


By the purse strings

Since leaving the military, former Chairman of the Joint Chiefs Admiral Michael Mullen has spoken often about what he considers to be the biggest danger to U.S. security: the national debt.

China may be about to give us an object lesson in that assessment:

China added to bond investors’ jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.  Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter.

China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn’t clear whether the officials’ recommendations have been adopted. The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt…

Most Americans who pay attention to government spending habits are happy merely to see the deficit fall.  But even if the deficit were brought to zero (i.e. the government miraculously balanced its budget) the outstanding debt still has to be renegotiated periodically, as old bonds mature and new ones are issued.  When there is less demand for new bonds, the yield (interest) has to rise in order to become more attractive.  Thus, even with a balanced budget, our roll-over debt is a potential time bomb.

For the last decade, the U.S. has been able to take advantage of record low bond yields as the Federal Reserve held interest rates at historic lows in the wake of the mortgage debt crisis in 2008.  This, incidentally, is why your bank pays you next to nothing on your savings any more — the same policy that keeps the government’s borrowing costs low essentially robs individual savers.  Unlike taxes, people don’t immediately recognize this fiscal effect the debt has on them.

If forces beyond the government’s control — say, the largest holder of U.S. debt decided not to roll over its holdings — caused bond yields and interest rates to rise faster than desired, the results would bankrupt the U.S. Treasury overnight:

Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $200 billion. A 2% increase in interest rate levels would up the federal deficit by $400 billion, and if rates were 5% higher, the annual federal deficit rises by a full $1 trillion per year.

The only way to begin mitigating this risk is to not just balance the budget but to start paying down the debt.  Think that will happen?

Me neither.  The day may be fast approaching when the government, in order to service its creditors, has no choice but to cut many of the programs people have become entirely dependent upon.  It may also impose confiscatory taxation, seizing the property of those who’ve managed to save and invest during these irresponsible years.  In both cases, the social consequences will be enormous.

As the Instapundit likes to say, “things that can’t go on forever, don’t.”  The exponential rise of our national debt can’t go on forever.  It’s simply a question of when an event will occur that undeniably shows the emperor has no clothes.

Cashing out

The powers that be are doing all they can to constrain the options of the average citizen who refuses to play their game.  The latest angle is to renew the push for a cashless society:

On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

The $100 is a “high denomination note?”  That might have been true 50 years ago, minus several decades of inflation eating away at purchasing power, but it’s hardly the case today.  One can easily spend that much now by taking a family of four to a restaurant.

And while any such proposals are always couched as trying to somehow make life difficult for “the bad guys,” there are some very real effects on law-abiding citizens here.  Governments around the world have exhausted their ability to “goose” the economy through artificially low interest rates (a policy, by the way, that penalizes the thrifty savers in society in favor of profligate borrowers).  Having taken that game all the way to zero — literally — now central banks have the bright idea of negative interest rates… which would potentially charge savers who hold their money in savings accounts rather than spending it.

So what is a thrifty family to do?  The best answer is to hold as much of your assets as possible outside of the increasingly corrupted financial system.  Cash is the most obvious way to do that.  But bankers know full well that if Americans returned to the days of stuffing mattresses with greenbacks, it would quickly become apparent there aren’t enough pieces of paper to go around — not by a long shot.  (For an example of this, watch the “bank run” scene in “It’s A Wonderful Life.”)

In addition to discouraging all the hoi polloi from asking for banknotes they don’t have, this move toward smaller denomination bills is meant to inconvenience cash transactions.  It’s not only criminals who like to use cash, although many in authority like to pretend that’s the main association.  There is still the rare family who literally saves their pennies for anything from a vacation to buying a used car.

Here’s the thing: if you paid $10,000 in cash for a vehicle you bought used from another owner, it would take carrying one hundred $100 bills.  Imagine that bill is eliminated.  The $50 is already a much rarer note in circulation, so the common alternative is the $20.  Now you’d need a stack of FIVE HUNDRED notes–more than a pound of paper –to pay cash.  And few people are willing to do that these days.  Yes, this is part of what the authorities want to do to “inconvenience” large criminal transactions.  But it will also push average consumers further into using what is already a largely digital world of commerce.

And that’s exactly what the powers that be want.  With digital transactions (credit and debit cards), privacy is greatly reduced and control greatly expanded.  I know there are still those full-blooded law and order types who’ll protest “if you’re not doing anything wrong, you have nothing to worry about.”

Baloney.  Plenty of innocent people have already had their bank account (vulnerable digital assets) wrongfully seized, after which they face a daunting process of proving their innocence in order to see any of it again.  But the real problem with the “you have nothing to worry about” premise is that the definition of “doing wrong” is often in the eye of those wielding any kind of power.  Think I’m kidding?  Ask the former head of Mozilla, who was forced to resign after those oh-so-tolerant liberals discovered his heinous crime of donating to a campaign against legalizing same-sex marriage.  Think about how the IRS went after political groups sympathetic to “Tea Party” small-government advocacy.  Now extrapolate that to a future where every book you buy, every movie/documentary you watch, every church contribution you make and even families you choose to support financially in some small way leaves a digital trail for those who disagree with you to follow and exploit.

There’s a term for this: it’s called a targeting system.  And if we’ve learned anything through the recent weaponization of government agencies, it’s that such targeting capabilities WILL be used to harass and silence anyone who dissents from public orthodoxy.  Completely ‘virtual’ banking and finance (a “cashless society”) will result in ‘virtual control’ over our ability to live freely and privately with our own consciences.

I’ve said this before, but am becoming more strident about it: it’s time to “abjure the realm.”  If you disagree with the direction the ‘soft fascists’ in our land are taking us, you need to separate yourself from their system as much as possible, because the net is continuing to tighten.  That means holding stores of wealth beyond their digital control, in forms like cash, precious metals or other tradable commodities that provide a good store of value.  Equally important, it means building networks of like-minded people who are willing to form communities that can exchange privately among themselves without every transaction being officially recorded and perused for potential political heresy.

In short, it means declaring your personal independence and intention NOT to be simply a compliant serf to the ruling order.  Does it take work not to do things the way everyone else does?  Certainly.  But it is the kind of work that makes one free.

Who is creating the problem?

With the meteoric rise of Bernie Sanders, we’re seeing an accompanying increase in class warfare rhetoric (part and parcel of the Marxist worldview, which relies on creating envy to generate much of its appeal).  One side effect of this “soak the rich” battlecry is that it presumes most, if not all material success in life is achieved through undeserved and ill-gotten gains.

The problem with this approach is that being wealthy is no more a reliable sign of insidious living than being poor automatically confers virtue.  Below is a much better perspective:


There are many who have worked hard, been creative, stayed “in bounds” of the law, and still achieved material success and social status.  Then there are those who have lobbied and bought influence to bend the system to their ends, using government force to exclude potential rivals, or to hire cheaper foreign labor to displace hardworking Americans… all to squeeze a few more cents per share of profit from their corporate cash cow.  But despite Bernie’s bellowing, those CEOs are the minority.

At the same time, there are those Americans who make use of a publicly provided “hand up” to get their life back on course after a disaster (loss of job or spousal support, or a bout with substance abuse or crime).  But there are also those who make public assistance a way of life, seeing no incentive to become self-supporting instead of living off the goodwill of others.

The problem we have is not one of “rich versus poor.”  It’s one of “workers versus looters” that crosses the spectrum of income.  It’s one of people at all levels of society who use government to take from others what they would not otherwise give.  CEOs and their companies who spend each day making themselves more profitable by providing better value for society should be applauded, not demonized.  The same is true for those who are saved by the “social safety net” but show the determination to climb back off of that net and start moving upward on their own power again.  These are the ‘workers.’

But those of any income who increase their worth primarily at the calculated expense of others — looters — should be rightfully condemned, whether they live in Manhattan, New York, or Manhattan, Kanasas.  This is yet another issue where Democrats and Republicans each decry a selected part of the problem, while both make it worse.  Republicans complain (rightfully) about those who purposefully live off the welfare system, while simultaneously supporting H1B visas, offshoring and other corporate goodies that force vulnerable workers onto unemployment and other forms of public assistance.  Democrats rightfully attack Uncle Sam’s “corporate handouts” (of which there are many), but then promise to hand out so many “goodies” to the citizenry that they promote individual dependency and an entitlement mentality.

Here’s a radical thought: how about EVERYBODY stop looking at government as Santa Claus?  How about we stop empowering government to pick the winners and losers at all levels of living?  This is supposed to be the land of opportunity, not the land of who-has-the-most-organized-lobby.  (By the way, if you truly want to study and go to college, the opportunities exist.  Stop waiting for government to make it “free.”)  Government should be a referee, not a retailer of tax loot.

Solving any issue effectively means first defining the problem accurately.  That is one reason why socialism ultimately fails.  It substitutes blind jealousy for incentives and a work ethic.  I suspect its growing appeal to the current generation is based in no small part on the failure of America to prevent the corruption of what was once a successful attempt at free market capitalism into a blatant and corrupt system of cronyism based on an alliance of Big Business, Big Government and a Bi-factional ruling party.

Neither of these is the answer to the problem.  Where are the candidates promoting individual freedom and personal opportunity?

This is not just about immigration

The President plans to finally show his hand Thursday night:

In a broad test of his executive powers, President Barack Obama declared Wednesday he will sidestep Congress and order his own federal action on immigration — in measures that could spare from deportation as many as 5 million people illegally in the U.S. and set up one of the most pitched partisan confrontations of his presidency.

Obama declared that Washington has allowed America’s immigration problem “to fester for too long.”

Make no mistake: that problem has “festered” only because Washington has utterly failed to do its job of border enforcement.  Any nation that does not control its borders is not sovereign.  We have and continue to be invaded by people who choose to move here in flagrant disregard for our system of legal immigration.  Once here, far too many show the same disregard for our laws in general.  And our rulers (a more appropriate word at this point than “leaders” or, <chortle> “representatives”) have only encouraged this by their pandering and dereliction of duty.  You don’t think it’s a coincidence, do you, that this long-anticipated announcement will come during the Latin Grammy Awards?

Now comes the capstone: for the second time in my lifetime, the government is proposing a broad amnesty for these housecrashers.  Only this time, Congress — who may have learned a lesson from the broken promises of “immigration reform” in 1986 — isn’t the one seeking to change the rules.  Instead, it’s the President.  Unilaterally. Unconstitutionally.  Against the will of the people.

But the emotional issue of immigration, significant as it is, isn’t even the main problem here.  Mr. Obama, YOU DO NOT HAVE THIS AUTHORITY.  And attempting to exercise such means you have abrogated your oath of office to uphold and defend the Constitution of the United States.  If our constitutional system were functioning properly, your overreach and disregard for the limitations on your office would result in immediate articles of impeachment.  Of course, we both know Congress is too compromised itself to even attempt such correction.  No matter.  In the eyes of many (including me), if you go through with this you have become little more than an usurper, an illegitimate occupant of the White House from that point forward.

And so We the People are left with these: to ponder once again the warnings of our Founders.  To wonder what OTHER issues Obama plans to ‘resolve’ by royal decree in the two years he has left.  And to consider what we may need to do to stop this brazen transmutation of what has for decades been an ‘imperial presidency’ into something even worse.  If the rules no longer apply to you, Mr. President, nor to the millions of people you’ve encouraged to colonize this country, nor to the financiers who continue to pillage what wealth the middle class has left, then what possible reason (other than fear) could the average law-abiding American have for agreeing to be bound by them any more?

However reluctantly I may have reached this conclusion, I also know I’m not the only citizen who has.  Thursday night’s address will further prove what I’ve been saying here for some time: we no longer have the rule of law in this nation.  Which means, Texas, that lawsuits are useless kabuki theater at this point.  Why appeal to one part of lawless Uncle Sam to check another part of lawless Uncle Sam?  No.  Something else is required if this course is to be altered.  And we’d better figure out quickly what that is.




Organized crime pays

At least, that’s the message that keeps getting sent when one pays attention to what’s happening in the financial industries:

Traders who were rigging the £3.5trillion-a-day foreign exchange market boasted to each other about making ‘free money’ in a scandal that has today cost five banks a record £2billion in fines.
The bankers, who called themselves as the ‘A-Team’, ‘Three Musketeers’ and ‘The Players’, colluded online by sharing sensitive information to make millions for their banks and bag big bonuses themselves.
Other messages reveal how the cartel feared being caught, telling eachother on forums: ‘Don’t want other numpty’s in mkt to know… is he gonna protect us like we protect each other?’
State-owned Royal Bank of Scotland has been fined £217million ($344million) by the London-based Financial Conduct Authority (FCA) as well as £182million ($290million) by the US Commodity Futures Trading Commission (CFTC).
The others involved in the settlement are Citibank, HSBC, JPMorgan Chase and UBS, who will also pay up to £500million each. Barclays said it continues to hold discussions with regulators.
More than 30 traders have been fired, suspended, put on leave, or resigned since the probes started, and the Serious Fraud Office has launched a criminal investigation – but there have been no arrests.

Why is that? Why is it that police will confiscate the life savings of an ordinary citizen on a whim, without bothering to establish any criminal activity, but bankers and financiers can break all regulatory law and simply write off a negotiated fine as the cost of doing ‘business?’  (Wouldn’t it have been informative if the media had bothered to figure out what small percentage these ‘fines’ represented, compared to the billions in illegal gains?  I’m betting it’s a mere rounding error, and it’s no accident such context is lacking in the coverage.)

This is not an isolated story, and is yet one more example of why I get irritated with people who look at conditions today and consider it an indictment of capitalism.  We don’t HAVE capitalism today.  We have corporatism — a condition in which well-connected interests such as the financial sector have coopted the very regulators that are supposed to constrain their ability to use their position to screw the common man.  This is another reason I said yesterday I’m no longer convinced we live in a free country.  Not when this kind of thing is considered ‘justice.’

In recent years we’ve seen the robo-signing scandal (which, in a just world, would have resulted in the voiding of ALL affected mortgages), large banks found guilty of laundering money for criminal syndicates (professional courtesy, it would seem), and now this.

As Karl Denninger is fond of saying, “where are the handcuffs?”  Not to mention the long stretches in a general prison population for these captains of industry, not some Club Med Behind Bars.  This is why there is no trust in government OR the business world today.  And rightfully so.  Nor SHOULD there be any until some “big fish” are held to hard account, with a clear message this flaunting of the rule of law will no longer be tolerated.  These banks keep claiming in recent years they are “too big to let fail.”  Fine.  Maybe the government that currently coddles them needs instead to seize and auction them off in smaller parcels to people who will compete fairly in a market environment, rather than create oligarchies.  Come to think of it, that would help considerably with some other issues, too… like our national debt.

That would, however, require government to be interested in justice, rather than cronyism.  And that will only happen, dear reader, when YOU demand it.

(HT: Vox Day)

Gangster government

Surveys show Americans are overwhelmingly angry with the direction of their country, and with what seems to be a never-ending list of of examples of corruption, cronyism and  general criminality in both intent and neglect:

— An IRS that not only puts its thumb on the scale of national elections, but knowingly seizes the savings of innocent people then refuses to give it back.

— An incoherent policy on Ebola that lets medical volunteers return to the country and roam free, but requires military troops ordered to West Africa to be quarantined for three weeks — despite assurances they aren’t supposed to be working directly with patients there.  (Oh, and Italy is none-too-happy that this quarantine is done in their country, not ours).  Add to that, the State Department apparently has (or is, despite denials) considered importing non-citizen patients to the U.S. for treatment.

— An electoral process that increasingly is being shown to be nothing more than a sham to prop up a semblence of legitimacy for a government that seems anything but.

— A well-entrenched “deep surveillance state” that apparently not only pokes into any electronic space it cares to, with no accountability, but has the ability–and does–plant documents that can later be used to discredit critics.

— A fundamental restructuring of health care delivery in this nation passed on a strictly partisan vote, with little debate or discussion of the details, and to this day a stonewalling on information about how it is being implemented.

And none of this includes many still-unanswered questions about Benghazi, Fast and Furious, or the size, scope and real beneficiaries of “Quantitative Easing” and other Federal Reserve interventions in the economy since 2008, etc, etc, ad infinitum.

At this point, can any American outside the well-connected Beltway elite say they are served by this government?

At this point, given the structural rigging of the system on multiple levels, can any American believe a mere election — even one projected as a “wave event” — is really going to change anything?  The roots of the IRS foreiture programs were passed in 2000, under a Democratic administration (Clinton).  The massive assaults on the Bill of Rights known as the Patriot Act debuted under a Republican (Bush the Younger).  And many of the current administration’s critics are fellow Democrats who feel betrayed that in reality nothing has changed under “the One” — if anything, the abuses have only gotten worse.

So the question is this: if Americans are so angry, where IS it?  What the pollsters are calling ‘anger’ comes across in reality as frustrated resignation.  If I’m wrong, America, prove it.  Where are the protests?  Where are the crowds descending on Capitol Hill and City Hall?

Refuse to comply with unconstitutional and arbitrary abuses of power.  Go confront the officials who perpitrate them.  Now is the time for action, not words.  We seem to forget that we outnumber them.   The reason the criminals in office are flooring the accelerator on their various schemes is that the nation has given them no reason to think there will be pushback or consequences.

Show them they’re wrong.  Or shut the hell up the next time a pollster asks you if you’re angry.  We were founded as a nation on the belief that “when any government becomes destructive of these ends (life, liberty, pursuit of happiness), it is the right of the people to alter or abolish it, establishing new government…”  Either alter or abolish this trainwreck, or admit to yourself you accept it, however grudgingly.  Just remember that such acceptance makes you an accomplice.  People have resisted far more entrenched tyrannies.  So what’s your excuse?