It's the Spending, Stupid!

Lost in the argument over whether or not to raise the “debt ceiling” is the real fundamental problem facing the nation, which is that we simply spend too much. We spend more than we take in, then go into debt to pay for it.

Imagine that your annual household income is $50,000, but you spend $60,000, because you just can’t bear to say “no” to your children, who want I-Pods, piano lessons, designer clothes, their own car, etc. So you cover the $10,000 deficit by charging it to your credit cards. And since you don’t bring in enough money to pay them off, you just make the minimum monthly payments (your “debt service”).

Then, each time you reach your card’s limit, rather than deciding where you can cut expenditures, you instead raise your “debt limit” either by increasing the credit line on your current cards, or applying for new ones. Or by taking out a second mortgage on your house.

As your household goes deeper and deeper into debt, your monthly payments keep rising. But still you keep spending, even on all those things your doesn’t really need. Obviously, at some point your income will no longer cover even the interest on your credit cards, let alone the truly essential items like food, rent, gasoline, electricity, etc.

That is exactly where the Federal government (and most state governments) is headed today. We have allowed our addiction to ever increasing “entitlements” to run up the bills to the point that we can no longer afford them. The Federal government takes in about $200 Billion a month, but spends over $300 Billion. And how do they make up the difference? They borrow it, thereby running up the country’s “credit card bill.” Again and again.

And while previous presidents and legislatures (Congress approves ALL spending) were bad, Obama and the Democrat majority he had for the first two years of his presidency took spending off the charts. Contrary to Obama’s oft-repeated claim that he “inherited” our problems, “Obamacare” and the failed “stimulus” plans alone added more than $2 Trillion in new spending. As a result, in less than three years, Obama increased America’s running debt from $1.5 Billion (under George Bush) to a staggering $4.1 Billion, per day! Total debt is now approaching $16 Trillion, excluding unfunded liabilities (future bills) for Social Security, Medicare, and other programs, which could total $60 Trillion!

But there are two things that government has available to fund its spending binge that the average citizen does not. The first is taxation. You and I can’t go up and down our streets, asking our neighbors for donations to fund our continued “deficit spending” mania. But the government can. And government doesn’t “ask” for “contributions” from the populace – they take it by force.

After all, when confronted with the choice of either saying “no” to the “children” (all those getting a check from government) or jacking up taxes on those who already pay the majority of taxes, too many bureaucrats, both Democrat and Republican, opt for the latter. And with a majority of Americans now getting some kind of government check, and roughly half of working Americans paying no Federal income tax, raising taxes on “the rich” is seen at the easy way out. It has become the mantra of Democrats, and has been only tepidly resisted by spineless Republicans.

But attempting to cure a spending problem with higher taxes is not only impossible, it makes things worse. Because raising taxes, especially during difficult economic times, depresses growth, often resulting in less revenue to the Treasury. Besides, even when increased tax revenue does flow into Washington, rather than being used to pay down existing debt, the new cash is invariably grabbed up to fund yet one more “absolutely essential” government program. “Revenue” to a politician is like crack to a junkie – they can never get enough.

Beyond the immorality of demanding that a tiny minority of Americans support the rest of us, even if we confiscated ALL OF THE WEALTH of all those people who are already paying 97% of the taxes, it would not even cover Federal spending for one year! And then what would we do to pay the bills next year?

The second, and perhaps even more dangerous method of financing profligate spending is “quantitative easing” – a euphemism for having the Federal Reserve print more money. While Q/E allows politicians to claim that they are “not raising taxes” it hits consumers by devaluing their existing dollars – everything costs more, from food to gasoline.

And the Obama Administration has been authorizing the Fed’s printing presses to work overtime, cranking out currency by the truckload. Now, while the recession has blunted the affect temporarily, sooner of later the inflationary bubble will explode, with disastrous results – hyperinflation. Which is why gold and silver prices are soaring – savvy investors see the storm clouds gathering, and precious metals have always been a defense against inflation.

The harsh reality is that “entitlement” spending now consumes 83% of the Federal budget, and similar percentages of most state budgets. Our national debt is now a frightening percentage of the GDP. We cannot continue to spend money we don’t have, while mortgaging the future of our children and grandchildren.

We must make spending cuts. Drastic, deep, and permanent cuts. In ALL government programs. Not equally, of course. The primary government services like Defense, Law Enforcement, the Court system, and other operations that are truly vital to the nation’s survival, should be cut, but judiciously. Excess layers of management should be removed, and areas of overlapping responsibility eliminated.

Bloated bureaucracies like the EPA, OSHA, the Department of Education, and the almost endless list of “alphabet agencies” that have grown like cancer since the 1960s, should all be either completely eliminated, or have their budgets slashed to a fraction of their current size.

Government employee unions should be eliminated altogether, or at minimum, have their outrageously lavish pension and benefit programs cut back dramatically. Not only have the salaries and benefits of government workers surpassed those in the private sector, it has become almost impossible to get rid of bad workers. A recent study (USA Today) showed that a government worker is more likely to DIE than be fired! Such a situation is simply unsustainable.

Government handouts in the form of welfare, subsidized housing, food stamps, and similar programs should all be cut back, and severely. The modern welfare state has failed. Corruption and fraud is the rule, not the exception. We now have 3rd and 4th generations of Americans who have never worked for a living – they are living off of the taxpayers.

When most Americans are suffering reductions in their own income, not to mention losing their jobs altogether, we can no longer afford to insulate “freeloaders” from any cuts whatsoever. Obama talks about “shared sacrifice” – it’s time that the millions of financial parasites feel the pain at least as much as the rest of us.

And finally, entitlements like Social Security, Medicare, and Medicaid cannot be maintained in their current state. Some kinds of restructuring, and yes, cuts, will be necessary. The only thing that remains to be seen is if the legions of “greedy old geezers” have the integrity to finally put the futures of their children and grandchildren ahead of their own.

But whether you are a 20-something starting out in your career, or a “Baby Boomer” about to retire, you need to come to grips with the fact that we must cut spending. If we don’t, we will soon find ourselves in financial straights that make Greece’s current problems seem tame by comparison.

And raising the “debt ceiling” will do nothing to stop it.