Conservative Political Commentary

...usually with an attempt at historical and economic context

Friday, March 18, 2011

Fiscal Fantasy World of the White House and Congress

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With the election of a strong Republican majority in the U.S. House of Representatives in the 2010 elections, many Americans entertained some hopes of seeing a significant reduction in government spending, and a refusal to increase the federal debt limit without such a reduction. What we have had so far are continuing resolutions (CR’s) with only minor cuts, funding the government for a few weeks at most.

Now, some say, there won’t be any more CR’s and serious negotiations must begin on the budget, even if it means a government shutdown. A government shutdown would be fine if it would lead to serious cuts in spending. Republican leaders seem to be overly anxious to avoid a shutdown, and therefore reluctant to forcefully push for major cuts. It’s true that jobs ought to be a high priority, but it is also true that out-of-control spending is quickly becoming a problem of such magnitude that we will be very fortunate indeed if we can avoid a major financial/currency collapse within a fairly short time.

Even the $61 billion in GOP-proposed cuts (or even $100 billion, if that could be done) is truly minor compared to the almost incomprehensible levels of federal spending going on day by day. To add to the deficit what President Obama’s proposed budget calls for is hardly short of asking for catastrophic results. We won’t “win the future” that way, because in all likelihood the U.S. dollar will lose so much value that the focus will shift more to financial (and maybe physical) survival rather than “winning.”

Senator Rand Paul is proposing $200 billion in spending cuts, but, unfortunately, that would need to be followed by many more billions to be seriously helpful. But it would be a start.

According to CNS News, the national debt increased by $72 billion the same day (March 15, 2011) that the House voted to cut $6 billion for the three-week period covered by the CR. [1] As you may notice, that one day’s increase is greater than the $61 billion the GOP wants to cut, and, of course the Democrats don’t want to cut much of anything.

David Stockman, in a lecture for the Ludwig von Mises Institute, explained how TARP marked the definitive triumph of crony capitalism over sound money. He went on to say,

The 1984 rescue of Continental Illinois; the 1994 Mexican peso crisis bailouts; the Fed's 1998 life-support operation for LTCM [prominent hedge fund Long-Term Capital Management] — were all just steps along the way to the fall of 2008.

Then, faced with the collapse of their own handiwork, Washington panicked and joined the Fed in unleashing an indiscriminate bailout capitalism that has now thoroughly corrupted the halls of government, even as it has become a debilitating blight on the free market.

In this context, the linkage between printing-press money and fiscal profligacy merits special attention. In the post-TARP world, there remain no fiscal rules at all, and already we have had cash for clunkers, cash for caulkers, and under the homebuyer's credit, cash for convicts.

Indeed, my belief is that the subprime meltdown was only a warm-up. The real financial widow-maker of the present era is likely to be US government debt itself. [2]

In the context of total spending, there don’t seem to be any proposals for cuts of the magnitude that would make a meaningful contribution to solving the problem, let alone viable proposals for reform that could help prevent such errors (e.g., a Balanced Budget Amendment), other than Ron Paul’s “End the Fed” campaign, and, of course, Austrian school economists’ call for sound money in the form of the gold standard. But these ideas are anathema to the government establishment.

I support defunding of NPR, EPA, FCC, Obamacare, and Planned Parenthood, but we’re going to have defund a great deal more things than those to get out of the debt situation that is driving us toward the edge of the cliff a lot faster than Congress and the White House seem to realize. If this collapse happens, we may not even be in a position to decide what to do about other issues which urgently need attention, such as jobs, the Middle East, our energy situation, etc., etc. Our way of life and national security will be compromised, to put it mildly.

In an essay asserting that Obama and his “socialist cadre” are attempting to transform America into a “Democrat Socialism State,” through massive debt, and offering some evidence to support his assertion, Mark Alexander of Patriot Post, also says this:

Republicans scraped together a few more cuts for their feeble $61 billion in proposed 2011 budget reductions, but Obama and his Senate Democrats declared they would approve only $4.7 billion in additional cuts. "Do we want jobs?" asked Senate Majority Leader Harry Reid (D-NV). "If we do, then we simply cannot pass the plan the Tea Party has already pushed through the House."

What is needed, if we're to have jobs in five years, is $4.7 billion in additional cuts for every day of this year's budget, and those that follow. [3]

The American people have noticed the profligate spending and have demanded action to get spending under control. The Congress and the White House, while giving lip service to the idea of reducing deficits, have offered very little in the way of actually accomplishing it. Republicans need to assert their House majority, and act as though they know that they control the purse strings and nothing can be appropriated unless they approve. There needs to be more emphasis on the fact that debt is quickly becoming the dominant issue, which, if not adequately dealt with, could make many other issues moot for a long time.


[1] Terrence P. Jeffrey, “U.S. Debt Jumped $72 Billion Same Day U.S. House Voted to Cut Spending $6 Billion,” 03/16/2011, CNSNews.com.


[2] David Stockman, “The End of Sound Money and the Triumph of Crony Capitalism,” transcript (published 03/14/2011) of the Henry Hazlitt Memorial Lecture given March 12, 2011 at the Austrian Scholar’s Conference of the Ludwig von Mises Institute. It is a lengthy and detailed piece, well worth reading and study. Mises.org.


[3] Mark Alexander, “Democratic Socialism: Political Consequences of the Looming Debt Bomb Shockwave,” 03/10/2011, Patriot Post. Emphasis added.

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