Think About It
Let’s talk about inflation. It is certainly a perennial problem in America, so it should be of interest to everyone. We are taught that inflation is the result of wages and prices increasing. We are even taught to measure it by a government invention called the Consumer Price Index. The index compares current consumer prices to previous consumer prices to see how many more dollars you now need to buy the same products.
I would submit that we are putting the cart before the horse. The Consumer Price Index is really a measure of the “symptoms” of inflation, not the “disease” itself. I think we all agree that if there is only one horse in town available to buy, and everyone in town holds $2,000 on Tuesday; when suddenly the mayor graciously gives everyone another $2,000 each on Wednesday, the price of the horse just went up. This is called the law of supply and demand.
Thus, we would make the point that the “inflation disease” is properly defined as the artificial over-expansion of the money supply. Since our national currency is no longer backed by a commodity such as gold, it is called “fiat” money, meaning it can be arbitrarily created by decree. The authority to do this in the U. S. belongs to our Federal Reserve System. However, I am not yet one of those who would cry, “crucify them.” They should expand the money supply in amounts “equal to” any increased production, so that there will be enough money to buy every new product which we can physically produce. But since 1970, the U. S. money supply has actually doubled every 10 years, while GDP (production) has less than trebled in the entire 30 years. That works out to 800% money chasing 300% production. Remember the horse? The way the system works now, the act of printing actual greenbacks is not nearly as important as in the past. By controlling bank reserves, the Federal Reserve can create more money to put into checking accounts, without printing greenback dollars. Actually, about 2/3rds of our $100 bills are held by others in foreign countries.
History shows the real crux of the problem arises when our government wants to fight a war, but does not want to raise taxes to pay the new and extra expenses, nor to cut any present expenses. They meet the problem by “monetizing the debt”, or creating extra money. Our worst example is the Viet Nam conflict, and the Iraq conflict is not far behind.
A good example of inflation to the extreme can be found in Germany after World War I. At the outbreak of the war, Germany suspended the redeemability of its German “Mark”.By the end of the war, the money supply had quadrupled. By1920, prices were up 500%.Confidence in the mark weakened. By 1922, prices had increased another 700%, and yet the government still kept printing money. From mid-1922 to November 1923, hyper-inflation raged! By mid 1923, some workers were being paid 3 times a day, and their wives were meeting them each time; and then rushing frantically to buy goods before the shops were empty. People needed a wheelbarrow of money to buy a loaf of bread. It is said one woman burned money in the stove, because it was cheaper than buying wood. Finally, the government stepped up to the plate. They printed 2.4 billion new “Rentenmarks” to replace the old marks at the unbelievable exchange rate of one rentenmark for one TRILLION marks. But, they committed that no more rentenmarks would be printed, and they severely limited borrowing. Drastic new taxes were imposed, and by 1925, the crisis was over.
If you remember our interest rates of the early 80’s, you saw an example of our government stepping up to the plate, in the form of The Federal Reserve. Interest rates reached 21% on home mortgages. This was a direct result of LBJ escalating Viet Nam, while spending domestically on a “great society”; followed by Nixon, who wanted a landslide re-election in 1972. But, when borrowing is reduced, the money supply automatically shrinks. We finally overcame that inflation, but a lot of people lost their shirts. We are nearing another crossroads. Our debt has mushroomed to nearly $9 trillion (That is 9 million x one million). We are monetizing the debt. We must start to pay it off.
Friday, October 12, 2007
Wednesday, October 3, 2007
U S GOLD RESERVES
Think About It
There is more gold in the Federal Reserve Bank of New York vault than there is in Fort Knox, Kentucky. Unfortunately, most of it does not belong to the United States. It is the gold reserves of foreign nations, on deposit there because it is yet considered the safest bank in the safest country in the world. The U. S., arsenal of democracy during World War II, is said to have owned about 20,000 metric tons of gold at war’s end. It is now reported that we own only about 8,000 metric tons, but there has not been a gold audit in nearly 10 years. The bulk of the loss occurred during the Johnson administration, although it started with the Kennedy administration. Finally, in 1971, Nixon was forced to stop redeeming dollars for gold, because of the continuing international rush to redeem. He abrogated the Bretton Woods Accord, an international post war agreement which required us to redeem our dollars for gold to all other nations.
At the market rate of about $660 U. S. per ounce, our U. S. gold should currently be worth about $186 billion. Yet our government owes almost $9 trillion in debt. M1 is the measure of our most liquid forms of money. Thus it includes all greenbacks in circulation, plus all checking accounts, plus all bank money market accounts. In September, 2006, the M1 value was reported to be $1,357 billion. That means every liquid dollar, not every dollar, conceivably was backed by about 7 cents worth of gold. However, it does not really mean that, because dollars cannot be redeemed for anything else of value, they are simply Federal Reserve Notes. Our domestic redemption right has gradually disappeared during the nearly 100 years the Federal Reserve has existed.
Now please understand. I am not an anarchist. I do not advocate overthrow of the U. S. government, but it could sure use some major remodeling. I do not even claim to have all the answers. But, I do assert that most of the problems are the result of ever growing trade deficits with the rest of the world, and continued profligate Federal spending domestically. The U. S., which was a producer nation for the first half of the 20th century, became a consumer nation in the last half. Most of the manufactured and assembled products we purchase and enjoy now come from the far-east, on borrowed money.
The idea of world free trade has backfired on us. Nissan, even in its American plants, pays straight time of $14 to $23 per hour; while GM pays $25 to $29 per hour. But the real killer for GM is that in the 1950’s, they promised to pick up all employee medical costs, 30 year-and-out retirement pensions, and post retirement medical benefits. Ford and Chrysler were doing about the same thing. It did not show up then as costs, allowing for huge profits. Now it is eating them alive. The first car I bought was a brand new 1954 Ford Customline club coupe, which cost me $1,854. What will that buy you now? GM is said to be now spending $1,525 per car just on medical benefits, more than they spend on the steel included in the car. As their production goes down, their cost per car goes up. No wonder both GM and Ford bonds are rated junk status, below BBB.
America must once again become a producing nation! And we as citizens must realize the government cannot give us anything. We are the government. Would you birth a child and then abdicate any responsibility for its raising? If the answer is “No”, then you must not abdicate your responsibility to control your government. Federal, state and local governments all belong to you. You are the lord, not the vassal. But your control is in your vote alone. Never should you vote for anyone running for office without a thorough study of each candidate’s character and the issues involved. In doing this, my suggestion is to use television only as your last resource.
There is more gold in the Federal Reserve Bank of New York vault than there is in Fort Knox, Kentucky. Unfortunately, most of it does not belong to the United States. It is the gold reserves of foreign nations, on deposit there because it is yet considered the safest bank in the safest country in the world. The U. S., arsenal of democracy during World War II, is said to have owned about 20,000 metric tons of gold at war’s end. It is now reported that we own only about 8,000 metric tons, but there has not been a gold audit in nearly 10 years. The bulk of the loss occurred during the Johnson administration, although it started with the Kennedy administration. Finally, in 1971, Nixon was forced to stop redeeming dollars for gold, because of the continuing international rush to redeem. He abrogated the Bretton Woods Accord, an international post war agreement which required us to redeem our dollars for gold to all other nations.
At the market rate of about $660 U. S. per ounce, our U. S. gold should currently be worth about $186 billion. Yet our government owes almost $9 trillion in debt. M1 is the measure of our most liquid forms of money. Thus it includes all greenbacks in circulation, plus all checking accounts, plus all bank money market accounts. In September, 2006, the M1 value was reported to be $1,357 billion. That means every liquid dollar, not every dollar, conceivably was backed by about 7 cents worth of gold. However, it does not really mean that, because dollars cannot be redeemed for anything else of value, they are simply Federal Reserve Notes. Our domestic redemption right has gradually disappeared during the nearly 100 years the Federal Reserve has existed.
Now please understand. I am not an anarchist. I do not advocate overthrow of the U. S. government, but it could sure use some major remodeling. I do not even claim to have all the answers. But, I do assert that most of the problems are the result of ever growing trade deficits with the rest of the world, and continued profligate Federal spending domestically. The U. S., which was a producer nation for the first half of the 20th century, became a consumer nation in the last half. Most of the manufactured and assembled products we purchase and enjoy now come from the far-east, on borrowed money.
The idea of world free trade has backfired on us. Nissan, even in its American plants, pays straight time of $14 to $23 per hour; while GM pays $25 to $29 per hour. But the real killer for GM is that in the 1950’s, they promised to pick up all employee medical costs, 30 year-and-out retirement pensions, and post retirement medical benefits. Ford and Chrysler were doing about the same thing. It did not show up then as costs, allowing for huge profits. Now it is eating them alive. The first car I bought was a brand new 1954 Ford Customline club coupe, which cost me $1,854. What will that buy you now? GM is said to be now spending $1,525 per car just on medical benefits, more than they spend on the steel included in the car. As their production goes down, their cost per car goes up. No wonder both GM and Ford bonds are rated junk status, below BBB.
America must once again become a producing nation! And we as citizens must realize the government cannot give us anything. We are the government. Would you birth a child and then abdicate any responsibility for its raising? If the answer is “No”, then you must not abdicate your responsibility to control your government. Federal, state and local governments all belong to you. You are the lord, not the vassal. But your control is in your vote alone. Never should you vote for anyone running for office without a thorough study of each candidate’s character and the issues involved. In doing this, my suggestion is to use television only as your last resource.
Monday, October 1, 2007
THE GOLD STANDARD
Think About It
In 1792, the dollar of this country was pegged to silver and gold, or a bi-metallic standard. Dollars could be exchanged with the government on demand for a set amount of gold or silver. In 1862, because of the Civil War, the government issued paper money without metallic backing for the first time. After the war ended, a financial panic ensued. In 1875, the link to metal was re-established. In 1900, the bi-metallic standard was abandoned, and the dollar was made equal to gold, at $20.67 per ounce. In 1933, Franklin Roosevelt passed a law outlawing Americans owning gold, with the government redeeming all of it. The next year, he re-valued gold to $35 per ounce, thus de-valuing the dollar by 41% overnight. But, still, it took World War II to end the depression.
By the end of World War II, the United States was recognized as the strongest free country in the world, with most of the world’s gold. During 1944, the allied countries all met in Bretton Woods, New Hampshire to devise a way to rebuild the world economy. It was agreed the U. S. dollar would be fixed at $35 per ounce of gold, and all nations would peg their currency to it. The United States would now redeem U. S. dollars in gold for all nations at $35 per ounce. The dollar had now replaced the British pound sterling as the world standard. But the U. S. was soon to become a consumer rather than a producer, running huge trade deficits with other countries.
By 1961, with U. S. gold reserves falling fast, John F. Kennedy led in forming the “London Gold Pool”. The U. S. would match gold contributed by 8 other nations, and deposit it at the Bank of England. The Bank of England would buy and sell gold into the market to keep $35 per ounce stable, within 20 cents. Redemption demand continued to rise! In 1968, under LBJ (guns and butter), there was an international run on U. S. gold. England, at the request of the U. S., actually closed the London gold market for 2 weeks. When it re-opened, there was a 2 tier gold market. Central banks would continue to honor the $35 price to each other, but the private gold market would be allowed to find its own level. Then, in 1971, foreign governments requested redemption of another $3 billion U. S. dollars. Richard Nixon removed the dollar from the Bretton Woods agreement; refusing to redeem other nation’s dollars for gold, and effectively taking the dollar off the gold standard. Before long, U. S. authorities reached an agreement with Saudi Arabia, the world’s largest oil producer, to sell oil for U. S. dollars, exclusively, for all worldwide transactions. This means U. S. dollars are figuratively backed with OPEC oil rather than gold. Thus was born the “petrodollar”. In return, the U.S. promised to protect the OPEC countries from foreign invasion or domestic coup. Remember Kuwait?
But, in 2000, Saddam Hussein of Iraq, announced his oil would be sold only for Euro’s, not U S dollars. Shortly thereafter, he switched his $10 billion UN reserve fund from dollars to Euro’s. Since then, the Euro has re-valued upwards from 82 cents to $1.33 against the US dollar. Iraq has the world’s 4th largest oil reserve. If all 11 OPEC countries switched to the Euro for oil sales, the dollar would probably deflate another 20 to 40%. Could this be seen as a problem warranting an invasion? About 2 months after Saddam’s fall, Iraq oil sales and its UN reserve fund both reverted to the U. S. dollar.
Neighbor Iran has the world’s 3rd largest oil reserve. Historically, oil has been traded on only 2 exchanges. The U. S. NYMEX, and the British IPE. Iran is setting up a new oil exchange that will trade in Euro’s. It is called the Iranian Oil Bourse (French for exchange). What might this do to the value of the U. S. dollar? What would be its effect on U. S. / Iran relations?
In 1792, the dollar of this country was pegged to silver and gold, or a bi-metallic standard. Dollars could be exchanged with the government on demand for a set amount of gold or silver. In 1862, because of the Civil War, the government issued paper money without metallic backing for the first time. After the war ended, a financial panic ensued. In 1875, the link to metal was re-established. In 1900, the bi-metallic standard was abandoned, and the dollar was made equal to gold, at $20.67 per ounce. In 1933, Franklin Roosevelt passed a law outlawing Americans owning gold, with the government redeeming all of it. The next year, he re-valued gold to $35 per ounce, thus de-valuing the dollar by 41% overnight. But, still, it took World War II to end the depression.
By the end of World War II, the United States was recognized as the strongest free country in the world, with most of the world’s gold. During 1944, the allied countries all met in Bretton Woods, New Hampshire to devise a way to rebuild the world economy. It was agreed the U. S. dollar would be fixed at $35 per ounce of gold, and all nations would peg their currency to it. The United States would now redeem U. S. dollars in gold for all nations at $35 per ounce. The dollar had now replaced the British pound sterling as the world standard. But the U. S. was soon to become a consumer rather than a producer, running huge trade deficits with other countries.
By 1961, with U. S. gold reserves falling fast, John F. Kennedy led in forming the “London Gold Pool”. The U. S. would match gold contributed by 8 other nations, and deposit it at the Bank of England. The Bank of England would buy and sell gold into the market to keep $35 per ounce stable, within 20 cents. Redemption demand continued to rise! In 1968, under LBJ (guns and butter), there was an international run on U. S. gold. England, at the request of the U. S., actually closed the London gold market for 2 weeks. When it re-opened, there was a 2 tier gold market. Central banks would continue to honor the $35 price to each other, but the private gold market would be allowed to find its own level. Then, in 1971, foreign governments requested redemption of another $3 billion U. S. dollars. Richard Nixon removed the dollar from the Bretton Woods agreement; refusing to redeem other nation’s dollars for gold, and effectively taking the dollar off the gold standard. Before long, U. S. authorities reached an agreement with Saudi Arabia, the world’s largest oil producer, to sell oil for U. S. dollars, exclusively, for all worldwide transactions. This means U. S. dollars are figuratively backed with OPEC oil rather than gold. Thus was born the “petrodollar”. In return, the U.S. promised to protect the OPEC countries from foreign invasion or domestic coup. Remember Kuwait?
But, in 2000, Saddam Hussein of Iraq, announced his oil would be sold only for Euro’s, not U S dollars. Shortly thereafter, he switched his $10 billion UN reserve fund from dollars to Euro’s. Since then, the Euro has re-valued upwards from 82 cents to $1.33 against the US dollar. Iraq has the world’s 4th largest oil reserve. If all 11 OPEC countries switched to the Euro for oil sales, the dollar would probably deflate another 20 to 40%. Could this be seen as a problem warranting an invasion? About 2 months after Saddam’s fall, Iraq oil sales and its UN reserve fund both reverted to the U. S. dollar.
Neighbor Iran has the world’s 3rd largest oil reserve. Historically, oil has been traded on only 2 exchanges. The U. S. NYMEX, and the British IPE. Iran is setting up a new oil exchange that will trade in Euro’s. It is called the Iranian Oil Bourse (French for exchange). What might this do to the value of the U. S. dollar? What would be its effect on U. S. / Iran relations?
Friday, September 28, 2007
CENTRAL BANKS
Think About It
Congress made two previous attempts at a central banking system decades before it created the Federal Reserve Bank. A central bank is considered a “lender of last resort”, literally meaning it can “create” money to lend. Alexander Hamilton, a Federalist, advocated the first central bank. Thomas Jefferson and Patrick Henry asserted it was unconstitutional (Congress had been given no such authority). President Washington finally acceded to Hamilton and, in 1791, The Bank of the United States opened in Philadelphia. It was a PRIVATE bank, owned mostly by British and other foreign interests, with a 20 year charter. By 1793, Hamilton and the bank were accused of corruption and mismanagement. In 1811, Congress failed to renew the charter and the bank was dissolved.
In 1815, President James Madison vetoed a bill to create the Second National Bank on the grounds it was unconstitutional. By 1816, someone had convinced him otherwise, probably because of debts relating to the War of 1812. On January 1, 1817, the Second National Bank opened for business in Philadelphia, with a 20 year charter. Again, it was owned by PRIVATE interests. When it applied in 1832 for an early extension, Andrew Jackson vetoed it as being unconstitutional. In 1835, with the bank powerless, Jackson paid off the Federal debt for the ONLY time in history. He moved U. S. money into State banks. The Second National Bank tried to continue operating, but closed within a few years. In 1840 President Van Buren approved the Treasury Act establishing an independent Treasury, allowing the government to control its own money. In 1841 Congress repealed the independent Treasury Act, and left the nation again without a banking system. The Treasury once more deposited government money into State banks. Twice in 1841, Congress passed two separate Federal Bank Acts, but President Tyler vetoed them as unconstitutional.
In 1862, because of the Civil War, the U. S. government issued paper money with no gold backing it. By 1873, a flood of unredeemable paper money had thrust the nation into a long depression. In 1875, Congress passed the Specie Resumption Act, again allowing legal tender to be exchanged for gold, and the nation started to revive from depression. In 1907, another major financial panic came, and financier J. P. Morgan arranged loans of around $100 million in gold to various New York banks to avert their insolvency because of bank runs.
It was with this background in 1910 that U. S. Senator Nelson Aldrich, Chairman of the National Monetary Commission (and father-in-law of John D. Rockefeller, Jr.); with A. P. Andrews, Assistant Secretary of the Treasury, and a small group of the nation’s most prominent bankers went secretively to the Jekyll Island Club, then a private millionaire’s retreat off the Georgia coast; to plan a new central banking system for this country. Aldrich had spent the better part of 2 years in Europe studying their system, which included the Bank of England, a PRIVATELY owned central bank. Paul Warburg, a naturalized German representing the prominent Baron Rothschild of European banking fame, was also present.
The plans they devised would eventually become a prominent part of the 1912 Presidential campaign, which elected Woodrow Wilson. Republican William Howard Taft was known to be against central banking, and when former Republican President Teddy Roosevelt was encouraged to run on a third party Progressive (Bullmoose) ticket, it split the Republican vote and assured Wilson’s victory. Wilson signed the Federal Reserve Act on December 29, 1913, creating a central (yet de-centralized with 12 branches) bank owned by its PRIVATE member banks. It has through the years become more centralized again. And it has been reported that by as early as 1916, Wilson regretted the action and said he had unwittingly ruined his nation.
Congress made two previous attempts at a central banking system decades before it created the Federal Reserve Bank. A central bank is considered a “lender of last resort”, literally meaning it can “create” money to lend. Alexander Hamilton, a Federalist, advocated the first central bank. Thomas Jefferson and Patrick Henry asserted it was unconstitutional (Congress had been given no such authority). President Washington finally acceded to Hamilton and, in 1791, The Bank of the United States opened in Philadelphia. It was a PRIVATE bank, owned mostly by British and other foreign interests, with a 20 year charter. By 1793, Hamilton and the bank were accused of corruption and mismanagement. In 1811, Congress failed to renew the charter and the bank was dissolved.
In 1815, President James Madison vetoed a bill to create the Second National Bank on the grounds it was unconstitutional. By 1816, someone had convinced him otherwise, probably because of debts relating to the War of 1812. On January 1, 1817, the Second National Bank opened for business in Philadelphia, with a 20 year charter. Again, it was owned by PRIVATE interests. When it applied in 1832 for an early extension, Andrew Jackson vetoed it as being unconstitutional. In 1835, with the bank powerless, Jackson paid off the Federal debt for the ONLY time in history. He moved U. S. money into State banks. The Second National Bank tried to continue operating, but closed within a few years. In 1840 President Van Buren approved the Treasury Act establishing an independent Treasury, allowing the government to control its own money. In 1841 Congress repealed the independent Treasury Act, and left the nation again without a banking system. The Treasury once more deposited government money into State banks. Twice in 1841, Congress passed two separate Federal Bank Acts, but President Tyler vetoed them as unconstitutional.
In 1862, because of the Civil War, the U. S. government issued paper money with no gold backing it. By 1873, a flood of unredeemable paper money had thrust the nation into a long depression. In 1875, Congress passed the Specie Resumption Act, again allowing legal tender to be exchanged for gold, and the nation started to revive from depression. In 1907, another major financial panic came, and financier J. P. Morgan arranged loans of around $100 million in gold to various New York banks to avert their insolvency because of bank runs.
It was with this background in 1910 that U. S. Senator Nelson Aldrich, Chairman of the National Monetary Commission (and father-in-law of John D. Rockefeller, Jr.); with A. P. Andrews, Assistant Secretary of the Treasury, and a small group of the nation’s most prominent bankers went secretively to the Jekyll Island Club, then a private millionaire’s retreat off the Georgia coast; to plan a new central banking system for this country. Aldrich had spent the better part of 2 years in Europe studying their system, which included the Bank of England, a PRIVATELY owned central bank. Paul Warburg, a naturalized German representing the prominent Baron Rothschild of European banking fame, was also present.
The plans they devised would eventually become a prominent part of the 1912 Presidential campaign, which elected Woodrow Wilson. Republican William Howard Taft was known to be against central banking, and when former Republican President Teddy Roosevelt was encouraged to run on a third party Progressive (Bullmoose) ticket, it split the Republican vote and assured Wilson’s victory. Wilson signed the Federal Reserve Act on December 29, 1913, creating a central (yet de-centralized with 12 branches) bank owned by its PRIVATE member banks. It has through the years become more centralized again. And it has been reported that by as early as 1916, Wilson regretted the action and said he had unwittingly ruined his nation.
Thursday, September 27, 2007
STATE OF GEORGIA DEBT
Think About It
Someone older and wiser than me is quoted as first having said: “Government will expand to expend every tax dollar it receives.” The literal meaning is that government will not hasten to reduce our tax rates even though revenues generally increase year after year. Our duty as citizens is to let our legislators know we understand and want change.
The main causes of government revenue growth are population increase and inflation. Yes, it’s true that population increase requires additional government services, but you would think that the volume discount effect would kick-in somewhere. Inflation, on the other hand, is the greatest ally the government tax collector has.
We have already discussed in this column the growth of the Federal government. Now, we will turn our attention to the state government. In the 1970’s, Georgia passed its first $1 billion budget. The FY 2007 Georgia budget is $18.6 billion. The state revenue increase this year over last year is expected to be $753 million, which is nearly the amount of the entire 1970’s annual budget. Now, I am sure your household income has gone up in the last 30 years. But are you making 18 times what you were in 1976? The state population in the 1970’s was approaching 5 million. Today, it is just over 8 million. The population has not gone up even 100% in 30 years.
Worse than this, is Georgia’s growing bonded debt. Even with a budget that grew 18 fold in 30 years, the State has been borrowing money in addition. From the new Constitution of 1945 until the mid 70’s, Georgia could not go into debt. However, the General Assembly was creating authorities such as the Jekyll Island Authority, and allowing them to borrow with Revenue bonds, backed with anticipated revenues. In the mid-70’s, the State Constitution was amended to allow General Obligation bonds of the State of Georgia, because it was supposed to give debt control back to the Legislators. Since that time, Georgia’s bonded debt has grown to around $8 billion, with interest amounting to nearly 5% of the annual budget. We are headed down the same path to ruin blazed by the Federal government.
When the State House and Senate Appropriations Committees hold hearings, they are visited by all the state department heads. The drill goes something like this: Mr. Chairman, last year we had 678 full time positions (employees). This year we need 743 full time positions (employees), etc, etc, etc. A bureaucrat’s success is measured by the size of his bureaucracy. The State of Georgia issues about 75,000 payroll checks, not including the University System, which is about 25,000 more.
You, personally, are represented directly by one State Representative, one State Senator, the Lt. Governor, and the Governor. In a republican democracy, they are supposed to represent your will. You should make them all aware that you want state spending and state borrowing reigned in, and taxes reduced. One letter is not enough. You need to be a constant reminder. As they say, “the squeaky wheel gets the grease.”
Someone older and wiser than me is quoted as first having said: “Government will expand to expend every tax dollar it receives.” The literal meaning is that government will not hasten to reduce our tax rates even though revenues generally increase year after year. Our duty as citizens is to let our legislators know we understand and want change.
The main causes of government revenue growth are population increase and inflation. Yes, it’s true that population increase requires additional government services, but you would think that the volume discount effect would kick-in somewhere. Inflation, on the other hand, is the greatest ally the government tax collector has.
We have already discussed in this column the growth of the Federal government. Now, we will turn our attention to the state government. In the 1970’s, Georgia passed its first $1 billion budget. The FY 2007 Georgia budget is $18.6 billion. The state revenue increase this year over last year is expected to be $753 million, which is nearly the amount of the entire 1970’s annual budget. Now, I am sure your household income has gone up in the last 30 years. But are you making 18 times what you were in 1976? The state population in the 1970’s was approaching 5 million. Today, it is just over 8 million. The population has not gone up even 100% in 30 years.
Worse than this, is Georgia’s growing bonded debt. Even with a budget that grew 18 fold in 30 years, the State has been borrowing money in addition. From the new Constitution of 1945 until the mid 70’s, Georgia could not go into debt. However, the General Assembly was creating authorities such as the Jekyll Island Authority, and allowing them to borrow with Revenue bonds, backed with anticipated revenues. In the mid-70’s, the State Constitution was amended to allow General Obligation bonds of the State of Georgia, because it was supposed to give debt control back to the Legislators. Since that time, Georgia’s bonded debt has grown to around $8 billion, with interest amounting to nearly 5% of the annual budget. We are headed down the same path to ruin blazed by the Federal government.
When the State House and Senate Appropriations Committees hold hearings, they are visited by all the state department heads. The drill goes something like this: Mr. Chairman, last year we had 678 full time positions (employees). This year we need 743 full time positions (employees), etc, etc, etc. A bureaucrat’s success is measured by the size of his bureaucracy. The State of Georgia issues about 75,000 payroll checks, not including the University System, which is about 25,000 more.
You, personally, are represented directly by one State Representative, one State Senator, the Lt. Governor, and the Governor. In a republican democracy, they are supposed to represent your will. You should make them all aware that you want state spending and state borrowing reigned in, and taxes reduced. One letter is not enough. You need to be a constant reminder. As they say, “the squeaky wheel gets the grease.”
Wednesday, September 26, 2007
FEDERAL DEBT
Think About It
Do you know what the Federal debt is today? It is 8 trillion, 995 billion, 017 million and some odd dollars. To those of you who don’t remember, a trillion is equal to a million times a million. Then multiply this by 8.5 and you have our obligation. Your personal share is $29,678 and some odd cents. For a family of 4, their combined debt is probably more than their home mortgage. The Federal government raised the debt limit to $9 trillion on March 16 of this year and when it approaches that limit, they will raise it to $10 trillion, with no real plans to pay it back.
Sure, we owe some of it to our own richest citizens, who consider U.S. bonds the safest investment you can make. But estimates are that foreign interests now own about 45%, or nearly half of our government debt. They also own 13% of our corporate stocks, and 27% of our corporate bonds. America is selling itself out.
Too many candidates on both sides of the aisle now tend to believe they can best get elected by promising voters “something more from government.” We should remember that we are the government. We cannot give ourselves something for one pocket that is not paid for out of the other pocket, with a few dollars lost forever in the transaction. We should be looking for candidates who promise to give us less government.
Deficit and debt are two entirely different things. When the Federal government talks about surpluses and deficits, they are only talking about whether the current budget expenditures will be more or less than all the taxes collected for it this year, disregarding all debt. In 1980, the total Federal debt was less than $1 trillion. In the 1990’s, $2.8 trillion of new debt was added, more than the total debt from 1776 until that time. In the last 4 years, another $2.3 trillion has been added. Neither political party has really addressed trying to reduce it.
The U. S. was born in debt due to the Revolutionary War, leading to a debt of $75 million by 1791. Then it began to reduce until actually reaching zero in 1834, but never again. Hail to President Andrew Jackson! After World War I, debt was “only” $22 billion. It went down during the roaring 20’s, but the skyrocket began with the 1929 depression. FDR brought in the New Deal, and he hired a lot of men for government make-work jobs, trying to end the depression. Yes, I am from the south, and I know some might have starved without the work! But the inflationary trend was set in stone, and still it was only the next War which really brought us out of the depression. After World War II, the debt was $260 billion. It had increased nearly 16 fold from 1930 to 1950, a far greater multiplier than any other single 20 year period in our history. But regretfully, since 1980, it has multiplied another 9 fold.
Your primary concern should be this. In the mid 70’s, the debt interest expense alone amounted to 11% of annual budget expense. In FY 2006, the debt interest expense alone is 18.7% of budget expense, third in size behind only military and health care costs. It is steadily heading toward being the number one budget expense. The way the system works is this. If 300 million people raise enough fuss enough times about it, the debt will get reduced. I am one, how about you?
Do you know what the Federal debt is today? It is 8 trillion, 995 billion, 017 million and some odd dollars. To those of you who don’t remember, a trillion is equal to a million times a million. Then multiply this by 8.5 and you have our obligation. Your personal share is $29,678 and some odd cents. For a family of 4, their combined debt is probably more than their home mortgage. The Federal government raised the debt limit to $9 trillion on March 16 of this year and when it approaches that limit, they will raise it to $10 trillion, with no real plans to pay it back.
Sure, we owe some of it to our own richest citizens, who consider U.S. bonds the safest investment you can make. But estimates are that foreign interests now own about 45%, or nearly half of our government debt. They also own 13% of our corporate stocks, and 27% of our corporate bonds. America is selling itself out.
Too many candidates on both sides of the aisle now tend to believe they can best get elected by promising voters “something more from government.” We should remember that we are the government. We cannot give ourselves something for one pocket that is not paid for out of the other pocket, with a few dollars lost forever in the transaction. We should be looking for candidates who promise to give us less government.
Deficit and debt are two entirely different things. When the Federal government talks about surpluses and deficits, they are only talking about whether the current budget expenditures will be more or less than all the taxes collected for it this year, disregarding all debt. In 1980, the total Federal debt was less than $1 trillion. In the 1990’s, $2.8 trillion of new debt was added, more than the total debt from 1776 until that time. In the last 4 years, another $2.3 trillion has been added. Neither political party has really addressed trying to reduce it.
The U. S. was born in debt due to the Revolutionary War, leading to a debt of $75 million by 1791. Then it began to reduce until actually reaching zero in 1834, but never again. Hail to President Andrew Jackson! After World War I, debt was “only” $22 billion. It went down during the roaring 20’s, but the skyrocket began with the 1929 depression. FDR brought in the New Deal, and he hired a lot of men for government make-work jobs, trying to end the depression. Yes, I am from the south, and I know some might have starved without the work! But the inflationary trend was set in stone, and still it was only the next War which really brought us out of the depression. After World War II, the debt was $260 billion. It had increased nearly 16 fold from 1930 to 1950, a far greater multiplier than any other single 20 year period in our history. But regretfully, since 1980, it has multiplied another 9 fold.
Your primary concern should be this. In the mid 70’s, the debt interest expense alone amounted to 11% of annual budget expense. In FY 2006, the debt interest expense alone is 18.7% of budget expense, third in size behind only military and health care costs. It is steadily heading toward being the number one budget expense. The way the system works is this. If 300 million people raise enough fuss enough times about it, the debt will get reduced. I am one, how about you?
Tuesday, September 25, 2007
INTRODUCTION
Think About It
That’s the purpose of this column. My feeble effort to counteract the dumbing down of America, brought on by a number of reasons; chief among which is an insidious invention we know as television. Don’t come back here unless you are willing to use your brain for something other than a parking lot for the images and colloquy visited upon you by the electric intruder. What I want to do is encourage you to meditate, contemplate and investigate. Take one hour per day from television and devote it to the library, reading current event news articles, surfing the internet, or even just an intelligent discussion. You can devise your own subjects or start with the ones I raise. Shoot, I may even try to run you to a dictionary.
OK, you are entitled to an answer. Who is this guy? I’m a retiree with time on his hands, one who is proud to have been born an American. Dare I use the word “Patriot”? I firmly believe God blessed this country through our founding fathers, and we have the ability and opportunity to make it even better. But we must change directions. We must teach respect for our Constitution. We must realize that “we the people” are the government. We cannot give ourselves something for one pocket which does not come from the other pocket, with a little lost to the bureaucrats in the transaction. We must educate ourselves before we cast our votes, and we must vote. We must realize our manifest destiny as a nation is not to rule the world, but to improve the world. We must teach that giving a hand up is not giving a handout. We must refrain from that old saying, “Let George do it.” We must be willing to get involved. Whether you consider yourself a liberal or a conservative, I’ll make you angry before it’s over. But let’s hope we can disagree without becoming disagreeable.
My old granddaddy once said, “It is better to be a has-been than a never-was.” That perfectly describes me. My previous incarnations include Certified Financial Planner, stockbroker, Realtor, Insuror, Legislator, refrigerator salesman and super market produce clerk.
Today, I could best be described as a strict constructionist, fiscally conservative, socially moderate, evangelical Christian, good-looking senior citizen. It is now my wife’s duty to keep me up in the manner to which I have become accustomed. But, darn her hide, she still makes me cut the grass, rake the leaves and take out the garbage. Thank goodness, though, she does feed me well, and she loves me, in spite of myself.
Seriously, I love this country for the principles upon which it was founded, and the unlimited opportunity it provides. The men who framed our Constitution were geniuses. May we never forget they pledged their lives, their fortunes, and their sacred honor to establish and bequeath us this great nation. Should not we do no less for our heirs? Meet me back here and we will discuss it. We will try to present ideas in simple, concise, easy to understand language. Agree with me, disagree with me, quote me, laugh at me, mock me, even prove me wrong (God forbid). But if I get you to thinking, I won.
That’s the purpose of this column. My feeble effort to counteract the dumbing down of America, brought on by a number of reasons; chief among which is an insidious invention we know as television. Don’t come back here unless you are willing to use your brain for something other than a parking lot for the images and colloquy visited upon you by the electric intruder. What I want to do is encourage you to meditate, contemplate and investigate. Take one hour per day from television and devote it to the library, reading current event news articles, surfing the internet, or even just an intelligent discussion. You can devise your own subjects or start with the ones I raise. Shoot, I may even try to run you to a dictionary.
OK, you are entitled to an answer. Who is this guy? I’m a retiree with time on his hands, one who is proud to have been born an American. Dare I use the word “Patriot”? I firmly believe God blessed this country through our founding fathers, and we have the ability and opportunity to make it even better. But we must change directions. We must teach respect for our Constitution. We must realize that “we the people” are the government. We cannot give ourselves something for one pocket which does not come from the other pocket, with a little lost to the bureaucrats in the transaction. We must educate ourselves before we cast our votes, and we must vote. We must realize our manifest destiny as a nation is not to rule the world, but to improve the world. We must teach that giving a hand up is not giving a handout. We must refrain from that old saying, “Let George do it.” We must be willing to get involved. Whether you consider yourself a liberal or a conservative, I’ll make you angry before it’s over. But let’s hope we can disagree without becoming disagreeable.
My old granddaddy once said, “It is better to be a has-been than a never-was.” That perfectly describes me. My previous incarnations include Certified Financial Planner, stockbroker, Realtor, Insuror, Legislator, refrigerator salesman and super market produce clerk.
Today, I could best be described as a strict constructionist, fiscally conservative, socially moderate, evangelical Christian, good-looking senior citizen. It is now my wife’s duty to keep me up in the manner to which I have become accustomed. But, darn her hide, she still makes me cut the grass, rake the leaves and take out the garbage. Thank goodness, though, she does feed me well, and she loves me, in spite of myself.
Seriously, I love this country for the principles upon which it was founded, and the unlimited opportunity it provides. The men who framed our Constitution were geniuses. May we never forget they pledged their lives, their fortunes, and their sacred honor to establish and bequeath us this great nation. Should not we do no less for our heirs? Meet me back here and we will discuss it. We will try to present ideas in simple, concise, easy to understand language. Agree with me, disagree with me, quote me, laugh at me, mock me, even prove me wrong (God forbid). But if I get you to thinking, I won.
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