Old Vlad Putin announced today that the U.S. is a "parasite nation" in his call for a new world order and reserve currency. Now why anyone would pay attention to a murdering, Moscow Center Thug like Putin except perhaps to read his obituary is more than I can fathom but it did make a headline or two this morning and unfortunately it is a sign of how far the standing of the U.S. has fallen in the eyes of the worlWell, the Senate by a rather wide vote approved the increase in the debt ceiling and the legislation was signed by The Leader around noon time. Never missing a beat, The Leader signaled the REAL start of the 2012 campaign by calling for higher taxes on the "rich" and on corporations which produced, among the cheers of the left, an immediate drop in the Dow of about 200 points. The pitter-patter of little feet that you hear is the U.S. investor in full retreat...he's movin' on guys and gals and may be away for a while.
That may seem strange to some of you who looking at this debt deal which is being touted as a deficit reducer, but it is not because despite all the talk, if left unattended, this agreement will do nothing at all to reduce the deficit because in Washington D.C. more is counted as less and less produces more. Sound strange? It is. Here's why.
Let's say you are the owner of a big bank...let's call it...oh, I don't know, HSBC for want of a better name. Things haven't been great in the banking business lately and they don't look like they are going to improve any time soon. So here you are, in the middle of drawing up your plans/budget for the next few years when one of your finance guys comes in and tells you that you're not going to have enough revenue to cover the expenses you have budgeted much less make a profit and furthermore, there doesn't really seem to be any way to improve that revenue stream enough to make a real difference. What to do? Well as a businessman you know the answer: cut expenses and do it quickly. So you sell assets, freeze salaries, reduce your workforce by 30,000 people and a whole bunch of other really nasty things that will not make you any friends but must be done. Now suppose you run the United States. What do you do?
You can't do a damn thing. The first thing you discover is that you have no control over the actual cost of the government because rather than a budgetary process that allows you to set expenses that's already been done for you. Every single department in your government expenses grow every year..by law...and every time they grow that sets what is known as a new "baseline" from which the calculation for the growth of the next year's expenses is calculated. So the only thing over which you have any real control is revenue, which in the government is known as taxes, and...well...unless you have control of both houses ytou know how much control you have over that.
But wait, it gets better. At HSBC you can actually spend less next year than this year but as the head of the government you really can't because of the automatic growth factor. All you can do is agree not to spend any more than the automatic increase but here you get a break because if someone is mean enough to suggest that perhaps you shouldn't spend any more money the accounting rules under which you operate allow you to claim that you have actually reduced the size of the deficit simply by holding down the amount of spending above the baseline even though the spending grows geometrically every year and unless you grow revenues (more taxes but remember, more taxes=less growth and less growth=lower taxes) your deficit grows as well. Then there's the entitlements which can't be touched at all in the budgeting process and have their own built in multipliers, but must be attacked by joint resolutions in Congress. This was not done in today's deal. In short, this deficit-cutting deal signed today actually means the nation's debt will increase by around $10 trillion over the next ten years, all things being equal.
Screwed up, aren't we and that's just a brief and not terribly detailed description of how things work around here. Can it be fixed? Yep. The first thing has to be the accounting which means removing the automatic rise in the base line and get back to real budgeting. Secondly, the entitlements must be changed. Thirdly, the tax code must be scrapped and a flat, broad-based tax, free of loop-hole, deductions, deletions and special exemptions along with lower tax rates across the board must be enacted. From that, we get real growth, and finally insanity such as Dodd/Frank and the plethora of growth-killing regulations that have come out of this administration must be repealed. Mr. Putin is incorrect, we are not a parasite, but we may well be a snake that is eating it's tail. Not a pretty sight, that. The dawn comes up like thunder these days. Think of what is across the Bay.
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