Does Each New Administration Kick The Debt Can Down The Road?

  
  By Timothy D. Naegele[1]

That is the lesson I learned when I came to Washington, and began working at the Pentagon.  When the Congress was breathing down its neck, it simply reorganized—and hid the ball some more—and when the Congress was catching up again, it would repeat the process.

Pat Buchanan—an adviser to Presidents Richard Nixon, Ronald Reagan and Gerald Ford, and a former GOP presidential aspirant himself—has written an article entitled “Today France, Tomorrow the USA?”:

As that rail and subway strike continued to paralyze travel in Paris and across France into the third week, President Emmanuel Macron made a Christmas appeal to his dissatisfied countrymen:

“Strike action is justifiable and protected by the constitution, but I think there are moments in a nation’s life when it is good to observe a truce out of respect for families and family life.”

Macron’s appeal has gone largely unheeded.

“The public be damned!” seems to be the attitude of many of the workers who are tying up transit to protest Macron’s plan to reform a pension system that consumes 14% of GDP.

Macron wants to raise to 64 the age of eligibility for full retirement benefits. Not terribly high. And to set an example, he is surrendering his lifetime pension that is to begin when he becomes an ex-president.

Yet, it is worth looking more closely at France because she appears to be at a place where the rest of Europe and America are headed.

In France, the government collects 46% of the GDP in taxes and spends 56% of GDP, the highest figures in the Western world.

And Paris appears to be bumping up against the limits of what democratic voters will tolerate in higher taxes, or reductions in benefits, from the postwar welfare states the West has created.

A year ago, when Macron sought to raise fuel taxes to cut carbon emissions, the “yellow vests” came out in protests that degenerated into rioting, looting, arson, desecration of monuments and attacks on police.

Paris capitulated and canceled the tax.

How do we compare?

The U.S. national debt is now larger than the GDP. Only in 1946, the year after World War II, was U.S. debt a larger share of GDP than today.

In 2019, the U.S. ran a deficit just shy of $1 trillion, and the U.S. government projects trillion-dollar deficits through the decade, which begins next week. And we will be running these deficits not to stimulate an economy in recession, as President Obama did, but to pile them on top of an economy at full employment.

In short, we are beginning to run historic deficits in a time of prosperity. Whatever the economic theory behind this, it bears no resemblance to the limited government-balanced budget philosophy of the party of Ronald Reagan.

The questions the U.S. will inevitably face are the ones France faces: At what point does government consumption of the national wealth become too great a burden for the private sector to bear? At what point must cuts be made in government spending that will be seen by the people, as they are seen in France today, as intolerable?

While a Republican Congress ran surpluses in the 1990s, when defense spending fell following our Cold War victory, Dwight Eisenhower was the last Republican president to run surpluses.

Opposition to new or higher taxes appears to be the one piece of ground today on which Republicans will not yield. But if so, where are the cuts going to come from that will be virtually mandated if U.S. debt is not to grow beyond any sustainable level?

America’s long-term problem:

Deficits are projected to run regularly in the coming decade at nearly 5% of GDP while economic growth has fallen back to 2%.

With taxes off the table, where, when and how do we cut spending?

Or does each new administration kick the can down the road?

The five principal items in the federal budget are these:

Social Security, which consumes 25% of that budget. Yet, Social Security outlays will reach the point this year where payroll taxes no longer cover them. The “trust fund” will have to be raided. Translation: The feds will have to borrow money to cover the Social Security deficit.

Medicare, Medicaid, Obamacare and other health programs account for another fourth of the budget. All will need more money to stay solvent.

Defense, which used to take 9% of GDP in JFK’s time and 6% in Ronald Reagan’s buildup, is now down to 3.2% of GDP.

Yet, while defense’s share of GDP is among the smallest since before World War II, U.S. commitments are as great as they were during the Cold War. We are now defending 28 NATO nations, containing Russia, and maintaining strategic parity. We have commitments in Iraq, Syria, Afghanistan and the global war on terror. We defend South Korea and Japan from a nuclear-armed North Korea and China.

Yet another major item in the budget is interest on the debt.

And as that U.S. debt surges with all the new deficits this decade, and interest rates inevitably begin to rise, interest on the debt will rise both in real terms and as a share of the budget.

Again, is France the future of the West?[2] 

At what point do the chickens come home to roost?  Or do they?

 

 

© 2019, Timothy D. Naegele

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[1]  Timothy D. Naegele was counsel to the United States Senate’s Committee on Banking, Housing, and Urban Affairs, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass). He and his firm, Timothy D. Naegele & Associates, specialize in Banking and Financial Institutions Law, Internet Law, Litigation and other matters (see www.naegele.com and https://naegeleblog.files.wordpress.com/2019/11/timothy-d.-naegele-resume-20-1-1.pdf). He has an undergraduate degree in economics from the University of California, Los Angeles (UCLA), as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University. He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal (see, e.g., https://en.wikipedia.org/wiki/Commendation_Medal#Joint_Service). Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years (see, e.g., www.naegele.com/whats_new.html#articles), and can be contacted directly at tdnaegele.associates@gmail.com

[2]  See https://buchanan.org/blog/today-france-tomorrow-the-usa-137917

A $34 Trillion Swindle: The Shame Of Global Warming

 By Timothy D. Naegele[1]

To campaign for so-called man-made “global warming” or “climate change” in Paris—while grief and fear still prevail, pervade and permeate—is insensitive, inhumane, shameful and repulsive.  It is an affront to the memories of those who died or were injured in the attacks on that great city, to all Parisians who have suffered, to the French people, and to the world.[2]

It is cheap and crass politics at its worst.  No wonder a rising number of Americans and people around the world are rejecting government in general, and their own governments in particular.[3]  George Orwell foretold of this madness in his Animal Farm, where the “Pigs” reigned supreme and were masters over—and subjugated—the other animals.[4]

Barack Obama is among the world’s so-called “elites” whose criminal obsession and fanaticism with global warming are threats to civilized life on this planet.  In another time, the proponents of “global warming” would have been members of the “Flat Earth Society,” and claimed a consensus with respect to it too.  So-called man-made “global warming” is a hoax and “The Great Green Con.”

Terrorists roam France, and the global economy teeters closer to the abyss[5], yet the farcical meeting of misguided Lilliputians and charlatans occurs in Paris.  Even if all human beings and other animals were removed from the Earth, there would still be natural cycles of warming and cooling.  Our Earth has gone through such cycles  for millions of years, which will continue long after all of us and our offspring have left this planet.

It has been reported:

(1)  The “COP-21 climate deal in Paris spells [the] end of the fossil era,”

(2)  ”Much of the fossil industry will go into slow run-off while the new plutocrats will be masters of post-carbon technology,”

(3)  ”[T]he fossil fuel industry of coal, gas, and oil could forfeit $34 trillion in revenues over the next quarter century—a quarter of their income—if the Paris accord is followed by a series of tougher reviews every five years to force down the trajectory of CO2 emissions, as proposed by the United Nations and French officials hosting the talks,”

(4)  ”Most fossil companies would face [a] run-off unless they could reinvent themselves as 21st Century post-carbon leaders,” and

(5)  ”Such a scenario would imply the near extinction of the coal industry unless there is a big push for carbon capture and storage. It also implies a near total switch to electric cars, rendering the internal combustion engine obsolete.”[6]

This only tells part of the story with respect to the estimated $34 trillion swindle or transfer of wealth.[7]  A multitude of class-action lawsuits may spring up globally—against the oil, gas and coal industries, and others who would dare to challenge the “global warming” orthodoxy.  Stark and undemocratic intimidation and scare tactics have begun already, with much more draconian measures to follow.

The Obama presidency cannot end quickly enough.  Many Americans view him as a feckless naïf, and a tragic Shakespearean figure who may be forgotten and consigned to the dustheap of history.  His naïveté has been matched by his overarching narcissism; and he is more starry-eyed and “dangerous” than Jimmy Carter.[8]

His presidency is considered already by many Americans as a sad watershed in United States history—by blacks and whites alike.[9], Republicans, Independents and members of his own party.  His “global warming” escapade is consistent with that tragically tarnished legacy.  When the next president takes office, what Obama has done in Paris may be reversed; and the entire “global warming” swindle may come crashing down.

© 2015, Timothy D. Naegele

 

 

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[1] Timothy D. Naegele was counsel to the United States Senate’s Committee on Banking, Housing, and Urban Affairs, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass). He and his firm, Timothy D. Naegele & Associates, specialize in Banking and Financial Institutions Law, Internet Law, Litigation and other matters (see www.naegele.com and http://www.naegele.com/documents/TimothyD.NaegeleResume.pdf). He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University. He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal. Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years (see, e.g., www.naegele.com/whats_new.html#articles), and can be contacted directly at tdnaegele.associates@gmail.com; see also Google search: Timothy D. Naegele

Note: The author does not represent anyone or any entity on either side of the “global warming” or “climate change” debate.  The views expressed herein are strictly personal, and not motivated by any personal gain or the prospect thereof.

[2]  See https://naegeleblog.wordpress.com/2015/11/20/we-are-all-parisians/ (“We Are All Parisians”)

[3]  See, e.g., https://naegeleblog.wordpress.com/2010/09/24/washington-is-sick-and-the-american-people-know-it/ (“Washington Is Sick And The American People Know It”); https://naegeleblog.wordpress.com/2013/07/15/justice-and-the-law-do-not-mix/ (“Justice And The Law Do Not Mix”); https://naegeleblog.wordpress.com/2012/03/21/the-united-states-department-of-injustice/ (“The United States Department of Injustice”)

[4]  See, e.g., https://en.wikipedia.org/wiki/Animal_Farm (“Animal Farm”)

[5]  See https://naegeleblog.wordpress.com/2010/09/27/the-economic-tsunami-continues-its-relentless-and-unforgiving-advance-globally/#comment-7614 (“Doomsday Clock For Global Market Crash Strikes One Minute To Midnight As Central Banks Lose Control“); see also https://naegeleblog.wordpress.com/2015/07/01/global-chaos-and-helter-skelter/ (“Global Chaos And Helter Skelter”)

[6]  See http://www.telegraph.co.uk/finance/economics/12021394/COP-21-climate-deal-in-Paris-spells-end-of-the-fossil-era.html (“COP-21 climate deal in Paris spells end of the fossil era”)

[7]  See https://naegeleblog.wordpress.com/2010/09/27/the-economic-tsunami-continues-its-relentless-and-unforgiving-advance-globally/#comment-7771 (“The Flat Earth Society, Environmental Nazis Are At It Again, Bigtime”)

[8]  See https://naegeleblog.wordpress.com/2009/12/05/is-barack-obama-a-racist/ (“Is Barack Obama A Racist?”)

[9]  See, e.g., https://naegeleblog.wordpress.com/2015/01/03/edward-w-brooke-is-dead/#comment-7434 (“Disappointment In Obama Leads Some Blacks To Ask Whether Voting Is Worth It“)

Will The EU’s Collapse Push The World Deeper Into The Great Depression II?

By Timothy D. Naegele[1]

“For want of a nail . . .  the kingdom was lost.”[2] Will Greece’s debt crisis lead to a Greek debt default and the collapse of the euro and an ensuing collapse of the 27-member European Union (or EU), and trigger the next round of crashes that will be described by economic historians decades from now as “the Great Depression II”?[3] The assassination of Archduke Franz Ferdinand of Austria and his wife in Sarajevo, Serbia brought the tensions between Austria-Hungary and Serbia to a head.  In turn, it is said this triggered a chain of international events that embroiled Russia and the major European powers; and World War I broke out in Europe.[4] Will Greece’s debt crisis set a series of events in motion that sends the world into a downward economic spiral of unfathomable proportions?

For years, I have wrestled with the question of whether the Europe would collapse economically, politically, socially and militarily.  Sounds absurd, you say?  The countries are too interwoven and mutually dependent now for that to happen, and at the very least they will muddle along, making the worst of the best situations, and achieving the lowest common denominator?  The United States of Europe, they are not and never will be, but they have achieved a degree of cohesiveness that I never thought was likely years ago.

I believed jealousies and rivalries and, yes, the hatreds of the past would linger barely beneath the surface, coming unglued at the most inopportune times when it really mattered the most.  When the chips were down, I felt the EU would splinter and fall apart; and that its participants and the world would write it off as a noble experiment that failed, much like the League of Nations.  After all, its successor—the United Nations—is considered to be a colossal joke by Americans, many of whom would love to see it shipped to Europe, and its building on the East River in Manhattan bulldozed and turned into a park, or made into co-ops or condominiums.

The bitter hatreds of the past seem to have subsided in Europe though, and it has become a cultural melting pot, more and more.  Airbus was the first tangible sign of economic integration that I never thought would be possible.  To see the Germans and French working together, and genuinely enjoying each other and producing competitive aircraft on a global scale, was something to behold.  The economic interdependence and booming economies covered up a myriad of sins, mistakes and weaknesses.  It all looked very rosy until the economic tide in Europe and worldwide began to turn.  Then, potholes showed up where there had been rose gardens; and recriminations began to occur that had been buried beneath the surface.

Today Greece is teetering, and anger is intensifying over proposed cuts that are to be made as part of the EU deal to save the country’s economy.  It is the age-old battle between the haves and have-nots, and between those who will bear the burden of the cuts and the wealthy who will escape them.  However, anti-American sentiments are growing because the International Monetary Fund (or IMF) is viewed as a tool of the U.S., which is carrying out American policies.  Like the U.N., the IMF has taken on more powers and responsibilities than were ever envisioned; and it needs to be curbed, and its U.S. support diminished.[5]

Perhaps a recent editorial by the Wall Street Journal best captured the “contagion” that began with Greece:

It hasn’t been a week since the terms of Athens’s . . . bailout were set, and already the reviews of this latest Greek drama are saying it’s a flop.  Yesterday the euro sank to its lowest level in a year.  Stock markets across Europe fell nearly 3%, and the carnage spread to Wall Street and beyond.  Greek interest-rate spreads climbed higher again, and market players have turned their attention to the euro zone’s other weak sisters as everyone tries to figure out who is most likely to follow Greece down the road to national insolvency.

The bailout, in other words, hasn’t stopped the much-feared contagion. If anything, it has spread it.[6]

The Archduke revisited—and hardly encouraging to a world that is in the process of revisiting the Great Depression.  And reason enough for panics, with many more to come.[7]

In another editorial, the Journal added:

The real gamble is being made by politicians who are calculating that, by taking the risk of sovereign default off the table for now, they are giving the global economic recovery time to build and making it easier to address Europe’s fiscal woes.

. . .

In the euro’s first serious test, the political class blinked.  The resulting moral hazard will haunt the single currency for years and reduce the incentive for governments to keep their fiscal houses in order.[8]

Even more troubling is the prospect that the 16-nation (out of the 27-EU member states) shared euro currency may be headed for disintegration.  “The euro is doomed,” said one market analyst.

As German Chancellor Angela Merkel observed, Europe is in a “very, very serious situation”; and the U.K.’s new Prime Minister David Cameron and his coalition partner, Nick Clegg, may have major problems keeping the left wing of the Liberal Democrats and the right wing of the Conservatives (or Tories) in line, and a new election may be called before year-end.[9] Also, it is predicted that “China’s economy will slow and possibly ‘crash’ within a year as the nation’s property bubble is set to burst”—which may have troubling implications for whether China will continue to buy and hold our government debt.[10] In turn, this is a major economic and national security risk.

The economic tsunami that former Federal Reserve Chairman Alan Greenspan unleashed has produced consequences far beyond those that were ever envisioned—and far beyond American shores—which will last through the end of this decade, and possibly a generation.  Giulio Tremonti, Italy’s Minister of Economy and Finance, has said: “Greenspan was considered a master.  Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.”  These words speak volumes; however, they fall short of describing the global dimensions and consequences of Greenspan’s actions and inactions.[11]

The central banks of the world are essentially out of options, and the worst is yet to come.  Hold on tight.  It will not be pretty—and global citizenry anger may be truly mind-boggling![12]

© 2010, Timothy D. Naegele

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[1] Timothy D. Naegele was counsel to the U.S. Senate Banking Committee, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass), the first black senator since Reconstruction after the U.S. Civil War.  He practices law in Washington, D.C. and Los Angeles with his firm, Timothy D. Naegele & Associates (www.naegele.com).  He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University.  He is a member of the District of Columbia and California bars.  He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal.  Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years.  See, e.g., www.naegele.com/whats_new.html#articles

[2] The proverb, “For Want of a Nail,” states:

For want of a nail the shoe was lost.

For want of a shoe the horse was lost.

For want of a horse the rider was lost.

For want of a rider the battle was lost.

For want of a battle the kingdom was lost.

And all for the want of a horseshoe nail.

See http://en.wikipedia.org/wiki/For_Want_of_a_Nail_(proverb)

[3] See, e.g., http://apnews.myway.com/article/20100408/D9EURADO0.html and http://www.bloomberg.com/apps/news?sid=aL3SiaURK8dQ&pid=20601087

[4] See, e.g., http://en.wikipedia.org/wiki/Assassination_of_Archduke_Franz_Ferdinand_of_Austria

[5] As the London Times points out:

Even greater social unrest is expected as resentment simmers among poorer families at being told to tighten their belts when wealthy Greeks can protect their fortunes by moving their money abroad, some of it into property bargains in London.

See http://www.timesonline.co.uk/tol/news/world/europe/article7113941.ece The Times article adds:

Mikis Theodorakis, the 84-year-old musician who composed the score for the film Zorba the Greek, calls for revolt against what he sees as an American plot to turn Greece into a “protectorate”.

[6] See http://www.naegele.com/documents/TheGreekBailoutFlop_000.pdf

[7] On May 6, 2010, the Dow Jones Industrial Average “ended down 347.80, or 3.2 percent, at 10,520.32, after being down as much as 998.50 earlier, the Dow’s biggest intraday drop on record.”

See http://www.cnbc.com/id/36988229

The CNBC article added:

“We’ve seen a crisis start in a country—Greece—become regional, impact the whole of the Euro zone and is on the verge of truly going global,” said El-Erian, CEO of the world’s biggest bond fund.

. . .

There is simply a growing recognition that Greece has got to default, said Rochdale banking analyst Dick Bove. “The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland, it’s going to be made by people in Greece and they’re not going to repay it,” he said. “Anyone seeing the riots is going to recognize that this government is going to be thrown out and anything replacing this government is going to be far more leftist leaning and they’re going to repudiate.”

See id. A Wall Street Journal article added:

The velocity of the plunge in stocks was breath-taking. Investors fled everything from stocks and risky bonds to commodities and poured money into safe assets such as U.S. Treasurys and gold.

. . .

“You worry about the a domino effect, from Greece to Portugal to Ireland and Spain,” said Richard Schottenfeld, general partner of Schottenfeld Associates, a New York hedge fund. “Pretty soon those kinds of losses are bigger than housing.”

Investors said they were worried about potential contagion from Greece’s ongoing problems, and whether eventual losses could even exceed those of the U.S. housing collapse.

See http://online.wsj.com/article/SB10001424052748704370704575227754131412596.html?mod=WSJ_hps_LEADNewsCollection

[8] The Journal’s editorial added:

The real euro crisis, in short, is one of overspending and policies that sabotage economic growth. Sunday’s shock and awe campaign has merely postponed that reckoning—and at a fearsome price.

See http://www.naegele.com/documents/TheRealEuroCrisis.pdf

[9] See http://www.bloomberg.com/apps/news?pid=20601087&sid=aqquuYOAN_sE (“European policy makers last week unveiled a loan package worth almost $1 trillion and a program of bond purchases in an effort to contain a sovereign-debt crisis that has threatened to shatter confidence in the euro.  . . .  By resorting to what some economists have called the ‘nuclear option,’ the [European Central Bank, or] ECB may open itself to the charge it’s undermining its independence by helping governments plug budget holes”)

[10] See http://www.upi.com/Top_News/Analysis/2010/05/07/Commentary-Fiscal-WMD/UPI-69801273233877/

[11] See http://www.philstockworld.com/2009/10/11/greenspan’s-legacy-more-suffering-to-come/ and http://www.americanbanker.com/issues/173_212/-365185-1.html and http://www.realclearpolitics.com/news/tms/politics/2009/Apr/08/euphoria_or_the_obama_depression_.html

[12] See also http://www.naegele.com/documents/MatthewKaminski-EuropesOtherCrisis.pdf (“Germans no longer feel obliged to pay for the sins of their forefathers by bankrolling Europe.  . . .  ‘The EU is falling to pieces'”) and http://finance.yahoo.com/news/Spain-debt-downgraded-by-apf-1816859080.html?x=0&.v=27 (Spain) and http://www.ft.com/cms/s/0/6f696c52-456a-11df-9e46-00144feab49a.html (“Soros warns Europe of disintegration”) and http://online.wsj.com/article/SB10001424052748703525704575061172926967984.html?mod=WSJ_hp_mostpop_read (“Europe is entering unprepared into a serious economic crisis—and the nascent global recovery could easily collapse due to the unsustainable and Ponzi-like buildup of government debt in weaker countries.  . . .  The issues for troubled euro zone countries are straightforward: Portugal, Ireland, Italy, Greece and Spain (known to the financial markets, and not in a polite way, as the PIIGS) had varying degrees of foreign- and bank credit-financed rapid expansions over the past decade.  In fall 2008, these bubbles collapsed.  . . .  Since these struggling countries share the euro, run by the European Central Bank in Frankfurt, . . . they are left with the need to massively curtail demand, lower wages and reduce the public sector workforce.  The last time we saw this kind of precipitate fiscal austerity—when nations were tied to the gold standard—it contributed directly to the onset of the Great Depression in the 1930s.  . . .  Ireland’s banks are today probably insolvent. Who can afford to repay their mortgages when wages are falling and unemployment rising?  Irish house prices continue to speed downward.  This is not an example of a ‘careful’ solution—it is a nation in a financial death spiral”) and http://www.dailymail.co.uk/news/worldnews/article-1250433/Greece-debt-bailout-EU-leaders-split-euro-crisis.html and http://www.nytimes.com/2010/02/14/business/global/14debt.html?hp=&pagewanted=all