The big news out of Washington DC is that a budget deal was
reached. It was Paul Ryan
(Republican) and Patty Murray (Democrat) who supposedly came to the
agreement. Murray is in the
Senate, which the Democrats control by majority. Ryan is in the House, which the Republicans control by
Paul Ryan is well known now because he was chosen by Mitt
Romney as the vice-presidential candidate on the Republican ticket in
2012. While Ryan had a reputation
of being a fiscal conservative by some, there should be no more illusions after
looking at this budget deal.
Whenever you see something that is referred to as a
bi-partisan budget deal, then hold on to your wallet. Whether it is a budget deal or any other kind of
legislation, when it is supposedly bi-partisan, it usually means it is terrible
legislation that is taking away your liberty.
While the Republican establishment will go along with this
budget deal, some from the more fiscally conservative wing are criticizing it,
as they should. There is a great
divide in the Republican Party and it isn’t going to be resolved any time
soon. On one side is the
establishment Republicans and on the other side are the Tea Party and more
fiscally conservative Republicans.
House Speaker John Boehner is now going up against members of his own party
Boehner actually said, “If you’re for more deficit reduction, you’re for
The legislation supposedly reduces the deficit by a total of
just over $20 billion over a period of ten years. Just to put this in context, we have been averaging trillion
dollar deficits over the last five years.
Two billion dollars per year is a drop in the bucket.
The politicians, and the media who like to cover for them,
have this little trick. They like
to talk about reducing the deficit.
But they are trying to confuse people between deficits and debt.
The deficit is the debt over the course of a year. This gets added to the total debt. When they say that the deficit is being reduced, it just
means that the accumulated debt over the course of a year is less than what was
accumulated the year before.
If the deficit is $1 trillion in one year and then $900
billion in the following year, then the politicians will say that the deficit
was reduced by $100 billion. While
this may be technically accurate, the debt still went up another $900 billion
in that glorious year of cutting the deficit. So talking about the deficit and how much it decreases is
I heard a snippet of Sean Hannity on the radio and he was
touting the Mack Penny Plan, named after Connie Mack. The plan is to cut one penny every year for six years out of
each dollar spent and we will supposedly have a balanced budget in something
like 8 years.
Hannity compared it to a family budget. But a family that budgeted this way
would be in major trouble. If your
family were running a deficit of $20,000 every year and continuing to
accumulate massive debt, I don’t necessarily think a good solution would be to
cut back 1% per year for six years, while hoping that you see a good increase
in your income. You will continue
to accumulate massive debt over the next eight years and you will probably fall
into bankruptcy before you every reach any kind of a balanced budget.
If the Republicans in DC were really serious about getting
the debt under control, then they would have simply refused to raise the debt
ceiling. This would have instantly
produced a balanced budget.
If this is too radical for the Republicans, they could have
raised the debt ceiling by, let’s say, $25 billion per month, and this would at
least limit the yearly deficit to “only” $300 billion per year.
Instead, we see the same old games coming out of Washington
DC. It doesn’t really seem to matter
which party is in control. Either
way, we get big spending.
I don’t think the spending problem is going to be fixed
until we hit a monetary crisis.
When the Fed is faced with higher price inflation and has to stop buying
government debt, then the federal government will have to sell its debt
We will likely see higher interest rates and the government
will eventually be forced to scale back with less willing buyers of debt at low
rates. At some point, we will see
a significant decrease in government spending. This will be a painful yet much needed time when it finally comes.