The Big Squeeze

The Big Squeeze

Charlie Earl

Someday in the not too distant future the middle class in the United States will consist of one family…. the sole household at the median point. I know… it sounds bizarre. Consider that our present rate of inflation is artificially low because of FED suppression of interest rates and government growth and costs are accelerating faster than inflation, and you’ll understand that the real wealth and purchasing power of the typical person and/or household is shrinking. Also…if interest rate caps are removed (either through policy or insolvency), the pressure from government on the private sector will increase geometrically because the carrying costs of government debt will balloon astronomically.

Most Americans will be caught in a python-like squeeze between rising costs and a shrinking economy. As costs climb, businesses will be forced to reduce staff numbers or hours for their workers. Throughout history businesses have faced ebbs and flows in their fortunes. In agricultural societies a bad crop season could lead to difficult years for the merchants who served the community. Innovation can be a cause of economic disruption as a new technology replaces an outdated one. There were probably many buggy-whip craftsmen who lost their jobs as the automobile became common place. Those disruptions were usually short-term in nature because natural disasters don’t last forever, and job opportunities become available when new industries are formed. Centralized economies are a different matter.

Generally governments are not capable of quick responses. The red tape and bureaucratic processes tend to limit response time. For example….many people are still waiting for some type of disaster relief following the destruction by “Sandy.” So…when economic conditions approach perilous danger points, governments dither and dabble before ultimately settling for responses that have proven to be inadequate…. or even harmful. Government intervention distorts markets and the natural supply/demand dynamic. When the government intervenes in the market false values are created, and government’s tendency is to manipulate the commodities or activities that are most vital for thriving commerce.

One of the great advantages for those who possess true economic wealth is the array of options or choices available to them. For those who stand on the threshold of poverty, however, the choices are more limited. The middle class and the poor must first secure their food and shelter before using whatever amount remains for choosing. The wealthy, on the other hand, have more dollars available for making choices after their basic needs have been met. So…government policies that are intended to “do good” most often harm those for whom they were intended to help by altering markets and values. While the poor may receive government stipends and others benefit from subsidies, the distortion of the markets often raises the real costs of the basic goods. Thus the government confiscates taxes from the people to provide the basics for the poor while raising the costs for all because of its ill-advised market interventions. The value of the services for the poor are diminished and the costs for the taxpayers are higher because of government intervention and it’s 30% administrative and carrying costs.

As more people slide into poverty and near-poverty because of worsening economic conditions (government policies), the strain increases on the treasury and deficits accrue. The Fed prints (digitally transfers) more money to ensure cash flow, but the value of each respective dollar is lower than the one that preceded it. When the asset base for wealth grows more slowly than the number of dollars that are printed, the value of each dollar is less. Its purchasing power is diluted, and those who have limited funds dedicated to acquiring basic necessities are severely damaged. Thus the squeeze occurs. Costs rise and the value of money decreases, and those whom the government claims to help are hurt the most. Government rhetoric and the consequences of government policies are rarely in sync.

Charlie Earl

cearlwriting@hotmail.com

http://thelibertylegation.blogspot.com

         

Debased Line Budgeting

Debased Line Budgeting

Charlie Earl

If you have ever wondered why public employee unions believe themselves entitled to annual raises and salary increases plus step raises, all you have to do is peruse the federal budgeting system. Yes, I know the Congress, namely the Senate, has failed to produce a formal budget in four years despite the constitutional mandate requiring one, but the automatic nature of the baseline budgetary structure insures that federal expenditures will INCREASE every year for every line item that existed in the prior fiscal year. Last year’s allocation becomes the BASELINE with a pre-determined increase for the current year’s spending. The public sector unions know this, and they want “their fair share” of the unending expansion of government’s costs. It is a nice gig if it weren’t so fiscally devastating.

From Citizens Against Government Waste ( http://cagw.org ):

          Baseline budgeting tilts the budget process in favor of increased spending and taxes. For example, if an agency's budget is projected to grow by $100 million, but only grows by $75 million, according to baseline budgeting, that agency sustained a $25 million cut. That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds, and taking credit for losing 25 pounds. The federal government is the only place this absurd logic is employed.

To extend this illogical madness even further… consider that all the stimulus spending from the past has been integrated into the baseline, thus accelerating the unsustainable spending curve. If we were living in the 18^th Century, our political “masters” might be forced to languish in debtors’ prison. Wistfully I yearn for the reinstatement of some lost traditions. If our nation has any tiny glimmer of hope for controlling our excessive spending, massive deficits or suffocating debt, we must jettison irresponsible baseline budgeting.

For all his faults Jimmy Carter pledged to initiate a “zero-based” budgeting process. He failed with the concept just as he did in so many ways. The zero-based system operates with the premise that every budgetary line item begins anew every year. The expenditure must be justified, effective and approved by Congress every year. Unfortunately our federal budget has grown too large with too many line items for Congress to have the sufficient time to sensibly provide oversight. Rather than cope with the merits of the myriad of budget items, Congress makes a leap of faith that all are necessary and worthy thus insuring their continuation and their growth. Congress is either incompetent, lazy or evil … or all of the above.

Baseline budgeting is a cowardly scheme by government officials who are unable or unwilling to do their sworn jobs. It is both a major driver of our fiscal mess and a glaring example of our immoral profligacy. We cannot avoid a catastrophic default unless we eliminate this costly curse from our national scene. Consider that we cannot find 218 House members and 60 Senators who care enough about our nation, its integrity and our future to eliminate this budgetary abomination. How is this possible? Just the knowledge that there aren’t enough sensible souls in Congress to repeal this mortally toxic gimmick should be enough to undermine your faith in the future of our republic. Spending must go down (preferably for only constitutional functions), indebtedness must go down, regulation fever must go down, and the politicians and the citizens must wise up. Baseline budgeting is a honey trap for fools, and we must extricate ourselves before we are inextricably trapped … if we aren’t already. Our people and our political leaders resemble the illegitimate offspring of Winnie the Pooh and Honey Boo Boo. We are in a sticky mess, my friends.

Charlie Earl

cearlwriting@hotmail.com

cearlliberty@gmail.com

http://thelibertylegation.blogspot.com

www.littlestuff-minoosha.blogspot.com