“Sometimes I wonder whether the world is being run by smart people who are putting us on….or by imbeciles who really mean it.” – Mark Twain
The United States of America is about as far from united as we’ve been since the Civil War. The two major parties agree on virtually no major issues. The only time they agree is when it involves tax rebates and pork projects for their constituents. They have no problem spending our grandchildren’s money to get re-elected in November. No politician is willing to tell the American people the blunt truth that we have an epic financial crisis that must be addressed in the next 10 years. When I watch the Republicans and Democrats respond to these issues by spinning them to make the other side seem evil, it infuriates me. We are wasting precious time. If you take a poll of Americans and ask them if they want make sacrifices for future generations, I can guarantee you that 85% would say no. Our society is dominated by present self interest to the detriment of the best interests of our future generations. We need leaders who are willing to speak the truth and convince the country to change course before it is too late.
Our fiscal crisis is complex, multi-faceted and dangerous to our long-term future. The major issues that we need to confront include the current fiscal situation, the colossal amount of unfunded liabilities that our politicians have obligated us to pay, our dependence on foreign oil, our education system, and a dearth of leadership and political courage. These issues are intertwined and cannot be addressed individually. To successfully solve these issues we need to ignore political affiliations and choose the best solutions. It seems strange to me that the best ideas for dealing with our crisis come mostly from billionaires. The people that we should believe in my opinion are: David Walker, Pete Peterson, Warren Buffett, Ross Perot, T. Boone Pickens, Matt Simmons, Bill Gates, and Ron Paul.
These men have put aside partisan politics and name calling to work together to save our country. They have an extremely difficult task. There are different challenges they must overcome. The largest hurdle is getting the attention of the majority of Americans who are apathetic towards the entire political process. These are the 71 million voting age citizens who decided not to vote in the last presidential election. If they don’t care enough to vote in the presidential election, they certainly won’t care about future unfunded liabilities. I think the only thing that will get the attention of this group is a major recession that negatively impacts their quality of life. There are millions of Americans living lives of silent desperation. They are living on the edge and the debt contraction that is underway is pushing many over that edge. The anger that is building will hopefully eliminate the apathy.
“The punishment of wise men who refuse to take part in the affairs of government is to live under the government of unwise men.” - Plato
The next obstacle is what I call the Great Deniers. They deny that there are any problems in America. They ignore the hard facts and spout rhetoric like: “We are the greatest country in the history of the world; There is nothing that's going to occur to our economy except a continuance of the great economic success our great nation has always enjoyed; The sun is not setting on our great nation, it is rising!; It is morning in America.” It is difficult to have a logical discussion with these shills. They are disciples of the Ben Stein School of ignoring facts and figures. They are cheerleaders for America, when what we need are wide eyed realists. Many of these people have secure well paying comfortable positions in our society and fear a change in the status quo.
Using a baseball analogy is the best way I can describe our current situation. When I hear the denial gang speak, I see America as a baseball team on par with the NY Yankees dynasty. They have been the dominant team in baseball for decades, with 26 World Series championships in 39 World Series appearances. Their payroll is bigger than any other team. They start to read their press clippings, rely on their reputation and allow their minor league system to deteriorate. Their star players are getting long in the tooth, no longer in their prime. Changing managers (Presidents) hasn’t worked. They are still good, but the competition is younger, talented, and has greater desire to succeed. The upstart Devil Rays (Emerging Market Countries) and the reviled Red Sox (China) have moved past them. It is late August and they are 10 games out of 1st place. It is time to trade the aging veterans for young minor leaguers and begin the rebuilding process. This is where America stands today. We are at a crossroads. We can continue on our current course and be in the middle of the pack in the future, or we can completely retool to compete in this 21st Century world.
By far, the greatest challenge that our selfless patriots must overcome is the entrenched ruling elite that run this country. The ruling elite includes the crooked politicians in Washington, the lifetime bureaucrats who run the various governmental agencies, the paid lobbyists who write the laws for Congress, obscenely overpaid short-term profit driven corporate CEOs, media conglomerates, and the privileged Wall Street aristocracy. These privileged few are surrounded by leeches and parasites (media consultants, pollsters, spin artists, and PR agencies) that attack anyone who threatens their position of power. The only way to overturn their comfortable world is an uprising among the masses. An educated population would not allow them to herd us like the sheep they think we are.
Congress consists of 100 Senators and 435 Representatives. Based on the data below there are 32 lobbyists for every member in Congress. They spend $5.3 million per member of Congress every year. Lobbyists will spend $3 billion this year to persuade our noble politician leaders. PACs and 527 Plans will spend hundreds of millions of dollars pushing their agendas. Who is looking out for my senior citizen parents? Certainly not their Congressman or Senator. They are earning a pitiful 2% on their IRA money market fund because JP Morgan, General Electric and Fannie Mae have lobbyists to fight for their rights. When our government has to use your tax dollars in the next few months to take over Fannie Mae and Freddie Mac, it should warm your heart knowing that these two quasi-governmental entities have spent $175 million in the last 10 years lobbying Congress. Not much has really changed in the last hundred years. Will Rogers pegged politicians back in the 1920’s.
But I can see that it makes no sense at all,
Is it cool to go to sleep on the floor,
'Cause I don't think that I can take anymore
Clowns to the left of me, Jokers to the right,
Here I am, stuck in the middle with you.
You would think that men with this type of education would have acted in a more intelligent manner. Instead, they have contributed greatly to the current financial crisis that engulfs our nation. I’m guessing Harvard won’t use this chart in their marketing materials.
Our debt is accelerating at such a rapid rate that we have reached $9.6 trillion since this chart below was produced in early 2008. The “Morning in America” crowd needs to wake up and look hard and long at this chart. When Ronald Reagan used this slogan in his re-election campaign in the early 1980’s, the National Debt was $1 trillion, and more importantly, equaled 34% of GDP. Today, the National Debt is $9.6 trillion and equals 70% of GDP. When George W. Bush sauntered into the Oval Office with a smaller government, non-interventionist foreign policy agenda in 2000, the National Debt stood at $5.6 trillion. During his administration the National Debt has increased by $4 trillion, or 71%, while our GDP has increased by 41%. The smaller government idea got lost somewhere in translation. This train is hurtling down the track at tremendous speed and we are headed for a wreck unless we slow the spending and debt accumulation. As a nation, we add $68,000,000 to the National Debt every hour. Please ponder that fact for one minute. Our government and our citizens are like crack addicts, except that debt is our drug of choice. We need an intervention now, or we will overdose on debt and destroy our way of life.
The Bush Administration recently announced that the budget deficit for FY09 will be $482 billion. White House spokeswoman Dana Perino said President Bush is determined to enforce greater fiscal discipline while pursuing a pro-growth economic strategy. It is hard to not laugh so hard that milk comes out your nose when listening to this gibberish. He has 4 months left in office and NOW he wants to enforce greater fiscal discipline. The $482 billion doesn’t include the $180 billion per year being spent on our non-interventionist wars in Iraq and Afghanistan. In the fantasy world of our government budget, the $180 billion doesn’t count. Since 2002, we have spent $700 billion in direct costs on the wars. Larry Lindsey, President Bush's economic adviser and head of the National Economic Council, suggested that costs might reach $200 billion. But this estimate was dismissed as “baloney” by the Defense Secretary, Donald (Mission Accomplished) Rumsfeld. Lindsay was asked to leave the administration shortly thereafter. Joseph Stiglitz, Nobel Prize winner in economics, estimates that the final cost of the wars will reach $3 trillion. Congressman Ron Paul gets to the heart of the issue.
“The moral and constitutional obligations of our representatives in Washington are to protect our liberty, not coddle the world, precipitating no-win wars, while bringing bankruptcy and economic turmoil to our people.” - Ron Paul
"Never, never, never believe any war will be smooth and easy, or that anyone who embarks on the strange voyage can measure the tides and hurricanes he will encounter. The statesman who yields to war fever must realize that once the signal is given, he is no longer the master of policy but the slave of unforeseeable and uncontrollable events.”
The $482 billion deficit will prove to be optimistic. As we enter a deep recession, tax receipts from individuals and corporations will be plummeting in the next year. The official deficit will likely reach $600 billion. The new President will show his deep concern for his fellow citizens by signing another stimulus package that takes $150 billion from your grandchildren and gives it to you for the purchase of a new HDTV. After adding the $180 billion in war spending, we will be within spitting distance of a $1 trillion annual deficit. President Bush handed out $188 billion in rebate checks during his tenure.
Damn the future, full speed ahead. President Bush, Henry Paulson, and Ben Bernanke remind me of the Kevin Bacon character in Animal House. Yelling "all is well" will not keep them from getting flattened.
Besides the outrageous amount of spending by Congress and the Administration on wars and pork-barrel bribes for their constituents, the makeup of Federal Spending has taken a dramatically dire turn. In 1965 we were essentially in control of 73% of the spending. Now, 53% of the spending is on automatic pilot, with only 47% in our control. The only saving grace has been the tremendous fall in interest rates from 1985 to 2007, which has kept our interest cost in check at only $237 billion per year, or $27,000,000 per hour.
The composition of the current spending is such that we can’t get to a balanced budget without addressing the third rail of American politics – Social Security, Medicare, and Medicaid. On the discretionary side, we also have limited flexibility. When the war funding is taken into account, 59% of all discretionary spending is directly associated with the Military. We spend 7% of the budget on education and 6% on our crumbling infrastructure. The budget will continue to expand on the mandatory spending side because it is on autopilot, unless we act now. The entire Social Security, Medicare, and Medicaid system will need to be overhauled or scrapped. Benefits will be reduced and taxes will be raised. The military will need to be withdrawn from the 117 countries in which they are based. We will need to follow the Constitution and use the military to defend our country against aggression, not starting pre-emptive wars. The Bush Doctrine is dead.
The only Federal Reserve member who has a streak of Paul Volker in him, Dallas Fed Chairman Richard Fisher, bluntly described our predicament in a recent interview.
“There is one issue I am outspoken about, and that is the unfunded liabilities of Medicare. And I have not heard any discussion of what is the largest liability ever incurred by any country in history, relative to their GDP. Just to give you the number, it is $85.6 trillion that is currently unfunded. ... That's a lot. Our total output as a country is roughly $14 trillion.
This prescription drug benefit alone – which was created 30-some odd months ago by a Republican, Harvard MBA from my state of Texas [President Bush] – is a larger liability now than all of Social Security. ...
And why do I worry about it? Because it is in every politician's blood – and this knows no party – if you can't solve a problem, get the central bank to print your way out of it. And we won't do that. I won't do that anyway.”
With most of our spending on automatic pilot, the aging of the baby boom generation will put tremendous strain on our economic system. As you can see, Medicare costs will explode over the next 40 years. The increasing debt will result in interest payments on the debt becoming the largest expenditure in the federal budget. The longer we wait to address this unavoidable train wreck, the more likely it will result in generational war between the baby boomers and the younger generations. Mandatory spending for agriculture subsidies, unemployment benefits and civilian and military pensions and health benefits continues to grow.
The chart below proves beyond a shadow of doubt that we cannot grow our way out of this problem. As entitlements and net interest grow, discretionary spending gets squeezed. Non-defense programs, which include, activities related to children, transportation infrastructure, education, training and research that should promote future economic growth and prosperity, come under increasing funding pressure. We are forced to ignore investments in the future to pay for commitments made decades ago. The short term focus of our Washington politicians has ruined our fiscal future. Children don’t vote, and younger people are less involved in the political process. As a result, the potential political gain from immediate increases in spending or reductions in taxes outweighs the eventual economic benefits of more politically costly but fiscally responsible choices. This is a criminal and immoral act upon our future generations.
On average, more than 10,000 baby boomers will become eligible for Social Security benefits each day for the next two decades. As they do, there will be fewer workers supporting a growing number of retirees. This eventually will place an unfair burden on younger workers, who will end up bearing the brunt of future taxes.
Demographics are very easy to project. The only thing that could change the facts in the chart below is world war, epidemic, or catastrophe. The number of people 65 years or older will increase by 42% between now and 2020 and 84% between now and 2030. According to the Urban Institute; For every dollar that the federal government spends on children’s education, health care, income support, and other programs that help parents meet their children’s basic needs, it spends more than four dollars on behalf of older Americans. With political leaders who have a two to four year focus, long-term solutions with short term pain are never considered. Courage and fortitude is in short supply in Washington DC.
"Health care costs are growing faster than the population, the prices of other goods and services and the nation’s overall economy. Health care as a share of GDP has doubled since 1975. While the budgets of households, businesses and government are all under pressure, health care cost growth affects the federal budget in two ways: it increases the cost of federal health programs; and it stimulates greater interest in further expansions of the federal government’s responsibility for paying for health care. Politicians and the public may want the government to do more: however, the government has already promised more in health benefits than it can realistically afford to deliver. In addition, it is important to remember that transferring costs to the federal government does not make those costs disappear. When responsibilities are added to the budget without adequate financing (the recent enactment of the Medicare drug benefit, for example), it only serves to mortgage further the future of our country, children and grandchildren."
Our deficits are already surpassing the GAO estimates on the chart below. Adding new spending programs would be like being trapped in a deep hole and deciding to dig deeper. Demonizing the rich and corporations to extract more taxes from them will not work. Something called shared sacrifice for the benefit of future generations could work. Shared sacrifice is something that hasn’t been asked of U.S. citizens since World War II. They are known as the Greatest Generation. Now is time for the Next Great Generation.
These quotes are calls to action for America. We cannot keep our heads stuck in the Arabian sand. When Ben Stein and other non-thinking fools tell you that oil prices have risen due to greedy speculators, please take a look at the charts below. Consumption will continue to skyrocket no matter what the U.S. does. The spread of capitalism throughout the world has led to an explosion in worldwide GDP growth. The emerging markets of Asia, South America, and Eastern Europe have driven this growth. $2,500 cars are now becoming available in China and India and the rest of Asia. In a Chinese car ownership survey, 96% of respondents said they paid cash for their cars. How un-American like. More than 20,000 new cars per day are being sold to Chinese citizens who have never owned an automobile before. This is massive new demand being created for gasoline. China now has a middle class estimated at nearly 300 million people. 37% of people driving in China today did not know how to drive 3 years ago. Does this seem to be a recipe for declining oil prices?
On the supply side, the Larry Kudlows of the world, rant Drill, Drill, Drill. I agree that we must utilize all possible supplies of oil and gas, but it will be like pissing in the ocean. We must accept the fact that worldwide oil production has peaked and will inevitably decline over the long-term. New supplies will be discovered, but they will not be enough to replace the supplies being used. Matt Simmons, the man who put forth the Peak Oil concept many years ago and author of Twilight in the Desert – The Coming Saudi Oil Shock & the World Economy, is warning that we must act now or the inevitable decline in oil supply will lead to World War III over resources. This is not as far fetched as it sounds. When industries must shut down and gasoline rationed, anger will rise. Countries will use their military to acquire the precious remaining supplies.
“My grandfather rode on a camel, my father rode in a car, I ride in a jet, my children will ride in cars, my grandchildren will ride on camels.”
If this is the destiny of the nations with vast supplies of oil, what will be the destiny of the countries without vast supplies?
The next chart shows that the United States, which makes up 4% of the world’s population, consumes 25% of the world’s oil on a daily basis. In 1970 we imported 24% of our oil. Today we import 70% of our oil. We are sending $700 billion per year to foreign countries every year to purchase this oil. According to T. Boone Pickens, projected over the next 10 years the cost will be $10 trillion — it will be the greatest transfer of wealth in the history of mankind.
The last chart reveals that the U.S. is no longer in control of our own destiny. We are hostage to dictators, kings, and lunatics. What these charts do not reveal is the non-supply related factors which will constrain our economy in the future.
- The existing energy infrastructure is rusting away.
- 80% to 90% of the system must be rebuilt.
- The cost of rebuilding the infrastructure will be $50 - $100 trillion.
- We have no blueprints, few supplies and fewer trained engineers and construction workers.
- Use less energy (world’s best future energy source).
- Travel only for emergencies and fun.
- Eat food grown locally –it is far tastier and fresher.
- Make goods where they are used.
- Rebuild the energy complex –melt down our guns and tanks for pipelines, refineries and rigs.
- Building wind facilities in the corridor that stretches from the Texas panhandle to North Dakota could produce 20% of the electricity for the United States at a cost of $1 trillion. It would take another $200 billion to build the capacity to transmit that energy to cities and towns.
- In addition to creating new construction and maintenance jobs, thousands of Americans will be employed to manufacture the turbines and blades. These are high skill jobs that pay on a scale comparable to aerospace jobs.
- Natural gas is our country's second largest energy resource and a vital component of our energy supply. 98% of the natural gas used in the United States is from North America. But 70% of our oil is purchased from foreign nations.
- We currently use natural gas to produce 22% of our electricity. Harnessing the power of wind to generate electricity will give us the flexibility to shift natural gas away from electricity generation and put it to use as a transportation fuel — reducing our dependence on foreign oil by more than one-third.
- Building new wind generation facilities and better utilizing our natural gas resources can replace more than one-third of our foreign oil imports in 10 years.
These are some ideas. We also need more nuclear power, more solar power, more geothermal power, more refineries, more LNG terminals, and more research on battery powered vehicles.
“Until we're educating every kid in a fantastic way, until every inner city is cleaned up, there is no shortage of things to do.” - Bill Gates
“People always fear change. People feared electricity when it was invented, didn't they? People feared coal, they feared gas-powered engines... There will always be ignorance, and ignorance leads to fear.” – Bill Gates
Bill Gates has put his money where his mouth is. He is trying to change the U.S. Educational system through his Gates Foundation. Instead of partisan bickering and power struggles with teacher’s unions, he is trying to figure out what works. When I hear people say that we have the best educational system in the world, I prefer to look at the facts. The data below doesn’t point to the best educational system in the world, with the U.S. finishing 26th in math and 20th in science. But we are closing fast on Latvia. Is it more important to win the most medals during the Olympics or to have the best educated youth in the world? It looks like we’ve made our choice.
The data in the following chart is the scariest, in my opinion. India and China combined have 217 million children under 5 years old. If just 10% of them become scientists, engineers, and mathematicians, they will overwhelm the U.S. in highly educated workers. The Asian countries are already making major inroads on the educational front. Four of the top business schools in the country have the following percentage of non-U.S. citizens in their MBA programs: Harvard – 34%; Wharton – 45%; Stanford – 34%; Chicago – 33%. Many of these brilliant students will return to their native countries and run companies competing against us in world markets.
It does not appear that the problem with the poor showing by the U.S. is due to lack of spending, with in excess of $500 billion spent on public education and billions more in private schools. This comes to $9,600 per student per year. That sounds like enough to provide a top notch education. According to UNESCO, Japan spends $4,830, China spends $2,728, UK spends $8,502, and India spends $400. These countries seem to be getting more bang for their buck.
Japan, South Korea, and Hong Kong have their 15 year olds score highest on tests of science, math, and problem solving. They far outpace U.S. 15 year olds, who finished near the bottom of the pack. Knowledge is the key to a country’s future success. Based on this data, we are headed for the back of the pack.
As a country we need to embrace whatever works in trying to maintain our standard of living through education, whether it be school vouchers, greater school choice or any other method that will succeed. The Gates Foundation is supporting the following efforts to change the course of education:
- In the foundation's home state of Washington, more than half our children enter kindergarten without the skills they need to succeed in school. Research shows that we can close this gap in school-readiness with high-quality early learning for children and support and education for parents. With public and private partners—including Thrive by Five: The Washington Early Learning Fund—we are working to ensure that children in our state have the greatest chance at success in school and life.
- The foundation works with intermediary organizations that replicate these proven and promising model high schools. Though model schools differ, they engage all students with a rigorous curriculum. They offer coursework that is relevant to students' lives and aspirations. And they foster strong relationships between students and adults. The schools can be grouped into one of three general categories: traditional, theme-based, and student-centered.
- The United States relies on local school districts to guide education. The foundation supports efforts to understand what makes a successful school district and funds projects that help build strong education systems. Working with many partners, we focus on large urban districts committed to improving the school experience and success of all students—regardless of income, race, or ethnic background.
- States can play an important role in education reform. They can challenge schools and districts—and vigorously support their efforts. The National Governors Association, Achieve Inc., and 34 states are working together to shape policies that will require college-ready coursework and help all students graduate with the education they need for success in work and life.
- The foundation awards scholarships to promising students who don't have the financial means to attend college.
- We sponsor research that examines education in the United States to understand which practices best prepare students for high school graduation, college, and careers. We also commission regular evaluations of the initiatives we support so we can share our results and improve our grant making strategies.
“It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds.” – Samuel Adams
As I watched the premiere of the brilliant documentary I.O.U.S.A., I was reminded of Samuel Adams’ words. David Walker and his fellow patriots have been tirelessly traveling to small towns throughout America on their Fiscal Wake Up Tour to try and set brush fires in people’s minds about the looming catastrophe that is our current and future fiscal obligations. Before the movie, as I tried to find a parking space for our 9 year old minivan, so my wife and I could grab a bite to eat, the spaces were filled with BMWs, Mercedes’, and Lexus’. Then we were told that there would be a 45 minute wait to get into the P.F. Chang restaurant. All of the restaurants were overflowing with people eating $14 burgers, $35 steaks and drinking beer and wine. I was reminded of the video in Thailand when the ocean strangely receded from the shoreline and people walked out to where the sea had been to pick up fish, shells, and other interesting trinkets, not knowing that a tsunami would sweep over them in minutes. Our national debt and future fiscal obligations are a tsunami that will sweep over our nation unless we move to higher ground.
“If ever a time should come, when vain and aspiring men shall possess the highest seats in Government, our country will stand in need of its experienced patriots to prevent its ruin.” – Samuel Adams
Never were truer words spoken by one of the original patriots. Vain and aspiring men now possess the highest seats in Government. As I watched the documentary and did my own research it has become clear to me that our entire political system has been corrupted by money and power. These people will not change the system, because they are the system. Lifetime politicians are bribed by lobbyists to vote for whatever special interest agenda that is put forth. There are a few dedicated Americans like Ron Paul in Congress, but they are few and far between.
"When the federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans. – Ron Paul"
I’m convinced that this system must be destroyed and “We The People” have to take charge of our country. We need to follow Warren Buffett’s advice.
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett
Let’s put this in perspective. There are 305 million people who live in the United States. We need to find 535 intelligent thoughtful people (100 Senators, 435 Representatives) who care more about the Constitution and their country than themselves. Money, power and influence are what drive decision making in Washington DC today. Throwing the existing bums out won’t work. New bums will be just as bad. I think some common sense solutions could dramatically reduce the partisan extremism in Congress.
- Term limits for all elected officials would eliminate the lifetime politicians. This could attract a better caliber of candidates.
- If the tent isn’t big enough to house all the views in a two party system, eliminate the two party system. Break the two parties into six parties and give voters greater choice. Coalition government would require cooperation.
- Outlaw lobbyists and lobbying of public officials. Outlaw PACs and 527s. Take money influence out of the equation in Washington.
- Provide limited public funding for elections and restrict what a candidate can spend so that all candidates are on an equal footing. No one could buy an election. Elections would be about ideas.
By taking the massive amounts of money out of politics, we could surely attract 535 patriots who could take a long term view of our great Republic and make the right decisions for our future generations.
- The United States has no money
- It is immoral to mortgage the entire future of our unborn children so we can live the good life today
- Peterson Foundation
- Perot Charts
- Pickens Plan
- Campaign for Liberty
- Gates Foundation
- Concord Coalition
- John Mauldin
- John Hussman
- Barry Ritholz
- Mike Shedlock
- Bill Bonner
- Jeremy Grantham
- Bill Fleckenstein
- Matt Simmons
- Paul Kasriel
- Nouriel Roubini
- Lew Rockwell