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I don’t have time to get into all of the reasons that George W. Bush will go down in history as one of the worst Presidents ever, but the Knoxville News Sentinel captured part of it in an editorial today.  His mind boggling deficits.

In case you’ve forgotten, we had a surplus (fake though it may have been do to counting Social Security receipts as general revenue) but overall the federal government took in more money than it spent in 1998, 1999, and 2000.

Bush not only blew the surplus, he’s run the highest deficits in history!  The only President who comes close to being as fiscally irresponsible is his dad - Mr,. “Read my lips, no new taxes” - who also sucked.

From the News Sentinel:

In 1998, thanks to a healthy tension between a Democratic president and a Republican Congress, the country began running budget surpluses.

That lasted until George W. Bush took office. He saw a projected 10-year federal surplus of $5.6 trillion as a problem, a sign that taxpayers had been “overcharged.” He certainly solved that problem.

The interest on the federal deficit alone is $451 billion in 2008.  Bush is adding $1 trillion to the deficit this year alone - not counting the cost of the wars in Iraq and Afghanistan!  For some reason, Bush doesn’t think those billions (it’s gotta be close to $1 trillion by now) should count.  Huh?

Please go away George.  Really, I won’t be mad if you left office early and let the White House janitor run the show for a few months - he CAN’T do any worse than you are doing!

I titled this post “Bush sucks part 1″ because there’s a LOT more to back up my assertion that Bush is the worst President we’ve ever had, but I don’t feel like doing all the research tonight.  Just pick a subject - economy, growth of the federal government, starting a needless war to settle a family fued, overly intrusive rules and regulations on business (does Sarbannes Oxley - SOX - ring a bell?), unconstitutional wiretaps, imprisonment without charges, etc.

Bush makes lame-brain Carter look like a genius!  And that’s way to much to put into one post, so I’ll add parts to this as I get to them before Bush leaves office.

gk

Here’s a bit from today’s Daily Reckoning that everyone needs to read.  I’ve added emphasis to some parts I think are especially important.

For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. As a result, the USA now has more financial obligations than assets. It is, effectively, broke. Nevertheless, the debit side of its ledgers grow heavier and heavier. This year’s US government deficit will add about half a trillion. The US trade deficit is about $700 billion. The U.S. bailout plan will probably cost at least $1 trillion more.

Where will the government get that kind of money? There are only two possibilities – one honest and depressing, the other corrupt and alarming. Whether it borrows the money, or prints it up, the world enjoys no net increase in financial resources. Borrowing takes resources from projects that might have been worthwhile and diverts them to the losers. Interest rates rise, as a consequence of the extra borrowing; higher rates generally worsen the economic picture. And while the U.S. borrows, long term, at almost 5%, it lends at barely 2%. It’s like a bank that has gotten its business model badly mixed up. The more it borrows and lends, the faster it goes broke.

If, on the other hand, it merely prints the money – or if it creates it “out of thin air,” to use Lord Keynes’ handy phrase – the results are even worse. Inflating the money supply with new currency, a la Argentina or Zimbabwe, wipes out debts. But it destroys faith in the dollar and brings down the whole world’s money system.

Sooner or later, this is just what will probably happen. Not because capitalism doesn’t work – but because it does. Capitalism is doing just what it should do – it is separating fools from their money. But the fools vote. After a big bubble, there are more fools than sages…and, in the United States of America, more debtors than creditors. Sooner or later, Americans will realize that they are better off destroying their own money than preserving it...and that they would prefer to stiff their creditors rather than pay their bills. That is when deflation will gives way to inflation…and the world’s post-’71 dollar-based money system comes to an end.

I think we’re at that point now.  More people are voting to take others money than are voting to preserve their own money.  Because that way they are freed (they think!) from the consequences of their own decisions.  They’re wrong - but we’ll all pay the price for their mistakes.

gk

I don’t know where to start….  Let me get this out of the way - I think the $700 billion bailout of Wall Street banks is a bad idea.  A very bad idea.  A very bad idea for many reasons.   I’ll try to explain some of them.

For starters, here’s what the Telegraph in the UK thinks of the bailout.  The headline reads: Bail-out enslaves US taxpayers Here is how the story starts:

“To preserve their [the people's] independence, we must not let our rulers load us with perpetual debt. We must make our selection between economy and liberty, or profusion and servitude” - Thomas Jefferson

There was a time, early in America’s history, when its leaders believed in financial discipline. No more. Perpetual debt, which Jefferson feared would enslave future generations, is clamped on Uncle Sam’s undercarriage like a ball and chain. US public borrowing is $9.8 trillion - and rising.

Jefferson, America’s third president (1801-09), is widely regarded as the White House’s most intellectually gifted occupant. He believed that “banking institutions are more dangerous to our liberties than standing armies“, and that “the principle of spending money to be paid by posterity … is but swindling futurity on a large scale.”

I couldn’t agree more.  But my opposition to the bailout goes deeper than simply agreeing with a long dead President about the dangers of debt.  It’s a philosophical disagreement that goes to the roots of the principals that our country was founded on.

I don’t think the Federal government should be involved in bailing out private companies - or homeowners.  We have not granted the Federal government the right to regulate executive pay, decide which companies get preferential treatment regarding loan rates and terms, or decide which group of citizens (or companies) receive direct government buyouts - or indirect preferential write offs of bad debt.

In other words, it’s unconstitutional.  I hope someone has the guts to file a suit and get the case heard in court.

So if this is such a bad idea, why do stocks rise whenever it looks like a deal is close?  That’s easy.  Stocks (especially financial stocks) stand to gain if the US taxpayer takes away their bad debt.  But we (the US taxpayer) are stuck bailing out companies (and people) who made stupid decisions.

Here’s my plan - let them go broke.  Let the companies that made (and sold) these stupid investments go broke and disappear.  Let the people (and companies) who bought these toxic investments go broke.  Kick their stupid, bought-more-house-than-they-could-afford-asses out of those houses.  Let the banks go broke and disappear.

Others - who have managed their money responsibly - will be here to buy up the houses and the toxic debt.  Yes, they will buy the houses and the debt at pennies on the dollar - so what?  Broke companies and people can’t buy stuff anymore - that’s a good thing!

We’ve been collectively living beyond our means for way too long. It’s time to get our budgets balanced - personal and government so we can pay off old debt and get moving forward again.

One other thing - the government doesn’t have $700 billion to use to bail out these stupid assholes.  We will have to borrow it.  That will increase the debt buy trillions by the time it’s paid off - and we already owe over $10 trillion at the federal level alone!

I’ve emailed my congressman and senators to let them know how I feel.  I encourage you to do the same.  Speak up - maybe we can stop this crap before it gets passed.  If you don’t email, call, or fax your representative - shut the fuck up and don’t bitch about the economy, congress, or Wall Street.  You’ve forfeited your right to complain.

gk

Here are the current top three stories in the NY Times Business Section as of 9:30pm ET, July 28th:

Read this.  Please.  It’s the annual report from the Social Security and Medicare trustees, and it has bad news for anyone who doesn’t already have one foot in the grave.

If you pay taxes, you will be paying more - a lot more - sometime soon.  The annual report contains all the numbers in black and white, and all that money has to come from somewhere. 

Medicare will pay out more than it brings in starting this year.  For 2008, Medicare is only projected to be $8 billion in the red, but that translates to a $16 billion increase in the deficit.  Why?  I’m glad you asked!

For years the government has been taking the “excess” revenues from Social Security and Medicare and “investing” them “in special non-marketable securities of the U.S. Government on which a market rate of interest is credited.” 

In other words, the government takes the money, writes an IOU (promising to pay it back with interest) to Social Security and Medicare, and spends it as part of general revenue.

That’s your trust fund.  There’s no money in a bank account drawing interest, there’s no gold in a vault, there’s no stock certificates.  There’s just a huge pile of government bonds (IOU’s) in the administration building.

Maybe that doesn’t make it clear so let me try explaining it this way….  You deposit $500 into an account (let’s call it a trust fund just for the hell of it) then - promising to pay yourself back - you transfer it to another account and spend it. 

You could even print out your IOU to yourself and stick it in a pretty box.  You do the same thing the next month.  And the next.  And the next….

After a year, how much money is in your trust fund?  Exactly nadda, nothing, zip, zilch, squat. 

You can’t take money out of one pocket, put it into the other pocket, and spend it.  Well, technically you can, but you haven’t saved anything.  And there’s no money left (you spent it on other things) to put back into the first pocket.

I hope that clears up the mystery of the Social Security and Medicare trust funds.  To put it bluntly, there’s no money in them.  Zip.

But the government stills owes that money to itself - or more accurately, they owe it to the designated recipients who have paid into the “trust fund.”  That’s you and me.

So where do they have to go to get the money they’ve promised to pay?  There are only three ways for the government to get money; taxes, borrowing, or printing more money - or a combination of these. 

Which one should they use?  Let’s take a quick look at the choices:

1) Taxes.  The government can raise taxes to cover their expenses.  Since we’ve run a deficit for years, I don’t think they’ll do this - which is actually the option which would cause the least pain for all. 

2) Borrow: This simply means they sell more bonds to foreigners.  We get to use their money and simply make payments on our national interest only loan.  Hey, it’s working out great for homeowners!  Right?

3)  Print more money:  Sounds, good - after all, the government makes a profit on each dollar they print.  It costs less than a cent to print a dollar bill, and it’s worth $1 - before inflation anyway.

See, there’s this little thing called supply and demand that refuses to go away.   When you make more of something without a corresponding rise in demand, each one of them is worth less.  Make too many, and each one is worthless.

That’s why we have inflation - we print dollars with nothing standing behind them.  The money supply (the supply part) rises faster than the economy grows - the demand side.   Rising prices for “real” stuff like oil, gold, wheat, and milk don’t cause inflation - they’re caused by inflation.

Read that paragraph again, it’s important.  Most people (even bankers and some of the fed board) don’t “get” this basic fact of life.

Anyway, the government will need to get the money to pay Social Security and Medicare benefits from somewhere, so my bet is that taxes, deficits, and inflation will all be a big part of the years to come. 

And if you think the deficit is big now, you ain’t seen nothing yet.  You can ignore those “pull the numbers out my ass” deficit projections from the government - because they actually assume that the money from the Social Security and Medicare trust funds are there!

I don’t know what “real” stuff will be worth in a week or a month, but gold, oil and silver will be a lot higher 10 years from now.  That’s where my money is.

gk