Is Bigger Government Coming?
March 18th, 2008I had an interesting exchange with a reporter. He was writing a story about the prospects of government expansion in reaction to the “real estate catastrophe” and hepatitis scare.
The real estate part of our conversation led to my not explaining very well my belief that part of our economic woes is caused by government - specifically excessive federal debt. I got to thinking that it can’t be explained without graphs, so I put together this blog entry.I suggested that the US dollar price for gold was partially because of people thinking gold was increasing in value, but part was also because the world thinks less of the US dollar, and is devaluing our currency. You could see this demonstrated in the price of gold over the past two years.
Here, for example, is the price of gold in US Dollars for the past two years. As with all these graphs, you can click on them to see a larger image. They all use data available at FXHistory.com.
These graphs present data from two years ago today indexed to equal 1. The first one shows that the price of gold is 1.8 times higher today than it was two years ago today (in our currency, the United States Dollar).
The next graph shows the increase in the price of gold, only in the Euro rather than the US dollar. While the price of gold in Euros has increased, it has not increased nearly as much as in Dollars - in fact, gold today is only 1.4 times the price two years ago.
How can this be?
The answer is that the world is concluding that United States Dollars are not worth what they were two years ago.
Here is a chart of the value of our Dollar compared directly against the Euro for the same two year period. As you can see, the Euro has increased about 33% against the dollar.
If you add together the increases over the starting index value (of 1) for charts number two and three, they equal the increases in chart one (not including the compounding effect of one rate on the other). Thus, of the 80% increase we’ve seen in the US Dollar gold price over the past two years, a little more than half is because the world thinks gold is more valuable today than then, and a little less than half is because the world thinks a dollar is worth less than it was then. As well, our currency’s world perception problem appears to be getting much worse over the past six weeks.
Some would suggest that this is a partisan issue - that the US debt has increased faster under Republican presidents than under Democrat presidents (which is true) therefore you should vote Democrat.
That’s like saying you will kill yourself much better with the higher muzzle velocity of a .45 Magnum, as opposed to the slower muzzle velocity of a .45 Automatic Colt Pistol.
Up until FDR, America incurred debt during wars and paid it off afterwards. The federal government hasn’t paid its debt off in the 80 years since then - through congressional and presidential control by both parties.
March 19th, 2008 at 2:26 pm
Thought you might like this story from the New York Times. It relates to this topic.
Dow Gives Up 293 Points; Gold and Oil Plunge
http://www.nytimes.com/2008/03/19/business/19cnd-stox.html?ex=1363665600&en=6ee7aa844bb0acd7&ei=5088&partner=rssnyt&emc=rss
March 19th, 2008 at 4:05 pm
We do not need bigger government. What we need is for our government workers to DO THEIR JOBS!
March 22nd, 2008 at 5:43 am
Bob,
Your analysis is quite good.
My question to you is this. If war always creates more debt, why should we stay in Iraq indefinitely?
March 22nd, 2008 at 8:10 am
The rest of the world is rejoicing at our demise. When was the last time anyone from overseas sent us aid for a disaster. We run around the world pushing our “help” on others in exchange for their capitulation to our way of life. We are trying to buy friends. This works until the money runs out. Bob has pointed out that the money is running out. Now we are resorting to printing up some more and handing it out to people. This is the beginning of hyperinflation. Remember, the Federal Reserve can only hold sway with their ability to cut interest rates. We are at 2% now, and they have shown a great resistence to go under 0% interest. Basically, the knob controlling the economy is close to being useless. We will look up like carps in Lake Mead waiting for our next bit of popcorn when our “Government” no longer has a knob. Please, spend your “economic stimulus” money on a vacation. It may be the last one any of us gets.
Lee: Your hope is endearing, but misspent. The truth is that Government is INCAPABLE of doing any job. It is up to us. Hard for a socialist society to accept, but universally true.
Al: Your question is amazingly naive. The debt is something the Government will generate no matter what the cause. The analogy of “less money for Iraq” means “more money for schools” is just a myth. Our Social Security “trust” fund is borrowed out, our Yucca Mountain “trust” fund is borrowed out. What do you think will happen with the Hillary health care “trust” fund? On top of that, our taxing capability is maxed out also. The answer is that Iraq is a reality. It is feeding the military-industrial machine and is controlled by lobbyists. If we leave Iraq, there will be another “Iraq”. Remember Clinton’s Kosovo, Johnson’s Vietnam, Truman and Eisenhower’s Korea? You really must dig deeper here than making such a patently ridiculuous statement like “if we get out of Iraq, we will reduce our debt”. Please do so for the sake of our Nation.
March 22nd, 2008 at 8:41 am
The falling dollar should form the basis of recovery. Assuming costs to build an air bus and a Boeing aircraft are the same, the Boeing plans should sell for 30% less in terms of the Euro. Although services are now 70% of our GDP, the remaining industrual production should greatly benifit from the lower dollar.
Seperately, I hope everyone reads John Maulins free news letter, this week’s was excellent on last weeks significent activity. You can get it free at ://www.frontlinethoughts.com/subscribe.asp
March 22nd, 2008 at 9:33 am
Steve,
I’m afraid you’ve misunderstood my comment. It’s aimed at a possible presidency of John McCain. (The question was meant specifically for Bob Beers) And I do believe getting out of Iraq soon is a step in the right direction, not the answer to our rapidly crumbling economic situation. And it certainly wouldn’t HURT our finances.
March 22nd, 2008 at 10:23 am
I agree with Steve. I don’t think you can single out Iraq as the culprit behind our weakening dollar any more than you can the large expansion of domestic welfare over the past seven years. The common sense that required our federal government to make ends meet was destroyed during the Roosevelt years. With no reason to prioritize, it starts new initiatives, domestic and foreign, much faster than it trims or discontinues old ones, and drives our national debt ever deeper.
March 22nd, 2008 at 2:12 pm
During the housing boom, county and municipal governments hired on many addition inspectors to meet the demands. Now that the demand for housing has dwindled down to very little, what are these workers now doing?
Government should scale down like private industry has to when the demand is significantly reduced.
When government contractors have enough time on their hands to dip into the passport files of folks, that is government already too large and wasting tax dollars.
Let’s pare back all unnessary government programs.
March 22nd, 2008 at 4:22 pm
Bob, Our Republic is surely in jeopardy when politicians such as yourself, which I have greatly admired and supported, can listen only to the sound of their own voice. No new thoughts allowed for correction, right? The average taxpayer is being sold down the river by “politicians” to keep the satis quo intact. I truly thought you might be the one to help change this, guess not. See ya.
March 23rd, 2008 at 8:30 pm
Jerry: No one person can do it all. In fact, the politicians need your complicity to make it happen at all. Until we truly band together to support our Constitution (the world will never see a better one) and drum out the bought and paid for autocrats we euphemistically call “candidates”, there is no hope. If the populace gets behind the status quo, do we ever expect things to change? The sad reality is that there are too many on the Government payroll for them to be objective; the puppets they put up for show are completely owned and repeat the same old “free stuff” lines which we vote for year after year while the lobbyists write their own laws while laughing at our naivity. Frankly, it is embarassing.
You need to get to know Bob a bit more. Talk to him personally sometime. He gets it. Unfortunately, he is up against a wall of false heroes promising Paradise to scared and cowering voters. If you want to initiate “new thoughts”, Jerry, get off your laurels and start them. We simply do not have time to wait for something from political promises that will never happen. Remember, Dina Titus’ answer is spend more Government money for every problem. I submit to you that Bob is the only voice of hope in the State, but he cannot do it alone. We neeed to start taking responsibility for our own futures. If you do not control your destiny, someone else will. It sounds like you have let someone else control your destiny, Jerry. That is very sad.
If you think about it, Jerry, the only thing you can control is your own actions. Therefore, everything that happens to you is your fault (or triumph). Whining will do nothing for you and hoping will do even less. It will be a long wait if you expect anyone to do something to benefit you. Sold down the river, you say? Well, you have to get on the boat yourself before you can go down the river, even if you are sold. If you want change, make change. That is the only answer.
March 24th, 2008 at 7:54 pm
The current financial situation of our country is bad. You can blame the government all you want but we need to look in the mirror. The politicians give us what we wanted and like all things in life some programs are good, some not so good and some are destroying us. Unfortunately, the invasion of Iraq was the worst decision in our lifetime. The long term cost to the country could be $3 trillion and for every year we stay in Iraq from now on we increase our national debt by $400 billion. We simply cannot afford to bare the cost of this occupation. The military won the war in three weeks. We cannot impose any peace in Iraq because we do not have enough military forces on the ground. We need about 750,000 combat personnel to do the job right. The volunteer military was man and trained to fight and win a single theater war not be an occupation force in constant combat. I know because I am a retire USAF Master Sergeant and that was we were taught and trained to do.
I am no economist but we have to make some tough choices here are my recommendations:
1) Withdraw from Iraq within two years or less, change our military and cut military spending. I recommend reading two books “The New Pentagon Map” and “The $3 Trillion War”.
2) Eliminate Medicare and Medicaid and totally revamp our health insurance system, make it a private partnership with the federal government. Check out the Mayo Clinic recommendations.
3) Raise taxes by removing loopholes and adjust the Bush tax cuts.
4) Prioritize earmarks. Not all earmarks are bad.
5) Increase the retirement age from 62 to 65, raise the threshold from $95,000 to $150,000 and raise the tax to fix Social Security.
6) Come up with a ten to fifteen year program to repair our country’s infrastructure. The sooner we do this the less money we will spend in the long run.
7) No more borrowing and start paying down the national debt.
The free ride is over for “the tax & spend liberals” or “the borrow and spend conservatives”. It is time to face the truth we have got to work together to fix our nation. It took 40 years for the democrats to really screw up the country but it only took the republicans 12 years to make it worse. Our national debt now is $9.3 trillion and by the time President Bush leaves office it will be $9.8 to $10 trillion, which is 2/3 of our GDP. The interest payment is about 12% of our annual budget! If you remember the Fram Oil Filter commercial; the mechanic said while holding the oil filter “you can pay me now or you can pay me later” standing next to a car engine needing an overhaul. We can fix it now or wait and it will cost us more in the future, when we are on fixed incomes in retirement. I rather do it now!
March 24th, 2008 at 8:28 pm
You are right on most of your points. Consider:
The more we are taxed, the more we are controlled. This begs for less taxes.
Our debt is actually about 60 Trillion dollars when you count the unpaid-for promises made by dead Congressmen. If you figure we have about 100 million taxpayers (there are somewhat less, actually) that breaks out to $600,000 owed by every child who grows up, goes out on their own and begins to pay taxes. This is far more onerous “taxation without representation” than our founding fathers suffered.
2/3rds of our annual budget goes to “entitlements”. That is more than $ 2 Trillion in a single year.
The vast majority of funding for Iraq does not go to the troops, it goes to the highest campaign contribution beltway bandit and is controlled by the lobbyists. If you were a Master Sergeant, you know that the troops get very little of the DoD budget. Pulling out is too bad for business to those who pay for campaign promises, so it won’t happen until another crisis arises. Stay tuned for Iran. If you liked Iraq, you will love Iran.
Insurance only raises the cost of what is being insured and adds substantial cost to the overhead of that service. The solution to health care is people accepting the risk for their lifestyle and paying for a doctor visit when they go to one. I have no problem with others paying whatever they want to help “the poor”, but I would like to make those decisions myself. Elimination of Medicare and Medicaid is required….if Congress does not do it, it will eliminate itself through simple over inflation.
Simply put, pay for whatever you want to, but keep your hands off the hard-earned wealth I have managed to accumulate through my works. It is funny how few Government services people need when they have to start paying for them out of their own pockets.
Earmarks are simple. Just make each one a separate bill and have Congress vote on each one separately. This will sort it out by making the earmarking things so onerous, only the “worthy” ones will survive.
You are dead wrong on Social Security. It needs to be eliminated just like Medicare and Medicaid, and for the same reasons. This is really a regressive tax on the “poor” which is something you people are supposed to be against anyway.
If you see some infrastructure you want repaired, get busy and raise the money from others who feel the same way. Why put the expensive middle man in the mix? Government fixing anything is an oxymoron and a sure path to destruction.
NO MORE BORROWING is the second wisest thing you said. Amen.
The wisest thing you said is that it is our fault for tolerating such an oppressive Government. What I do not understand is why you want to raise taxes to make the same Government more oppressive. These two thoughts together do not make sense to me.
Note that I blamed our dire situation on the politicians, not the Government. There is a big difference:
Politicians are individuals looking out for themselves by spending our money.
The Government is all of us who, for some reason, feel compelled to put these politicians in power over us.
What you forget, Jerry, is that the Government always promises to take money and pay it back…..they just forget the later.
April 5th, 2008 at 11:18 am
Bigger Government No thanks. How about a more efficient Government
April 5th, 2008 at 11:58 am
the revolution is coming….within my lifetime….
there are not enough army and marines or fbi to do anything about it…..
food shortages, high unemployement, 50 million illegal mexicans, bloodshed….
d
April 6th, 2008 at 1:10 pm
Bob, I think you are one of the few Nevada legislators who has any common sense. Maybe it’s because you are one of the people, working for the people. That’s more than I can say for our federal government. My personal opinion is that the U.S. government (corporation) is conspiring against the best interests of the people. If a Washington bureaucrat said it was sunny and hot outside, I’d run for my winter rain coat. The war in Iraq is a distraction and an excuse to transfer massive amounts of credit to Haliburton, Blackwater, and other “Friends of Bush/Cheney.” I almost said money, but there is no money, and has been none since HJR-192 in 1933. In short, the corporate United States government is working to destroy America, and has very nearly done it. The destruction will be complete with the finalization of the North American Union, the Security and Prosperity Agreement, and conversion to the “Amero.” We have nothing to fear from Iraq or Al Queda, the terrorists are in Washington, D.C.
April 6th, 2008 at 1:20 pm
Steve, you are right on most points, but the current government is not the people. It is a for-profit corporation, chartered in Delaware. I have been told there is also a charter in Puerto Rico, but I do not have a copy of that document so I can’t say for sure. If you have a contract with the UNITED STATES you are liable for taxes, if not you aren’t. However, those of us who signed, or whose parents signed, an SSA-5 for a Social Security number do have a contract. Or those who signed a Voter Registration form, or any of the myriad other “adhesion contracts” that bound us, without our knowledge or full disclosure, to the corporate UNITED STATES OF AMERICA. Have we been tricked? Damn Skippy.
April 10th, 2008 at 7:23 am
Dear Bob,
Thanks for everything that you have done to help save us from the part time slavery of big government. You are one of the pitifully small number of politicians that I wouldn’t enjoy seeing swinging from a lamp post.
A larger part of the gold price gain is due to inflation (increased money supply) than you realize. There has been substantial inflation in the Euro zone, too, though not nearly as bad as here. Unfortunately, Federal Reserve Chairman Bernanke is a Keynesian who blathers about “insufficient aggregate demand” while Americans consume 5% more than they produce and have a -1/2 of 1% savings rate.
The low savings rate in the US is a rational response to being taxed on the illusary interest and capital gains income created by inflation. The low rate of production (and high rate of imports and offshoring) is a consequence of the IRS depreciation schedules - build a million dollar building for your business and you get to deduct about $24,000 per year for the next 41 years. Gee, what a great deal…
April 12th, 2008 at 2:25 pm
Government? We don’t need no stinking government! What have we gotten from government lately? Trillions in debt, open borderss, more than 2 million in jail, over 25 million on government payrolls, over 511,000 “elected officials” that only seem to get rich, 4000 war dead and counting, $3.50 a gallon oil, 25 billion missing fereral tax dollars in 2003 alone and on and on and on.
When it all comes crashing down make sure you all have lots of guns and ammo!
April 12th, 2008 at 2:32 pm
Please fogive the spelling errors in the last post, I went to public school…..
AND, don’t forget how much government OWNS! According to the website at CAFR1.com, all governments, local, state and national have over $110 TRILLION in assets! WOW!!!!