And a Super Sunday to you! Yes… It’s Chuck! And yes, I know I’m not a “Pfennig Pfriend” but… I wanted to write about something that I really only have the time and space for, in this format. So, you’re stuck with me on this fine Sunday!
What I want to talk about today is something that I’ve updated readers of our monthly newsletter to clients, called The Review & Focus (RF) and I call it: An Inconvenient Debt. So, let’s get going on this, as I have lots to talk about!
Well, just about everyone knows that we recently crossed the $16 Trillion mark for our national debt. But what you might not know, is that it was just 10 months ago that we passed the $15 Trillion mark! As the debt grows larger and larger, the expansion of the debt moves at a faster pace. Let me show you how quickly our debt has grown since 2001, as your debt ceiling has been lifted 13 times in that span!
In 2001, our national debt was $5.7 Trillion, in 2008 it was $10 Trillion, and today it is $16 Trillion…
Here’s a graph of our national debt going back to 2001… The graph line sure doesn’t give me a warm and fuzzy, does it you?
Click image to enlarge.
Source: Bloomberg, Oct. 18, 2012
Many new readers to the Pfennig accuse me of banging on the current administration and leaving the previous administrations alone. But that’s not true! I wrote the first white paper on our debt back in 2001, and pointed the finger at that administration for their budget deficits, every year! Look, I don’t care who’s to blame… it just needs to stop!
But that’s not what keeps me up at night… The thing that really causes me to lose sleep is our Unfunded Liabilities. Unfunded Liabilities represent all the promises we have made that are, well, unfunded! Right now, that figure is $121 Trillion. The U.S. Debt Clock, which can be found at: usdebtclock.org
The Debt Clock forecasts that with no changes to our current programs, the Unfunded Liabilities will reach $148 Trillion in just 4 short years! Imagine those expenditures being added each year to our National Debt. Are we becoming Greece?
There are really only a few choices a country has to deal with debt that cannot be paid off. They can raise their revenue (think much higher taxes), they can reduce their deficit spending (fat chance of that happening), they can allow their currency to be debased to a level that allows them to pay back debts with cheaper currency, and finally… They can default.
It’s my opinion that we will not reduce our deficit spending, and instead will try to apply a tourniquet around the bleeding by raising taxes to levels not seen by most people before, and debase the dollar. And if all else fails, default… That’s way down the road, while the increase in taxes and the debasing of the dollar is happening before our eyes, right here, right now!
Now, many countries are choosing to do the same debasing of their currencies, which means the U.S. will have to work harder to have the dollar cheaper than other currencies. I get asked all the time this question: “Chuck, if everyone is debasing their currencies, why would we buy non-dollar currencies?”
Ahhh grasshopper, I’m glad you asked… Basically, the way I see it, is simply that the U.S. dollar will lead all currencies down the road of debasement, which means other non-dollar currencies will potentially have greater value than the U.S. dollar.
Gold and other precious metals seem to be the currency du jour during this period of currency debasement, as they can’t be debased, they can’t have liabilities tied to them, or be subject to devaluation!
So… I’m not just someone that points out the problems… I have ideas as to how to solve the problems, but most people don’t ask me… for they are afraid of what I might say… Shoot Rudy, the legal people at EverBank always cringe at what I might say! That’s because I say what’s on my mind…
So… Here’s Chuck’s view on how to fix the debt… Please if, you disagree, I understand, for this is not everyone’s cup-o-tea… At the same time, it’s just little old me, and my thoughts… they’ll probably never go past this letter!
- Let’s stop all wars… that’s the war in Iraq, Afghanistan, on drugs, on poverty, you get the point!,
- Let’s close all military bases around the world, especially in countries where the people don’t want us there any way. Bring those soldiers home, and put them on the borders to protect our country.
- While discretionary spending isn’t going to make or break us, I say stop it! If we don’t have the money to pay for some program, stop funding it! Look… if it’s something that the public really wants, a private entrepreneur will begin pay for it, for if there’s demand, the entrepreneur will find a way to make money.
- Pass a law requiring a balanced budget… and no more debt ceiling increases.
- Repeal 1913… Look it up… and while we’re at it, repeal any laws made since 2000, that infringes on our personal liberties, or gives our Gov’t more power. And one more thing, don’t allow any lawmaker pass a law on citizens that they are exempt from.
- And now, the 800 lb gorilla in the corner of the room… What the lawmakers call “entitlements”… Since when does someone like me pay into a system for 50 years, and when it comes time for me to withdraw the money I paid into the program, it’s called an “entitlement”? Any way… as long as the Medicare, Medicaid, and Social Security are the biggest nut, of our debt, here’s my plan… First of all, anyone 60 years or older gets 100% of what was promised them. No cuts to their programs. Anyone from 50-59, gets 50% of what was promised them, but everything that anyone paid into the system. And then anyone younger than 50, gets nothing promised to them, but everything they paid into the system. They have plenty of years of work to plan their retirement.
- By doing these things… we will reduce our annual budget deficits, and eventually get to a balanced budget. Having a balanced budget stops the bleeding in the national debt. Then to reduce the debt, we begin to change the so-called “entitlements” outlays, and our national debt will begin to narrow.
Think I’m nuts? Well, that’s OK… I’ve been called worse! At least, I’m thinking of ways to reduce the debt! Our lawmakers come up with plans that reduce “X” from future spending… Are you kidding me? Who falls for that kind of rhetoric? All someone would have to do is increase future spending, and the bleeding continues! We have to stop this deficit spending now!
And then, while I’m thinking of everything I’ve written today… if the U.S. Gov’t is going to continue to allow the dollar to be debased, and cheapened, then your purchasing power is being reduced, folks. To offset this potential of a cheaper dollar, and a loss of purchasing power, diversifying a portion of your financial portfolio out of the dollar and into other currencies and metals, have the potential of retaining your purchasing power.
Many people over the years, have asked me what percentage of their financial portfolio should they allocate to currencies and metals… I tell them that each individual has their own risk tolerance, but… I’ve always held to no more than 20% in currencies and 10-15% in metals.
Thanks for your time today… I’ll be back tomorrow morning with a regular A Pfennig For Your Thoughts!
Sincerely,
Chuck Butler
President
EverBank World Markets, a division of EverBank
1.800.926.4922
---
Comments
All comments are moderated. Please go here to read comment guidelines.
I agree with you 100 % , but how to get the collective bunch of idiots in washington (and the states) to behave responsibly. The just ignore the people. buy them with various payouts etc.
Great article Chuck! Just one question regarding point number 6. Are you over 60 or under 60?
Excellent and provocative article, Chuck.
I am always concerned when austerity or tax increase plans pit one group of people against another. In this case, people over 60 versus people under 60. Or in Obama’s tax plan, people making over 250,000 versus those making less. My view is that it is necessary for every person in the US to suffer some in order to get out of this. Dividing arbitrarily into privileged classes may do more to divide us a nation, which has increasingly become one of our weakness as the political rhetoric has been turned up of “us” versus “them”
Now even if all discretionary spending were stopped tomorrow, it would not eliminate the debt. So are you suggesting that all discretionary spending be stopped? All roads? All airports closed? All trains stopped? It seems we would have chaos and insurrection.
Is there a website where citizens can plug their own ideas into the budget to see what the effect would be? That would probably be very instrcutive for every person who has an “easy idea” of how to get out of this mess.
This country will never get rational about military spending. We somehow believe we’re the world’s savior, and have some sort of messianic role to bring peace at the point of a gun. We will have to have our “empire” wrested from us before we even consider you proposals in that regard, unfortunately.
I do not agree with a balanced budget amendment, nor with eliminating social security. The first because deficit spending is a proven tool to overcome recessions….so just limit deficit spending to certain conditions. The latter, because there is lot of research that shows a substantial proportion of people will not plan or act for their own future well being, and I don’t think we can or should let them pay the full price of their irresponsible folly.
Hi Chuck,
Radical solutions, just like Ron Paul, the only Presidential candidate willing to tell the truth.
Still wish EB hadn’t closed my Icelandic CD, that country did the right thing IMHO.
Sorry about the Cardinals, doesn’t look like anyone can beat SF.
Rebecca
Chuck,
Thanks for a great article, my sentiments exactly. We as a nation are in very serious
trouble. Washington will not solve our problems, my children and grandchildren and yours
will be the ones that will suffer greatly.
Have a great day and good health to you.
A. Griffith
I agree with all seven of your suggestions. But before that could ever happen, America would need politicians that put we the people first, as the Founding Fathers did, and not power, control, and getting re-election, which are the three that come first for them. That would also help to eliminate Corpocracy (America being run by corporations and politicians beholden to them), which is the real, and elicit, law of the land.
“Bankruptcy 1995″ by Harry E. Figgie, Jr. predicted what would happen but nobody listened. Our deficits have been increasing since 1964 and the Lyndon Johnson “Great Society” programs. Ronald Regan was the bigest deficit creater of 1.34 trillion in 8 years prior to Obama. A prediction for today and NOBODY listened.
How do we implement the BUTLER PLAN? I am 100% on board, although I would add means testing to SS, say, half of it. (I’m an 81YO SS recipient, still working by choice).
Of great importance is your idea that Congress should be included; they are citizens and should participate as such. Including public health care and retirement programs.
We plan for retirement, perhaps sometimes naively, and as a small business owner, I based my salary at a number to maximize SS . After all, it was there: I didn’t want it, but since I had to participate….
GO Chuck! Thank you for all you do. And be well.
VERY SMART MAN, First list I have seen that’s simple and to the point. 1913 is the real star. So much correction, so little time. #1 is a problem, Can we make an exception for Iran? And no exception for more than two terms for any politician.
Chuck, your the best.
Thanks for the article. We do indeed have to deal with the debt, or the debt will deal with us. History is very clear about this. Then we must do awaty with “the Patriot Act”and its subsequent spawn TSA. Both of these are an insult to our constitution and are leading us into a total plutocracy as well, as bankrupting us litterally and spiritually.
Yes, yes yes! Well done.
And I can see why people cringe. Denial is comfortable and mealy mouthed “solutions” draw less criticism.
Thanks for this Chuck.
Chuck, You are so sly. You purposely avoided the giving back to us the money our employers paid into Social Security. I was an employer and paid in many many dollars to the system for my employees. Are you suggesting that this money not be given them? The employees payments were matched by the employers and this is part of their pay. It is the best system of retirement ever conceived and has been managed much better than any private system with no risk. That is no risk except congress which has borrowed this huge amount of cash we have saved.
If they were to keep their hands off of it. If the greedy ones in this country who think they don’t owe their employees matching funds for retirement would stop and think a little bit about their people. We are all in this together and we need to see that no one does without when they work for it.
I could go on and on, but have to go to church now and pray for your soul.
Regards,
Larry
Amen to repealing 1913! Sounds like a great project for its centennial. Theonly thing we can’t do is erase President Wilson.
Some thing should be done about paying the elected who are servicing the public. Pay them minimum wage. Same for all government workers. The richest counties in the country are around DC. If we can not have term limits let them work for nothing-they are all worried about the masses(you must be kidding)-no pensions or free health care for the elected or their staff. We are rotting from congress down. The rebulicrats take care of them selves first. You are correct about too much $$$$ going to the war machine.
Thanks DJJ
I disagree with your Social Security fix as it totally ignores means testing the program. Why should a 52 year-old person who rents take a 50% cut in their promised benefits, while a 70 year-old person is allowed to continue to be paid more out of a cashless trust fund than they ever put in, while sitting on a fully paid-off house worth $1.4M? That’s an asset that can be used for a reverse mortgage to live on. Sacrifices in correcting this Ponzi Scheme need to be based on net worth — assets — not age. And anyone younger than 40, should be saving into their own private accounts just as they do in Australia, Chile and Singapore.
Hey Chuck, why buy any currency if they are all being devalued? Why invest in something that will decrease in value?
Good thoughts Chuck. I have followed your daily comments for years. Common sense is a rarity today but maybe
the voices of you & Ron Paul will impact on enough people to force a relook at where the US is headed.
I live in Newealand for most of each year but even here the insidious forces of socialism are taking the country
down a slippery slide.
With Best Wishes John Mathews
Thank you, Chuck!
I like to include this law: No more lobbyists!
I also like the “entitlement” (pensions and health insurance) of Congress cut. Actually, since they have not served the people since ages (only themselves) let’s only give them what they put in ( I know, nothing). Those are my thoughts, and being originally from Germany, I am like you: I say what I think.
Please do not include my full name; I might get black listed.
Thanks again for all you do and are.
Inge Mihm
Yo Chuck
Spot on with this article… You have hit on points that make sense to bring down the massive obligation that will effect everyone in this great country Neither party running for the presidency has come close to telling the people what needs to be done to turn this debt machine around …. thanks for sharing this with us
Cheers
Dee
If at all possible you should be both Secretary of the Treasury and head of the Fed. in the next administration. I believe you are 100% correct although I will feel the pain.
Hi Chuck
I love you (but not for joining you in a pride parade). I wish you were my next door neighbour and best friend but sometimes the way you write your daily phennig It seems that you are. Why does the media and even left leaning populace not want to get it. Socialism (to each according to his need and from each according to his ability) has never worked and can’t work. I am a Canadian and we always looked up to the US (some were even jealous) because your unemployment was always less than ours 3% or 4 % to our 7% to 8%, interenst rates were lower than ours, prices were cheaper, productivity higher, taxes lower but now you are making us look good. The only difference I can see between our countries is our government had the same regulations as yours but ours didn’t tell the banks they had to by pass the regulations and not refuse anyone a mortgage. If a publicly owned company with a record like your country with a CEO with lots of experience in fund raising and only 2 years in the senate the company would be ready to dump him and look for a turn arround CEO with a record like Canadian National Railways CEO Harrison Hunter but wait you have an experienced turn arround CEO; Mitt Romney.
Why Why Why
A publicly run company with a four year record like yours and the it’s not the CEO’s fault he was a fund raiser with only two years in the Senite
Spot on Chuck! I couldn’t find a thing to disagree with. I also especially agree with your point about defense spending – do we need boots on the ground in something like 150 countries?
Well said, I’m 78 and in favor of whatever it takes to solve this debt issue and reverse the laws that limit personal freedom. I depend on my SS check, it would be difficult but I would be even be willing do without some of it to solve the problem. If someone has a better answer, let them come forward as you have.
Excellent! I think you should form a study group to formulate these solutions to become law, if not tomorrow, the day after. I think there are better solutions than your approach to Medicare, Social Security and Medicaid, but I do not think you have to cut benefits that have been paid for by us. Simple solutions, e.g., remove the payroll wage cap, and remove all the tax avoidance schemes, such as the “carried interest” 15% taxation, and other special tax benefit rules of the IRS. Simply, reform the Tax Code. Ever hear of double taxation, corporate dividends. etc.! well, the cost of service of all companies providing products to customers include the cost of corporate income taxes (whether paid or not), which are internalized in the costs to serve, and the products sold to the public who buy their items. I’m a retired accountant, you’re an economist, both born in Missouri, the show-me state. Why can’t we solicit the best ideas to balance the budget?! Because, until we have voter education to understand the situation, and a necessary economic solution, the politicians will not respond. Perhaps its time to pass laws which make them one term if the budget is not balanced and cut their pay?! But they all seem to know the end game, which is being played globally. Everyone runs up the greatest debt (like the largest tab at a restaurant where the bill is split) until there’s no more credit, and then bankruptcy for all, wiping out the rich who hold the debt, and everyone starts over. Is that the game?!
A Sunday super solution! Bravo Chuck.
The big gotcha of unfunded liabilities is health care. Future health care obligations are denominated in services, not dollars. A promise of a future angioplasty will still be an angioplasty after the currency is debased and shifting the decimal point on its cost doesn’t make the commitment go away.
There’s no way around it. If the American people want Scandinavian style health care, they’ll need to accept Scandinavian style taxation.
Dan
Shut down all our wars? What about the suppliers of boots and bullets and other hardware? Think of the severe impact on the yacht, fancy car, and private aircraft business. Re-election campaign funding could be threatened. Resort and vacation properties all over the world could sit idle.
The war on drugs simply must continue. The vast majority of the 2.2 million incarcerated are drug busts. Multiply that number by the national average of more than $40,000 per prisoner cost of jailing and wonder who’s pocket collects all that taxpayer money. Powerful persons resist changes to the game.
Our masters in D.C. are concerned about their welfare, not ours — at least most are and majority rules. Take out the trash – sack the incumbent!
Kenny Danielson
10 Words to make instant progress toward balancing the budget, and add certainty:
Freeze ALL Government Budgets and Transfer Payments at 2012 Levels. (ONLY exception is if we formally declare War.)
This is an extremely slow glide path, therefore totally politically palatable, relying on eventual growth to balance the Budget. You have to start somewhere (i.e. politically palatable), AND avoid the “Greater Depression” (Doug Casey’s term).
Of the “what, when, why, how and where”, great to read about an “how”!
“… everything that anyone paid into the system …” for a benefit should get that benefit as an entitlement if actuarially calculated or on a proportional “commercial” basis, if not. That benefit is a genuine entitlement if provided “commercially” and it should not be confused with the other so called “entitlements”. Depending on the type of insurance, the insured should be able to “cash in” or surrender his benefit for cash, to enable him say, to pay down his debt or help him establish a business where he becomes unemployed.. All these imposts made by central government should be terminated forthwith and privatised.
Would the paying down of $16 trillion in debt not lead to contracting fiat money supply and deflation and what will the effect be on the prices of gold and metals? I would think these prices would fall too, or is there to be more money “printing” just for the “well connected” banks that are too big to fail?
It is believed that all the money “printing” so far has been to keep the favoured banks solvent as they no longer “mark to market” and, consequently just a contribution to replace contracting fiat money supply, virtually all of which still has not been recognised from an accounting point of view. A few trillion of stimulus is nothing when compared with a problem measured as a proportion of a quadrillion!
1913 is a “must”!
From my understanding of the meaning of the work of Keynes, it was more to activate the accelerator with a minor stimulatory boost, once the bottom of the depression has been reached and NOT to be applied “politically” in every minor recessionary period, and certainly not to avoid a depression, in which case, it becomes an ineffective antibiotic and merely prolongs it!
Hard times lie ahead: “… a time to break down … a time to lose … (and) … a time of war …”?
Right on, Chuck. However we cannot be compared with Greece. As Arthur Burns once said, the USA can never go bankrupt because our debt is in dollars and we have a printing press; they can’t print Euros. Some years ago our Treasury decided to issue debt denominated in foreign currency, but after I sent letters to the powers that be, this was quickly discontinued. Given the proclivity of our citizens for goodies now rather than financial stability (households maxing out their charge cards), we will always choose to continue our social programs. We can just print the funds to cover our deficit (Ouch! My retirement savings!). Then the Feds can buy up the outstanding debt, and we will owe no interest. The interest paid to the Federal Reserve, by law, is refunded to the US Treas. (after their operating expense) and Voila! mounting debt at no cost – except my retirement savings! Hello Rwanda