Freedom from Debt Slavery

I am intrigued by the argument, now being voiced by more prominent figures such as Bill Clinton, that the way out of the debt ceiling impasse is through use of a rather obscure paragraph of the Fourteenth Amendment to the United States Constitution. To wit,

4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

When the 14th Amendment is mentioned in public discourse, it's usually about its first paragraph, the one containing the prohibition against denial of due process or equal protection by any State of the Union (the Fifth Amendment already covering these points where the federal government is concerned). The 14th was one of the crowning achievements of Reconstruction; it eventually assured the citizenship of any slave born in the United States, and served, ultimately (nearly a hundred years after its passage in 1868), as the basis for the Civil Rights Movement, as the 14th was the great federal trump card against George Wallace, Orval Faubus and other blights upon American history, who were the ones who gave "States' rights" a very bad name which persists to this day.

Paragraph 4 was not really passed with the current situation in mind, of course, anymore than the Founding Fathers were thinking about gestational trimesters when they enacted the Ninth Amendment. The Constitution is a small island of text, however, surrounded (and inundated) by an ocean of judicial gloss and exegesis (and oceans made of glosses and exegeses rarely occur in nature). The 14th Amendment's "debt" clause (the above paragraph) has only rarely been addressed by the United States Supreme Court, and never in the context of a contest between the legislative enactment known as the debt ceiling (which has only been around since 1974, I believe) and the Constitution. If there is a contradiction, of course, then under the holding of Marbury vs. Madison the 14th Amendment prevails, although with Roberts, Scalia and Alito around, the overturning of even Marbury vs. Madison is a possibility. That would raise some interesting logical paradoxes - the Supreme Court overruling the concept of Judicial Review by using Judicial Review to conclude that Judicial Review is unconstitutional. More or less like figuring out: This Statement Is False. I love stuff like that. Maybe the Supreme Court could meet in a building patterned after an Escher drawing.

Although there has not been much judicial guidance as to the application of the 14th to the debt ceiling, the current learned debate concerns whether the "public debt" that "shall not be questioned" refers to existing debt incurred through Treasury borrowing or is a more general prohibition against denying the validity of obligations of the federal government. Either way, it might offer President Obama a way out if push came to shove.

Under a conservative reading of the first sentence (and Obama, being a preternaturally cautious individual, would certainly prefer to go out on a limb only as far as necessary), the 14th would seem to permit the incurring of additional debt if necessary to carry on debt service on existing debt or to "roll over" outstanding Treasury obligations (since there is never a precise, neat and clean correspondence between maturing debt and how much money you need to handle the redemption). That is to say, the Ponzi economic scheme we now use, whereby we take on additional debt by selling Treasuries to marks and suckers who "invest" so we can use their money to handle the debt from suckers who invested earlier in the inverted pyramid, "shall not be questioned," because it's either who we are or what we've definitely become. A nation with an acquired, vested right to live permanently beyond our means because we're Exceptional. Deal with it, world.

A great cry would of course arise from the humid, fetid trailer parks of this great land, as the Tea Bag contingent of the Booboisie (h/t: H.L Mencken) realize they've been had by this Ivy League hipster, and next thing you know, we'd be embroiled in an impeachment crisis; a Constitutional crisis, as the Supreme Court, naturally, rules against President Obama on the issue; and many other circus-like developments. I can only say: please, Lord, let all that happen. Impeachment would fail, as it did against Clinton, because 2/3rds of the Senate is not going to vote to convict. If the Supreme Court rules against President Obama, O can reach into the mists of history and use that great quote from President Andrew Jackson replying to the Supreme Court's ruling in Worcester vs. Georgia: "Justice Marshall has made his decision; now let him enforce it."

Sure, the quote is apocryphal, and sure, Barack Obama would never say such a thing, but it would be a great "Mr. Smith Goes to Washington" moment. More interesting, anyway, than listening to John Boehner.

The Upside of the Downside, Revisited

I think I should first make clear that I don't consider the current financial predicament of the United States my personal fault. I've done what I could, but it was obviously insufficient. I think, rather, that the proximate cause of the current troubles (employing that term in the vague way it is used in legal parlance) was the 8 years of catastrophic misrule by the Bush/Cheney cabal, from which we're not likely ever to recover, at least not in the proximate future. Bush's decision to reduce the top tax rate from 39.6% to 35%, thus granting relief to the taxpayers (high earners) who primarily finance the income tax side of national government, while substantially increasing defense spending both as a baseline and with all the huge supplemental appropriations for the unnecessary, profiteer-motivated wars in Afghanistan and Iraq, operated as the coup de grace.

None of this has anything to do with Barack Obama. Bush ran deficits, measured in the only real way, as the increase in the national debt year over year, of about 1/2 trillion per year for a period of 8 years. The red ink flowed at exactly the wrong time, while the Baby Boom generation was nearing retirement (78 million strong), and while the endless series of "free trade" agreements and federal enabling of big companies that wanted to move jobs offshore were in full cry. Bush & Cheney wore flag lapel pins, but Cheney reportedly kept about 69% of his vast fortune (acquired through his connections to corporations with strong federal contracting, such as Halliburton) in foreign currency denominated assets. So while Bush & Cheney were ostentatious in their "display" of patriotism, they were not patriots in the sense I think of the word. They were using the United States, and the fear they could instill in the populace through their absurd exaggeration of the terrorist threat, to make a bundle, although certainly this was more Cheney than Bush, since Ol' W couldn't figure out how to get really rich even when the fix was totally in. As the great Phillip Roth wrote about Bush, he was a man who "lacked the acumen to run a hardware store," and we put him in charge of the most complicated political/economic organization on Earth.

This is a failure of democracy, pure and simple, although certainly in 2000 it was not the fault of the popular vote. Whatever, Bush performed true to all indicators in his past, which is to say, he ran this country into the freaking ground. Because the attention span of the average American observer is approximately that of a six-week old kitten juiced on methamphetamine, most members of the American electorate, dazzled and confused by the carnival barking of the Mass Media, can't remember how we got here - on the brink of default. But that is, in fact, where we are. The cable TV news shows (which I am now privileged to see again, having hooked up the satellite and changed my habits from watching only Netflix streams of old "Twilight Zone" and "Alfred Hitchcock" episodes) naturally turn the current dilemma into a Red/Blue, Dem/Repub morality play, with some justification, but this drama does not actually produce any money for the country. Nor is it productive, as I hear Ed Schultz say tonight, to constantly repeat that the "Social Security trust fund is solvent through 2037," because this is a talking point with about as much content as the trust fund itself.

The only salient fact is that the United States does not really have very much money. The Treasury has some billions in its operating account at the Federal Reserve. You can look it up online, if you like. This is the one area of federal governance of reasonable transparency. Beyond those billions (certainly less than $50 billion), the United States does not have any cash. To speak of one part of the government owing another part money (as the game is played with the entitlement trust funds) is a form of denial bordering on delusion. We say such things because, at bottom, we're afraid to come to terms with what is real here. Any money that we raise through some mechanism other than printing must come from either taxes or from borrowing through Treasury auctions. Taxes (inclusive of income taxes and FICA) come to about $2 trillion annually, net of trust fund games. The outgoes are on the order of $3.7 trillion. If we don't raise the debt ceiling and resume borrowing more, we're stuck trying to match the insufficient income to the overwhelming expenses.

I don't know which way this thing ought to go, to tell you the truth, and thus the title of the post. It is not that I sympathize with the Tea Party, because I think they're mostly lunatics. They are dangerous True Believers who sign away their independence to loyalty oaths and pledges, and these are always the mark of the Fascist Right. The Nazis were not great political theorists, they simply achieved their aims through iron discipline (enforced implacably and increasingly through violence as the years went by). The Tea Party cadres love the feeling of solidarity they get from the Movement, of signing the pledge never to raise taxes, no matter what, even if the country must have additional income. These are the stigmata of the extremist.

Yet if the whole system goes down because of the implacable resistance of the Right Wing, as it possibly could, then I think the Right Wing will go down with the whole system. Like Samson, they will bring the temple down on their own heads. If the federal government is an "insurance company with an army," as it appears increasingly to be, given its extreme budgetary limitation, what happens, at the state level, if the central government lacks the money even to perform these two functions, that is, it cannot fund both the entitlements and the trillion dollar defense budget?

An interesting conundrum. If the entitlements are the only things that survive (and Social Security, Medicare/Medicaid and debt service on existing Treasuries is all that $2 trillion will pay for), then why have a federal government? Would the states encourage their citizens to send money to Washington, D.C. just so D.C. could send it back, minus its "administrative costs?" Wouldn't the states be more likely to begin thinking, "it sure would be nice to keep that money right here where we can put it to use right now" ? If, on the other hand, defense keeps its trillion dollar share, perhaps by what amounts to a military coup (and here's where Barack Obama would be particularly useless, standing up to the Pentagon), thus requiring drastic cuts in the entitlements (but leaving room for the $300 billion or so in interest payments to avoid default), wouldn't the citizenry then cry foul! at this betrayal of government promises, leading to the same result of dissolution?

What's very interesting to me at this point is that I am not describing some sci-fi potboiler plot (it wouldn't be as good as Rod Serling's anyway). The situation I'm describing is the pretty pass to which the United States has been brought. I am describing the actual financial condition of the United States of America. Raising the debt ceiling is the actual fantasy, because given the intransigence over taxes, the future holds only an ever-deepening hole. The American economy is not recovering, employment is not getting better (stagnant, except for the bubble years, for well over a decade), and we are talking only about taking on The Bridge Loan to Nowhere.

A curse, I suppose, to live in such interesting times. We may be on the precipice of (a) default and dissolution, (b) a printing-press fired Weimar hyperinflation (if the Treasury decides to print its way out of bankruptcy), or (c) all three of these things. It's a Mad Tea Party, alright.

Refinancing Sparta

Glenn Greenwald, who does a much better job than I ever could of cataloging the absurdity of America's "war on terror," recently devoted one of his columns to Leon Panetta's exciting revelation that only about "10 or 20 al-Qaeda leaders" remain in Afghanistan. I think I mentioned before that Panetta, who always seems to hold some high post in every Democratic Administration (I think he's Secretary of Defense now, having moved on or up from the CIA), got his start as a character actor, playing a pharmacist on "Dobie Gillis." That's either true or something that I find funny and keep repeating even though it isn't.

A couple of thoughts come to mind: so this is why we're still fighting the war in Afghanistan, about ten years after we started? To finish killing off these 10 or 20 guys? And one other question: if we're at the point where we can count them, how come we can't just kill them now? My guess is that Leon did not clear this statement with Message Control Central over at the White House. He's been in politics for so long, Leon has (virtually his whole life), and has held so many big positions (he was Chief of Staff to Clinton for a while) that he perhaps forgot that he's a functionary in the Obama political machine and not a policy maker. There must have been some elaborate cringing in the West Wing when Leon delivered that little aperçu.

Still, it highlights the craziness of America's misguided reaction to 9/11. 9/11 was significant for two reasons: (1) it highlighted that it's dangerous to go to sleep on the job and to fail to use the existing intelligence apparatus to protect the country, as the Bush Administration unquestionably did; and (2) it was highly significant for the people who were killed and for the people who loved them. Beyond those things, 9/11 became simply a grandiose political football (if a football can be grandiose), and entered the myth-making machine of American mass media, never to be recognized for what it actually was again. Bush's carefully calculated overreaction (orchestrated by Cheney) was for the express purpose of diverting the national attention from the fact that it was the Bush/Cheney Administration's fault in the first place, and, of course, also serving as a pretext for what they wanted to do all along, pump more and more money into defense. If the al-Qaeda problem has been reduced to 10 or 20 guys (even allowing for a moment the unproved assertion that al-Qaeda was behind 9/11, instead of, say, the much more logical conclusion that it originated with the Muslim Brotherhood or Saudi factions unrelated to al-Qaeda), then why the continuing production of advanced fighter jets and aircraft carriers to launch them from, and the Bradley Fighting Vehicles and all the rest of this costly nonsense (h/t: Charles Dickens)?

It's a rhetorical question. Bush & Cheney, and now Obama, realize that all this "investment" is not necessary for anti-terrorist operations, which, last time I looked, is supposedly the existential threat to America justifying our extreme devotion to defense spending. I note that the Right Wing in particular likes to talk about our defense spending in terms of a "percentage of the budget," or even as a percentage of GDP, as if there is some unwritten axiom somewhere that dictates that a country must spend some part of the national wealth on the military. But what about just the absolute freaking number? We like to deceive ourselves with the idea that this number is $700 billion (as if we could afford that), but it's not $700 billion, because the metastatic process of the Security State gave us the Department of Homeland Security, the 14 different intelligence agencies scattered throughout the government, the National Security Agency, and they're all more or less doing the same thing: keeping us safe from those 10 or 20 guys, and it costs closer to $1 trillion a year, as the late, great Chalmers Johnson informed us in numerous books, including The Sorrows of Empire.

In other words, about half of our actual national income. If you look over there to the right and click on the link to Cost of Iraq War, you'll see a running total of the costs of the wars in Afghanistan and Iraq. We're currently at about $1.222 trillion for these diversions. If you add about $700 billion, representing the cost of Bush's reduction of the top tier tax rate from 39.6% to 35%, you come to about $2 trillion in squandered treasure, all for no reason other than mismanagement of the nation's business. The fact that Bush was elected twice should tell you why democracy does not actually work in America. Thomas Frank's brilliant query in What's the Matter With Kansas?, to wit, why do Americans vote against their own economic and social interest, cannot be answered except by saying, well, the electorate is kind of stupid, actually. The combination of a misinformed and poorly educated electorate with a money-driven, manipulative politics is pretty lethal, really. Which explains a lot of why things look the way they do these days.

So I notice, at long last, that even Washington, D.C., has begun to question the wisdom of so much defense spending. True, it's only because there's no other choice. Perhaps this will even lead to a diminution in missile attacks in Afghanistan, Pakistan, Yemen, Somalia and God knows where else, and will thus lead, as Glenn Greenwald persuasively argues (as do many other observers, including Robert Baer) to a diminution in newly-created, anti-U.S. terrorists, because our random killing of many non-terrorist people in these countries with our "precision bombing" is one of the main sources of terrorism. You could say that these constant drone and Predator attacks represent our cynical investment in the War on Terror: it's a self-perpetuating business, although if Panetta is right, the inventory is a little low, which probably explains why we've moved on to new markets in Yemen and Somalia.

Still, a chance to reduce the militarized nature of American priorities is one patch of blue in the dark skies of national insolvency. It would be nice if President Obama talked about that for a change, instead of decreasing the COLA adjustments in Social Security for Americans in their 80's and 90's, where his current focus seems to be. Maybe if we cut back just a little on the aircraft carriers and $250 million jets, and allowed our military budget to be, I don't know, only three times larger than the next biggest budget, that of China, instead of somewhere between 6 and 10 times larger, we could still be safe from the world, where no actual nation has any intention of attacking us, with enough left over to handle the 10 or 20 guys.

Drifting toward the falls

A friend and faithful reader writes:

"I enjoy your consistently perceptive comments on the budget goings-on, but I wish you had used to illustrate the problem that Obama's "grand bargain" to cut $4 trillion of spending over the next 10 years doesn't begin to address the deficit problem. Assuming the average savings is $0.4 trillion a year (it's not but so what) and that the savings turn out to be what they're forecast to be (they rarely do), we still have to fund an annual deficit of $1.1 trillion or so. The deficit is so large that elimination of the entire military budget wouldn't fix the problem (and I'm not suggesting that the military budget not be significantly cut). The $2.4 trillion package they're now trying to negotiate is even less effective."

These statements are unfortunately true, and I don't disagree at all. In fact, my understanding is that the "$4 trillion dollar deficit reduction" is not actually a subtraction from the amounts of the current budget or future budgets, so that we would actually be spending less now or in the future than we are at present (in nominal terms), but is only a reduction in the anticipated increases in future budgets. Thus, if the future budget deficit is still $1.5 trillion, but it would have been $1.9 trillion without the "cut," that still counts as "$400 billion toward a ten-year total of $4 trillion." Joe Biden was apparently asked by one young GOPer at a recent meeting how much his "$2 trillion plan" would reduce actual federal spending next year, versus current expenditures, and his answer was "$2 billion." These are all just improvised acts in the Theater of the Absurd.

One must learn to speak the language of our slippery politicians. The problem that Congress faces in trying to find something, anywhere, that can actually be cut is that by the time they get around to the "appropriations process," about 67% of the budgeting has occurred automatically, because Congress deems it politically necessary to honor existing commitments to Social Security, Medicare/Medicaid, unemployment, food stamps and interest on the public fraction of the national debt. Thus, even the suggested changes to Social Security and Medicare speak in terms of future "means testing" or raising eligiblity ages, and these ideas tinker around the edges. As the population ages and the rolls of Social Security and Medicare/Medicaid continue to swell, all of the safety net problems are going to get worse.

Not that Congress or the President actually bothers with a "budget." We have not had an actual, signed budget since fiscal year 2009; they're literally making it up as they go along, which, when you think about it, makes sense under the circumstances. When your income is $2 trillion and your expenses are about $3.6 trillion (actually, the newest Monthly Treasury Statement just came out, if you want to take a look: http://www.fms.treas.gov/mts/index.html, and it's the usual horror story - the deficit is now at $1.7 trillion), does it actually make a lot of sense to talk about "allocating your resources?" They're just hanging on and faking it from month to month.

Let's face it, the "plan" all along was for the United States to grow its way out of this mess, and to resume the upward trend line as in previous recoveries; however, that's not happening, so we're stuck with the awful problem of exponential growth in debt matched with precisely no growth in actual wealth; thus, the "yahoos" in the Tea Party who are fighting the debt ceiling raise may be crazy, but it's possible they're crazy only because they're right for the wrong reason, if that makes any sense and I don't see how it does. So to rephrase: I think the real motivation of the Tea Party thinkers is simply an assault on certain aspects of central government of which they (or their financiers, such as the Koch brothers) disapprove, which is why they often cite as examples of runaway Big Government the "EPA," or the Departments of Education and Energy, or the tiny fraction of 1% of federal money that might find its way into sex education. There are, of course, problems with Big Government, but the places to look for them are in the Departments of Defense, Homeland Security, State, Agriculture and the other real money-suckers among the budgetary line items.

Anyway, we continue to drift toward D-Day (Default Day), and the propaganda from our squealing politicos is getting very shrill indeed. President Obama talks about suspending Social Security payments. The guy gets paid, what, 400 grand a year? This is symptomatic of our problems these days: gross incompetence. It so happens that Social Security is one of the federal programs where it's okay to sell debt to continue operating, even after the debt ceiling is hit. The reasons for this are a little technical, but should be well within the ken of a high elected official. Specifically, while it's true that the total of public debt (a little under $10 trillion) and intragovernmental debt (Social Security and Medicare, mainly, currently about $4.5 trillion) cannot exceed $14.3 trillion under the current ceiling, the Treasury can sell public bonds to redeem the intragovernmental bonds on a 1:1 basis; thus, as Column A goes up (public debt), Column B (intragov.) goes down, leaving the total the same, pressed tightly against the debt ceiling. The "redeemed" bonds would allow Social Security to remain solvent for a few years longer even with the existing ceiling. Yet I suppose that one of two things is possible: Obama simply doesn't know this (pathetic), or he doesn't want to mention it because it will reveal exactly what we're doing now to fund the shortfall in Social Security receipts vs. outlays (misleading). Either way, he's picked the worst possible example and has called again into question whether his vaunted "political instincts" are really all that impressive.

I'll leave for another day the obsolete idea of "growing our way" out of debt, another increasingly hopeless conceit of the Beltway and of the academic economists. Meanwhile, the canoe continues to drift toward Niagara, and the paddlers have thrown their oars overboard and decided to engage in fistfights instead. Hey, it's what we pay them for.

Further reflections on the budget morass

(Click on graph to open in separate window.) I found yesterday's exercise in going through the fine-grained detail of the budget negotiations somewhat head-clearing, and, after all, isn't it the duty of an American to apprise himself of the actual data as an act of informed citizenship? So much of the daily blather I read and hear about the debt ceiling impasse seems political and "qualitative." Liberal Keynesians such as Paul Krugman and Brad DeLong urge, without doing the basic number-crunching for us, that the government simply borrow and spend more in order to "spur a recovery." For them it's all so obvious. At the other extreme we have the Congressional Tea Party Caucus taking blood oaths and signing mutual suicide pacts assuring that no member will ever vote to raise the debt ceiling.

The above graph is from the research facilities of the St. Louis Federal Reserve Bank (FRED), which maintains all kinds of basic data on the U.S. economy. It's not as if you can't look this stuff up and see for yourself; it's all there. The above graph, of course, misleads by extending the "receipts" figure into years beyond the current fiscal year ending on September 30, and implies that tax revenue will approach $2.4 trillion. The government and its agencies just can't help themselves. Their sinecures depend on sunny optimism. But leaving aside the projection into the unknown, you can see where we've been with a great deal of accuracy.

The graph tells you that the United States has never, in its history, received more than about $2.7 trillion in revenue from all sources, and of course even this number is infected with the usual "on budget/off budget" malarkey, the contribution from phantom trust funds, and the rest. It's not a "quiet" number; it's noisy, as usual. However, let's call it close enough for government work. The maximum number earned in the best of times, in other words, is about $1 trillion less than current federal expenditures.

The surge in income during the early years of the Bush Administration was attributable, obviously, to the housing bubble. The temporary wealth effect of the housing boom pumped a lot of additional money into the American economy. This has been quantified in other studies, and we know that at the peak of the boom (around 2005 or so), as much as $800 billion in additional spending was made possible through the phenomenon of house-as-ATM. This was more money (as direct spending, as opposed to tax breaks) than the federal stimulus program known as ARRA, and it was happening on a yearly basis. Further, the bubble bolstered construction employment and jobs in the financial end of real estate.

That's all over and done with. The dragging effects of the huge debts remain, but the stimulative effects are gone. With high unemployment, falling wages and working hours, a stagnant labor participation rate, and unconscionable skewing of wealth toward the wealthier strata (resulting in the lower half of the American population paying no income tax at all, while the upper 10% pay more than half), the prospects for increased federal government revenue in the near term are very dismal indeed, despite that hopeful little tail upward at the end of the FRED graph (it should really be extended horizontally to take into effect the decrease in FICA taxes which our government, in its moronic way, granted the citizenry at the end of last year in an effort to buy our love).

There are no bubbles on the horizon, not the tech and dot.com boom of the Clinton years nor the housing bubble of the Bush years. No gimmicks, in other words. Congress, meanwhile, as a wholly-owned subsidiary of Big Business, is not going to increase taxes on higher-strata earners, not even to the Clinton-era level of 39.6% as the top marginal rate. It would not solve the problems the U.S. government faces even if Congress took such a measure. Defense could be radically cut, but this entails the problems of "military Keynesianism;" war is a big industry in this country, a major employer, and one of our principal exports. Bombs, planes, missiles, armored vehicles, firearms - we make 'em all, and we sell them all over the world. Defense is the most vested of vested interests. Still, defense will have to be cut substantially, but even cutting it in half does not solve the problems of a $1.5 trillion annual deficit. It won't happen this year, of course; finances will have to get much worse before Congress gets that desperate.

My surmise is that Congress will, in fact, raise the debt ceiling and resume borrowing large sums of money to keep the game going. I base this idea on the simple formula of C. Wright Mills, that those in power always make decisions designed to maintain their power, and if the government defunds itself, it loses power. So various weasel techniques will be used to justify the capitulation to reality, but they have no choice. It's borrow or die. The government simply does not earn enough money to come close to paying its own way. As long as the Treasury can borrow cheap, it will continue to borrow as much as it can, and the national debt will ratchet its way toward $15 trillion, $20 trillion, whatever number the world will allow.

The alternative, after all, is to face reality, and that is just not an "exceptional" thing to do.

Poised on the Insolvency Event Horizon

First, it may be helpful to begin with a brief digression on the "Social Security Trust Fund" from the Trustees, with respect to the most recent report on the condition of the Fund:

Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

As you can see, even the very driest of government publications are now thoroughly propagandistic, even on trivial points that don't really matter. They just can't help themselves at this point. Why will the economy strengthen in the years 2012-2014? If so, why has it been getting progressively weaker since 2007?

Never mind. That's not really what I want to emphasize from this report. The key thing to look at here, before the budget calamity is considered in wider focus, is the reference to "trust fund assets" and the "interest" they are paying which act to reduce the deficits between what is being collected from covered workers and what is being paid out. Here's the thing: there are no "trust assets" and they don't "pay" any interest at all. This is the Central Illusion of the Social Security debate. The Trustees are describing accounting entries which will be made, not a source of income in "future years." We don't have to wait till 2037 to "exhaust" the Trust Fund. It's exhausted now, because there's nothing in it. What you see in the report is what you get: the Social Security fund now pays out more in benefits than it receives, full stop.

As a homely analogy, suppose you have a Visa card with a balance of $500 and a minimum payment of $25. When it comes time to pay the statement, will the credit card itself pay the bill, or will you pay the bill from some other source, such as earnings? Correct. Now think about the mountains of IOUs from the Treasury in the Social Security "trust fund," currently totaling about $2.5 trillion. Think of these as the Visa statement, a record of money already spent, in this case by Congress. Will this stack of stationery pay the money to the beneficiaries, or will the Treasury pay it with taxes (earnings) from the general fund or from further borrowing from the public?

Okay, so we're clear so far. The reason for the above exercise will become apparent as we analyze further; it provides a way to think about the discussion of "on budget" interest payments and receipts discussed below.

Social Security is insolvent (unable to pay its own way), and the 78 million Baby Boomers have only begun the process of signing up (the first born-in-1946 cohort became eligible for early S.S. in 2008). Now let's place this sad reality in the context of the overall budget morass, or the skeletal remains of the Federal government's finances over which our learned solons and President are currently in deep contemplation. We can look at the most recently available Monthly Treasury Statement for a rigorous statement of our financial condition, since it contains fairly rational projections of full year fiscal numbers (the fiscal year ends September 30, or a little over two months from now).

The dismal picture is as follows (all figures in billions):

Individual income tax receipts: $956 b
Corporate tax receipts: $198 b
FICA (Soc. Security) $559 b (nota bene: the Trustees of the Social Security Fund must have plotzed when Obama agreed to reduce the amount of FICA taxes paid by workers at the end of last year in one of his grand bargains with the GOP. "Oy vey," the Fund gnomes must have muttered, "what is this shmendrick trying to do to us here? This, a bigger hole he thinks we should have?")
"On budget" interest: $191 b. (nota bene again: this is the phantom money paid by the Trust Fund to the Social Security Fund to keep its head above water. It's not really income, and it should be deducted from the total receipts to determine real Federal cash flow. All this amount represents is an accounting entry to keep score on the "money" in the "trust fund." See above.)

If we add to the above receipts certain other income sources, such as money "paid" by the Federal Reserve to the Treasury to reimburse the Treasury for the coupon interest the Treasury paid to the ...forget it, it doesn't matter. Let's let them have that; we can't take away all their pacifiers. Plus excise taxes and some other stuff, total receipts equal $2,178 billion ($2.178 trillion). However, logically speaking, the $191 billion in "on budget" income from the Fund should be subtracted from the total because it's not real. Offsetting this deduction, we should also subtract, on the outlay side, the amounts "paid" by the Treasury to the Fund from the "gross" interest expense of $430 billion (we'll use the same $191 billion) because, again, this is simply an accounting entry and not the payment of real money. The "public debt" of roughly $10 trillion is carried at an average rate of about 2.5% per annum, very good by historical standards, so that the remaining $250 billion per year is roughly in line with the deduction of $191 billion in phantom money from both income and expenses. (The historical average is over 5%; what would this "normalization" do to the Federal budget? You don't want to know.)

This leaves us with $1.987 trillion real dollars to run the federal government. Current projections call for $740 billion for the Pentagon's basic expenses and to fund the 9 or 10 wars we've got going at present. Health & Human Services needs $909 billion for Medicare, Medicaid and its other core health services. Social Security is in for $801 billion. And the balance of the "gross interest" debt service (after the adjustments above) is $239 billion. These fundamental outlays of the "insurance company with an army" (as the Federal government, with reason, is called), total $2.689 trillion, or about (almost exactly) $700 billion more than the government's true cash intake, net of mirages and accounting games. There is no cash for anything else the government does, for any other agency, for the court system, for research, for the interstate highway system or air traffic control, for Homeland Security. Nada, squat, zero. Bupkis mit kuduchas, as the abovementioned Gnomes would say. The difference between the total outlays of about $3.6 trillion (net of phantom interest paid to Trust Funds) and $1.987 trillion is all paid with debt, year in and year out. And thus, Congress seeks the right to borrow more, in the hope, based on something, that things will just turn around, that the aging, displaced, marginalized, offshoring-hammered work force, which currently receives more than 22% of its "income" from government transfer payments, will find it within itself to just step up and start paying lots and lots of taxes from all their new income, will put off retiring for a few decades, and all those jobs we sent to China, Vietnam, Mexico - hell, they'll all just come back, because we need them to. This sort of "plan" makes the effort to find a rainbow-shitting unicorn seem practical by comparison.

This picture is the very image of an insolvent nation. It took us a while to get here (about 30 years), but now that we're here...well, now we're here. This is the way things really are. Congress can raise the debt ceiling, or not, and it will only make a difference in terms of how long we hang on. Obama probably realized all of this a couple of years go, and that's why he's focused primarily on his golf game. Something that he can really take with him after the Presidential years. A nice memory among the ruins.

The Mad Tea Party

Reflecting on yesterday's outburst: I suppose what is roiling my usual sunny disposition is this gnawing sense that the American political scene is reaching a dangerous inflection point, a fork in the road where the move toward extremism may go entirely mainstream and sweep all before it, and one of the principal enablers of this dangerous trend is the Christian Right.

Student of history that I try to be (to avoid the fate which Santayana said awaited those who ignore the lessons of history), I find it useful to recall that Hitler's rise to power did not proceed in an uninterrupted straight line. Between the Beer Hall Putsch of the early 1920's and the burning of the Reichstag, a full decade passed during which Hitler languished in jail, writing his hateful manifesto Mein Kampf, resumed life as a free man, and began organizing in earnest. He was helped along enormously by the desperate economic times in Germany following the end of World War I, the hyperinflation of the Weimar Republic, and finally by the onset of the Great Depression. Germany, once such a proud and powerful nation, was reduced to penury by all these insults.

Similarly, the United States is itself in marked decline, and the rise of extremist religiosity, which is virtually unique among Western First World nations (it is unique, in fact), has been given impetus by these trends. The American middle class is going the way of the American buffalo at this point. Not a single net job has been added to the American payrolls since December, 2000, the last month of Clinton's second term: there were 132 million jobs then, and 131 million jobs now. During that time the American population grew by 28 million people. Jobs came and went during the Aughts of the Bush years, but they were the jobs attached to the housing bubble, construction, financing, buying and selling, and all the consumer buying made possible by the house-as-ATM phenomenon. The bubble burst and we're back to where we were a long time ago. Despite the implausibility of a 9.2% unemployment rate in the face of a 28 million person increase in population with no jobs to accommodate the growth, government propaganda claims this is the case in an effort to quell domestic rebellion. In point of fact, any practical measure of true unemployment would have to exceed 20%, as John Williams at ShadowStats consistently reminds us. This is the unemployment of the Great Depression, not the Great Recession.

Add to the massive ranks of the unemployed the large numbers of currently enlisted soldiers in the bloated military. Remember the "recruiting difficulties" of the Bush years? Where did those go? They went away with the pop of the housing bubble. Younger people coming out of high school, or a few years of college, can either move back in with their parents or sign up and fight in one of the many foreign wars the United States is currently running to provide an opportunity "to serve their country."

Thus, when the federal deficit problems go supercritical, a number of bad things are going to happen all at once. Social Security, which is already running at a deficit (7 years ahead of schedule), and Medicare are going to wobble on their foundations, and the younger generations, who can't even find jobs, are going to have no sympathy for participating in a Ponzi scheme which will never benefit them. So the entitlement programs will collapse. With general government funding in steady decline, the federal government is going to have to scale back on its foreign wars and on the defense establishment generally, which means that our Christianized fighting forces are going to come home, trained in, and inured to, violence.

Meanwhile, the political movement in ascendancy in the USA is the one most closely aligned with the Christian Right, the Tea Party. A Tea Party Caucus of 60 members in the House was formed about a year ago, with Michele Bachmann as the Chair. Michele really has it all: the Germanic name; the utter, implacable confidence that she is right (so typical of the religion-fueled); the intolerance for abortion, stem cell research and gay rights; the serene belief that global warming is a hoax; the desire to institute Intelligent Design classes in public schools "along with" the teaching of evolution (the latter soon to be phased out, of course); the obscurantist, know-nothing confidence of the mid-range I.Q. powered by her awesome belief that she is doing God's work.

Michele is running third behind noted department store mannequin Mitt Romney and the Governor of Texas, Rick Perry, but that will change. If you add up the numbers for Michele Bachmann and Sarah Palin you will see that they exceed those for either Romney or Perry, and the Tea Party vote is going to go for one of the two women, not both. Mitt the Mormon simply belongs to the wrong cult, and Perry will fade because, crazy as he is, he's just not crazy enough for our day and time. The Republicans want a True Believer, and Michele has the wind at her back. Wall Street won't like her (she's too uncontrollable, unlike Barack Obama), but the Koch brothers can easily fill in the gap.

I suppose that Barack Obama plays the role of Paul von Hindenburg in all of this, the hapless, well-intentioned place holder just trying to go along to get along, but who makes possible, through his very inertia, his displacement by a zealot. The Germans convinced him to run for President in 1932, as the only man capable of defeating Hitler, and Hindenburg succeeded; but then in an act of inappropriate "bipartisanship," he appointed Hitler Chancellor, which is the only opening the Little Corporal needed. Obama, through his mild, accommodating deference to zealots with their own agenda, has given away a great deal of his own power. It remains to be seen whether he can accomplish Hindenburg's feat of defeating the upstart.

Thus, my strident tone yesterday has to do with this sense that it is the irrationality of Christianity which makes possible all of this regressive movement, which is something that Sam Harris writes about in Letter to A Christian Nation. Christians might have what they perceive as the best intentions in the world, they might be "progressive" Christians like Jim Wallis (or Barack Obama), but they give cover and credibility to the extremists among them because they're talking the same language and playing the same anti-intellectual game, ceding the right to their own opinions to a bunch of dumb rules laid down by some superstitious, old Hebrew men a few thousand years ago, as when Barack Obama pretends to oppose gay marriage because of his "Christian beliefs." (And all this time I thought he was the Chief Constitutional Officer in charge of faithfully executing the laws of the land, including the First Amendment.)

And just to finish with the profound, humble recognition that nothing I say or write will do the slightest bit of good. This is building a sand castle against an incoming tidal wave.

Mr. Paul's Helpful Suggestion

I am intrigued and bemused by Congressional gadfly Ron Paul's idea that the current debt ceiling crisis can be handled expeditiously and non-legislatively by a simple act of the Federal Reserve, namely, its destruction of the $1.6 trillion in U.S. Government Treasuries currently on the Fed's balance sheet. In reality, of course, no material "destruction" or shredding is actually necessary; Ben Bernanke merely has to bring up the Fed's balance sheet on his corner computer, click on "Treasuries held," hit "select all," followed by "delete." And instantaneously, the United States will be $1.6 trillion richer, the national debt will drop from $14.3 trillion to $12.7 trillion, and we're good to run expenses through the roof probably for a couple of years more.

Certain liberal Keynesians, such as Dean Baker, think it's a good idea, on the surface of things, although smelling the rat underneath. Mr. Baker even points out that an additional bonus will accrue, specifically that the United States Treasury will be immediately relieved of any obligation to pay interest on the Fed's holdings, although this good news is somewhat offset by the balancing loss of "income" to the Treasury, since the Fed "pays" back to the Treasury the interest which the Treasury "pays" to the Fed, currently about $80 billion per year. I am not making that up.

Mr. Paul, who believes in a gold standard, obviously hopes that Americans in general get the joke. His proposal, in fact, would work, and while monetary theorists will raise various abstruse and arcane arguments about damage to the monetary base, and blah blah blah, these objections are all horseshit, for the simple, sufficient reason that the entire fiat money system is itself horseshit, and any system which lacks a corporeal reality and is entirely made up (I'm thinking about religious apologetics here, in fact), can always invent a new and factitious "explanation" or compensating artifact to take care of such a technical problem. We can say that the space where the Treasuries used to be on the Fed's balance sheet is now occupied by "Dark Matter." There, fixed it for ya.

The logical, symmetrical elegance of Mr. Pauls' suggestion is simply sublime. For what did the Fed pay for the Treasuries on its balance sheet? Nothing. It "bought" them with nothing. It conjured the money out of thin air, by taking them off the hands of compliant Primary Dealers who held the Treasuries for the shortest time possible and then dumped them on the Fed, and such PDs were "paid" when the Fed made an accounting entry (a few billion here, a few billion there) on the "reserve accounts" of its co-conspirator banks.

Now it is true that the Fed's Treasuries, if sold on a secondary market by the Fed to genuine third parties, would raise actual hard cash. Yet a couple of problems arise here. First, the Fed's participation in this ridiculous game of "purchasing" Treasuries in its "quantitative easing" programs has resulted in absurdly low interest payments (coupon rates) on the T-bonds the Fed holds, and it's difficult to see why there would be much of a market for this trash if the economy improved to the point where the Fed would be motivated to unload them in an effort to control inflation (this is the "sophisticated" financial argument). Second, however, is the whole idea of unjust enrichment - the Fed paid nothing for these Treasury "securities." Why should it make billions on their "resale?"

These are details a little removed from Ron Paul's wry joke at the Fed's expense. What he is really highlighting, in a pretty brilliant way, is that the entire money system has no reality anymore, that the actions of central banks the world over to "pump up liquidity" by making computer entries in their own balance sheets have created a farcical, and easily manipulable, system of measuring "wealth," and that the net effect of all this money creation has been simply to bestow long trains of 1's and 0's on the balance sheets of big banks with close connections to the fonts of money, the central banks of the world, and particularly the Federal Reserve Bank.

So hit "del," Mr. Bernanke. You won't lose anything. With the decks cleared, you can start tomorrow reacquiring everything you just erased, using the same consideration: nothing but the thin air in your office. And when we hit the debt ceiling again, well, the solution is obvious, and no doubt Mr. Paul will point the way once more.

When in the course of human events

I note with satisfaction that Governor Rick Perry of Texas has recently made the rounds in California, shakin' hands, back-slappin', grinnin', and no doubt testin' the waters for a possible GOP primary run at the Presidency. He met with professional fund raisers and party bigwigs. This is gratifying indeed. In part my satisfaction has to do with a sentimental attachment to Governor Rick's lengthy citation, some years back, of a Waldenswimmer post in which I defended Perry from scurrilous, smarmy attacks from Keith Olbermann concerning Perry's statements about secession from the union by Texas. Since I favor Texas's departure from the United States on any terms whatsoever, I was quick to point out that Rick had it just about right, that Texas (along with other populous states such as California and New York) actually has a negative ROI (return on investment) when measured in terms of transfer payments received from the federal government versus taxes paid in. Olbermann, who had not done his homework, implied that Texas was little more than a ward of Washington, D.C., and this was way, way off.

Indeed, there has been a lot of talk, and some action, over the last decade or so not only about secession but so-called "Tenth Amendment Resolutions" in the several states, Texas prominent among them. The Tenth Amendment, part of the original Bill of Rights, provides:

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

The Tenth was ratified in 1791 and has been part of the Charter from the beginning, although sometimes you wouldn't know it. I was reflecting on this situation recently as the patriotic sap rose in my American veins, as it often does around July 4. I would venture to say that the Declaration of Independence is the single greatest political manifesto ever written by human beings, and it's interesting that its chief drafter, Thomas Jefferson, is also credited with saying that "that government is best which governs least," and that if he had to choose between "newspapers without government, or government without newspapers," he would gladly choose the former over the latter. Which is to say, Jefferson was very suspicious of centralized power, and it's not hard to imagine that he would be horrified by the bloated, overfed monster his little democratic baby had become over the 235 years since his magnificent document was read out.

The only kind of "revolution" I can imagine in our day and age is a soft devolution in which the centralized form of American governance gives way to a return to the original federalist scheme idealized in the Tenth Amendment. The main opposition to such a movement, paradoxically enough, would probably come from liberals, because the ideas behind "states' rights" always seem to conjure up memories of George Wallace and Lester Maddox, recalcitrant Southerners who wanted to perpetuate segregation and Jim Crow laws under the guise of state "independence." This is what gave "states' rights" a bad name and, conversely, made liberalism and big Washington government seem virtuous. Unconsciously, us here liberal folk probably all carry this bias around within us.

Big centralized governments, however, also deliver other things, such as 1984, Stalinist bureaucracies, the Third Reich, central planning of economies (viz., the Federal Reserve), militarized foreign policies, National Surveillance States, spying on one's own citizens, illegal searches and seizures by the government, breakdowns caused by overly-complex systems, massive wastes of money, and a vast sense of alienation of individual citizens from the workings of the government which controls their lives. We sometimes forget that the United States, as the third most populous country on Earth, is the only First World nation trying to pull off a functioning democracy under conditions of such size and complexity.

I was talking about such things the other day in the context of the Social Security funding crisis. As the 78 million Baby Boomers keep retiring, or trying to, this problem is simply going to get worse and worse. Medicare funding problems are already in a state of profound breakdown. It's weird, however, to hear any member of Congress complain about the high cost of Social Security, because as I've said on other occasions, the best way to conceive of the "Social Security Trust Fund" is as a crime scene. In order to continue funding military adventures the world over, and to over-capitalize the armed forces, Congress has since the early 1980's looted the excess payments into Social Security to the tune of $2.5 trillion, replacing real tax revenues with a pile of worthless IOU's payable by an insolvent central government, one that is so far underwater that it now runs a "budget" based on 42% borrowed money. If such criminality occurred at the local level, say in the legislature of New Jersey, for example, one can imagine that the legislators responsible would be rewarded with something other than reelection. All of these thieving solons would be treated as the frauds and embezzlers they actually are, representatives who stole money which they knew, to an immoral certainty, could not possibly be paid back.

American Representatives and Senators get away with such thievery (and escape with their lives) simply because there is no personal responsibility attached to being a member of such an amorphous, mutating, undefined, unresponsive body as the modern American Congress. If I, a California voter, complain about the embezzlement of Social Security money, how do I redress it? Isn't it true that the blame can be equally laid on representatives from Ohio, Utah, and Oklahoma, people I never had a chance to vote against because of the federal system?

You can multiply examples of this taxation without representation and powerlessness to change the policies by which your life is governed. It's built into the system of overly-centralized government, which never, in recorded history, has worked very well for very long. If you take the five states which supply the federal government with 40% of its revenue (California, Texas, New York, Illinois and Florida), you can imagine that if these states (all with a negative ROI on federal taxes paid) were simply allowed to retain such taxes (FICA and income), that each could devise a much better system of retirement security and health care than the federal government can provide using a one-size-fits-all approach. Indeed, if there were 50 such separate systems, one would imagine that out of that very diversity that far better ideas would emerge about how to provide pensions and health care to aging citizens.

Anyway, these are huge subjects. We obviously need a new Constitutional Convention to rework all the things that aren't working, and to return the lion's share of power to the local level, where the citizenry can control and keep an eye on it. We can repeal the 16th Amendment (income tax by the federal government) while we're at it, since the present system, in which the top 10% of all income earners pay substantially more than half of all income taxes, has simply gotten stupid beyond words. Hey, Grover Norquist, if you want to starve the beast, then starve the frickin' beast and get serious about it. Let's leave the federal government with enough money to "provide for the common defense," as the Constitution says, but not to start wars every other week on a President's whim. Let diversity and experimentation from state to state reign free. We have many states with populations larger than European countries, and the European stats seem to thrive on their compact and manageable size (they seemed to get into trouble when they began emulating the United States with its ideas of "union" and centralized banking. Don't copy us, folks; we have no idea what we're doing).

The federal government can run the bankruptcy courts, patrol the maritime coasts, secure the borders and deal with immigration (for the first time, perhaps?), and defend the country as a whole against attack, just like the Constitution says. For everything else, it can get the hell out of the way, and stop, as Tom said, its long train of abuses and usurpations...

What, Me Worry?

Sometimes I think along these lines: if the Obama presidency were a prize fight, the ref would have stopped the thing three rounds ago. What we're witnessing now is really not very pretty. It's become a kind of blood sport, like bear-baiting or bull fighting. The Republicans, who appear to navigate without any moral compass at all, are in the sadistic process of seeing how far they can push this debt ceiling game to extract concessions from the President. Can they get Obama to agree to legislation simply abolishing Medicare and Social Security? Can they eliminate all functions of the federal government other than defense and spying on the American people?

I don't know what to do with the guy. He seems to have found a unique style which succeeds at (a) caving into his GOP tormentors without producing any compromise whatsoever while (b) completely alienating his own base by breaching every single one of his campaign promises on civil liberties, the war on terror, the Patriot Act, the Surveillance State, Guantanamo, medical marijuana, transparency in government, and prosecution of whistle blowers. The list goes on, but it becomes tiring to delineate. I don't even understand how it's possible to be that inept. Simple random probabilities would suggest that occasionally Obama would stumble and do something heroic. Say, for example, when he was addressing a crowd of same-sex advocates recently in New York. Why not just come out and say it? "Yes, I support, wholeheartedly, the concept of equality in marriage." Case closed. What could he possibly have to lose at this point? Does he think that Michele Bachmann and her crowd of drooling sycophants might still come around to his side if he keeps co-opting, caving, debasing himself with weasel-talk?

Sheesh. "Carbon dioxide is portrayed as harmful. But there isn't even one study that can be produced that shows that carbon dioxide is a harmful gas." -Rep. Michelle Bachmann, April, 2009. This is the favor that Mr. Obama is attempting to curry. This is the leader of the Tea Party Caucus in the House, the dominant force du jour in American politics. Chris Matthews has another tingle up his leg because Michele Bachmann really says what's on her mind, no holds barred. What mind would that be? His insane boosterism is the kind of media spotlight which takes marginal candidates and gives them national credibility. "There are hundreds and hundreds of scientists, many of them holding Nobel Prizes, who believe in intelligent design." - Michele Bachmann, advocating the mandatory teaching of alternatives to evolution in public schools.

There have been to date 189 Nobel laureates in physics, 160 in chemistry, the two fields to which Michele might be referring, if Michele had any idea to what she was referring. However, it must be noted that the first Nobels were awarded in 1901 and of these 349 scientists, "hundreds and hundreds" of them are already dead and cannot be asked about their belief systems. Hundreds and hundreds of these scientists would probably not agree that carbon dioxide is always a completely harmless gas. For example, to conduct an Einsteinian (Einstein, Nobel Prize Physics, currently dead, non-believer in intelligent design) thought experiment, if you placed a human being in a sealed room that contained, as its atmosphere, only CO2, then carbon dioxide could definitely be harmful. Admittedly, this is not a "study," but in general really smart scientists, including hundreds and hundreds of Nobel Prize winners, don't spend their time on really dumb experiments to disprove stupid hypotheses advanced by airheads. Similar claims, after all, could be made for H2O (and I wouldn't be surprised if Michele had somewhere made them). Yet if you're 5'6" tall and standing in 7' feet of water, H2O becomes "harmful" in the same way that CO2 levels in the atmosphere, rising from their present 380 parts per million to 550 ppm, say, could also suffocate, in effect, the entire human race. Kind of a numbers game.

Contemplating such inanity coming from a "serious" candidate for the Presidency gives me the chills, and naturally makes me wonder whether any sort of Obama criticism is really a good idea. That's the parlous state at which we've arrived in this great Republic of ours. Barack got his law degree from Harvard, Michele from Oral Roberts University. I wish Barack would make the difference more obvious sometimes. Or maybe that's the problem at this point. Mistrust of the elites and embrace of the yahoos. Michele Bachmann: a complete ninny who talks like America. Oy vey iz mir.

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Notes & Errata on Debt Ceiling for Dummies: I stand corrected. The amount of maturing debt which the Treasury must handle in August is closer to $470 billion than it is to $30 billion, the number I erroneously used based on a misinformed source. Thus, Uncle Sam is in very much the same boat as Bill Zup D'Wazoo, insolvency-wise. There is no way the USA can raise half a tril in one month without borrowing money beyond the current ceiling, so we're looking at default, for the first time in history, if the United States does not resume Treasury auctions in the near future.

Debt Ceiling for Dummies

Let us see if we cannot simplify the current, bad-faith-based debate on the debt ceiling.

First, the debt ceiling is a statutory artifact, not found in the Constitution, which limits the amount of total debt the United States is allowed to take on to finance its day-to-day operations. In theory, once the debt ceiling is reached, and the Treasury Department has exhausted the various games it is allowed to play in "redeeming" other "bonds" held by government workers, and other illusory acts of legerdemain, the government is then, again in theory, allowed to borrow no more. Since the United States government currently borrows about 42% (Paul Krugman believes that 42% is "about a third," but he's an Ivy League economist, not a mathematician, and is not required to know how to divide 2.2 by 3.8, which would tell him that a government which receives $2.2 trillion in taxes and spends $3.8 trillion is funding only 58% of its expenditures; however, this is close enough for tenure at Princeton) of the money it spends, this presents a problem.

Let us analogize to a homelier situation. Suppose we allow the role of America to be played by Bill Zup D'wazoo, a currently unemployed Wal-Mart long haul trucker living in Fontana, California, in a house he purchased (when he was living with his estranged wife Nomo [go ahead and try it with the last name]) in 2006 for $450,00, now worth $175,000, maybe, with a mortgage (unpaid during the last two years) of $575,000 (Bill re-fied a couple of times, had a line of credit-- those were the days!). In other words, a Real American. Bill has been depressed during his 95 weeks of unemployment and has gained a couple of hundred pounds. Inundated during his employed days with credit card offers, Bill has two high-limit cards, with a balance of $8,000 on the MasterCard against a credit limit of $10,000, and $2,000 against a limit of $3,000 on the Visa. Thanks to the tough-on-banks credit card relief rammed through Congress by Obama and Biden, Bank of America and Wells Fargo, the issuers of the cards, have a hard time charging Bill much more than 30% per annum in interest on these balances, and if they do raise the rates to such usurious levels, they have to tell Bill they're doing it. Thank God we have someone in Washington fighting for the Little Guy.

Bill seems, in all respects, a reasonably accurate cognate for the United States itself, fiscally and even physiognomically, if that's a word and who cares if it isn't. But looks can deceive, as will become clear perhaps. By supplementing his UE payments (four weeks to go) with charge card action, and living rent-free (at least until one of his loan servicers can figure out exactly who owns his mortgage), Bill has not had it too bad. Bill, however, now has a completely trashed credit rating and cannot "raise his debt ceiling" by getting another charge card. All he can do, after August 2, when his unemployment checks stop, is charge things to his cards, and get cash advances (suh-weet! while it lasted) with his remaining credit limit of $3,000 on the two cards.

Now you see the problem. By charging against the limit, Bill also slams his ability to borrow money against the cards in order to make payments against those same cards. Plus, BofA and Wells Fargo don't really want Bill to borrow any more money; they're just dying to find some excuse, such as a missed payment, to cancel the cards altogether, because what do you think the odds are Bill are is going to come up with $13,000 when it all goes down the toilet? Exactly. Thus, the excruciating calculus of exponential growth: if Bill makes a minimum payment of $250 against the combined balance of $10,000 at the user-friendly rate of 29% APR, a loan-sharking rate allowed because so many credit card companies are headquartered in Joe Biden's home state of Delaware, then his balance moves to $10,250, the new basis for computing interest, and Bill still has to keep using the cards for necessary expenditures at the grocery store, gas station, and Pyongyang Luau, the Korean massage parlor out near the interstate. In short, the game is rolling up.

By contrast, the United States is in a much better position. The government still has a steady source of income, the income taxes paid by increasingly unemployed Americans. While these taxes only cover 58% of necessary expenses such as blowing up Afghan and Libyan villages, the United States is not going to "default" on its debt in the way that Bill is about to default as soon as he hits the $13,000 top, can't borrow anymore, and has his cards cut in two by Ahmed down at the 7-Eleven. The $10 trillion "public" debt of the USA is financed at a gold-plated average rate of about 2.5% per year, not that loser 29%, and that's only about $250 billion a year. True, there is also the problem of maturing Treasury bonds which must be redeemed (paid off), but in August, for example, that only comes to about $30 billion. (You're probably wondering about the "interest debt" owed to the intragovernmental "trust funds" at Social Security and Medicare, with principal adding up to another $4.5 trillion. God, you're so funny! That's why I like you.) So add it up: about $20 billion in interest, $30 billion in redemptions, we're at $50 billion, or slightly more than 25% of our monthly income. You could qualify for a good 4-br w/den 2.5 ba 3-car gar 3k sq ft like Bill has with a ratio like that.

Our credit rating will be fine, for a long time, as we continue to fund Medicare, Social Security, defense and the Pentagon's current twelve wars with the balance of 75% of income still left after paying China, Japan, and the Federal Reserve, the latter of which will just send the money back to the Treasury because...oh never mind. Or maybe some of those things have to go, a little bit or a lot. A 42% pay cut can impact the lifestyle pretty noticeably. Bill's a case in point: hardly ever gets down to the Pyongyang Luau anymore, and Nomo won't return his calls, except through her lawyer. Something about having to stay at least 50 feet away from her for the next three years.

Obama Bombs Los Angeles for 3rd Consecutive Day; Congress Vows Action after July 4 Holiday

June 27, 2011

Burbank, (AP) -

Tensions mounted on Capitol Hill in Washington today as President Obama ordered a third consecutive day of Predator Drone attacks on downtown Los Angeles and the San Fernando Valley. Many buildings downtown and large swaths of residential housing in the Valley were said to be ablaze, with confused firefighters responding to the scene amid continuous strafing from American, French and British fighters. There was no official tally of casualties, but they were expected to be heavy.

The attacks began without warning Friday night during rush hour, with the 405 and I-210 especially hard hit. Collapsing overpasses from a relentless barrage of Cruise missiles and unmanned Drone attacks created panic and pandemonium for commuters, adding to what was already a difficult drive home. Governor Jerry Brown ordered an immediate curfew to prevent looting and a ban on use of all elevated freeways where, said the Governor, frowning, "they're just sitting ducks."

Drone attacks have concentrated mainly on downtown areas over the weekend, with NATO fighter-bombers enforcing a no-fly zone over Burbank and Glendale, but also using precision-guided bombs on certain, strategic subdivisions. All regional airports, including LAX and John Wayne International in Orange County, were closed and commercial aircraft rerouted "to avoid getting blasted out of the sky," according to one air traffic controller contacted by phone.

Reaction in Congress was mixed. Senator John McCain (R, AZ) expressed unequivocal support for this latest use of U.S. military muscle, joined by Sens. John Kerry (D, Mass.) and Joe Lieberman (Unhinged, CT). "The terrorists need to know we mean business," said Lieberman. McCain expressed his hope that Obama "would see something to completion for once." Other Congress members expressed some reservations. "I don't think this is necessarily the best approach," said House Minority Leader Nancy Pelosi of San Francisco, "although a limited bombing campaign confined to the south of the state, if it's necessary at all, is probably advisable."

Congressman Dennis Kucinich (D, OH) was predictably inflexible in his criticism. "This is an outrage," the elfin representative bellowed. "What possible purpose can it serve to bomb Los Angeles when we have so many pressing needs right here at home, including in cities like Los Angeles? If we had spent the money wasted in Iraq on mass transit in Los Angeles, a lot of innocent commuters would be alive right now."

A White House insider, speaking on condition of anonymity in light of the unconventional nature of this latest Presidential initiative, said that President Obama's decision to attack Southern California was "the other side of the coin" from ensuring an adequate oil supply, the rationale motivating the ongoing, illegal war in Libya. "The President is willing to do what it takes. We've got supply covered. The next logical step is destroying demand, and this is the right place to start."

White House Press Secretary Jay Carney answered questions at a press conference earlier today, fielding often abrasive and derisive questions from media representatives who were skeptical that the President's "unitary executive" powers went so far as to allow the fire-bombing of Santa Monica. "We don't consider the U.S., at this point, engaged in hostilities, under the War Powers Act or the Constitution," Carney stated. "No one is fighting back, since the Pentagon ordered them not to. There are no 'boots on the ground' as part of our attacking force, other than soldiers already based in California, and they're too busy taking cover."

Representative Ron Paul of Texas cited this latest bombing campaign as evidence that Congress was not fulfilling its role as the government branch properly overseeing the use of American force. He predicted that the same ten Congress members who joined in litigation to stop the Libyan war would probably meet just after the July 4 break to discuss a similar lawsuit against the Los Angeles war.

Turn on the bubble machine

I like reading Paul Krugman's blog, "The Conscience of a Liberal," because it's so unrealistic and out-of-date that it offers the anodyne pleasures of watching the original "The Twilight Zone" on Netflix, which is something else I do for the sake of nostalgia. The Krugman blog is often the first draft of the columns that appear twice-weekly in the New York Times, but it's on the blog that Krugman can give vent to his prickly, invidious and arrogant nature. He's constantly calling people "stupid," deluded, et cetera, particularly anyone on the political right. A lot of fun.

I don't think Krugman makes any sense whatsoever. His economic "models," as I suggest above, seem based on an American economy which existed during my (and Krugman's) youth, when America was a manufacturing, job-creating powerhouse, which it certainly is not anymore. As David Stockman keeps pointing out, the actual number (not percentage) of employed people in the United States is less now than it was over ten years ago, despite population growth of about 30 million people during that time. Another way of conceptualizing the same kind of data is to look at the Fed's chart of percentage of the civilian population with jobs. I'm not quite sure how the data translate to an unemployment rate of only 9.1%, but I suppose that's what Hilda Solis gets paid the medium-sized bucks for: to help her boss with his reelection chances, and a UE rate with a single-digit handle is certainly better for those.

I don't really blame Mr. Obama for much of this. He inherited this mess and there was not much chance he could make substantial inroads on the manifold ills of the Amerian economy in 2-1/2 years. What doesn't help, however, is that he's surrounded himself with learned, Keynesian-oriented economists and advisors, and these people believe in only one thing: growth in GDP. Resource constraints, global warming, destruction of the oceans, overpopulation, environmental degradation, animal habitat destruction - all of this is quite beside the point. One thing matters, to Krugman and all the rest: if you take our phony GDP (artificially inflated because the formula includes government spending, which in the case of the federal government includes a budget comprised of 42% borrowed money), the only relevant question is, can we get that GDP to grow by 3% this year so we're "succeeding?" Also never mind that GDP, that most indiscriminate of measurements, includes all the trash we call an economy: credit default swaps for gargantuan amounts written for bettors with no conceivable interest in the outcome of the success or default of the "insured" party other than a gambling motive; commissions "earned" on the sale of utterly worthless bundles of crap mortgages; and all the rest of the stuff. It all counts toward GDP, including the manufacture of the latest generation of Predator Drones so that Arabic-speaking people can be incinerated from the air conditioned comfort of offices in the San Joaquin Valley.

It's been said a million times by others, but it's true nonetheless: the political perspective always needs to focus on the next election cycle, which means that "solutions" are only considered if they have some effect within two years, at the very outside. My greatest, single disappointment with Barack Obama is that he decided to play this game and become simply another shuck-and-jive politician, fiddling with statistics, lauding nonexistent "recoveries," and shaping his policies toward the creation of election-ready "images." Thus, tough on Terror, strong on defense, conservative on the social agenda (religion, gay rights, abortion, marijuana laws) and all the rest of the illusions which helped to get us into this quagmire.

In other words, simply another run-of-the-mill, uninteresting, frankly dull, utterly useless generic politician. I am, indeed, amazed that it came to this, but that's where it is. When he talked about Change, I thought there was a chance, however remote, that for once a national politician with the wind at his back might take a shot at really leveling with the American people. I mean, that graph up above - as the navigator tells Major Kong in "Dr. Strangelove" as the fuel leaks out of the B-52 after the missile attack, "I'm sorry sir, but those are the numbers." We're trying to run the same old "growth" economy that Krugman is still writing about (last extant in the 1960's) despite the arrival of peak oil, of international labor arbitrage, of offshoring of factories, of 90% depletion of the world's oceans, of dangerous levels of CO2 in the atmosphere, of food shortages, of epidemic illness from industrialized food production, of endangered supply lines because of competition from Asian nations for the world's remaining readily-accessible petroleum reserves. In other words, there is no talk of Adaptation to a changed environment, even though the American people, taken as a whole, would welcome such talk And a species which does not adapt to environmental changes goes in one direction only - toward extinction.

Obama surrounds himself with legacy advisors from legacy industries and institutions, all the people (like William Daley from the Chicago political machine and JP Morgan as his Chief of Staff) who simply tell him ways to keep the old system staggering along, just long enough to get Barack to November, 2012, and let Obama cross the finish line of reelection, just like the two previous Presidents before him. In other words, reelection for the sake of reelection.
It's an amazing incongruence between the American people and the "image" of the American people that must exist inside the Washington, D.C. Beltway. I actually think that most average American commoners have figured out what's going on in our economy, about why it's in such dire shape. If 42% of the adult (older than 16) American population (again, see above) does not have a job, you have a tremendous cohort of people who would be pretty willing to try anything, don't you? Let's paint every roof in America white, as Steven Chu suggests. Let's retrofit every house with double-pane windows and insulation, and place solar panels on every conceivable location. Sounds good to us! We have the manpower, we've got the idle workforce, we need to conserve all of the energy we can. Let's build bike lanes as they do in Holland, let's build high speed rail as they do in China. Let's move toward localization of food production and get rid of agribusiness and cattle feed lots. Let's do all that, here in America, instead of worrying whether we can protect Europe's 1.3 million barrels per day from Libya so that Europe doesn't begin encroaching on our imports.

It's why two-thirds of Americans oppose the Afghanistan war - the populace is beyond caring whether AfPak, or whatever, is of "strategic importance." What Americans know is that the war's a waste of money we don't have, as a vast part of the military budget is a waste of money we don't have. Yet Obama is convinced, because he's fallen under the sway of the Fun House Mirror used in D.C. to figure out what people "actually" think, that unless he acts like George W. Bush and wins "his" war, as Bush "won" Iraq, then he can't win reelection.

There is, in other words, no actual plan. Maybe someone can dream up another Bubble. The dot.com boom bolstered Clinton's terms in office. Then it burst and we had a recession and falling tax revenues. Then Bush engineered the housing bubble. It burst, we entered a Depression, and tax revenues fell even further behind the unrealistic spending built on serial bubbles. And now, with neither a Bubble nor Lawrence Welk on the horizon, it's back to Plan A: fake it till you make it to reelection.

Smiling villainy

O villain, villain, smiling, damnèd villain!
My tables—meet it is I set it down
That one may smile, and smile, and be a villain—

Shakespeare, Hamlet. Now that sucker could write.

An old buddy told me he awoke at 3 am in a worried state of mind the day after he read the first of this (mildly) obsessive series on Obama's illegal war in Libya. Since this stalwart fellow (a friend of 50 years duration) is anything but an alarmist, I myself began to reflect further on the deeper implications of Obama's penchant, increasing day by day, to do anything he damn well pleases on the executive/commander-in-chief front.

A couple of things occurred to me: taking the country to war is, and ought to be, a very big deal. And the second, disconcerting thought was that the only real government institution capable of reining Obama in is that pathetic, dysfunctional congregation known as the United States Congress. This is not a happy confluence of factors to ponder on this warm summer night, for surely Obama is as aware as this lonesome blogger that Congress simply cannot act in a cohesive, principled manner, has not for a very long time, and so the President (in his thinking) may as well play directly to a wider audience with a policy, and a war, that he calculates increases his electability (which, it is becoming obvious, is his only guiding principle in office), and if it's illegal, well, that's okay. The important thing is how it looks.

Congressman Ron Paul, who has vaulted to the front of the Republican pack of Presidential candidates (mirabile dictu), wrote a piece on Counterpunch which begins:

Last week I joined six Republican and three Democrat colleagues to file a lawsuit against the Obama administration over its illegal war against Libya. Now that more than 90 days have passed since the president began bombing Libya, no one can seriously claim that the administration has complied with the clear requirements of the 1973 War Powers Resolution.

(Paul also uses the word "chutzpah" to describe what Obama has done, which I think is a nice touch, and somewhat surprising for a Rep from Texas.) The above is not bad and certainly better than nothing, but here's the thing: once again, the implication is that a President can fight any war he wants, against anyone, anywhere, because he's in a bad mood, or didn't like something someone in a country said, or because the country "tried to kill my dad" (in Bush's formulation), and that's okay for 90 days, but after that, the President needs authorization (and money) to keep going. That is simply not what the Constitution (Article I, Section 8, par. (11)) and the War Powers Resolution say.

Maybe Paul only means that under any interpretation of the War Powers Resolution Obama is now outside the permissible scope of a Presidential unilateral decision to go to war in the absence of Congressional authorization, and with that statement I also agree. But the other point is not really subtle, and it's not difficult to figure out. What you need is what Bush called The Google, and you need to know (not actually, but it helps) that the federal laws of the United States are kept in several shelves of deep maroon books called the United States Code Annotated (each book about the size of a church hymnal), and you can then type in the words "War Powers Resolution," and bingo!, you will have done all of the research I ever did on this subject. Which is to say, I read the damn statute. And if you do, almost the very first thing you'll read in the substantive part of the statue is this, in 50 U.S.C.A. 1541:

(c) Presidential executive power as Commander-in-Chief; limitation

The constitutional powers of the President as Commander-in-Chief to introduce United States Armed Forces into hostilities, or into situations where imminent involvement in hostilities is clearly indicated by the circumstances, are exercised only pursuant to

(1) a declaration of war,

(2) specific statutory authorization, or

(3) a national emergency created by attack upon the United States, its territories or possessions, or its armed forces.

President Obama did not run into legal trouble because he carried on this Libyan war for more than 90 days without Congressional authorization; the war is illegal because he never consulted with Congress on the necessity of the war before he initiated hostilities and obtained statutory authorization (as required by subsection (2) above), which is the only possible basis for proceeding in these circumstances. Hell, even Bush & Cheney obtained authorizations for the wars in Afghanistan and Iraq. They weren't exactly honest about how they went about that, but at least they checked the box.

One grows very uneasy indeed thinking about a President, especially in shaky economic times, when the country is in bad shape and fractured along partisan lines of division, becoming too amenable to the dictates of the generals and the military establishment. Congress needs to take control. Mr. Mumbles and The Diva need to call out their own party's leader on this blatant illegality and act more like the statespeople who saved the country during Watergate, and less like con artists figuring out a way for their guy to get away with something.