The Launch of the Titanic

Oh, God, not another "financial" piece... but please, bear with me.

On May 31st, 1911, the Titanic slid down the greased rails at the Harland & Wolff shipyard in Belfast. That day, it was impossible for anyone to envision the fate that awaited it, less than a year later. On November 3rd, 2010, the QE2 slid down the rails of the Federal Reserve, greased by the incompetence of Benjamin Bernake, the fiduciary misconduct of the Obama administration and the criminal complicity of Congress. This time, it's possible -- no, it's unmistakeable -- to see the iceberg "right ahead".

The QE2 in this case is the second round of so-called "Quantitative Easing". What this boils down to is that the Federal Reserve has decided to "print" more money in what they believe is a move that will "promote financial growth". In essence, the Federal Reserve Chairman, Ben Bernake, decided to print up more money on the theory that this will spread more money around and therefore stimulate the economy. Sounds good on the surface, right? "But wait," as they say, "there's more!"

What Bernake and the Fed are trying to do is Keynesian economics. They are trying to spend their way out of debt. This doesn't, as I've explained before, work at all. The idea is completely discredited. It's made even worse because the value of "a dollar" does not have any intrinsic value -- it is not tied to a commodity. Instead, it represents the "good faith" of the United States.

These days, that "good faith" is sorely lacking. The economy of the U.S. is in the dumper and printing more money, as anyone with a fifth grade education (excepting, of course, those who teach at Princeton) can deduce, simply devalues every dollar even further.

There are two major problems, here: illiquidity and insolvency. I don't intend this to be an Econ 101 course (if it were, I'd invite Mr. Bernake) but I'll give a quick explanation for the layman (me!):

• Illiquidity is when you don't have "cash on hand". Think of this as when you own a car (without a loan) or a washer and dryer, but you don't have cash to buy groceries.
• Insolvency is bankruptcy. It's when you owe even on your car and washer/dryer. You don't own anything, anymore. Your debt is greater than your total worth.

Thanks to the policies of the Obama administration and a Congress of accomplices, the United States has a debt that has exploded. The candidates made promises in 2008 to anyone who would listen. They promised "money for nothing". They promised "the government will take care of you." All you had to do was vote for them, then sit back and collect your "Obama Money." Plenty of people, inculcated by over a half-century of burgeoning federal nannyship bought this hook, line and sinker.

While fiscal conservatives warned that there would be a day of reckoning, shouting "ICEBERG! RIGHT AHEAD!", the liberal intelligencia and administration "Goebbels" did their best impression of Captain Smith, increasing speed into the ice field and rearranging the deck chairs. They started handing out money (as my father would say, and keeping in the theme of this piece) like a pack of drunken sailors, increasing the debt from $869 billion in 2007 to $2.2 trillion! Just to put this in perspective, the QE2 ("our" QE2 in this story) is $850 billion.... that's nearly the ENTIRE debt from 2007!

So here's the issue - you can solve illiquidity (at least in the short term) by converting something to cash. The Federal Reserve does this not by pawning real goods, but by printing more money. But this "solution" supposes that you'll have the cash coming in to replace it so you can get your goods out of hock. It flat out does not work if you are insolvent nor does it fix insolvency.

If you don't own anything yourself then you can't hock it; and in the case of the United States, we are insolvent. So printing more money (pawning goods) does nothing! It simply causes us to owe even more and go further into debt.

To put it very simply in our analogy, Bernake is applying full power to the engines with the iceberg looming.

But we do have a chance, yet, to get the ship of state out of harm's way. A new Congress has been elected. It's up to us, the passengers, the voters who put them there, to hold their feet to the fire. It's not good enough to "compromise" -- "we'll just turn the wheel a little and we'll slow down a few knots" -- instead what's needed is full rudder and all astern on the engines. That's what we sent these people to Congress to do and its up to us to make sure they do it.

If we don't, then we may as well start singing "Nearer, My God, to Thee" because there aren't enough lifeboats to go around.

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The Cost of Reality

Oh, God, another "money" posting. Quick, get my No-Doze! I'll try, at least, to keep this a little interesting.

In an unobtrusively placed segment, ABC News has noted that, according to the Treasury Department, the National Debt has now hit $13 Trillion. *Yawn* So? Who cares, it's just government money, they can print more, right? The debt's always getting worse, right? We're no different than any other country, right?

Wrong, Wrong and..... wait for it... RIGHT (and that last one's the scariest). So let's take these one at a time:

"It's just government money, they can print more"

Government money. Is that like that "Obama Cash"? Ladies and gentlemen, this is your money. You gave it to the government on April 15. There is no such thing as "government money". The government does not have some secret stash somewhere that it somehow 'earns' itself. It pays for its services, programs, givebacks, and bailouts with taxes. Period, end of sentence. In the words of John Coleman, "The point to remember is that what the government gives it must first take away."

And yes, it can print more. But our money has no actual value except that which is placed in faith in the government itself. There is no gold or other tangible asset that backs our currency. It is simply the faith that the U.S. Government is "good for it." And the more it prints and less faith other countries have in us, the less each dollar is worth. This, for those born after 1980, is something called "inflation" and it was considered the worst economic crisis since the Great Depression.

You see, our government -- the administration and the yes-men in Congress -- are "giving away" more and more. They are raising taxes and, even faster than that, increasing spending. They are trying the eminently unsuccessful and discredited Keynesian practice of "spending your way out of recession". In order to do that and not infuriate the citizens even further, they print more and more money. This devalues the money, meaning that have to print even more and it becomes a downward spiral. Analysts have been warning since this current government took office that we are destined for a crash even worse than that of the 70's that will make the current economic crisis look like a mere blip on the radar.


"The debt's always getting worse."

Once again, not so much. Some governments (notably, the Clinton administration) have decreased the National Debt. Now let's think about that. How was that accomplished? Under a Democratic President? Yes. Because it's not the President alone who sets policy. It's Congress. And if you'll look at the graphs supplied by a Clinton apologist, you'll note that it was only after the "Contract with America" which resulted in a conservative anti-tax-and-spend backlash that the National Debt decreased under that administration. At the beginning, it kept increasing. You see, Congress must approve budgets and therefore is complicit in anything that occurs with regards to taxation and spending.


"We're no different than any other county."

That's correct -- and scary. All one has to do is to turn on the news to look at what's happening in Europe. Nations, like ours, that tax and spend continuously, are failing and falling like dominoes. The most recent example, of course, is Greece, but there are rumblings that the underpinnings of other socialist economies are shaking as well. All because their citizens have bought into the idea that their government "owes" them anything beyond "life, liberty and the pursuit of happiness."

But our government's smarter than that, right? Consider Obamacare. It proponents promised that this would be $900 billion and "no more than that." Now, however, the Congressional Budget Office is predicting $1.15 Trillion and some are projecting it to top $2 Trillion.

Who's responsible for this impending fiscal trainwreck? Certainly the current administration shoulders responsibility for laying the track and putting the engine on it. But those who are supposed to be watching out for our best interests and responding to our will, Congress, have put a fire to the boilers and stuck the throttle on "full speed ahead" towards the bridge that's out (ok, I stretched that metaphor as far as I could... or maybe not).

Congress spends, as my father would've said, faster than a drunken sailor. They are blithly partying in the egineroom as we, the nation, rush headlong toward the abyss. They do this because they've lost touch with reality. And they are all to blame, all complicit in the ensuing tragedy. So how do we avoid it? By kicking out the engineer and hiring a new one who will hit the breaks before we plummet off the end of the bridge (ok, I'm done now with the metaphor).

I'm just as committed to sound fiscal policy as I am to compassionate and social liberty. I want the government out of my pocket and out of my moral and personal decisions. And I am committed to replacing my "representatives", who don't represent me, with ones who do.

This is what I'm doing. What are you doing?

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