January 25, 2006
What's In Your Wallet?
If you own a TV you've seen it, the ad featuring the clueless suburban fellow who has a big house, a pool, a country club membership and new car, bragging he got it all by getting himself -- “up to my neck in debt?”
What a fool. But at least a fool with enough sense to plead, “Will someone please help me!”
That's not the case with “borrow-n-spend” fool living at 1600 Pennsylvania Ave. Wash. D.C. He's a guy who never had to make ends meet, they just mysteriously always did. During his entire life money has always been just a phone call away – money he never even had to repay – with his own money, at least. Money was free. Trouble free, worry free, responsibility free.
Which explains why he sneckers dismissively at those of us not born with a silver boot in our mouths, those of us who fret about our crushing $8 trillion national debt and annual $400 billion deficits. He thinks we are just a bunch of worry worts. And it explains why, despite that rise tide of red ink surrounding our Dept. of Treasury, Bush keeps borrowing from tomorrow to get what he wants today.
George “Just charge it” Bush will unveil his latest shopping list in his upcoming State of the Union. During his first term Bush charged a trillion dollars worth of bling bling in tax cuts for the well-heeled folks who put him in office. Then he charged the cost of a couple of wars and handed out billions of dollars in no-bid contracts for the well-connected.
With no money left in checking, thanks to those huge tax cuts, he borrowed for those last two from his new sugar daddy, Communist (we want Taiwan back) China. China now holds one trillion dollars in loans to the US. One trillion.
Nevertheless, Bush still doesn't have the sense to stop borrowing and spending. So don't expect him to step up to the podium during his State of the Union message, look down upon the clapping seals below and declare, “I'm up to my neck in debt. I can barely make my minimum payments. Will someone help me?” Nope.
Instead Bush will announce that he is going to “buy” ordinary Americans a gift this time – tax breaks for medical expenses.
Washington Post: President Bush will propose that Americans be allowed to take tax deductions on more of their out-of pocket medical expenses, as part of an initiative the White House believes will rein in soaring health costs by shifting responsibility toward individuals, according to congressional and other sources familiar with the administration's thinking. (Full Story)
Even folks who believe tax cuts are good for the economy admit that Bush's medical deduction plan would add another $28 billion in red ink to the $400 billion already hemorrhaging annually.
If there's anything that baffles me more about the Bush administration than it's foreign policy, it's their economic theories – supply-side and trickle down theories so thoroughly discredited the last time they were tried by the Reagan bunch.
Who knows, Bush may get the same break our first supply-side Moonie, Ronald Reagan got. Reagan was able to get out of Dodge just months before all his tax-cut, deficit spending, chickens trickled down all over his successor, George H. Bush, forcing him to betray his own lips and raise taxes.
Or maybe not. Three years is starting to look like an eternity now that interest rates are on the rise, as is inflation. Already Wall Streeters are slinking into a defensive crouch and our foreign lenders are rethinking our credit worthiness.
I've been warning for over two years that the US economy is like a hollow tree. From the outside it looks fine. What once filled that now hollow center was a vibrant working middle class, now eaten away by unfair trade deals and cheap off shore labor. It will take only the right ill-wind to blow our once proud oak over. What might propel that wine, or when, no one can predict for sure. Just that the the likelihood of such a wind grows daily.
What we do know for sure is that both the geo-political and geo-economic environment today is in flux. Some kind of worldwide social and economic sea change is afoot, and like the US auto industry, America is unprepared for the implications. Energy supplies and natural resources, once ours for the demanding, are now being gobbled up by China, India and other developing nations.
On top of that:
* The US dollar is no longer the king of currencies but must now share space in a basket with other currencies, diluting both its value and influence.
* Manufacturing jobs, traditionally the first rung on the ladder to the middle class, are disappearing from America.
* America is blessed with the champagne of medical systems, while most Americans live on beer budgets.
* The housing bubble has reached, and even exceeded, sensible limits and is now officially over. That means no more easy credit from that tit for already over-extended consumers.
* Almost one in four Americans now report they have no discretionary income after paying bills each month... and last year the US savings rate finally hit zero (It's 10% in China) That means no savings for those inevitable rainy days.
* The US military has reached it's limit. Both its human and structural assets have been so abused and misused by this administration that it will require hundreds of billions of dollars and a decade to fully recover.
* Most large banks just reported lower-than-expected earnings for the last quarter. The reason – a jump in personal and business bankruptcies. Even those pro-lender bankruptcy rules Bush signed last year, requiring borrowers be required to repay some of their debt did not help. The banks report that, by the time they got their borrowers into credit counselling, it was already too late – most of them were too far gone.
It's Not Rocket Economics
You don't need a BS degree in economics to understand the trouble we face in the months just ahead. There's simply too much debt floating around out there -- too much personal debt and too much government debt. That's all really need to know.
So, during Bush's State of the Union this year.. when he starts reeling off “tax credit” this and “permanent tax cuts” that... the next sound you should hear should be the sound of Bush swiping our worn and tattered national credit card through the ATM one more time.
Oh, and yes, the bill -- addressed to you, your kids and their kids -- IS in the mail.
Happy now, Red Staters?