By EconMatters
Last week on CNBC during the coverage of the monthly employment report, Rick Santelli pointed out that there is some absurdity in calling the Republicans “lunatics,” when they are the only responsible voice in Washington right now trying to call attention to the out of control government spending, in the overall context of an unsustainable federal deficit, while the Democrats are running the country into the ground with even additional spending programs that the government has to borrow more money to fund.
His point is that if anybody should be labeled a lunatic, it should be the Democrats and those that are encouraging these unsound financial spending policies.
I was highly disappointed in the Republicans over the weekend. First of all, the Senate and House needed to have one voice on this issue, and the Senate Republicans threw the House Republicans under the bus by going along with the boneheaded tax increases, and ‘no spending cuts’ deal negotiated by the vice president.
Every Senator who voted for that deal needs to lose their seat next election, period. But then to add additional pathetic, spineless insult to injury, the House Republicans, led by John Boehner had a chance to send a message, and they shrunk from their responsibility on the issue of being the check and balances to the Democrats spending spree in Washington, and they chickened out when the spotlight was on them to shine!
How hard would it have been to amend the deal, and send it back to the Senate? That is how Washington is supposed to work, to get better deals through a negotiation process between the two legislative bodies. It sort of defeats the entire need for two bodies if one is just going to rubber stamp the other’s decisions! Boehner is a terrible leader, he needs to be fired, and every member who voted for that deal in the house needs to be replaced for the next election cycle!
With regard to the Democrats, there is no hope for them, and this is literally their last hurrah, as the country is faced with Greek style tough love once interest rates go up to the normal levels again. Then, the US will be put on a budget by China, our major creditor, just like Greece was by Germany.
Rick Santelli then tried to make the point that sound financial principles are in and of themselves good, i.e., the math makes rational business sense. Furthermore, that the government should operate just the way individuals and families do with budgets and within their overall means. The panel rejected this idea stating that government finances are different from household finances. Somehow these government finances are more sophisticated, have more complexity, and are not as straight forward as personal finances.
I get that they are bigger, I get that government finances affect more people when they are forced to adhere to a budget, or their “car/bridge” gets repossessed, or that they can just print more money and have a bigger credit card in essence.
I get all of that, but the numbers are so out of whack right now from a spending standpoint, escalating $16 trillion outstanding debt burden, and the future trend line with obligations due by 2025, that even with today’s once in a lifetime low interest rates, the country is headed for sovereign default on its loan obligations.
Hence Rick Santelli is right, sound financial principles are the same regardless of which level we speak to in personal or government. The government may have a bigger credit line, but that`s the only difference, and it means that the government can dig a far bigger hole and do far more damage than a consumer with a finite credit line.
The problem with having creative finance tools that enable the government to kick the can down the road for so long means that the government is actually in far worse trouble than the consumer who reaches a much more containable default level due to a resource stop loss in effect.
The consumer runs up 100k in debt, the banks stop lending; they declare bankruptcy at much more sustainable default levels. The government on the other hand, through creative finance techniques can dig such a large hole, i.e., Greece, that the damage can not only take down an entire Country`s standard of living, even after default, but hamper growth in the Euro region even though it is a small component of overall GDP.
Just compare the standard of living, and Greek lifestyle of today versus just five years ago. Greece has essentially lost entire parts of their economy due to the effective sovereign default at the hands of creditors. Streets which once thrived with shoppers and business activity are replaced with plywood and graffiti. A modern day ghost town!
Now picture the United States and the size of the hole that the US is digging with these creative money shuffling techniques, and the alarm bells should be sounding off right now all over the world. Because by the time you get to Greece’s level where the bond vigilantes make the government face up to the problem, the problem is too far gone. It is too late; there is nothing that can be done about it.
Right now we have limited options, but it is still possible…just barely, and with a radical change where everything we have done for the last 30 years of spending, annual budget deficits, and taxation needs to be completely reconfigured and overhauled.
And I am not talking about some tweaks that Washington is addressing now in the dialogue. I am talking a major paradigm shift in budgetary thinking, about 2013 and not having a budget deficit, whatever it takes. And it will take spending cuts. We collect enough tax revenue in this country, it is ridiculous how much tax revenue this country takes in each year.
So whatever that number is, we need to spend less than that amount in 2013. That is the first step of the United States 12 step program. Until we balance, and I mean a real balance, not some funny budget gimmicks, the budget everybody in Washington is a bunch of “lunatics”!
Moreover, the mainstream media should be chided for not doing their job, and holding Washington`s feet to the fire with regard to implementing sound financial principles into the government budgetary framework, and not busy promoting additional, irresponsible, creative finance workarounds that just dig the country into a further hole by not facing up to the real issue.
Balance the freaking budget, develop a surplus, and start paying down the country’s debt! Sound financial principles at work whether in the context of a government or household.
Ergo, the media needs to spend less time inventing and promoting “Governmental Coin” budgetary gimmicks and start asking some tough questions of our governmental representatives, such as Does the 2013 budget balance with projected revenues? If not, why? What do we need to do to make this the last year where this country runs a budget deficit? Remember, you cannot even start to address the national debt, until you finally have a budgetary surplus!
Yes, Rick Santelli, given the context of the consecutive years of running budgetary deficits, the size of the federal debt, and the projected obligations going forward, anyone not for major spending cuts in Washington or the mainstream media is an actual “Lunatic”.
