A great piece by Addison Wiggin:
The Honorable Harry Reid
Majority Leader
United States Senate
Washington, DC 20510
Dear Mr. Leader,
I'm writing in response to Treasury Secretary Timothy Geithner's appeal to you to raise the debt ceiling.
I understand that you didn't ask for my opinion. And with no political positions on my curriculum vitae, you may not even recognize my name. But I have co-authored two books warning about the United States' fiscal situation, starting with Financial Reckoning Day in 2003 and followed by Empire of Debt in 2005. I mailed copies of the latter to you and the other members of Congress free of charge. While it may not be sitting on your nightstand, I trust that you’re at least aware of the book.
After we published the book, I wrote and produced a documentary, I.O.U.S.A., which was screened in competition at the Sundance Film Festival, nominated for a Critics Choice award and shortlisted for an Academy Award. The film attempts to present the fiscal crisis facing the United States in a way that the average American could understand. The film took two years to produce and premiered on Aug. 22, 2008 — almost a month before Lehman Bros. declared bankruptcy, kicking off the Panic of '08.
So after a decade of attempting to bring the root causes of our economic woes to light, I humbly suggest that the shortsighted tone of Mr. Geithner's appeal is itself part of the problem. It is, in fact, no different than Secretary of Treasury Hank Paulson’s frantic three-page proposal that kicked off the bailouts in September 2008.
Sir, in short, by raising the debt ceiling, we're delaying the day of reckoning yet again. Instead of paying for our excessive spending today, we'll pass that burden on to our children and grandchildren. I have three young children. And I, like many Americans, already find it a challenge to educate them and provide for their health care. Now I must also worry about what their future is going to look like... what opportunities will they find when it's their turn to join the work force or start businesses?
Mr. Geithner shares his fears of a default in his letter to you. But his request simply means my children — everyone’s children — will have to deal with that default on their own.
Do we really want our children burdened by higher taxes, excessive government regulation, higher mortgage rates, reduced incentives to start their own businesses and, as things are going, the end of the freedoms that you, Mr. Geithner, the rest of the American public and I cherish?
Freedom is the very promise that America bestows on history. But now, through our own malfeasance, we are in a position of telling the world, "We cannot afford to offer you the opportunity to enjoy that freedom anymore."
How did it come to this? And why perpetuate the very malfeasance that threatens our future prosperity?
For most of America, understanding the fiscal condition of the nation is no easy task. For that, they place their trust in you. No doubt, it’s easier to do exactly what our Treasury secretary is asking you to do — ignore the problem and continue to kick the can down the road. But I’m asking you, on behalf of future generations, to think deeper about the problem and begin addressing it today.
To help you with your decision, here are some images you can use to illustrate the magnitude of the national burden.
As Mr. Geithner stated in his letter to you, “In February of 2010, Congress passed legislation to increase the debt limit to $14.29 trillion.” To grasp that staggering figure, imagine stacking $100 bills on top of one another. To reach $14.29 trillion, your stack would soar 9,721 miles into the sky!
Said a different way, that’s like 1,767 mountains of $100 bills the size of Mount Everest piled on top of each other.
Of course, the current debt wouldn’t be a problem if tax revenue were exceeding our spending and therefore reducing the debt. But we both know that is not happening. Even if we taxed all Americans 100% of their income for an entire year, we still wouldn’t be able to pay off our $14.29 trillion hole
What's more, the interest we’re paying on the current debt is forcing us deeper and deeper into the hole. According to the TreasuryDirect.gov website, the interest payment on our debt was a massive $1.13 billion per day — for a total of $413 billion — in 2010.
The interest payment alone amounts to record-breaking deficits hit during the Bush administration just a few short years ago. If you agree to raise the ceiling, you effectively agree to drive up the interest payments until they exceed tax revenue — creating a situation in which we’ll be forced to default, eventually. And the longer it takes to happen, the worse it will be for our children.
The Treasury secretary outlines how catastrophic a default would be for the financial system and the integrity of the United States:
Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs.
When, I ask you, do we begin addressing the root problem? When do we admit that we're spending beyond our means and begin to address the problem in earnest? "We can live beyond our means for a very long time," to paraphrase a leading financier from I.O.U.S.A., "and we can do it on a very large scale — but we cannot do it forever."
The United States is like a private company suffering from a pension burden it did not plan for and that is losing market share because its products are no longer competitive. And it is as if the management has decided to take an extended vacation, rather than hold a meeting to find a way out of the hole.
In Congress, you don't address the real problems. You talk around them, play politics with them and then make frantic appeals at the 11th hour to borrow more money to paper over the problems again for yet another year.
At this pace, how do you honestly believe the government will ever balance its books again? In the era of uncertainty created by mayhem in Washington and ever-increasing global competition, how do you expect the economy to get back on track?
Let's put the numbers aside for a second. I'd like to ask you a simple question:
Imagine for a moment that you’ve chosen to smoke cigarettes all your life. You’ve ignored the warnings about them that appear all around you. Then, eventually, and unfortunately, you get diagnosed with lung cancer.
Luckily, you’ve caught the disease in its very early stages. The doctor presents you with two choices.
First, you can enter chemotherapy. The road to recovery, the doctor tells you, will be harsh. You’ll suffer extreme nausea. You’ll hardly be able to swallow from the ulcers you develop in your mouth. In short, you’ll go through hell in an attempt to beat the disease. But because you caught the disease after the first symptoms appeared, you have a high chance at a full recovery.
The doctor also offers a second alternative. He’s worked out a deal that allows you to rid yourself of the disease instantly. No pain. No suffering. No hell. All you have to do is agree to give the disease to your 2-year-old grandson.
Would you make that deal, Mr. Leader?
I trust you'll make the right decision about our nation’s fiscal health. At the very least, there needs to be an honest debate over raising the debt ceiling. If you provide the rubber stamp Mr. Geithner is asking for, you will be as guilty as he of passing the buck. Each time the buck gets passed, the stakes get higher. The default Mr. Geithner fears only looms more ominous in our future.
The newly elected speaker of the House, John Boehner, has gone on record saying he'll agree to increase the debt limit because we have to be "adults" about addressing the fiscal crisis the nation faces.
What, may I ask, is "adult" about failing to address this issue altogether?
Sincerely,
Addison Wiggin
Executive publisher, Agora Financial
Co-author, Financial Reckoning Day and Empire of Debt
Executive producer, writer, I.O.U.S.A.
"Educate and inform the whole mass of the people...They are the only sure reliance for the preservation of our liberty." —Thomas Jefferson
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are
Life, Liberty and the pursuit of Happiness.
That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,
Life, Liberty and the pursuit of Happiness.
That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,
Tuesday, January 25, 2011
Beware the "GM Option"
From the 5 Minute Forecast:
Recall that the bankruptcy of General Motors and Chrysler two years ago was no ordinary bankruptcy proceeding. Hypothetically, bondholders were first in line among the automakers’ creditors trying to recover their investments.
After all, they lent money to the automakers at a relatively low rate… so if the worst happened, they stood the best chance of getting all their money back.
Then the politicians got their mitts on the deal… and handed out favors like Halloween candy to the unions and other favored constituencies. Bondholders were left holding the bag.
Now we have news that the State of California is in a fiscal state of emergency and that can only mean trouble for holders of municipal bonds.
See, unlike cities and counties, states can’t declare bankruptcy in federal court. So unnamed “policymakers,” The New York Times reports, “are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts.
“Proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.”
Just imagine the feeding frenzy that would result -- pitting holders of municipal bonds against the public employee unions seeking every last dime of their pensions and health benefits.
“They are readying a massive assault on us,” says Charles Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”
You don’t want to be around to see how this turns out.
“We expect muni funds will find a bottom at some point,” says Jim. “And then, just as quickly as they stabilize, they’ll fall again on actual news of defaults. It won’t take much in the way of a real scare to truly collapse these investments.
“Regardless of their future, the point is we’re entering into panic mode on some of the best-performing and hottest assets for pension plans, 401(k)s and IRAs. Pensioners are no doubt beginning to reel again.”
Recall that the bankruptcy of General Motors and Chrysler two years ago was no ordinary bankruptcy proceeding. Hypothetically, bondholders were first in line among the automakers’ creditors trying to recover their investments.
After all, they lent money to the automakers at a relatively low rate… so if the worst happened, they stood the best chance of getting all their money back.
Then the politicians got their mitts on the deal… and handed out favors like Halloween candy to the unions and other favored constituencies. Bondholders were left holding the bag.
Now we have news that the State of California is in a fiscal state of emergency and that can only mean trouble for holders of municipal bonds.
See, unlike cities and counties, states can’t declare bankruptcy in federal court. So unnamed “policymakers,” The New York Times reports, “are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts.
“Proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.”
Just imagine the feeding frenzy that would result -- pitting holders of municipal bonds against the public employee unions seeking every last dime of their pensions and health benefits.
“They are readying a massive assault on us,” says Charles Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”
You don’t want to be around to see how this turns out.
“We expect muni funds will find a bottom at some point,” says Jim. “And then, just as quickly as they stabilize, they’ll fall again on actual news of defaults. It won’t take much in the way of a real scare to truly collapse these investments.
“Regardless of their future, the point is we’re entering into panic mode on some of the best-performing and hottest assets for pension plans, 401(k)s and IRAs. Pensioners are no doubt beginning to reel again.”
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