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Is Ron Paul Best Suited to Take on the U.S. Debt Crisis?

November 30, 2011 Posted by Tommy Lloyd, Editor in Chief

2012 Presidential Candidate Ron Paul

Is Ron Paul the best suited candidate to take on the U.S. debt crisis out of the 2012 presidential candidates? I see little evidence that would suggest otherwise.

While President Obama has mentioned his willingness to make cuts in the U.S. annual deficit spending, to say the cuts are draconian would be an understatement. The cuts the president spoke of were over a 10 year period and would do nothing to help pay off the debt, instead just make a headline as the deficit spending would remain at more than dangerous levels while the debt would continue to grow ever higher. This all before his major healthcare bill kicks in as well, which will cause at minimum an additional trillion dollars of federal government spending over the next ten years. But, even if those cuts were made, I see little evidence that the President is at all willing to take a leadership position in making the tough choices necessary, hence not only the existence of, but his lack of participation with the “Super Committee.”

So, what about the Republican candidates who are currently seeking their party’s nomination for the 2012 election? Well, all of the major candidates talk about reducing spending and/or capping it to a percentage of GDP. However, most rely on tax cuts and pro-growth strategies to make up the shortfalls in government tax receipts to cover big government spending. Most call for decreasing the corporate income tax, scaling back on burdensome regulations, and expanding the nations energy sector. All of these might be great in creating jobs and increasing tax receipts. But, how long it might take for such changes to occur in the economy and what could happen in the mean time leaves one to wonder. Additionally, if you watched the candidates in the National Security Debate on CNN last week, you might wonder how honest any of them could be saying they can reduce spending as many seemed to be quite ambitious as far as military pursuits.

But, one candidate has a method of decreasing spending instantly and in a profound way. In fact, it’s in such a big way that it could potentially free up an astronomical amount of money. In contrast to the other seven candidates on the debate stage (including, Mitt Romney, Michelle Bachmann, Herman Cain, Rick Santorum, Jon Huntsman, Newt Gingrich, and Rick Perry), Ron Paul wants to “just bring the troops home,” and thus eliminate current war funding. What separates war funding from other types of government expenditures is it most often never appears in a budget, and is thus an unfunded expense that simply adds to the debt.

But, war funding isn’t the only major spending cut in Ron Paul’s detailed budget proposal. He additionally would like to cut the defense budget by 15% (a number that would still make every other nation’s defense budget look miniscule). What else? Well he’d call for government spending to revert to 2006 levels, cut the federal workforce by 10%, slash Congressional pay and perks, and curb excessive federal travel. President Paul will take a salary of $39,336, approximately equal to the median personal income of the American worker, and he’d even like to close five cabinet departments (and no, the EPA is not one of them). His budget proposal is so ambitious to make America financially responsible that it cuts a trillion dollars in the first year without major social program changes, and predicts a balanced budget within a three year period.

But, okay that’s spending which is only half the equation, so what about tax receipts. Well, Ron Paul, like the other major candidates has a pro-growth model to increase job creation. He wants to end corporate subsidies and bailouts, but at the same time calls for a repatriation of oversees capital of U.S. companies in order to spur trillions of new investment, in addition to expanding energy exploration and decreasing the corporate tax rate to 15% in order to make America competitive again. He calls for repealing ObamaCare, Dodd-Frank, and Sarbanes-Oxley. Additionally, he wants to mandate REINS-style requirements for thorough congressional review and authorization before implementing any new regulations issued by bureaucrats. President Paul will also cancel all onerous regulations previously issued by Executive Order.

On the monetary side, Ron Paul, a major voice for Austrian economics and free markets, wants to conduct a full audit of the Federal Reserve and implement competing currency legislation to strengthen the dollar and stabilize inflation.  Notice, though his book “End the Fed” is well known, a Ron Paul presidency does not call for ending the Federal Reserve.  But, rather hopes to implement a competitive commodity-backed currency to give those of middle classes a chance to save without having their wealth extracted by a central bank’s monetary policy which not only promotes, but relies on inflation.  Competitive currencies have been used many times throughout history (ie. silver certificates) without causing great risk to continued central banking activities.  And, I see this move as beneficial to families with a saver’s mentality, but most importantly in giving the Federal Reserve more incentive to operate with even greater integrity which could serve as win-win all around.

Ron Paul seems to be the only candidate with a solid plan, at least of great detail and ambition. He calls it “Restore America”. And, I will say without hesitation that makes him best suited to take on the U.S. financial and debt crisis of the 2012 candidates, topics of debt being the subject of this website.

I guess the only question left is for us voters…  After more than a decade of increasingly rapid expansions of the federal government and its associated debt, are we really 15 Trillion Dollars better off… Or perhaps, might it be time to… “Restore America?”

What other issues make Ron Paul unique in the 2012 race?

  • Ron Paul is universally known as one of the greatest voices for the constitution, contract law, free-market principles, diplomacy, and personal liberty within the U.S. Congress, and he is not opposed to going against his “republican establishment” comrades if their efforts compete against those principles.
  • Despite being the oldest person in the 2012 presidential race, he has the most enthusiastic support from young voters and activists who do not wish to inherit an unpayable debt, stripped liberties, a continued burden for being the policemen of the world, and an America that doesn’t stand for what it once did.
  • Ron Paul strongly opposes the war on drugs which brings violence to our streets  and makes criminals out of non-violent offenders.
  • Ron Paul wants the federal government to get out of the business of licensing marriage and interrupting in individuals’ personal and sacred relationships.
  • In 2002, without garnering any acceptance from his peers, Ron Paul gave a speech stating that the U.S. housing bubble would burst and lead us into a recession.
  • In 1998, Ron Paul gave a speech warning of the potential for terrorist attacks within the United States as a result of “blowback” from “America’s aggressive foreign policy.”
  • Ron Paul has received more donations from those active in the United States military than Barrack Obama, and more than all of the other Republican candidates combined.
  • Despite calling for the biggest slashes to the size of the federal government, Ron Paul receives more in donations from federal workers than all of his rivals.
  • And the biggest, though a long shot… In the event that the Republican Party should fail to give Ron Paul their endorsement at their 2012 Convention, many Ron Paul supporters vow to vote for no one else, which could lead to the most impacting third party run in modern day history.

 

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Categories: Economic Crisis, Policy, U.S. National Debt

The Demographic Crisis of Entitlement Programs

November 14, 2011 Posted by Tommy Lloyd, Editor in Chief

US Census Bureau
Social Security, Medicare, and Medicaid. They are the three main, largest, and arguably most needed entitlement programs within the United States. But, where are they headed?

Before we answer this question, let’s point out what we already know. The common denominator of Social Security, Medicare, and Medicaid is the aged and retired population. And, the two factors that have the largest impact on the costs of the programs are both the amount spent per beneficiary (actual paid benefits and healthcare expenditures per beneficiary), while the second factor is the number of people receiving benefits and the duration thereof.

We know that when each of the three welfare programs were established, they were done so under the assumption that there would always be an expanding economy and that as people retired, there would be sufficient new active members of the work force paying into the programs to cover the cost of those receiving benefits.

When Social Security was established in 1937 for instance, the age at which one could receive benefits (65) was actually greater than life expectancy of Americans at the time, and so it was expected that less than half of all Americans would receive benefits because they would not live long enough. The work force was incredibly large as a percentage of population at the time, and there were very few receiving benefits. In fact, the ratio of workers to social security recipients in 1945 was 40 to 1 and workers were required to pay just a 2% tax to support the program. However, with the decline of fertility rates, the ratio didn’t last long and today the number of workers to beneficiaries is just 3 to 1 which has caused the rise in the social security tax to 12.4%. In the coffers? 1.2 Trillion Dollars. A number that will rise slightly in the next two years. Sounds great doesn’t it? But, the problem lies in the demographics of the country and the disproportionately large number of Americans that will reach the retirement age in the coming years versus the number of people in the workforce paying into the program. In fact, by 2037 the ratio will be down to a staggering 2 to 1, while during the same year, Social Security will be completely out of money. This of course do to the fact it will be drawn upon much more rapidly than it is replaced. Today’s retired seniors do not have to worry. However, anyone who would be expecting to be receiving benefits in 2037 at the outset or beyond will expect an immediate 25% reduction in benefits paid (see www.ssa.gov). Some people think that the government will take on debt and just push aside the problem like it has other financial concerns, but by law, Social Security cannot issue benefits for which it hasn’t the required assets (see www.socialsecurity.gov). Others think that simply because they pay into social security, they will be guaranteed benefits, but court decisions of the past do not support that argument.

So, what about Medicare and Medicaid? Well, they too face a similar fate. According to an annual report issued by trustees overseeing Medicare, it will be broke in 2024 (five years sooner than a report issued just last year with different economic projections). And Medicaid? Well, it’s just been in large part an unfunded bundle of promises by government for quite some time. Medicaid is different than Social Security and Medicare as it is income based rather than age based. But, the largest growth in Medicaid expenses in recent years has been long term care and other elderly services.

As noted above, the other aspect affecting the costs of the entitlement programs is rising healthcare costs which have been absorbing an increasing amount of GDP for the past few decades with a vast array of new treatments and medications available to patients. For political purposes, many note healthcare cost inflation as the sole problem in the United States facing entitlement programs because of a report issued by the Congressional Budget Office in 2007. However, excessive healthcare expenditures per beneficiary do not proportionally exceed the increase in expenditures caused by the aging population until approximately 2040 at which point the programs will already be broke, and the CBO failed to communicate this reality because it completely left Social Security (the largest entitlement program and almost based completely on age) out of the entitlement expenditure report.

According to American Enterprise Institute for Public Policy Research, “…over the next seventy-five years, Social Security, Medicare, and Medicaid will cost an additional 5.7 percent of GDP, and the cost increases will be split almost evenly between population aging and excess health care cost growth.”

The current president signed into law his signature piece of legislation in 2009 with claims it will help cut healthcare cost is the U.S. However, we simply do not know if that’s true or not and Medicare’s nonpartisan actuary stated that the pricing curbs “will not be viable in the long range.” That, being when they are most needed. Regardless of whose right between the President or the Medicare Actuary about the policy’s health care cost cutting or lack there of, neither address the aging population and the reality of the demographic crisis in the United States facing entitlement programs within the next two decades.

So, why is no one addressing the demographic crisis? Why such a lack of leadership? There isn’t a single person in Washington not aware of the problems at hand. But, unfortunately, the same reason that the problem exists (demographics) is the exact same reason there is little being done about it (as those retired and entering retirement represent the largest voting blocks). You’ve seen the AARP ads.  Politicians simply feel that being realists and facing the issues, they might create fear and backlash by the largest voting blocks and lose re-election hopes.

So, what can you do? Contact your president. Contact your representatives. Let them know that you understand the circumstances. Tell them you want politics put aside and real leadership shown in fixing Social Security, Medicare, and Medicaid in a way that will insure their long term viability. But, most importantly, tell current retirees to lend their support to fixing the programs in the long term for their children and grandchildren, as without their support, politicians will not have the guts. And, the longer this problem persists, the more drastic and potentially catastrophic the needed changes will be in the years ahead.

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Categories: Economic Crisis, Markets, Policy, U.S. National Debt, World Debt

U.S. Debt Surpasses GDP!

September 13, 2011 Posted by Tommy Lloyd, Editor in Chief

While the offensive line of the hard-nosed freshmen Tea Party membership within the United States House of Representatives held their ground in pushing for talks of deficit reduction when it came time to pass a normally political but routine increase in the country’s debt ceiling recently, there was perhaps something even more horrifically tragic looming over the heads of the people than a realization of the country’s political divisiveness.  No, I’m not talking about the consciousness of how our political process could briefly cause a delay in payments to the country’s creditors and in fact a default at some level by the most robust economic powerhouse in the world or even the downgrade of the United States credit rating by S&P.

No, what I’m talking about is even more disheartening.  The most tragic fact resulting from the entire event is the realization of the actual number that the debt limit had to be increased to, $14.694 trillion effective August 2, 2011, a number just large enough to out weigh the 2010 annual GDP of $14.527 trillion.  Thus, for the first time since World War II and the adoption of Keynesian economics, the U.S. National Debt has in fact not become a percentage of GDP, but rather a number that surpassed it.

Sobering is when we put the nature of that spending of yesteryear in perspective to today’s spending.  During the prior period, the large increases in spending were do to the War and thus would ultimately be temporary, whereas in this modern time U.S. spending is in its largest parts related to entitlement programs that are expected to become even more grossly expensive than they are today.

Whether or not political leaders of the near future will have the gull and tenacity to make the tough decisions and honest reforms that are undoubtedly needed in order to insure the sovereignty of the most robust economy on the planet for the long term is still up for debate, but for now the United States seems to be using debt as an instrument of sustainability rather than emergency or investment… a tactic that can never survive the long haul.

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Categories: Debt, Economic Crisis, Policy, U.S. National Debt, World Debt

Rise of Defaults on Student Loans

September 13, 2011 Posted by Tommy Lloyd, Editor in Chief

According to reports issued by the Department of Education on Monday, the default rates of student loans have risen across the board, including those loans issued to students of public schools, private non-profit schools, and for profit institutions.

The numbers released date back to September 30, 2010 and show that 8.8% of federal student loans whose payments started to become due in the prior fiscal year had gone into default, an increase of 1.8 percent from the 7% number for fiscal 2008.  Broken down by the three school types, the numbers were as follows: 4.6% for private non-profit schools (up from 4% the previous year), 7.2% for loans issued to students at public universities (up from 6%), while for profit schools showed the sharpest rise with the default rate of 15% (up from 11.6%).

The Department of Education has cited tough economic times for many of the increases, but nonetheless, the numbers are concerning as the government and taxpayers are inevitably on the hook for the majority of these federally guaranteed loans which have created a secondary market consisting of a structure much like that of the housing market in the United States.  SLABS, or Student Loan Asset Backed Securities, created by Sallie Mae in the early 1990′s act much like the mortgage backed securities that played a large role in soaring real estate prices and the eventual burst of the housing bubble within the U.S.

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Categories: Debt, Economic Crisis, Policy, U.S. National Debt

Negative Dodd-Frank Effects on Consumers?

September 10, 2011 Posted by Tommy Lloyd, Editor in Chief

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank for short, was signed into law by President Obama in 2010 as an effort to reform the U.S. financial system.  The bill contains enough pages to serve as a booster seat, is confusing, and seems to be a mystery to many consumers despite the inevitable ways they’ve already been impacted by it.

As with any new regulation, it takes time before interested parties learn how they’re affected.  Thus, the timing of the imposed “uncertainties” created by Dodd-Frank during the middle of an already slow economic recovery is troubling.

Within uncertainties created by such large sweeping actions, one can actually find just the opposite of uncertainty.  For example, one can be certain that the new rules have required rigorous reviews by the largest of law firms needed to interpret what is actually contained within the bill.  One can be certain that the needed legal services do not come at a low cost.  One can be certain that such a large bill will generate additional lobbying in Washington D.C. by financial institutions.  One can be certain that while politicians tout their inherent desire to take steps to jump start the economy during these tough economic times, all of these new rules have actually slowed down lending and economic growth.

One can be certain that the imposed regulations and their associated costs are much more easily carried by the largest of institutions which could have long term effects on the amount of competition in the U.S. and create an even more loyal marriage between our largest banks and the politicians that serve them.

And, perhaps the worst part of Dodd-Frank that one can be certain of is the fact that the bill did not provide even an once of oversight or needed regulations on the actual organizations which were most responsible for the U.S. financial breakdown, Fannie Mae and Freddie Mac.

People, citizens, voters, and more importantly in this case, consumers deserve transparency when it comes to the dealings of their political representatives. I’d be quite certain that not all of the 223 Democrat Representatives in congress and 53 Democrat, 4 Republican, and 2 Independent senators that voted yes on the eventual passage of Dodd-Frank read the bill themselves, as when it was first drafted, it was said to contain over 5000 pages before eventually being shrunk to a number closer to 900.

One result of the rather large piece of legislation is that it creates an entire new agency overseen by the Federal Reserve called the Bureau of Consumer Protection aimed at regulating various aspects of business pertaining to consumer financial products.  Amongst other things, credit card issuers will see a set of new fees meant to pay for an emergency liquidation fund, as well as the costs of enforcing these new regulations.  This is supposed to prevent the future bailouts.  However, all of these fees and the abundance of costs associated with the above mentioned “certainties” will undoubtedly be passed on to consumers which is really just having consumers bail out troubled institutions in advance.

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Categories: Commercial Credit, Consumer Credit, Consumer Debt, Credit, Credit Card Debt, Debt, Economic Crisis, Markets, Policy