Inside the beltway it would appear that “Mumbo Jumbo,” Anthony Newley’s extremely amusing song about political blather and doublespeak from the 1961 smash musical “Stop the World, I Want To Get Off,” was introduced nearly fifty years too soon.
In the political environment prevailing early in the 21st century, “Mumbo Jumbo” should be the theme song for governmental political discourse. From President Bush’s “Mission Accomplished” fly-in (could that have really been six years ago) to Speaker Pelosi’s teaspoon-of-sugar suggestion that we rename the “Public Option” the “Consumer Option” in an effort to get America to swallow a very bitter pill (one that comes with over 1900 pages of technical legal blather…lawyers call it boilerplate…which we would make book that not one member of Congress has read), we have been treated to almost non stop rhetorical nonsense from the wise men and women we elect to lead our country. However, the Washington style mumbo-jumbo we are getting today is no laughing matter. Consider these examples:
• 97% of the people are going to get cradle-to-grave healthcare coverage with no increase in their taxes or the costs of their medical care;
• the country can add trillions of dollars of bailouts and new federal programs to the budget and reduce the deficit at the same time;
• we can prosper by growing our debt and our expenses faster than we grow our economy;
• we can save the planet by taxing industries that produce carbon dioxide (now officially declared a pollutant) even though the world’s fastest growing economies impose no such restrictions on their industries;
• we can stimulate economic growth, entrepreneurship, and critically needed, creative and constructive capital formation while imposing new regulations on our most efficient industries (think internet);
• we can have the government run the automotive, insurance and financial industries even though it couldn’t manage the SEC, the Fed or the House or Senate Banking or Financial Oversight Committees;
• The US dollar will always be the financial world’s safest harbor and retain its position as the world’s reserve currency even though the world’s fastest growing economies, our largest trading partners and the largest holders of our debt are actively seeking ways to abandon dollar supremacy.
No one knows for sure how many people find all of this fanciful rhetoric too compelling to resist. The mumbo jumbo from the ruling elite is delivered with great certainty and authority and certainly with more polish than, say, Chico Marx’s gem in the early 20th century farce, Duck Soup, when he demanded to know, “Who you gonna believe me, or your own eyes?”
As comedienne Joan Rivers used to famously ask, “Can we talk?”
We, and the rest of the world, have moved to fiat currencies, paper money that is backed by absolutely nothing more than the confidence we, and others, have in the value of the paper we exchange for goods and services. Neither U.S. dollars nor the paper currency of any nation is worth what its government says it is worth although some regimes try and set a peg for it. Rather, it is worth what millions of people, comprising the free market, decide to be its worth. Every monetary and fiscal policy we promulgate should be made with that understanding and with deep respect for the confidence that holders of dollars and dollar-denominated instruments have in the judgment of policy makers. Recklessly abuse that confidence, as we have, and as we are doing, and it can, and will, eventually evaporate.
History tells us that when any society debases its currency, the value of that currency can spiral irretrievably downward, and, especially in today’s global economy, the confidence other sovereign nations have in our currency is vitally important. We are deeply in debt to other countries that must first look out for their own national interests rather than ours. If and when our creditors refuse to roll over the loans they make to us, (primarily through the purchase of U.S. Treasury Bonds) or buy new issuances of our bonds and notes, the consequences would be incalculable.
The Bush years were not confidence builders for the dollar. Excessive spending, protective trade dalliances such as the Bush tariff on steel, the prolonged availability of very cheap money and the initiation of previously unheard of federal bailouts of financial institutions and then other too-big-to-fail auto and insurance companies which the Treasury believed represented systemic threats to the nation’s financial underpinnings, were all body blows to the esteem in which the dollar is held. The dollar lost an estimated forty-one percent of its value against the Euro during the tenure of the Bush Administration.
Now we have a new Administration that came to office with the mantra of “change we can believe in.” Sadly, however, those now at the helm of our ship-of- state seem to be doubling down on some of the worst policies that characterized the last Administration. We are currently spending at twice the rate of the prior Bush government, protectionism seems to be on the rise once again, and new federal bailouts of major failing institutions exceed those of the prior Administration with more ineffective largesse from the taxpayers most certainly coming. To make matters worse we are now suffering through a panoply of new and old regulatory agencies, economic and social overlords (those ubiquitous czars) and new expensive and unproved programs to tame man made climate change (the cause of which, if it exists, is still unproven), remake health care as we know it, buy junk automobiles in order to subsidize purchasers of new automobiles, provide short term assistance to failing industries in return for long term government control and ownership of those industries, adjust mortgages for homeowners who knowingly bit off more than they could chew, and to protect Americans from all manner of threats to their well being except that of an ever expanding government with an insatiable appetite for tax revenues.
Many within the beltway assume these initiatives will, ultimately, shore up long-term confidence in the American economy and the nation’s currency as well. Short term…maybe. Long term, we doubt it unless the law of gravity has been repealed.
According to Dallas Federal Reserve Bank President, Richard Fisher, the sum total of America’s unfunded liabilities (financial commitments for which we have made no provisions for funding) are estimated to have now reached $99 trillion, much of which will begin to become payable during the next ten years as an estimated seventy million baby boomers begin to retire and start receiving their Social Security and Medicare benefits. The terrifying danger, of course, is that the government will monetize these liabilities as they become due by running the mint’s printing presses overtime. If that happens, the value of the dollar will plummet as inflation sucks the purchasing power out of the pockets and bank accounts of just about everyone.
The federal balance sheet is loaded with far more esoteric legerdemain than anything World Com or Enron executives could ever have contemplated. Talk about unabashed hypocrisy. Our lawmakers enact the Sarbanes Oxley law requiring transparency from the leaders of private enterprise, but camouflage the alarming fiscal state of our nation from their own mismanagement. Sooner or later, this will come back to haunt us, and sooner is a better bet than later.
Taxpayers are informed that their Social Security and Medicare tax payments and premiums go into trust funds, suggesting that the money they pay in will be there for them when they need it during their retirement years. This simply isn’t true. With respect to Social Security, no actual money goes into the so-called trust fund. Current social security benefits are paid out of current social security tax receipts and any remaining social security tax balances are shifted into general revenues to pay for, well, anything from Gulfstream jets to fly Congressmen and Senators around, to paying for the $300,000 photo-op of an Air Force One lookalike flying over Manhattan. In other words, as soon as each month’s current social security benefits are paid, any remaining social security tax receipts are spirited out as fast as they come in. What goes into the so-called Social Security Trust Fund are markers or IOU’s, special treasury obligations that are backed by the very taxpayers who think they are protected by the trust fund. When Social Security’s current tax receipts are insufficient to pay current benefits, which is now projected to happen in about six years, taxes will be increased or the government will borrow more money (for which taxpayers will ultimately be responsible) thereby increasing our ever-swelling deficit.
The Medicare trust fund is only in slightly better shape but at least there is a real trust fund into which premiums are paid. Medicare attempts to control costs by mandating what doctors and hospitals can receive in payment for their services. Because Medicare costs are artificially suppressed this way, Medicare can claim it provides health care more efficiently than private providers. Medicare mandates, by formula, annual reductions in what physicians are to be paid for the medical services they provide to their patients as a way of controlling costs. Physicians routinely and understandably complain about these reductions and Congress routinely waives the reductions. The simple fact is that medical costs are rising faster than taxpayers’ incomes and so the Medicare Trust Fund is projected to run short about the same time the non-existent Social Security Trust fund is depleted.
Then, there are the complications of the current deep recession, which has slashed tax receipts for both programs, even though the demands made of those programs are increasing. Not a pretty picture. One of three things has to happen: taxes (or premiums in the case of Medicare) WILL increase to cover these shortfalls, OR our deficit will increase as we borrow more to cover these shortfalls, OR benefits will be slashed. The best bet is probably a combination of the first two alternatives since Congress doesn’t ever seem to have the courage to reduce so called entitlement benefits for fear that their lifetime sinecures might end.
So what is the country to do? The myopic, political short-term answer is to keep increasing taxes and borrowing money. The only sensible solution is, of course, to encourage economic growth by dramatically reducing spending and by lowering, not raising, marginal tax rates. In the short term that would balance the budget and stabilize our debt level. Over the longer term sustained economic growth, not the false dream of revenue from increased tax rates, are what produces the means for reducing the nation’s debt load and liabilities. That is reality…but it is a reality that conflicts with the objectives of lawmakers who promote ever-increasing government encroachment into more and more aspects of our economy and our lives. So long as Washington mumbo jumbo is the language of both Congress and the Executive branch, the American taxpayer will be the loser.
Although the show “Stop The World,” like candor in Washington, has become a fading memory, its signature song lives on, and, we think, poses an appropriate question to all who still believe politicians in our nation’s capital are dispensing free lunches. For those who don’t remember, or who were not around in 1961, it was aptly titled “What Kind Of Fool Am I?”