ECONOMIC ANALYSIS:

Thinking About Spending

by Fred Cederholm
We are wallowing in a global crisis of debt and our fine upstanding public servants are adding more debt as the solution to this debt-initiated crisis. It ain’t gonna work.

I’ve been thinking about spending. Actually I’ve been thinking about Uncle $ugar, the National Debt, the Social Security Trust Fund, Illinois, British Petroleum (BP), and those Gulf of Mexico oil mishap victims. Spending is the “solution” to everything. Spending will fix things. Spending truly makes us complacent and happy. Being owed money is the same thing as actually having it, right? Sorry but the current situation is all smoke, lights, and mirrors. After all, the number one item in the three biggest lies is “your check is in the mail...” You may die waiting to get what you think you are due!

You see, we are all the victims of “the sizzle instead of the steak” which characterizes the bait-and-switch being foisted upon US/us. The last time Uncle $ugar actually ran a true fiscal year surplus was when Nixon was President in the early 1970’s, and that was some FORTY years ago. Uncle and his government(s) have been very profligate—playing fast and loose with the checkbook. (“Hey, I can’t be overdrawn, I’ve got plenty of checks left”?!) Thirty years ago Dick Cheney said “the (Reagan era) deficits, don’t matter...” It was during this time frame when our National Debt took off at Star Trek warp speed. The National Debt stood at just under ONE TRILLION in 1981. It took us 190 years to get our first TRILLION of debt. This debt now approaches $13.193 TRILLION. We are adding a proposed $1.6 TRILLION in the current fiscal year. Now a TRILLION doesn’t even buy us a year of OVER-spending.

We are being undone by “the system” itself. Spending (make that debt-financed spending) may keep the public satiated for awhile, but buying friendship and loyalty is never long-term in the public (or private) realm(s). The public circuses of the Caesars, Caligula, and Nero may have kept the public drunk and happy for awhile, but things didn’t end very pleasantly for them, did they? It won’t for US/us now, either. We are wallowing in a (global) crisis of debt and our fine upstanding public servants are still putting forth, adding more debt as the solution to this debt-initiated crisis. It ain’t gonna work, but, what else are they going to do, cut spending and be responsible? How is that going to fair with the recipients of the largesse and governmental programs’ generosity? How will that get the pols re-elected?

Uncle $ugar is different in that he and his partners in crime at the Treasury and the Federal Reserve can “legally” print more money. (How could this be illegal when the government is doing it and the government makes the laws?) This scam game will go on for Uncle $ugar, though, because he is still issuing checks to the disgruntled masses. The situation is so much worse than it feels because Uncle has used prepaid surpluses elsewhere. From the time of Lyndon Johnson (make that Vietnam), roughly $4.5 TRILLION of Social Security surpluses and other pension trust monies have been co-mixed in the general kitty and spent elsewhere. The huge escalation of taxes paid in since Reagan were supposed to keep everything solvent until 2037. Well guess what? These surpluses now will become shortfalls in less than five years. Those who paid in will be forced to pay Uncle again, in order to be able to pay themselves. How does that work?

By the end of this fiscal year, Illinois will be behind a full year’s worth of payments (plus what is owed in arrears to the pension funds). The legislature plans to address all this in November—after the elections.

Illinois, where I live, is now regarded as the worst-off of the fifty states. When they ran out of bucks, they just stopped making payments. They owe everyone. Springfield is obligated to have a balanced budget, so on the cash basis of accounting they just stop cutting checks when the cash runs out. They could borrow some in anticipation of coming revenues, but the Land of Lincoln now has a worse than “junk bond” rating—at the bottom of the 50 states. This will greatly raise the cost of borrowing. It is projected that the state will run out of the current year’s cash this coming December. Thus, by the end of this fiscal year, Illinois will be behind a full year’s worth of payments (plus what is owed in arrears to the pension funds). The legislature plans to address all this in November—after the elections. We are told not to worry, but where are they going to get the money (if not from us)?

The media is ripe with hype and spin for the BP $ 20,000,000,000 ($20 BILLION) trust fund set up to reimburse the financial victims of the Horizon Deepwater nightmare in the Gulf. This will fix and restore everything. But, where is the money? Just last week, there were at least six major news stories about victims getting less than they are owed, or nothing at all. BP is accepting calls, but not returning most of them. Money is clearly being spent, but on advertisements telling us what BP is going to do—kind of like “Don’t worry, be happy... we are on top of the situation.” It is now day 82 and counting...

We clearly have our priorities all out of focus by giving any concern whatsoever to what is owed on the Federal, State, and corporate levels. Let’s face it, the debts will all ultimately fall to the taxpayers in the end. So... this all is money we just owe ourselves. Hey, “we’re” probably never going to have to fork over the cash anyway, so big deal! What’s $ 13,193,000,000,000? What’s another $1,600,000,000,000? What’s a $4,500,000,000,000 prepaid (trust) fund that no longer exists? What's a year-plus of unpaid bills in Illinois? Who cares about what is due the Gulf of Mexico victims? They all said that they are gonna pay up, right? It is only money. I mean... it is only paper.

Not so. What I really MEAN is that our so-called assets are LIABILITIES!

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2009 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.



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This story was published on July 12, 2010.