Americanly Yours

The War in Afghanistan will soon have been going on for 8 years with absolutely no end in sight.

Are we losing?  Maybe, maybe not.  But, it is clear that we are not winning.

A “surge” like President Bush’s successful strategy for turning around the Iraq War is unlikely to work in Afghanistan.

This War has cost hundreds of billions of dollars in Treasure and, more importantly, hundreds of honorable American lives.

I supported this War for a long time–pretty much everyone did at some point.  In November 2001, shortly after the War started, only 9% of Americans thought the War was a mistake.

But, changing situations create the need for changes in outlook, and often changes in policy.

Whether or not the War was a mistake, a majority of Americans now want our troops to leave Afghanistan.

We have not succeeded in dismantling al-Qaeda.  We have not captured Osama bin-Laden or many of the other high value targets.

The Soviet Empire’s premature end was due in part to its war in Afghanistan.  We should not allow history to repeat itself and bring an end to the mighty American Empire as well.

This Nation is hemmorhaging money, the economy is dismal.  It is time to stop spending so much of our National fortune on this War.  Our cost for this War will be paid back  over the next 3o years to China and others who have loaned us the money to fight.

Afghanistan’s government is crumbling and it now appears that Hamid Karzai, Afghanistan’s American backed Prime Minister may have engaged in ballot-stuffing and other measures of voter fraud to keep himself in power.  These actions are preciously the same that American officials have criticized Iran for taking.  By standing behind a government like this, we are implicitly voicing our approval of these actions.

This war has spilled over into Pakistan and has greatly destabilized a nation with nuclear weapons–threatening the security of the entire world in the process.

The anti-war left has recently been strangely silent over the wars in Afghanistan and Iraq.  My assumption is that they have not wanted to create political problems for a President that they largely supported while he is trying to push through health care and environmental legislation also largely supported by this group.  With the health care and cap and trade bills headed for near-certain failure or at a least a major watering down, I suspect that the anti-war left will begin to be more vocal in its opposition to the War in Afghanistan again soon.

New polls show that the majority of Americans now oppose the War in Afghanistan.  President Obama’s approval ratings have now dropped to the mid-40-low 50’s range.  You can be certain that President Obama does not intend to sacrifice his popularity over a war that was started on President Bush’s watch.

In the coming months, President Obama soon announce his decisions on what to do about the War in Afghanistan.  Many policy analysts believe that the President will announce a large increase in the number of troops for Afghanistan.  This is exactly the wrong strategy.  President Obama should begin a massive withdrawal of American troops from Afghanistan.  Im not saying that we shouldnt continue to hunt bin-Laden–I would favor leaving behind an extremely small and elite force to hunt terrorists and bring them to justice.  However, we should stop engaging in “nation building,” stop propping up Karzai’s corrput government, and stop fighting this War.  If other Nations wish to continue fighting this War without our aid, let them do so, but the United States government should cease spending the lives and the wealth of Americans on this War.

We can still leave Afghanistan honorably; it is time to do the right thing and bring our brave and heroic men and women home from Afghanistan.

Americanly Yours,

Phred Barnet

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I have been hearing a lot of talk lately about repudiating our national debt.

Last week, my mom even commented that she thought that we should cancel our debt so that we didnt have to pay back China.  No one can deny that my mom is very intelligent.  The old phrase “mother knows best” often applies, but in this case, mom is incorrect.

According to the US Treasury department, our national debt is currently $11,379,966,189,575.05 [$11.3+ trillion].  This amounts to over $37,000 per person! But, the above numbers dont paint the whole picture.  A while ago, I posted a link to a news story which claimed our “real” national debt totaled $78,800,000,000,000 [$78.8 trillion].

However, Richard Fisher who is President of the Federal Reserve Bank of Dallas recently gave a very interesting interview with the Wall Street Journal.  In his interview, he talked about “the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations… [that] we at the Dallas Fed believe total over $99 trillion.” Thats $99,000,000,000,000.  But that is just the money for the unfunded liabilities and the costs of retirement and health care that have already been promised.  That number includes neither the current national debt, nor does it include the proposals by President Obama and the Democratic members of Congress to expand national healthcare.  However, even without including new proposals, the total national debt is astounding to say the least.  If you add the Dallas Federal Reserve’s estimation of unfunded liabilities with our current national debt, you reach a total of over $110,000,000,000,000 [$110 trillion]!  This amounts to a total debt of  over $360,000 for every American citizen!!!

Repudiating the debt probably sounds like a compelling idea.  After all, our national debt is massive and will continue to grow, especially as baby boomers start to retire and Social Security and Medicare costs soar while revenues for those programs drop.

[[And by the way, Mr. Fisher far from being a Republican hack who criticizes every move made by Democrats.In fact, Mr. Fisher is a Democrat who served in both the Carter and Clinton Administrations.  He was also the Democratic nominee for Senate in 1993 against Kay Bailey Hutchinson.]]

With current liabilities of over $360,000 per person, repudiating the debt may sound like a great idea.  Afterall, that is a massive sum for each America to be responsible.  In fact, there isnt enough money in the entire world to pay this debt. But, repudiating the debt is a terrible idea that must be opposed.

Yes, China and other foreign nations now own an increasing amount of our national debt.  This of course represents a massive national security risk to America (I believe that it is the greatest current threat to our National survival).  It is a security risk because the Chinese and other nations can threaten to dump their American debt holdings (making them worthless) unless we comply with their demands.  However, repudiating the debt and telling nations like China that we are not going to pay them the money they lent us in good faith may be an even greater risk to our Nation.

First of all, while China is now the largest foreign holder of our national debt, they hold less than 7% of the total debt.  Allies like Japan, the United Kingdom, Brazil, European nations, Mexico, India, and Israel also hold significant amounts of our national debt.  China’s holdings of our debt represents about 25% of the amount held by foreign governments.  Repudiating the debt to spite China would not only hurt China, but would also hurt many of our allies.

These nations could respond by exiting free trade agreements (if we can unilaterally declare agreements null and void, so can they).

The American public actually owns a higher amount of the national debt than do foreign nations.  As of January 31st of this year, the American public held 31% of the debt while foreign governments held 29%.  Repudiating the debt would adversely effect Americans who purchased government bonds to save for their futures.  Remember those savings bonds that your grandmother used to give you when you were a kid?  Well, those would be worthless if we repudiated the debt.  So would the treasury bonds that many older people have bought to prepare for their retirement.

Another 41% (if you add the numbers up you get a total of 101%–not my fault, these are government numbers) of the national debt is held by the government.  For example, the Social Security Administration holds treasury bills for money that it loaned to the Treasury Department.  Repudiating this portion of the debt would only mean that it would have to be reissued later when the sectors of the government that loaned money out need it in the future to manage their budgets.

[[The above numbers came from The Skeptical Optimist who used only government data.  The data is linked to in his article.]]

Besides all of this, of the $110,000,000,000,000 [$110 trillion] in total debt and obligation, only about 10% of that represents our current national debt.  Even if we repudiated the $11,379,966,189,575.05 [$11.3+ trillion] that we currently owe, we would still be responsible for a national debt of $99,000,000,000,000 [$99 trillion] in the future.  But if we repudiated the national debt, we could NEVER ever run a deficit again.  No foreign government would be dumb enough to loan money to a nation which had previously declared that its debt no longer existed.  That would be the definition of bad banking.  No financial advisor could ever recommend US bonds for his clients without being laughed at.

The political and economic costs of repudiating the debt are extremely high.  Like it or not, we are stuck with this debt.  However, we can think of this as a lesson.  If we balance the budget in the future and pay back the debt over the next 30 years (the maximum time a US treasury bond can be issued for) we will have plenty of time to think about the costs of running large deficits for so long.  All of the interest on the debt which is paid out should serve as a lesson for future generations of Americans about the importance of living within their means.

Repudiating the debt would make it impossible to pay for the bloated government programs which have already been promised to generations of Americans.  Im 100% for balancing the budget.  I believe that we should balance our budget and begin to wind down our entitlement and discretionary programs as fast as possible.  This debt should be taken care of the right way.  In this case, the right way happens to be the hard way:  We must oppose new government programs and discretionary spending, we must balance our budget, we must cut taxes to ensure economic growth, and we must pay back our national debt to those who have put their faith in us and loaned us money.

Americanly Yours,

Phred Barnet

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A few weeks back, several of my friends and I exchanged arguments over email.  I wanted to pull a quote from a response of one of my friends and use it to talk about interest rates.

“. . . TBILLS at the lowest rates ever!  We can print money for nearly no intrest [sic]. . .”

I think that this is a common misconception among people.  Yes, the FED has a target rate of 0-1/4% for the Federal Funds Rate, but this rate is only the rate that banks charge each other for overnight loans.  This is not the rate for US Government bonds which are issued to fund government debt.  In fact, US government bonds have a much higher interest rate than the overnight fed funds rate.  Government bonds are largely traded on the open market which means that they are priced through supply and demand.  The current rate on a 10 year bond (about 3%) can be found here.

We have a large national debt that is growing every day.  Of the money that we owe, our debt to China is over $1,000,000,000,000 [$1 trillion].  To continue to fund ambitious “stimulus” bills, government bailouts, and large social welfare programs like medicare and the coming socialized health care scheme, we will have to continue to borrow funds from American citizens and foreign nations.

As we increase our money supply, our money becomes worth less.  As we increase our borrowing, we have to pay higher interest rates in order to entice countries and private citizens to loan money to us.  Both of these things are happening at the same time, and happening during a global recession.  This leads me to believe that interest rates on government bonds will be rising (if no one wants to loan us money and we want to keep running a deficit, we have to raise interest rates).

We have more than doubled our money supply in the last year!  If you dont believe me, see the chart below, or click here.

But, things dont end there.  China’s Premier, Wen Jiabao recently expressed worry about the value of the dollar.  He said “Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried.”  Apparently, there is even debate within China about whether or not to continue to invest so heavily in American bonds. And of course, this is coming at a time when China is dealing with their own economic problems.  China needs to have high levels of annual economic growth in order to pacify their increasingly restless (and violent) rural populations.

China just announced a stimulus of their own totaling over $500 billion.  The money being spent on that stimulus is money that cannot be loaned to the American government.

One thing that very few people are aware of is that President Obama’s anticipated budgets for his 8 years as president (assuming that he wins a second term) have the national debt doubling to over $20,000,000,000,000 [$20 trillion]!  In order to finance these massive budget deficits, we have to borrow this money from someone.  If China turns off the loans, it is going to be very hard to find the money to continue to fund massive national programs, while fighting two wars and bailing out American industries.  China has us right where they want us… and they know it.

Americanly Yours,

Phred Barnet

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A year ago, America was completely different than it is now.  In the last year, the government has nationalized the banking industry, taken over the worlds largest insurer (wasting well over $100 billion in the process), and taken control of two iconic car companies.  Last week, Congress agreed to a plan that will cost nearly $800 billion.  Between actions by Congress and the Obama administration, as much as $3 trillion was pledged to government bailouts last week! This amounts to 21.7% of American GDP (US GDP is 13.7 trillion).  This new spending is more than government’s entire 2008 budget of just under $3 trillion.  Every penny of this money is being financed with debt.  This will raise the size of the national debt substantially.  Our national debt currently stands at roughly $10.7 trillion.  If we add another $3 trillion to the debt, our debt will increase by 28% and will be roughly equal to our GDP!

Of course, even Mr. Obama has admitted that there is no guarantee that these plans will work.  Even more interesting, he has said that these plans will have little effect before 2010.  This is particularly interesting because the non-partisan CBO recently estimated that the recession will supposedly be over in mid 2009 even if these “stimulus” plans werent passed, meaning that Mr. Obama’s plans wouldnt even begin working until after the economy has already started to heal itself.

But, lets pretend that Mr. Obama’s boldest predictions are correct and that this plan will create 4 million new jobs (although he says it will create or save 3-4 million jobs).  Let us also assume that each of these jobs is a high paying job of $100,000 a year and that these jobs are permanent jobs that will never go away in the future, regardless of future circumstances.  According to both H&R Block’s tax calculator and the Heritage Foundation’s much simpler tax calculator, a single person earning $100,000 pays $19,472 in Federal taxes.  So, the 4 million jobs that we are pretending this plan will create will return $77.888 billion in taxes per year to the federal government.  Excluding any interest (which will likely be a hefty sum and will go countries like China), it will take the government about 35.5 years to recoup the money!

If, however, this plan still creates 4 million jobs but these jobs pay $50,000 per year instead of $100,000, the government will collect $6,606 in taxes per person totaling $26.424 billion in taxes per year.   Under these circumstances, it will take the government 113.5 years to recoup the money!

However, I made a little Excel spreadsheet assuming that the government would have to pay 3% interest on these new loans.  This is a generous assumption, considering that the average rate on treasury bills has been much higher.  I used both of the above jobs assumptions in my calculations and found that the government will actually never be able to recoup this money if interest is factored in! Check it out for yourself.

Americanly Yours,

Phred Barnet

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Here is an excerpt from a piece I wrote back on September 26th, before Congress passed the $700 billion TARP program.  A lot of things have changed since then, but I still think this is a good and relevant piece.  I did not change this from the way that I wrote it back in September, except to correct a spelling mistake in the last paragraph.

We should, however, worry about our economy now.  The national debt is rapidly marching towards ten trillion dollars ($10,000,000,000,000).  Our unfunded liabilities in Social Security and Medicare now total an additional sixty-seven trillion dollars ($67,000,000,000,000).  By 2012 the Medicare fund will be going into a deficit and we will be forced to spend tax dollars to keep up with Medicare payments.  By 2017, the same thing happens with Social Security.  American families now owe over $15 trillion in household debt.  We have nothing left.  We are witnessing the slow, painful fall of the American Empire.  It hurts me to watch because I love this Nation so much.

For years we threw money at problems without ever trying to really solve them (poverty, drugs, education, health care).  Now we have no money and things are getting worse in all of these areas.

Iconic American companies are being swallowed up by foreign firms at an unprecedented rate.  Budweiser is being bought out by a Dutch firm, Miller is now owned by South Africans, and Coors is owned by Canadians.  Ford, Chrysler, and General Motors are now on the brink of extinction and are closing down American plants to move to other nations.

Sovereign wealth funds (companies owned by foreign governments) have been buying up large stakes in American companies—these sovereign wealth funds now own about 10% of Citigroup, 20% of the NASDAQ stock exchange, 9% of UBS, 10% of Morgan Stanley.  They own 7.5% of the Carlyle Group (which owns major defense contractors, telecommunications and technology companies, CSX railroads’’ domestic container lines, and consumer companies like Baskin-Robbins and Dunkin’ Donuts).  China owns 10% of the Blackstone Group (which owns Hilton Hotels, American textbook publisher Houghton-Mifflin, Universal Studios Parks, and is in the process of purchasing a large stake in The Weather Channel).  These wealth funds also own well over 10% of Merril Lynch (RIP), 2% of Barclays (which controls large portions of the stock of many large companies—go here and put in any symbol and you will see that Barclay’s owns a large stake), 7.5% in Diamler, AG, and several hundred million dollars worth of Visa.

The German government owns 35.5% of DHL, 20.3% of Volkswagen, and 32% of T-Mobile.  Through its stake in Renault, the French government owns 6.9% of Nissan.  Any time that you buy a product or a service from one of those companies, you are essentially paying a tax to a foreign government.  For example, if you stay at a Hilton hotel, 10% of the profit made from your visit goes to the Chinese government.  If you buy a new Mercedes, 7.5% of the profits made subsidize the Dubai government.  Do you think that American text books will continue to criticize the policies of Mao, now that China owns 10% of the company that makes our history books?

This is socialism, but at least in traditional socialism, Americans would see some benefit from their dollars going to state-owned enterprises.  In this case however, American dollars are going directly into the hands of foreign governments.  Would foreign nations tolerate the American government coming in and buying up stakes in their countries?  think not.

Do you remember mercantilism from history class?  That is what is happening in this country.  We export food, chemicals, plastic, cigarettes, cotton, and many other raw materials, only to import these goods back into the country later as finished goods: the cotton comes back as clothing, the plastic comes back in the form of goods made in China, and so on.   We produce nothing here.   We consume foreign goods like the world is ending tomorrow.  We now have the import/export profile of a 3rd world nation.

Rome is burning while Congress is playing the fiddle.  Be scared.  You should be.  Your children will know a different America.

Americanly Yours,

Phred Barnet