- At most times, we humans would rather not hear unwelcome news.
A friend met for lunch with Winston Churchill, and began conversation with: “Have I told you about my grandchildren lately?” Churchill replied: “No, you have not, and I appreciate that greatly.”
For days, the nation has focused on the frightening destruction wreaked by Hurricane Harvey. While the unprecedented flooding and suffering in Texas deserves our attention and help, there is a real and dangerous analogous threat: the perfect storm brewing within the U.S. financial system.
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Unless President Donald Trump and Congress act by September 30 to raise the national debt limit and adopt a budget, America faces the chaos of a government shutdown and default, a repeat precursor of an even more widespread storm awaiting us.
Under President Barack Obama in 2013, we experienced a similar storm that paralyzed the federal government for 16 days, upset markets, slowed the economy, and harmed millions of businesses and citizens.
There is an unscheduled and even greater approaching whirlwind that America’s “leaders” have refused to remedy for decades — the fact that the government of the United States is bankrupt.
An Apt Warning
Congress returns from recess on September 5 facing multiple action deadlines on popular programs, the budget and the debt.
“No man’s life, liberty or property is safe while the legislature is in session.” That’s from a New York state judge, Hon. Gideon Tucker, in an opinion way back in 1866. The prescient judge was referring to long-ago lawmakers in Albany — but that indictment is an apt warning when applied to the chaos, confusion and disunity in the nation’s capital.
A federal budget must be in place by October. Prodded unexpectedly from above, as Harvey pounded Texas and Louisiana, Congress faces reauthorization of the National Flood Insurance Program by September 30, or it dies. Now $25 billion in debt after past storms, such as Hurricane Katrina with a 2005 loss of $118 billion, early loss projections for Harvey already exceed that number.
Current Capitol Hill rumors suggest, as an immediate solution, another massive omnibus legislative monstrosity combining a three-month stopgap appropriation bill to keep the government running, a first installment of hurricane relief and an increased debt limit.
As usual, this departure far from congressional “regular order” is impelled by the need to put together a winning majority of House and Senate votes. As a former member of Congress, I can assure you that such mega bills always are infested with costly riders buried in fine print that explode later. (The president’s adamant vow to veto any bill that fails to finance his infamous wall will sink, unless it’s a floodwall.)
This Is Your Debt
Creating even more taxpayer-financed debt is not the answer.
One cheerful theory, supply-side economics, was promoted by my late friend, former Rep. Jack Kemp of New York. I declined to co-sponsor his tax-cutting legislation unless balanced with spending cuts.
In a lengthy private conversation we had, the late Nobel Prize-winning economist, Milton Friedman, advocated cutting taxes to curb congressional spending. Friedman’s mistaken theory: Congress could not spend money it did not have.
Wrong! The current national debt now is just short of $20 trillion. That’s $61,329 for each citizen, $165,818 for each taxpayer; you and me. Add in all existing obligations, Social Security, etc., and the real debt is $68 trillion. For comparison, the U.S. gross domestic product (GDP) is about $19.4 trillion.
Most people, eyes glazed over at these astronomical numbers, might ask: “What has that got to do with me?”
Answer: Optimistically assuming that our constitutional system and economy survives, you, I and every American, some yet unborn, will be forced to pay this debt through higher taxes, reduced government services, inflation and personal economic loss.
"Après moi, le deluge" is a double-meaning French expression (as so many are), attributed to King Louis XV of France. The first of those two possible meanings: “After me, the deluge will come,” which is that if the looming revolution ended the king’s reign, the nation would plunge into chaos.
The second, Rhett Butler-like meaning may more accurately describe America’s current politics: “After me, let the deluge come” implies, "I don't care what happens after I'm gone."
Yours for liberty,
Bob Bauman, JD
Chairman, Freedom Alliance
Editor’s Note: Never in the history of the United States have ordinary people had so much of their hard-earned incomes stolen from them through exorbitantly high income taxes that seem to increase without end each and every year. That’s why, after practicing law for over 40 years, Bob Bauman is convinced beyond a shadow of a doubt that you can have a life full of personal freedom and abundance simply by learning the latest strategies contained in his best-selling Passport Book. To learn more about this information-packed “field guide” to international traveling and living, click here.