Wednesday, September 17, 2008

Deficit Spending - Cause and Cure

Entitlement spending is the cause and a massive reduction in entitlement spending is the ONLY cure.

In my previous post, we put into context the current size of the publicly held federal debt and examined the mathematical certainty of the looming fiscal disaster if we do not dramatically reduce entitlement spending.

Remember, we proved in that previous post that it is a mathematical certainty that we CANNOT tax out way out of this problem!

In that post, it was noted that:

“the amount of federal debt held by the public reached the two highest levels ever during World War II and the latter stages of (finally deciding to win) The Cold War”
But, examine the next chart documenting total defense spending as a percentage of GDP.

Click the image to view the source:
Click the image to view the source

We see from the above chart that Reagan increased defense spending in order to win The Cold War and Bush 43 increased defense spending to wage war against Islamo-Fascism. But, we also see that defense spending, as a percentage of GDP, has, in general, been declining since about 1968.

Now, compare the above chart to the following chart from the previous post.

Click the image & read the CBO source:
Click the image & read the CBO source
Federal debt held by the public as a percentage of gross domestic product (GDP).

So, if not defense spending, what was it, in the 1970’s, that reversed about 30 years of progress in paring down the publicly held federal debt (accumulated by FDR)? Well, in 1965, LBJ signed legislation creating Medicare & Medicaid. And, as the next chart proves, shortly thereafter we (once again) lost all control over government spending.

Click the image to enlarge & view the source:Click the image to enlarge & view the source

But, the previous chart does not include the spending spree initiated by the Dems when they took control of Congress in January of 2007. The next chart is identical to the previous chart except that it includes the spending spree after the Dems took control of Congress in January of 2007.

Click the image to enlarge & view the source:Click the image to enlarge & view the source

Dems (VERY dishonestly) point to the budget surpluses during the Clinton years and allege that this proves pretty much anything they want it to prove. But, the ONLY thing this proves is that Clinton was the unwitting beneficiary of:

1) A Republican Congress.

2) The single largest speculative bubble in the entire history of humanity (the bubble).

During that bubble, most of what created the budget surpluses came from enormous increases in tax receipts from short term capital gains taxes paid, in particular, by day traders. That utterly unprecedented speculative bubble is documented in the following chart of the NASDAQ:

Click the image to enlarge this chart of the NASDAQ bubble:Click the image to enlarge
Click here to reproduce the above chart.
Select a custom time frame from 1/2/92 to 10/17/2002.

Side Note: As the NASDAQ bubble deflated, it lost more than 70% of its value! By contrast, the housing “crisis” resulted in a whopping 15% average decline in home prices (and, those prices have been steadily rising since last February).

Dems promise they can reproduce the budget surpluses of the Clinton years while simultaneously offering a HUGE expansion in entitlement spending.


If you do fall for these lies, you will be absolutely, positively dooming your children to utterly devastating economic RUIN! GUARANTEED!

Click here to read the entire CBO report.

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