CUTTING THREE GORDIAN KNOTS

[Note from JW:  Skye posted this response to Disraeli’s Tea on the Forum, which by TTPer acclamation was requested to be a full article.  Happy to comply. 

Also – as I have been on the road so much, Jack Kelly was to write the HFR this week but is unable to do so for health reasons.  I apologize for there being no HFR today.]

The central government has become so titanic that slowing its rate of growth would simply slightly delay the inevitable crash. The Federalies must be cut down to size, and voting NO on the debt limit increase is currently our best chance for doing so.

Vote NO on increasing the debt limit. The deficits must be stopped or America will be pushed over the economic cliff onto the ash heap of history where it will join the Soviet Union.

If the deficits are not stopped now, then when?

Boehner’s proposal cuts spending in 2012 by only a few billion dollars out of an expected deficit of about $1.6 trillion. The more substantial cuts are promised for many years in the future. Those cuts won’t happen — they never do.

Moreover, even if the promised cuts did materialize, they still would be utterly inadequate.

Although the CBO estimate for the debt increase over the next decade is about $14 trillion, that figure depends on an uninterrupted unprecedented GDP growth rate. When debt reaches about 90% of GDP, GDP growth historically drops by about 1% to 1.5% (historical research by Rogoff and Reinhardt), which will reduce our current GDP growth to approximately zero.

A more realistic estimate of the debt increase over the next decade is $20 trillion to $25 trillion or even $30 trillion. Under the politically extant proposals, America will not survive that long.

The USA has enough annual revenues (about $2.4 trillion) to send out the checks for interest on Treasuries (about $220 billion), Social Security (about $720 billion), Medicare (another $720 billion), military pay and benefits, food stamps, and unemployment — but with very little left over for corn ethanol subsidies, high speed rail, EPA, HUD, DOE, etc.

Lets use the power of the Social Security/Medicare political block to kill off the rest of big government. Would retirees prefer their checks to funding high speed rail? Corn ethanol? HUD? DOE? Etc.

Note well that of the above expenditures, only those for the interest on the National Debt and our military are authorized by our Constitution.

How do we free America from the chains of Social Security and Medicare, DOE, HUD, EPA, DOT, etc?

There is an old saying – it’s either the ballot box or the cartridge box. This old saying leaves out a third and even more powerful box – the till.

If the House Tea Party Republicans refused to raise the debt ceiling, a huge amount of unconstitutional garbage would be crowded out by politically more powerful unconstitutional garbage – specifically Social Security and Medicare.

So long as essentially unlimited amounts of money can be borrowed, essentially unlimited amounts of unconstitutional usurpations can be imposed upon us.

Note that the Fed can not continue to monetize the debt beyond existing debt levels if the debt ceiling is not increased!

We must use the politically most powerful faction of our unconstitutional opponents to crush all of the others. If the electorate is forced to make a choice between high speed trains or getting their Social Security and Medicare checks, we all know what will happen. ( So does Zero, hence ObamaCare with it’s artfully concealed spending limitations.)

When the unthinkable has been accomplished (the practical end of the Depts. of Education, Housing and Urban Welfare, Energy, the EPA, etc.), then Social Security and Medicare can be dealt with as the unconstitutional (hence illegal) Ponzi schemes that they are: auction off the Ponzi scheme’s operator’s assets to make the victims whole. By the end of this process, the central government will be much smaller, and much less powerful and abusive.

Since most of the central government is unconstitutional, most of it must be crushed. There is only one hammer that is powerful enough to do that – Social Security and Medicare. This hammer can be mobilized by a combination of two actions: no increase in the debt ceiling combined with a timely rescue (perhaps starting in 2013) of this political faction’s supporters by the year by year grand auction of the Ponzi scheme operator’s assets.

Treat the central government exactly like any other criminal Ponzi scheme operator; that is what it is, and that is the treatment that it deserves. Auctioning off a Ponzi scheme operator’s assets to make the victims whole is something everyone can understand. No PhD in Austrian school economics or Constitutional law is needed.

The first step in forcing the establishment of priorities is turning off the borrowing deluge. This will only be politically viable if the Social Security and Medicare faction see a mechanism by which they will continue to get "theirs" on both a short term and long term basis.

This most powerful faction, leveraged with a shut-off of further borrowing, can destroy unconstitutional government as we have known it — if a Republican presidential candidate has the knowledge, courage, and ruthlessness to use it to crush the other factions.

There is no Constitutional authority for Social Security or Medicare – but they exist and have an exceedingly powerful political constituency – so what is to be done about them?

Although there is currently enough central government revenue to pay for both debt service and Social Security and Medicare, what about the latter two programs five years from now – or 10 or 20 years in the future?

The answer is simple; they are illegal rapidly failing Ponzi schemes – deal with them as with any other Ponzi scheme: Seize the assets of the Ponzi scheme operator, put those assets into receivership, and auction them off to pay off the victims.

The US central government (the Ponzi scheme operator) claims ownership of 30% of the onshore US and essentially all of the gas and oil rich continental shelf off of America’s shores. Sell just enough of these properties each year to pay off the Ponzi scheme victims.

If more were sold than this minimum, Congress would immediately spend it, just as they have spent the Social Security "surplus" tax increases created by the 1982 Greenspan Commission that were supposed to make Social Security sound for 75 years.

Ending FICA taxes ("contributions" to Social Security and Medicare) now would give every worker a non-inflationary 15.3% wage increase (non-inflationary since no money supply increase is involved). This would cause a huge economic boom!

In addition to paying off the Ponzi victims, this grand redistribution from the central government to the public (real hope and change!) would put scores of trillions of dollars of currently sterile Federalie resources in private hands. The Social Security/Medicare generation is probably the only group that is politically powerful enough to privatize these lands.

To eliminate Federalie interference in the development of the continental shelf lands, allow the purchaser the option of that land being regulated by the nearest State rather than the central government, just as the auctioned off on-shore lands would be regulated by the States.

This approach neatly cuts three Gordian knots with one blow – the overweening, uncontrollably growing, and unsustainable size and abusive power of the central government, the Social Security / Medicare entitlement problem, and the central government owning so much of America problem.

This solution would create an unprecedented economic boom (not a bubble because there would be no money supply increase), and literally open up a new frontier!

Vote NO on the debt ceiling increase now, then let the auction begin!