It's no secret that the Post Office is in deep financial trouble. Based on its current operating system, it is faced with a staggering $238 billion budget deficit by 2020. Even President Obama has quipped "I mean, if you think about it, UPS and FedEx are doing just fine, right?  No, they are.  It's the Post Office that's always having problems." The solution from America's Postmaster General John Potter? Skipping Saturday mail delivery. That's right. The government solution to a poorly run organization is to reduce services. This "solution" was taken even further when consulting firm McKinsey & Co. recommended that service be reduced to as few as three days a week.

So the solution to hemorraging money is to reduce services huh? Brilliant. Obviously Congress won't be reducing the budget for the Post Office so we as consumers will just continue to blissfully pay full price for watered down delivery. If my lawn care company was overbudget I'm sure they would reduce the number of treatments they provide and I would be fine continuing to pay them full price. I'd hate for them to have to look into streamlining their business with reduction in personnel, pay cuts, restructuring, applying lean principles, etc... You know, all the things a private business would do because it faces competition so it actually cares about what its customers think.

Let's go with the President's suggestion. (Thanks President Obama!) Privatize the postal service. Private companies, driven by profit, have incentive to run tighter ships and are (relatively) free from bureaucratic government interference. If "UPS and FedEx are doing just fine" then let UPS and FedEx handle the mail. Not exactly rocket surgery. Even the Europeans are now either privatizing or opening up competition to their formerly monopolistic mail providers. Unfortunately this administration continues to move the United States towards the European Socialist model at the same time the Europeans have abandoned their model and started moving more towards the free market. We'll just have to wait for another administration for the bold step of privatization.

President Obama made a "final" push for health care reform today flanked by doctors in lab coats. (Where have we seen Obama use lab coats before?) Despite the looming threat of reconciliation, the President was careful to avoid using the word during his speech. Meanwhile, Senate Democrats are pushing ahead with the tactic which originally applied only to taxation and spending bills as explained by former Speaker of the House Newt Gingrich. Just as a reminder, let's see how the Democrats themselves felt about reconciliation during a Republican presidency:

 

So what would happen if the Democrats who formerly denounced the use of reconciliation then ran into themselves now?

 

The Democrats' statements of the past and their disregard for public sentiment will catch up with them. Obviously our politicians aren't going to physically disintegrate into piles of goo like fictional Senator Aaron McComb in Timecop but the November elections are fast approaching. If the Democrats use reconciliation in spite of their past comments they will find themselves owning the Health Care bill alone and the Republicans will have a lot of material to campaign on.

For an in depth look at the reconciliation "nobody" is talking about see Michelle Malkin's excellent post.

 As published at The Inside Scoop:

In my last post, we looked at the ever expanding national debt in an attempt to understand the seriousness of our country’s fiscal condition. It is clear that we have dug ourselves a big hole that will be very difficult to climb out of.  In this post, we will look at the events that created this predicament and how we have reacted to these events as citizens.

To be sure there are common practices in Washington that regularly contribute to our growing national debt. Earmarks are frequently inserted into bills as compensation for garnering votes to pass legislation. This gives the politician the illusion of looking out for his/her state by bringing goodies back home even though the peoples’ taxes paid for them to begin with. The mention of a reduction or even a reasonable increase in a program is used by political opportunists to bludgeon their opponents. If you propose a 7 percent increase in funding for veterans’ benefits you can be sure that your opponent will propose a 10 percent increase and vilify you for your “cut” to veterans’ funding. These actions are certainly despicable but their effect is miniscule compared to the huge shift in policies and spending that our government makes in times of “crisis.”

The single greatest event in U.S. history that has subsequently enabled a century of irresponsible spending occurred in 1913 when the Federal Reserve was created. A banking panic in 1907 had created an atmosphere of “crisis” and the only solution was of course an expansion of government with the promise of protecting its citizens from the flaws of the free market. Sound familiar? The Federal Reserve was the brainchild of a collective of bankers, politicians and an economist (now there’s an unholy alliance) who met in 1910 at the Jekyll Island Club. Their handiwork promised to shield the monetary system from violent market swings making the boom and bust cycle a thing of the past.

Has the Federal Reserve succeeded in their promise to stabilize the markets? Absolutely not. Since its inception the United States has gone through no less than 18 recessionary periods including the Great Depression which was actually caused by the poor monetary policy of the Federal Reserve itself. The value of the dollar has also plummeted to a scant 1/20^th of its value in 1913. So what has the Federal Reserve succeeded in doing?

The Federal Reserve has succeeded in creating a culture of debt in America. Consider the business model of a bank. When you deposit money into your savings account, the bank pays you interest. That’s not beneficial to the bank. When the bank loans out money, the bank collects interest from you. That’s much more acceptable to the bank. Now put these folks in charge of the whole economy and get them in bed with politicians and we can see the results.

For individual citizens, we now kneel before the alter of FICO and pray for a good credit score. We’ve been convinced that we need loans for everything including homes, cars, schooling, furniture, and vacations. Saving is taught to be foolish while being in debt is “smart.” Only a simpleton would save money to buy something they want with cash, right? We fight to obtain the latest Platinum-Unobtanium card from American Excess as if it were a status symbol. Are you kidding? We’re now fighting for the “privilege” to go in the hole? With constituents like this is it any wonder our politicians act as they do?

For those politicians, the Federal Reserve has become a printing press. Whether it is a war or an entitlement, the FED enables them to spend, spend, spend. The sad thing is you pay for it whether you want to or not. If they taxed you to pay for these things you might get upset. But if they print money they can pay for their programs by devaluing the money that you thought was safely kept in savings. It’s like having a rare baseball card or comic book. When the supply is limited, it’s worth more. If someone finds a crate of them in a warehouse somewhere, yours will be worth less. Just within the last year the Federal Reserve has printed $1.2 Trillion in new money. What do you think that will do to your savings?

It’s not as if we weren’t warned. Thomas Jefferson stated: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

The creation of Social Security in 1935 was the next major contributor to the national debt. The Great Depression (again caused by the government) was the crisis used by politicians of the day to convince the American people that they needed even more government to provide a safety net for retirement. The moral failure of the program is that many Americans now believe that Social Security will take care of their needs later in life. Do you know anyone that has retired with dignity relying solely on Social Security? We should all refer to it as Social Insecurity.

The fiscal failure of Social Security is that it is nothing more than a government run Ponzi scheme. A Ponzi scheme is a fraud where new investors pay for the profits of older investors. This is the same sham that sent billionaire Bernie Madoff to jail yet we allow our government a free pass. Social Security is paid for by the active workforce and paid out to those collecting. The money that you put in while you were working is gone. It was not saved anywhere for your retirement, the government squandered it.

This has left us with Social Security liability of over $14 Trillion.  In regard to Ponzi schemes, the U.S. Securities and Exchange Commission itself states: “With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.” Unfortunately the Baby Boomers are in the process of cashing out of Social Security and we don’t have enough young workers to keep the government’s swindle afloat.

In 1965 President Lyndon B. Johnson signed Medicare into existence. Another promise that not only had its roots in the progressive era of Social Security, but came into existence as an amendment to a Social Security bill. Guaranteed medical coverage was no more popular then as it is now but persistence by the politicians and incremental changes in Social Security finally allowed its passage. It was created with the promise of low cost and limited coverage but soon expanded to an almost unimaginable size.

In 1966, one year after its creation, Medicare cost $3 Billion and was projected to cost $12 billion by 1990. By 1990, however, it had monstrously grown to $107 Billion. Today we face a Medicare liability of over $74 Trillion. Bear that in mind when listening to the politicians estimate the cost of universal healthcare. If you think its expensive now, just wait until its free.

Because I am an equal opportunity offender I would be remiss if I didn’t include the Republicans’ contribution to the world of unfunded liabilities, Medicare Part D. I can only surmise that the “party of fiscal responsibility” supported this boondoggle for purely political reasons. The bill was passed in 2003 most likely to ensure the votes of seniors in the 2004 election. If this is true, then it worked well in that regard. The remainder of its promises, like other government programs, was grossly overestimated and underfunded.

Medicare Part D was originally estimated to cost $395 Billion over 10 years. Even before its passage Medicare’s chief actuary estimated the true cost to be at least $534 Billion. Now it appears it will cost at least $1 Trillon over those 10 years. Additionally we now have a Prescription Drug liability of nearly $19 Trillion.

We are currently living in another time of “crisis” and again the politicians believe they know best. The housing market has collapsed and the fingers are being pointed at the banks for their “predatory lending” practices. Shame on the free market. How could they loan money for a home to people who couldn’t afford to make the payments? That’s an easy question to answer; because the government told them to and provided them the means.

The Federal National Mortgage Association, commonly referred to as Fannie Mae, is a government sponsored enterprise (GSE) created by congress for the express purpose of providing affordable housing. It sets standards for banks in lending and then buys their loans. The bank profits from creating and selling the loan but doesn’t incur any risk. Can you really blame them for any loans they make with that kind of arrangement?

In 1999, at the request of the Clinton Administration, Fannie Mae eased the requirements for getting a loan in an effort to provide housing for those “just a notch below” the usual credit requirements. At this time the New York Times wrote: “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.” It is almost scary just how accurate Steven A. Holmes, the author of that article, turned out to be.

Now here’s where two government entities get together in the name of helping people and end up collapsing the economy and saddling us with even more debt.

1.   The Federal Reserve lowers interest rates to stimulate the economy.
2. Fannie Mae lowers requirements for lending to stimulate home ownership.
3. The housing market and the economy thrive.
4. The Federal Reserve raises interest rates to control inflation.
5. Homeowner mortgage payments increase due to the rise in interest rates so the owners default on the mortgages they could barely afford to begin with.
6. The economy crashes with the housing market.
7. Repeat.

Now we’re saddled with all of the debt from Fannie Mae’s (and its sibling Freddie Mac’s) bad loans. We have another crisis. What should we do?

The government’s solution to enormous debt? More spending of course. We finally get cooperation from Congress and the White House and it turns out to be bipartisan stupidity with lots of zeros at the end. In October of 2008 President Bush signed the $700 Billion Troubled Assets Relief Program (TARP) to bail out the banks. "I've abandoned free-market principles to save the free-market system" he claimed. Not to be outdone, in February 2009 newly elected President Barack Obama signed the $787 Billion “stimulus” bill claiming it would keep unemployment below 8%. It has been as high as 10.2% recently and the economy is stagnant. The total amount lent, spent or guaranteed by government bailouts is now over $7 Trillion.

It is clear that the government consistently uses times of crisis to expand its role because the population tends to be more malleable. The expansion of government inevitably leads to more problems and the cycle repeats. So how do we break out of this cycle, reduce our debt and preserve our liberty?

More to come…

 

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