Federal Government · Personal Finance

Why A Balanced Budget May Not Work

Ever since at least the 1990s, conservative Americans have been fixated on the importance of a constitutional amendment to ensure federal revenues do not fall short of expenditures. The idea picked up a lot of steam during the rise of the Tea Party movement in 2010, and now some Democrats are even advocating for such a reform.

At its base, the notion is attractive. By placing legal limits on spending, we might prevent the runaway inflation and financial ruin likely to be foisted upon ours or future generations. In his book The Liberty Amendments, Mark Levin expanded the concept by suggesting a cap on the size of government spending at 17.5 percent of GDP, and a mandatory 5 percent cut in overall spending if Congress fails to adopt a budget.

This all sounds great, but several problems remain. First off, most plans include exceptions for emergencies and times of war. The obvious fail point would be politicians declaring a health crisis like coronavirus to be indefinite, or using the so-called “War On Terror” as justification to spend without limit.

An equally significant issue is the risk of “off-the-books budgeting,” which has been practiced for years by government officials. In Nazi Germany, it was employed to get around the Versailles Treaty restrictions concerning maximum outlays on military buildup projects. During the years leading up to the 2008 financial crisis, the Greek government acted with related malevolence, only in their case it was to complete corrupt real estate deals and hide inflated salaries that violated EU standards.

Believe it or not, America is hardly free of these unethical strategies. The Central Intelligence Agency has been allowed to evade federal budgetary restrictions for decades, and a recent audit of the DOD revealed the agency is incapable of accounting for billions – if not trillions—of taxpayer money spent on a variety of projects.

The upshot is that while a balanced budget amendment might improve the nation’s solvency on paper, it fails to prevent the eternal scheming of the political class to bankrupt our treasury in pursuit of their own interests.    

Federal Government

Politicians Are Never “Ready”

Governor Andrew Cuomo of New York was just quoted saying his state is “not yet ready” for the anticipated coronavirus peak over the next week.

Newsflash: politicians are never prepared. Maybe it says something about the nature of government, although one would think “use or lose” federal budgetary strategies make an increased medical stockpile quite sensible. Instead, they whiz the money away on nothing and then claim there is a massive equipment crisis when things go bad.  

The bigger issue is this: no one gets rewarded politically for thinking ahead. Humans have been trained to expect a state-sanctioned RESPONSE, something to calm their nerves and fill the headlines. Thus being the dutiful worker ant doesn’t help where attentions are concerned.

Suppose Trump and Co. had 600 million reusable facemasks in storage, a containment plan ready to go, and “a hospital ship for every diversity region.” Would the media cheer? Might we count on Democrats to clap their hands? Probably not, because the issue itself would be less threatening. The politician is only paid election-wise for effectively putting on a show, not demonstrating foresight. If Trump’s reaction looks good, he will benefit, but otherwise his opponents win. Simple as that.

For all these reasons, individuals need to prepare. The government can do marvelous things, but it rarely thinks out of the box, or even about the future.

Culturalism · investing · Personal Finance

The Federal PRESERVE of Wall Street

Some people ask me how I’m able to stay sane as an investor during times like these. The answer is quite simple: just pay attention to the federal government.

As most already know, the Congress approved a $2 trillion monstrosity by voice vote yesterday, with the only visible opposition coming in the form of representatives AOC and Thomas Massie. Beyond its inclusion of various stimulus programs, the legislation creates a fat bailout fund for larger companies, and allows the Federal Reserve to leverage up to $4 trillion in support of the economy (Read: Wall Street ).

In the words of Powell the Owl:

“Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans. When it comes to this lending we’re not going to run out of ammunition.”

Some Democrats openly demanded oversight for $500 billion in assistance that corporations will have partial access to through the bill, and succeeded in establishing an inspector general to monitor disbursement of the money. In response, Republicans began to weep miserably.

Just kidding. In reality, El Orangelo was several steps ahead of them, placing his ink on the bill accompanied by a fancy signing statement, which effectively allows him to ignore parts he doesn’t like. According to the man himself:

“I do not understand, and my Administration will not treat, this provision as permitting the [inspector general] to issue reports to the Congress without the presidential supervision required.”

In relation to congressional oversight requirements for specific funds he added:

“These provisions are impermissible forms of congressional aggrandizement with respect to the execution of the laws.”

In other words, the money is already compromised. If that wasn’t enough, the legislation also shrouds Federal Reserve meetings in deeper secrecy, establishing an effective wall against FOIA requests.

So Wall Street will be fine, although your currency is another question. But don’t worry, you can forget all that and just rage against Thomas Massie.

investing · Personal Finance

We Can’t Take Rate Cuts Back

Josh Brown said something on CNBC today that I’ve believed for a long time under the Trump Economy: it’s now impossible to walk-back rate cuts.

We all remember the debacle of December 2018, when the Federal Reserve raised rates by a quarter point, from 2.25 percent to 2.5 percent. The result was a devastating market drop of 20 percent.

After the last seven days of Coronavirus fear and loathing, the Fed made an emergency rate CUT to stave off concerns, and the Dow fell by almost 3 percent. I guess it wasn’t enough, but just imagine if they had attempted to RAISE rates.

Much as Religious Investor thinking may help quench queasy market appetites by feeding the “There’s no limit!” mentality of millennial dreamers, fueled by the likes of Tesla and Virgin Galactic, at a certain point the ties which bind may horribly snap.

In that moment, will rates be cut or raised? Will it even begin to matter?