Daily Thoughts

So many people are asking “Where will the money come from for all the new government programs they are providing?” The answer is simple. It will come from us in the form of taxes.

No one wants to pay higher taxes, but most people want more services. I don’t understand where these people think the government is going to get money for those programs if they do not raise taxes.

Back in the day when our schools were great, and we all could walk into a hospital and get health care, the maximum income tax was 50%. People started complaining about the high tax rates, so the democrats were voted out of office as “tax and spend liberals” and for the last few decades, the Republicans have taken over. They cut taxes, but they also cut services and ran up our deficit.

Why did the deficit increase during every Republican administration? Because they had to borrow the money to run the already established services, even at bare minimum levels.

The maximum tax went from 50% to around 35%. That’s a decrease in pay of 15%. If you got a 15% pay cut, would you be able to sustain your same level of spending or saving? I think the answer to that is pretty clear — most of us would not. So how is it that we expect the government to do so?

The most common way for the government to make money is to issue bonds. Savings bonds are the largest government held debt. Citizens buy the savings bonds, and the government goes into a deficit situation, because they are indebted for the amount of the interest they will have to pay when the bonds reach maturity. So if they issue bonds of $1,000,000 at 10% interest, they have just created a deficit of $1,100,000.

Larger government bonds for larger projects, such as the war, are largely bought as investments. Who are these investors? They are your IRA’s and 401(k)’s and your government pension plans. They buy up these bonds to get the guaranteed interest at maturity. They are also bought by other governments. Government bonds are a very safe investment.

We hear about us borrowing billions of dollars from China. We did not actually borrow this money. They simply bought up our debt, which is to say, they bought up these government bonds. When they mature, we will owe them the face value of these bonds, so we are actually indebted to them for the face value, not what they paid for them.

Why did we sell these bonds to China? That’s very complicated, but to put it as simply as possible, we had bonds that had been purchased that were due, and since all of our tax money is going to support the war and other government programs, we did not have the money to repay them. So we re-sold these bonds to China in order to pay out to the original purchasers.

It’s not unusual for us to sell bonds to other countries, in fact, it’s done every day. The problem with China is that most of these bonds were backed by private mortgage securities. In light of the current mortgage crisis, they are now demanding that our government buy the bonds back so that they will not lose money on them.

In view of the huge trade deficit we have with China, we need to keep them happy. If China suddenly stopped shipping product to us, the economy would collapse. This is not an exaggeration. Wal-Mart alone gets 70% of its product from China.

Can you imagine the ripple effect if all the Wal-Marts had to close suddenly? The loss of jobs alone would be staggering. On top of that, the industries that Wal-Mart supports would also probably go out of business. I’ve heard it said that if the terrorists really wanted to destroy our economy, they should bomb all the Wal-Marts. This is not far from the truth.

This is the situation we have gotten ourselves into. The path out of having China hold us hostage is long and fraught with peril. To get out from under them, we need to rebuild our manufacturing base, get the unions under control, develop alternative energy sources, get out of the war, and stop living beyond our means. That means no more easy credit, no more having a dozen gold cards, no more gas guzzling cars, no more keeping up with the Joneses, and no more Wall Street and Government greed.

This is, of course, Utopia and can never be achieved, but we need to get somewhere close to regain our sovreignty. If we don’t, expect the schools to start teaching Chinese soon, just like they were teaching Japanese in the 70’s when the Japanese cars and steel started flooding our market and destroyed our auto and steel industries.

There needs to be a HUGE change in how our government does business, and we have to be willing to sacrifice and suffer to get back the country we should have. The first thing we will have to do is pay a little more in taxes, to get China off our backs. If we aren’t willing to do this, then maybe we should all just move over there now, because we will belong to them soon enough.

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