The Unsustainable Meets the Irresistible

John Morris 19380

Jan. 25, 2011, 4:34 a.m.

Mr. Mauldin,

I find it quite humorous that you spend so much of this week’s letter complaining about federal pay, and then immediately follow it with the Lindsay table showing that a freeze of federal pay would have (at best) a miniscule impact on the national debt. (Less than 2%, as of 2019, of the total Plausible Policy Changes, which you state “have so little impact”. I would submit that 2% of nothing is nothing.) Perhaps you, as well as Fox News, should stop pretending that federal pay has any real impact on the national debt.

And while you are at it, I wish you would admit that tax rates are irrelevant. You can pay off government spending now (i.e., repeal the Bush tax cuts) or pay it off later, with interest (i.e., keep the Bush tax cuts) but sooner or later it will have to be paid off. Taxes just determine how quickly it will be paid off. The only issue that really matters is spending. Whatever we have to pay in taxes (in total) is based entirely on spending. Please try to refrain from framing taxes as the problem, or the solution, because taxes are merely a reflection of government spending. (To put it simply, a tax cut is exactly the same as paying the minimum balance on your credit card. You still have to pay off the entirety of your debt, you are just choosing to do it later, with interest.)

Regards,

John Morris
Fredericksburg, VA

Larry Towers

Jan. 24, 2011, 12:50 p.m.

Comparing salaries when not factoring in training, experience or local employment markets is misleading at best. I.E. Government workers tend to be concentrated in government centers in cities where of course salaries trend higher than in the “sticks”.

Jon Parker

Jan. 24, 2011, 10:05 a.m.

In reference to the “this is dead on arrival” conclusions of the federal deficit commission reports, the commission itself is at fault, because a sufficient number of members would not vote for it to make it mandatory to be considered in congress.  This was a cop out.  Even if they did not like all provisions, they should have forced debate.  In addition, anyone who does not like a provision should be required to offset the revenue or saving with a specific alternative.  As you say, we need serious debate on entitlement programs, not demagoguery comments like “death panels.”

On the disparity of federal salaries, it is interesting that the spread started to widen under President Reagan even though he fired all the air traffic controllers.

Brian Campbell

Jan. 24, 2011, 12:30 a.m.

A number of things are happening here, all at once, none of them good.

Once you back out the accounting tricks, the US Government has been deficit spending for decades.  This spending has increased sharply in recent years by fighting an expensive, two-front war and by expanding programs like Medicaid without properly funding them.

Due to lax financial regulations and artificially low interest rates, we experienced a real estate bubble, which lead to a banking crisis that was “resolved” by moving bad debt off private balance sheets and onto public balance sheets. The sheer amount of debt the government was able to take on to aid in this process was enhanced by record low interest rates.

Unfortunately, as John hinted at in his article, a number of factors are coming together at the same time to ensure the low interest rates the US Government currently enjoys will almost certainly end in the not-too-distant future - which given our debt load, has been a classic cause of sovereign default and/or monetary shocks (i.e., severe, sustained inflation.)  So, even if they wanted to, the Federal government is not currently in a position to bail out states and municipalities.

As municipal governments start to default, it will make it more expensive for other “healthier” municipalities to borrow, and this will cause a cascading effect with defaults as it is more and more difficult to roll over existing debts.  States will end up in a similar situation as the Federal government enacts legislation to allow them to default.  If I were a state or municipality with a healthy credit rating, I’d be rolling over all debt I could out the longest maturity I could before things turned truly ugly.

We’re still in the relatively early stages of all this playing out, but as things builds a head of steam, it will play out with increasing speed, and because we operate in a world where local financial crises can have international effects, the shockwaves will probably be felt far from our shores.  Also keep in mind, while my comments have been writing about the US, different versions of this crisis have been brewing in Europe, Japan, Canada, China and even Australia, and these will have to sort themselves out as well.

It should be an interesting ride.

Wendy Delmater Thies

Jan. 23, 2011, 10:11 p.m.

Wendy S. Delmater (Thies) here, editor of the science ficiton magazine Abyss & Apex. We’ve corresponed before: Thies is my new married name. I now live in South Carolina, and something troubling has happened here.

On a local radio station (WVOC, Columbia) last Thursday I heard that the Federal Government has reneged on its agreement to take care of nuclear waste coming out of our commercial electrical power plants. We already paid them 1.5 billion dollars to remove and store this waste: it was collected in taxes and fees. Now our state attorney general is filing suit to get the money back, which will go a long way toward closing any budget gaps. We expect the law suit to go all the way to the Supreme Court.

Werner Roestel

Jan. 23, 2011, 9:30 p.m.

John, love you like a brother and what an education you have given me over the years.  But I think you are missing the fact the entire economy has been undermined and now on a total fraudulent foundation.  The banks own the government; the government governs to protect the banks and wall street at the expense of Main Street.  I’ve learned recently that in 1997, the top 6 banks owned about 15% of the world’s assets in 1997, now those banks own about 65%.  The elitist crowd has widened the gap.  No more bail outs for these money manipulators; it is time to separate ourselves; let them fail; there are other alternatives.  You are extremely knowledgeable and have incredible contacts… but think outside the box; wall street is an illusion.

Richard Killey

Jan. 23, 2011, 2:06 p.m.

As a former resident of Winnipeg, I note that it was not even REALLY cold when you were there John. They warmed it up a bit for you. LOL!

Richard

Jim Herbert

Jan. 23, 2011, 11:57 a.m.

Another most interesting newsletter!  Your comments, insight and analysis really get my brain cells churning.  I appreciate the problems of our state and local governments.  But relying on “stimulus money” to cover payrolls is, at best, foolhardy.  The disparity between government workers compensation and the private sector is ridiculous:  do they really expect a guy without a pension or other perks to pay for same of a government eorker?  I would appreciate more commentary with respect to the impact state bankruptcy might have on muni bonds.  Many of us have invested therein because we were chasing yield and were relying on the promises to repay.  If we can’t rely on such contracts, is there any financial investment upon which you can rely?  Thanks and keep up the great work!!!

Roger DeReu

Jan. 23, 2011, 10:07 a.m.

John,

Perhaps after your dinner with Newt Gingrich (or before if you can) you can explain to me why this washed out history teacher with no other ‘real world’ experience, both promoter and ‘drop out’ of the Contract With America, should ever be taken very seriously, let alone considered for the Presidency.

Someone please correct me if I am wrong or being unfair.

This is the guy who won re-election, then quit and left town (isn’t that a bit unheard of?) - and, unless I am mistaken, took a pile of leftover campaign money with him (legally, of course).

He never made good on any of the Contract With America, although for a short time he was certainly in a position to. I don’t recall him fighting with Clinton in any way as to what he and the party implied they would to advance what they had promised and been elected to do.

Thanks,
Roger

John Pfenenger II

Jan. 23, 2011, 9:36 a.m.

Interesting that the largest negative discrepancy between private and federal employee compensation occurs with optometrists, where private sector docs earn nearly twice as much as their federal counterparts. Apparently, Washington places relatively scant value on sight and vision.