Right now, as you read these words, officials from the White House are just back from a trip to the Capitol where they delivered the president’s budget with a projected deficit of $521 billion.
In dollar terms, it’s the largest deficit in the history of the world. Even in proportion to the size of our economy, it’s dangerously close to the largest in modern times. Now …
– Add in the inevitable costs of ongoing foreign wars …
– Throw in “off-budget” spending and borrowing …
– Plus, consider the real possibility of a weaker-than-expected economy, and …
THE FEDERAL DEFICIT COULD BALLOON TO OVER $1 TRILLION!
How does that impact you and me? How does it fit into our past, our present and our future? In a moment, I will give you some vital clues. But first let me tell you about a strange personal experience I had just a short time ago.
I was at the office, and my cell phone rang. Before answering, I glanced at the caller ID to see who was calling.
The word “Dad” was flashing on the screen.
Dad passed away a few years ago, but he is still with me in many ways. So without thinking, I flipped open the mouthpiece and was about to ask him, as I always used to, what he thought about the latest financial news. It seemed perfectly natural that he’d be calling me at that time.
Suddenly, I remembered he’s gone, and a shiver went up my spine. A split second later I realized it was someone else calling me from his old number, still programmed into my cell phone. But the feeling lingered.
OUR PAST: THE GREATEST DEFICIT BATTLE OF THE 20TH CENTURY
Suppose Dad could really call me? I wondered.
Certainly, with all that’s going on today, he’d be making my phone ring off the hook. And I know exactly what he’d be saying …
“I saw a similar situation nearly a half century ago, when Eisenhower entered his last year in office,” he’d say with the warm, drama-building tone of an experienced storyteller.
“Like now, the federal budget looked as if it was going haywire. The estimates for the deficit were running close to $13 billion, and in those days, that was huge.
“Eisenhower didn’t have to wait two decades to learn that deficits would lead to inflation and rising interest rates. Nor did he have to wait until 2004 when former Treasury Secretary Rubin, former presidential adviser Allen Sinai and the International Monetary Fund would issue dire warnings that deficits threaten the entire world economy. He knew it all too well back in 1959.
“In the first days of that January 45 years ago, I turned on the radio to listen to Eisenhower’s State of the Union Address. Ike complained about the excessive costs of military hardware and insisted that ‘we must avoid extremes … of waste and inflation which could reduce job opportunities, take us out of world markets, shrink the value of savings.’ So he announced that he would submit a balanced budget.
“The next day, I ran down to check the papers. I looked for a headline such as IKE PROPOSES BALANCED BUDGET. But I couldn’t find it anywhere. No one seemed to care.
“Soon a flood of economic experts paraded before Congress, testifying that the deficit was ‘manageable,’ and inflation was not ‘a present danger.’ The problem of rising interest rates was even further from their minds.
“Then, in early February 1959, a White House spokesman announced that Ike was planning a grassroots campaign to combat spending legislation beyond his budget and would make a strong public appeal in his news conference the next day.
“But the appeal was weak. And in the days that followed, there was no grassroots campaign. No protests, no editorials, no voter appeals to Congress.
“I simply could not accept that. So I organized a committee. I called a good friend, Jim Selvage, of Selvage & Lee, a public relations and advertising agency. I also called Dean Alfange, my attorney, who had run for governor in the state of New York. The three of us had lunch, and I recommended the name ‘Sound Dollar Committee.’ They agreed.
“Our first ad in The Wall Street Journal merely set off the first sparks.
“Then one day, Chicago Tribune owner McCormack called and asked if it was OK if he placed his own 2-page ad at his own expense. The Los Angeles Times and the New York Daily News followed suit. Soon, scores of newspapers and magazines joined the Sound Dollar Committee bandwagon in a national mail-in campaign to balance the budget, prevent inflation, and protect the dollar.
“Congressmen would walk into their offices in the morning, be struck immediately with the clutter of mailbags, and ask their clerks: ‘What the hell is this? Where did all this mail come from?’
“It was an avalanche! According to an informal survey by the Chicago Tribune on the Hill, the total response was twelve million postcards, coupons, letters, and telegrams.
“By mid-March, the public’s attitude switched from apathy to intense interest. According to Business Week, ‘leaders in Congress began the session talking like big spenders; now they were talking about CUTTING Eisenhower’s budget.’
“Senator Proxmire, who had been steadfastly in favor of the spending programs, changed his mind and voted for the budget cuts. One Congressman after another shifted his vote to support the Eisenhower budget. And the budget was balanced!
“Now, Martin, I have an urgent suggestion for you. All my Sound Dollar Committee documents and memoirs are packed away in a cardboard box in the corner of your warehouse. Dig ’em out. Bring the Sound Dollar Committee back from its grave. But do it FAST. Time’s a-wasting.”
OUR PRESENT: GROWING FISSURES IN THE ECONOMY
Dad’s words still echo in my mind this morning as I peruse the Web for recent news events.
At first, the latest events may seem unrelated. But for each, I am finding a direct or indirect connection to the federal deficit, which I will point out to you along the way.
JOBLESS WORKERS AT END OF LINE. Washington Post, Friday, January 30, 2004: “A record-high 375,000 jobless workers will exhaust their unemployment insurance this month and an estimated 2 million workers will find themselves in the same predicament during the first half of the year … the 375,000 workers who will draw their last jobless check this month is the highest number for January in the three decades that the statistics have been tracked.”
Deficit Connection: Normally, Congress would extend the unemployment benefits, which expired last December. But the $520 billion deficit makes another extension financially unthinkable and … politically dangerous.
SMALL STOCK SPECULATION RUNS AMUCK. Detroit Free Press, January 19: The volume of shares that trade in the OTC market (mostly small “pink-sheet” stocks) pushed ahead of the Nasdaq stock market for the first time ever. “In September, 41.2 billion shares traded in the OTC market, compared with 40.8 billion in the Nasdaq. The OTC’s daily average of 1.8 billion shares in September and October was twice as high as any daily average for 13 years.”
Deficit Connection: The primary cause of the federal deficit — tax cuts and wild spending — has helped give the economy a temporary shot in the arm. Result: investors are spending wildly on speculative stocks. Even during the Internet bubble days of 2000, the average daily volume of OTC stocks was only 400 million shares a day!
PENSION FUNDS GET TEMPORARY RELIEF: Associated Press, January 28. “The Senate, acting with rare election-year concord, passed a bill Wednesday to reduce by $96 billion the payments companies will have to make into their pension plans this year and next. For thousands of companies, speed is crucial. They face huge increases in payments to their pension funds if the measure doesn’t become law by April …
“Although the legislation will result in smaller payments to pension funds over the short run, it gives some financial breathing space to companies that might otherwise go bankrupt, lay off workers, freeze their pension plans, or renege on the promised benefits.
“Failed pension plans are turned over to the Pension Benefit Guaranty Corp., a government agency that insures pensions for some 44 million people in more than 30,000 defined-benefit pension plans … Last year the PBGC took over 152 bankrupt single-employer pension plans covering 206,000 people, and saw its deficit rise to a record $11.2 billion.”
Deficit Connection: The federal government is merely the leader of the pack: Virtually every other sector — including pension funds, cities, states, and even households — has followed in the same general path of irresponsibility and imprudence. Stop-gap measures by Congress to excuse or fudge these deficits is not going to fix the underlying problem.
ECONOMY SLOWING DOWN. New York Times, January 30. The economy “was weaker than many economists had been predicting. The pace also raised doubts about whether job creation will increase rapidly enough to reduce the numbers of unemployed significantly by the time President Bush faces re-election in November.”
Deficit Connection: The pace of economic growth has fallen by more than HALF from the third quarter to the fourth quarter of 2003 — a sign that the shot-in-the-arm stimulus from last year’s tax cuts is wearing off more quickly than expected. But the side effects — the ballooning deficit — are NOT waning.
HOUSEHOLD DEBT AT ABSURD LEVELS. New York Times, January 31. “For many Americans, the last couple of years have been a prolonged borrowing spree. Families piled on debt to buy homes. They put new computers on credit cards. They bought cars on dealer credit and refurbished their homes with home equity loans. This consumer spending has been the main pillar of the economy … But it has exacted a cost, too. Since 1999, household debt has risen from 70 percent to nearly 83 percent of the gross domestic product.” (That’s the highest in history!)
“So when the Federal Reserve Board unnerved financial markets on Wednesday and sent stocks and bonds tumbling by suggesting that it might start increasing interest rates sooner than most investors had expected, one concern was: Could the Fed puncture the lending bubble?”
Deficit Connection: A major reason the Fed will inevitably HAVE to raise interest rates is precisely because of the government’s own demand for more borrowings to finance the deficit, driving up the cost of ALL money. But that could slice deeply into consumer spending … slow the economy … and bring about an even LARGER deficit.
THE FUTURE: AN ENSLAVED GENERATION
My specific forecasts and recommendations for the months ahead are in my Safe Money Report and my email/fax services.
And you can use this link right now if you want to see a scene from the future. You’ll come to a box of text on the screen. Then, just click your mouse anywhere in the text, and it will take you to a MUST-see 30-second video.
The scene: A very young boy washes dishes in a restaurant kitchen, while a little girl vacuums the hallways of a cheap hotel. Other pre-teens toil in a glass recycling plant, collect city garbage, repair tires and bag groceries. Child labor laws have been abolished. The children are indentured laborers paying off the debts of their parents and grandparents.
A politically motivated parody? Of course. But whether the argument is made by liberals or conservatives, the facts are the same:
FACT: The president has just submitted a budget with the largest deficit in history.
FACT: The Congressional Budget Office has just projected that the government will build up $2.4 trillion in red-ink spending over the next 10 years — almost $1 trillion worse than they estimated just a few months ago, in August 2003.
WHY THIS MAKES ME ANGRY
Ever since our son Anthony was born, Elisabeth and I have given our heart and soul to making sure he could be self-sufficient. We wanted him to have all the tools he’d need to be able to cope, on his own, against any adversity. We even built our own school when public schools in the area could not rise to the challenge.
But we didn’t expect THIS …
The government spending hundreds of billions that future generations will have to pay for — just to squeeze a few extra points out of the GDP …
… Members of Congress stuffing thousands of pork barrel projects into the federal budget — just to get re-elected …
… Wall Street cheering them on — just to get a bigger rally out of the Dow.
As a result, our children and future grandchildren will have to work much harder … their dollars will buy less … their taxes will bite deeper … and their lifestyles could be poorer. THEY will have to pay for OUR financial sins.
How do politicians get away with this?
Simple: The young and unborn don’t vote. So politicians can rob them, and there’s absolutely nothing the children can do about it. They are helpless.
Sure, Democracy is the best form of government on the planet. But no form of government is without its flaws. And the freedom we have to steal from future generations — virtually dooming them to a form of indentured servitude — has got to be the most serious flaw of all.
This madness irks me to no end. But what makes me really seethe is the fact that no one in Washington seems to have the guts or the power to stop it.
Sure, conservatives are very disappointed, perhaps even angry. And sure, Democratic candidates are seizing upon the deficit issue — the same one that was used against them in years past — to try to get elected. But meanwhile, the deficit continues to run amuck, out of control.
I’M NOT GOING TO ACCEPT THIS ANY MORE!
I have decided: In the weeks ahead, I will be bringing back my father’s Sound Dollar Committee — a private, non-partisan, non-profit organization dedicated to supporting a prudent U.S. government budget and promoting a strong American currency.
I will be counting on your support.
Good luck and God Bless!
Martin
Martin D. Weiss, Ph.D.
Editor, Safe Money Report
Chairman, Weiss Ratings, Inc.
