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Tickerguy's State Of The Union Address
The Market Ticker - Commentary on The Capital Markets ^ | 2012-01-24 | Karl Denninger

Posted on 01/24/2012 11:24:14 AM PST by An.American.Expatriate

My fellow Americans;

Four years ago, on this day in 2008, Bear Stearns stood on the edge of collapse.  We did not know this, of course, as other than their two hedge funds' failure their internal condition was hidden -- by the company and by the regulators who were charged with keeping our financial system safe.

Over the next six months we came close to losing America.

Today, we're not in much better shape.

We have failed to address the first, and only, reason we find ourselves mired in an economic situation where we cannot grow and we cannot prosper.  Where The Senate has failed to pass a budget for nearly three years.  Where The House has proved unable to put forward a set of spending and revenue bills that balance.

The reason for our economic malaise, for the near-collapse in our economy in 2008 and the inability to exit the job recession of the last four years is that those who you vote for are incapable of telling you the truth.

The truth of a nation's financial situation is no different than that of your household.  You cannot spend more than you earn in your household for a long period of time. 

We all have short-term challenges in life; a sudden illness, the loss of a job, a leaking roof.   The wise family socks away some percentage of their earnings -- their personal economic surplus -- to buffer itself from these ordinary and expected calamities.  The less-wise depends on the ability to pull out a credit card and charge that new refrigerator when the need arises.

It is a time-honored practice in America for politicians to make promises they cannot keep.  We promise to build a gleaming new school, brimming with high technology, but we did not put aside the tax money to construct it in advance.  We promise that you will have medical care in retirement, but we never funded that program.  We promise that you have a "lock box" in Social Security, but then we raid it to make the budget deficit look smaller.  And we all want to drive cars, but we don't want oil rigs off our shores, we don't want pipelines and refineries across our land, and we don't have either the money or the moral right to invade all those nations in the world that have the energy resources we need.

Our medical system has increased in cost at a compounded 8% rate for the last 30 years.  In 1980 the Federal Government spent $53 billion on all medical programs combined.  Last year it spent over $800 billion.  Politicians on both sides of the aisle have taken the  "gold-standard" position that nobody over the age of 50 will see their Medicare tampered with, as they know that you, the voter, will fire them if they tell you the truth. 

The truth is that Medicare cannot be fixed and neither can Medicaid, standing alone.  Instead we must repair the medical system itself.  EMTALA, which mandates that hospitals must treat everyone irrespective of the ability to pay, must be revisited and either modified or abolished.  The practices of cost-shifting, where what you pay for a medical procedure, drug or device is set based only on how you pay for it or where you live, all exempted from laws that make this conduct illegal in other lines of business, must end.  The provision of taxpayer-funded medical care to those who are in this nation illegally must be abolished.  These changes must take place now, not tomorrow and definitely not "somewhere down the road."  If they do not our medical costs will double in another six years, and we do not have the money to pay that cost.  The result of inaction today, as a matter of mathematical certainty, will be rationing of medical care and collapse of these programs.

The same rot that has infested our medical system must be excised from the rest of our Federal Budget.  The simple fact of the matter is that we are borrowing more than one third of every dollar the federal government spends.  This will double the national debt in less than a decade -- again.  We have added more than 50% to our federal debt in three years, and we cannot continue on this path.  Eventually, foreign and domestic creditors who have lent the government that money will go on strike, dramatically raising the cost of financing.  When this occurs we will be forced to cut the size of government by more than 50% in an afternoon, instantly collapsing all of our federal social programs.

There are people on the right side of the aisle who say that we have to "grow the economy" to get out of the current fiscal mess.  They're lying.  This mantra has been repeated for 30 years, and yet not once has this actually produced economic growth that exceeds the growth in debt through the economy.  The economic bubble in Internet stocks in the 1990s and the housing bubble of the 2000s were both caused by outrageously-fraudulent acts -- first through making of knowingly-false statements about exponential growth of the Internet that could not possibly be true for more than a couple of years, and then again through the making of "fog-a-mirror" loans that were packaged up and sold as "solid AAA credits" through the financial system.  Both bubbles were driven by knowing lies.

The tax system at the corporate and personal level favors debt instead of equity, leverage over thrift and industry.  This must end.  The Fair Tax is one such way to do so; by zeroing the corporate tax and rendering all taxes on consumption it removes the preference for debt over equity, makes lobbying for special preferences impossible and makes the cost of government instantly visible and transparent to everyone in the nation.  The Internal Revenue Code should be burned to ash and replaced with The Fair Tax tomorrow morning.

The right also says that we need to return to "sound money."  But sound money means no more fiscal deficits -- period -- and no unbacked credit emission.  Yet none of the people on the right side of the aisle -- or the left -- are actually proposing to cut off that fraudulent emission of credit nor are they proposing a balanced budget.  Yet this is a necessary condition in order to have "sound money."

The left says that the rich must pay their "fair share."  But what is their "fair share"?  Nobody on their side of the aisle will tell you.  The fact is that the "rich" pay nearly all of the income taxes now and yet the federal government spends all of that money and then more than a third more -- which it doesn't have.  The lesson is simple -- no matter how much money we shovel into Washington it will spend every penny and then continue to spend more, even though Congress doesn't have it.  There can be no fiscal discipline nor a resolution to this problem until the Congress stops spending money that it has not been able to first tax from someone.

Government tax receipts are, in the main, entirely dependent on the employment participation rate.  That rate is back to where it was in the 1970s and has not budged despite the alleged "recovery" since early 2009.  The fact of the matter is that behind this problem is the offshoring of labor; we temporarily made possible the appearance of prosperity through excessive borrowing at all levels of the economy -- federal, state, local and personal.

But those days have now come to an end and we must deal with what our fiscal and employment situation is on-balance, not what we would like it to be.

Either our wage and environmental laws are just or they are not.  If they are not then they must be repealed.  If they are then they must be enforced.  Since we cannot police every nation in the world on either a practical or moral basis the only means of policing those laws beyond our borders are through the imposition of tariffs on all goods and services sold in the United States. This is both a lawful and Constitutional means of enforcing our labor and environmental standards.  Companies can either construct their goods and provide their services with labor and materials from the United States, employing Americans, or they can cover the social spending necessitated by exploiting our markets with slave labor and environmental destruction abroad through tariffs imposed on their activity.  The choice is theirs, but this mandate must be ours, without fear or favor. 

Companies such as Apple often claim that they cannot fill the jobs they need filled in America, and that our educational system is failing.  More than fifty years of federal involvement in the education of our children has proved to be an abject failure.  "No Child Left Behind" in fact has left all children behind.  In the 1800s and early 1900s we powered ahead with innovation unmatched anywhere in the world, culminating with putting men on the moon.  We did it all, building this nation literally from the ground up, without Title I.  The Education Department must be de-funded and abolished tomorrow morning and Title I must be stricken from the books along with the rest of federal involvement in education.  We have 50 state laboratories on purpose and our federalist system ensures that our population is free to both vote for the state educational system desired in an area and that the people can move to states that fulfill their own individual mandates in this regard.  At the same time federal involvement in post-secondary education is an abomination; we must both remove the non-dischargable status of student loan debt and in fact remove all federal subsidy and support of higher education.  30 years of interference has proved that all of the "benefit" accrues to university bloat rather than educational outcome with costs increasing at more than three times the rate of inflation.  In 1980 you could flip pizzas to put yourself through college; today that is impossible.  This is not due to market forces; rather, it is due to intentional government interference that must be withdrawn.

America was founded on the rule of law.  Yet while it is illegal for you or I to defraud someone and we will be arrested, tried and imprisoned if we do, over a half-million citizens in Jefferson County Alabama were ripped off and had their water and sewer bills quadrupled through a series of fraudulent schemes.  Several county officials and others involved in the scams were tried and imprisoned.  But the banksters and companies who ultimately funded those bribes, and who benefited financially from these schemes and scams, were neither indicted or forced to give back their ill-gotten gains, and the bills have remained at the quadrupled level, effectively stealing from the citizens each and every month.  Other big firms who have made illicit profits through money laundering for Mexican drug gangs or the off-label promotion of prescription drugs have been fined some portion of their "excess profit", which simply turns the breaking of the law into a business risk.  Again, if our laws are just then they must be enforced evenly against every entity, irrespective of their size or alleged "importance" to the nation.  The CEO and other corporate officers and board members must be held to account through personal liability when they either are aware of such violations of the law or willfully avert their eyes.  Sarbanes-Oxley allegedly addressed this failing in the white-collar world yet not one financial executive has been charged under this law.

America has the ability to be a great capitalist nation.  But today America is not a bastion of capitalism.  Many have claimed that we now have "crony capitalism" but that too is a misnomer.  Capitalism is the premise that one succeeds or fails through the wisdom of one's investment, predicated on capital formation (that is, the investment of economic surplus into various economic activities.)  While the vestiges of this system remain in America, what has replaced it is a feudalistic system of scams, frauds, allegedly "lent" funds that do not in fact exist and bribery of various forms, both legal and not.

Later this year America will go to the polls to select a President and all 435 members of The House, along with one third of The Senate.  A vote for those candidates who are currently in office is a vote to continue the policies of theft, fraud and scam.  Neither major political party has shown any interest in reform or putting a stop to the scams, nor has either been willing to tell the truth.  It is often said that nobody other than a Democrat or Republican can win a major political office, yet this is simply untrue.  I have never in my life voted in an election in which only two names were on the ballot for President, and any of those on the ballot is capable of winning.

That which we vote for and demand we cannot complain about.  That which we refuse to admit to yet which is nonetheless true remains our responsibility.  With the cliff of fiscal insolvency and a forced and disorderly contraction in the size of the Federal Government by more than half now in view before us, we have the choice to either change course or drive straight toward certain government and economic ruin.

The responsibility for our political and economic future is in fact individually ours.  We can either focus on the political minutia such as abortion and gay marriage, or we can demand and vote only for candidates that will stop the deficit spending, put a final and complete end to the offshoring of our labor through the exploitation of the environment and slavery in foreign nations, and imprison the fraudsters in our financial system without regard to who they are, restoring the rule of law.

The choice is yours America, and so are the consequences.


TOPICS: Business/Economy; Constitution/Conservatism; Government; Politics/Elections
KEYWORDS: denninger; sotu; speech; state; stateoftheunion; ticker
Presented for discussion.
1 posted on 01/24/2012 11:24:18 AM PST by An.American.Expatriate
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To: An.American.Expatriate
Companies such as Apple often claim that they cannot fill the jobs they need filled in America, and that our educational system is failing. More than fifty years of federal involvement in the education of our children has proved to be an abject failure. "No Child Left Behind" in fact has left all children behind.

In 2010, Barack Obama called for fixing the public education system by giving us the Elementary and Secondary Education Act and “Race to the Top,"

which he said would fix the education system already fixed by the 2001 GW Bush and Ted Kennedy legislation called “No Child Left Behind,”

which was supposed to fix a system supposedly already fixed by a 1994 piece of federal legislation called “Goals 2000,”

which was supposed to fix a system already fixed by "America 2000,”

which was a 1991 response during the Bush administration to a 1983 federal report on education called “A Nation at Risk,

which was published a full four years after Jimmy Carter first fixed the nation’s public school system by establishing a cabinet-level Department of Education in 1979.

2 posted on 01/24/2012 11:47:09 AM PST by Maceman (Obama: As American as nasei goreng)
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To: An.American.Expatriate
Denninger got what he wanted - Obama, who he voted for and supported. Now he whines and whines.

Used to like the Ticker Guy, even after he admitted voting for the Obamster. But then he started supporting and lauding the Occupy folks. At that point, I'd had enough of him.

Karl, you knew Obama was a rabid socialist who had studied under hardcore Marxists, but you thought he would be better than McCain? Granted, McCain's no prize, but an out-and-out communist is better?

Get behind a fiscal conservative Karl, or STFU.

3 posted on 01/24/2012 11:55:45 AM PST by apoxonu
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