There is no such thing as Government Money

There is no such thing as government money - only taxpayer’s money. This is the second in a series that addresses the fiduciary legacy of Congress, the state of the federal budget and the accumulated national debt. The first was "What is a Billion."

After collecting tax revenues from 6 million businesses and the top 50% of American-citizen wage earners, the Congress last year spent a peacetime-record (adjusted for inflation) of $23,760 per household, arguably $20,000 more per household than strictly authorized by the U.S. Constitution – but hey, liberals claim it’s a living Constitution, a roadmap. No longer is the U.S. Constitution a contract with and between Americans. To a liberal in Congress, reality is an illusion that only occurs due to the lack of tax revenue – a situation easily rectified.

Where does the money come from that Congress spends?

A portion is extracted from businesses of all shapes and sizes in the form of a corporate income tax. Individual income taxes provide five times the amount of corporate taxes. Employment taxes contribute another portion, roughly two thirds of the individual income taxes. Add to that gift, estate and excise taxes. In 2003, tax revenues were somewhere close to $2 trillion. For FY2007, beginning October 1st, 2006, Congress authorized a $2.8 trillion budget, an increase by 40% since President Bush first took office in 2001. President Clinton’s last budget was $1.8 trillion.

We give the President credit for the budget because he signed it into law. However, never forget for a minute that it was Congressmen, our Senators and district Representative, who inserted the spending provisions into the budget and it was Congress that passed it.

What effect is this spending having on the national economy? We are told almost daily there is no demand-driven inflation. Demand is determined by the magnitude of public consumption expenditures and government consumption expenditures, plus investment expenditures and net exports/imports. You know that both public and government consumption expenditures (spending) have been huge. Over the last two years alone, $1.352 trillion of equity has been extracted from real estate - an amount equal to about 10% of annual GDP - and spent without saving hardly a dime. During the same period, net imports/exports has been hugely negative. One only needs to look at product labels in any retail establishment to know that most of what we purchase today was manufactured in foreign countries. Price inflation from government and public consumption expenditures demand is running wild and unchecked, and in several asset classes as a result of speculation, inflation has become “pure.”

Congress could just as easily have shown a pretense of fiscal responsibility and reduced this year’s budget instead of raising it. While Congressmen and the media are quick to tell us the President’s words are all sound – all sound, it is Congress that is blindly proceeding to do just exactly what it wants to do, spending what it collectively wants to spend. It is Congress, aided and abetted by the media, that blames this President (and past presidents) for Congress’ ill-advised decisions on everything from the war in Iraq to entitlement spending and earmarks. Even votes are becoming expensive to purchase. Ask any Congressman.

When anyone overspends their income, they must go into debt if they continue to make purchases, which we know to as “deficit spending.” When tax revenues are inadequate to pay the bills, additional revenue has to come from somewhere. This additonal revenue iis obtained from the sale of United States assets, in the form of government debt instruments (Treasury securities). Treasury securities are issued by the United States Department of the Treasury through the Bureau of the Public Debt – notice in the name the words ‘Public Debt.' Debt financing instruments are referred to simply as "Treasuries." Foreign governments and banks purchase our Treasuries with U.S. dollars which they acquired from selling us consumer goods or petroleum products.

There are four types of Treasury securities: Treasury bills, Treasury notes, Treasury bonds, and Savings bonds. Treasury securities (except savings bonds) are very liquid forms of national debt and heavily traded by international entities on the secondary market.

A national debt is created when a lending foreign government or bank (such as the Federal Reserve) agrees to loan a sum of assets (U.S. dollars) to a debtor nation, in this case the United States. As you would expect, these loans are made with an expectation of repayment, plus interest. The choices are few – repay, reschedule or default. Historically, individual debt was always responsible for the creation of indentured servants. Remember this detail, because national debt is no different, only on a larger scale. National debt is definitely not charity. Charity is best exemplified by the United States’ internal income redistribution programs (entitlement programs) which are a give-away of tax dollars with no expectation of receiving anything in return, not even nationalism. Entitlement programs are a subsidy by Congress of ethically, morally, educationally and culturally challenged Americans and illegal aliens in return for Congressional self interest, votes and power. Any organization or special interest group granted a tax exempt status – whether religious, political or charitable - for any reason - is similarly enjoying a pernicious form of entitlement program – receiving citizenship benefits paid for by other taxpayers including protection of the law, but indignantly contributing nothing – nothing at all.

To anyone who would read this article voluntarily, you probably already know that China has become the world’s biggest foreign exchange holder of U.S. Treasuries. Chinese holdings of United States foreign exchange (debt) reached $853.7 billion as of February 28, 2006. Japanese holdings of U.S. foreign exchange were $852 billion as of March 31, 2006.

For comparison in a global sense, the U.S. current account deficit in 2005 was $791.5 billion. The world’s next largest current account deficit in 2005 was Spain’s $86 billion.

It will take decades for our children and grandchildren to repay our government-incurred national debt, with interest. It is important to emphasize that the national debt is not the responsibility of everyone - only those individuals and corporations who do pay taxes (since the bottom 50% of wage earners and illegal aliens pay no taxes at all).

Red State Patriot

Posted September 7, 2006 05:56 PM
Read more on Articles - Raymond Kraft ~ Articles - Red State Patriot ~ Budget, Taxation and Fiscal Policy