We Are All Indentured Servants Now.

May 1, 2012

And his subjects gathered 'round him
Like the leaves around a tree
In their clothes of many colors
For the angry gods to see
And the women all were beautiful
And the men stood straight and strong
They offered life in sacrifice
So that others could go on.
-From Cortez The Killer, by Neil Young

. . .
In 2011, 100% of U.S. Federal tax revenue was used to pay for mandatory spending. Medicare. Medicaid. Social security. And the interest on our $15.6 trillion national debt.
Expenditures on defense, two wars, education, welfare, infrastructure, homeland security -- and everything else that has been trusted to the Federal government -- was borrowed. Half of it from foreign nations.
You, your children, neighbors, friends and families -- you are all indentured servants now. Relegated to the role of paying into the vast and ever-growing Federal collections and spending machine. Only this machine puts out much more than it's capable of pulling in.
It's the fiscal version of Pandora's Box. The box is open. And we have neither the will nor the means of closing it.
Interest rates are at historical lows. Mainly because investors are temporarily distracted by Europe's debt crisis. When that issues fades from the front pages (and it will), the $250 billion we pay each year in interest will balloon to $400 billion, $500 billion, $600 billion and more.
It is not crazy to suggest that we will someday spend over $1 trillion per year on debt interest. Very large, postage-paid return envelopes will arrive monthly from China, Japan and Europe. We will lose sway at the IMF, the World Bank and the U.N.
Erskine Bowles recently pointed out that if, in fact, we were forced to fulfill our agreement to defend Taiwan against a Chinese invasion, we would first have to borrow the funds from China. Nice.
On January 1, 2013, the Bush tax cuts will expire. And more than $1.1 trillion will be cut from the budget. Half of that will be taken from defense, mostly because of the government's inability to resolve anything last year. You remember the Super Committee the president appointed to deal with these issues? It was a super failure.
The alternative minimum tax will also go up. Handing the 50% of the population who actually pay taxes another timely kick in the ass. With U.S. economic data stagnating, the investor class will be tempted to do less, as capital gains rates and interest income rates are elevated.
Yet, we hear very little of this now. Why? Because there's a presidential election taking place. It has everyone's attention through November. And since politicians, especially the one's seeking election, are loath to discuss difficult (yet solvable) financial matters-because they cannot pit one half of us against the other half, you will hear nothing of it.
This leaves, oh, seven weeks after the election for congress to tackle this mess. A mess of their own making.
That should send stocks down as fear mounts and volatility goes through the roof. Merry Christmas.
And yet, this crisis is foreseeable. Avoidable. But, our politicians have no time to lead right now. They are too focused on getting reelected.
Short of serious debt reduction, the smallest increase in interest rates can create a fiscal crisis the likes of which make 2008 look like the calm before the storm.
Yet, our political class, having duped the electorate into centralizing many of the tasks originally intended to be handled at the state level, refuse to act. Why? Decisiveness and action are leadership traits. And leadership does not always get one reelected.
Over promise. Under deliver. Blame everyone else. Fight like the Jersey Housewives for reelection.
Debt service will continue to consume more of a shrinking revenue base until the finances of the U.S. resemble those of M.C. Hammer. Tons of flash. Very little cash.
Our children are little different than the natives of South America as the conquistadors arrived from Europe. The invaders smiled. Handed out gifts. Made promises. Earned trust. But, when the natives grew restless, every one of them was enslaved.
While our captors did not arrive by ship, the rest of the story remains.
They hand out gifts they cannot afford. Buy trust. Make promises they cannot deliver. We smile, extend our hands in receipt of something for nothing. Until, at some point, we realize there is no such thing.
Then the natives will grow restless. But, then it will be too late.

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