Nov 01 2012

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Obama vs Romney – The Decision

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Time to Choose

After intermidable months of politicking, the propagation of various issue “wars” and the always familiar attack ads, average Americans take charge on Tuesday and vote.

But on what basis should they decide?

Clear away the campaign flotsam and one issue – and one issue only – should decide the election: which candidate is more credible as a public steward to restore the nation’s finances.

A bit of a let down, yes? No “hope and change” here. Indeed the posit sounds as if we are seeking to hiring a national accountant. A technocrat. A numbers-cruncher. Where’s the big idea? Where’s the vision? Where’s the inspiration?

But here is the fudamental truth: Unless we get our national finances under control, nothing else is possible. Indeed, nothing else matters.

Getting our national finances under control means recognizing that the massive anticipated growth in our entitlement programs have outstripped our ability to pay for them, and that they will eventually go bankrupt if not reformed.

The Congressional Budget Office (CBO) has stated  that without structural changes, within 12 years federal revenue will only be able to finance Social Security, Medicare, Medicaid and interest on the national debt. Every other federal government activity — from national defense and homeland security to transportation and energy — will have to be paid for with borrowed money.

It is a completely untenable situation financially, and a moral blight on our elected leaders that we would wilfully pass on such a staggering debt to our children to fund existing commitments on borrowed money.

And we are already drowning in borrowed money.

Getting our national finances under control means that we recognize the existential threat posed to our very national security by our debt accumulation, and the necessity to reform programs to slow the growth of government so that we can continue to fund other, essential programs.

In 2008 the total US national debt – both foreign an domestic – was $10 trillion. The debt to GDP ratio was a managable 74 percent. Since President Obama assumed office, the national debt has exploded to $16 trillion. The debt as a percentage of GDP has skyrocketed to an alarming  105 percent . Worse, the  debt accumulation continues unabated.

30 cents of every dollar the federal government spends is borrowed.

And the holders of that debt externally are a cause for concern. China, a strategic competitor to the US, holds more than a trillion dollars in US debt. That is potentially and economic sword hanging over the US-China relationship. Reducing our dependence on Chinese money is critical to our financial and national security.

Getting our national finances under control is  essential to restoring our economy.

The reality of our governance is that there is a symbiotic relationship between government and the economy.  Government cannot artificially spend its way into organic growth, but an unleashed private sector cannot operate effectively without rules. At its core, the proper role for government in economic engagement is to optimize rewards and penalties to incentivize growth and ensure a competitive, fair and transparent marketplace.

The results from successful management are readily apparent.

Growth catalyzes new business creation and expansion. That, in turn, spurs job creation and hiring. A competitive jobs market raises incomes. Economic activity creates new wealth. That wealth provides a windfall to the government in the form of increased revenues from taxation. It is a virtuous cycle that depends mightily on the restraint of government to ensure a safe, stable and predictable regulatory and tax environment for capital investment.

Getting our national finances under control is critical to restoring the credibility of our credit.

Under President Obama, the US has suffered its first credit downgrade in history. This is enormously consequential.

Our collective word as a nation is all that stands between the US and trillions in unfundable liabilities. Without a real and credible plan to cope with our deficits and debt, our foreign creditors may be less willing to accept new US issuance, or worse, may decide to cash in their existing debt while they believe they still have a chance at get par value for their investment.

Don’t think it can happen? Look at the EU.  Look at Greece, Spain, Portugal, Italy or France. It can happen, and  that, it turn,  would create economic pandemonium much worse than 2008.

But despite the action by Moodys and the warnings of other credit rating agencies, nothing has changed materially since the downgrade occured in 2011.  Indeed the financial situation has grown more grim with the coming “fiscal cliff” of tax increases and spending cuts.

Getting our national finances under control is critical to our national defense.

In 2011, defense spending fell for the first time since 1998. The “fiscal cliff” which, absent congressional action will be automatically enacted in January, will immediately cut 2013 defense spending by 7.5 percent.

Even if the fiscal cliff is resolved without massive cuts to defense, historically speaking, US defense spending as a percentage of GDP is at its lowest level since Pearl Harbor. The Obama administration has it falling further – from 4.7 percent today to 3.7 percent in 2018 – essentially attempting to rebalance the budget on the back of DoD.

And now could not be a worse time to strangle defense spending.

After a decade of war, the US military needs to retool. Weapons platforms designed and deployed in the 70s-80s are nearing the end of their operational life cycles and need to be replaced. The threat of terrorism remains real, and China is a growing, aggressive power in the Pacific where the US has significant political and economic ties. Yet the number of deployable ships and aircraft continue to decrease.

Only by getting control our national finances under control can we make the commitments to national defense consistent with our national interests.

In sum, if these are the components of America’s debt crisis, then which candidate has more credibility to solve the problem over the next four years?

In every instance, President Obama has taken our country from a bad situation and made it worse today.

– $6 trillion in new deficit spending in only four years, added to the national debt. To finance that debt, the US must make more than $350 billion in interest payments per year. That is more than the entire GDP of Thailand – lost money that serves no useful purpose but to enrich our creditors. The Obama budget blueprint, presented to Congress, adds $6 trillion more to the national debt over the next decade.

Our economy is burdened and limping. The Obama administration’s government-centric management of the economy has failed.  New regulatory burdens, mandates and temporary, every-changing tweeks to the tax code have created durable uncertainty from the business community concerning the viability of long-term investment. Companies are instead hording cash.  It has had a profound effect on the economy.

GDP in 2011 was less than 2010. GDP in 2012 will be lower than 2011.

– 23 million Americans are under-employed, unemployed or have given up looking for work entirely. 40 percent of the unemployed have been out of work six months or longer. The labor force participation rate is at its lowest level in 31 years.

Median household income has dropped two years in a row and is now down 8.1 percent from 2007.

46 million Americans are in poverty, the highest level in the 53 years that the Census has been keeping records. 16 million of these Americans are children.

46 million Americans are on food stamps, a 34 percent increase since 2008.

Looking forward, the President has presented no credible plan to cope with the debt or re-start the economy.

Entitlements go unmentioned. Budget savings come from gimmicks that re-allocate borrowed money that was never going to be spent on Iraq and Afghanistan, and re-programming that “savings” into domestic programs. Tax reform is code for punitive tax increases on the rich, without any apparent regard for how the tax system relates to the private economy.

In sum, by the statistics, President Obama has failed. In addition, those things that we do know about a second term agenda do nothing to solve the debt crisis.  Indeed, they may make it worse.

It is true that the Romney plan is untested. There are a great many blanks that need to be filled in.

But crucially, the Romney plan addresses the debt crisis head on, in all of its many forms. The plan is coherent, and if you understand how fundemental economic growth is to balancing the federal budget, then you also understand that the Romney plan is credible.

For 25 years, Mitt Romney has been a turn around expert in the private sector. He understands how an economy works, from the ground up. For him, private enterprise is central to America’s long term success, not simply an abstract tool to fund ambitious, government-sponsored social justice initiatives.

Marry that experience with Romney’s bipartisan credibility as governor of Massachusetts and you have a man uniquely qualified to address the multiple crises that America faces today.

President Obama is well meaning, but he failed to live up to his own campaign promises from ’08, to explain his record over the last four years, or lay out a credible agenda for a second term. It is time to stop finger pointing about our problems and actually try to solve them, as hard as it may be.

Real hope and change can come next Tuesday with Mitt Romney as President-elect.

Vote accordingly….


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