Rob Douglas: Steamboat and our national debt

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During the next several weeks, President Barack Obama and the congressional leadership will pretend to fight about the nation’s “debt ceiling.”

Rob Douglas

Rob Douglas' column appears Fridays in the Steamboat Today. He can be reached at rdouglas@SteamboatToday.com.

Find more columns by Douglas here.

It will be a pretend fight because a majority of the two dominant political parties in Washington, D.C., always unify to treat the debt ceiling as an unlimited limit.

It will be a pretend fight because a majority of the two self-entrenched parties are addicted to the power that comes with redistributing more than $3.5 trillion each year.

It will be a pretend fight because those bipartisan power addicts derive their power from a body politic comprised of deficit spending junkies willing to sell their children’s future for today’s Federal Reserve fix.

So if we’re a nation of spending addicts getting our fix from pols who push a seemingly endless supply of artificial dollars from the Fed, why should we pretend there is a debt ceiling?

Because every now and then it’s good to sit down and have an honest conversation about our public spending addiction with the hope of preventing America from ending up like Elvis Presley, John Belushi, Heath Ledger and Cory Montieth.

For Steamboat Springs, the timing of this year’s debt ceiling debacle under the U.S. Capitol dome should serve as a catalyst for a frank discussion in Centennial Hall about how to operate the city without any federal funds.

With the Steamboat Springs City Council’s annual budget retreat taking place Tuesday, the City Council should take the opportunity to determine how much of the city’s budget relies on dollars that flow directly and indirectly from federal coffers, as opposed to local taxes and fees, and then institute steps to gradually eliminate the use of those dollars.

But wait, aren’t the dollars flowing from Washington dollars that originated in the pockets of Steamboat residents?

Yes, some. But soon, almost none.

To illustrate how few tax dollars will be available for federal spending in the very near future — including grants and subsidies that flow directly and indirectly to localities like Steamboat — consider the information in the following four paragraphs from Peter J. Tanous in “The Fed’s ‘Hidden Agenda’ Behind Money Printing” at CNBC.com.

“The (Congressional Budget Office) estimates that by 2020 total debt held by the public will be $16.6 trillion as a result of the rising accumulated debt.

“Do the math: If we were to pay an average interest rate on our debt of 5.7 percent (the average over the last 20 years), rather than the 2.4 percent we pay today, in 2020 our debt service cost will be about $930 billion.

“Now compare that to the amount the Internal Revenue Service collects from us in personal income taxes.

“In 2012, that amount was $1.1 trillion, meaning that if interest rates went back to a more normal level of, say, 5.7 percent, 85 percent of all personal income taxes collected would go to servicing the debt. No wonder the Fed is worried.”

Granted, a lot could happen during the course of the next seven years to improve the fiscal picture Tanous paints. However, Tanous only addressed a small portion of the economic burden that is mounting with each tick of the clock. For example, Tanous ignored the more than $100 trillion in unfunded federal liabilities — including Social Security and Medicare — along with underfunded state and local government pensions.

Given the potential fiscal calamity that awaits America because of its addiction to federal deficit spending, the question for the council on Tuesday is the question that should be asked of every local elected body — including the Routt County Board of Commissioners — across the country: Will you begin the process of becoming financially self-sufficient?

After all, Steamboat Springs is one of the wealthiest communities in the country. If Steamboat can’t balance spending with local revenue in the next several years so that the city will not require any funds from the federal government, there is no hope of ever controlling spending in our nation’s capital.

To reach Rob Douglas, email rdouglas@SteamboatToday.com.

Comments

Scott Wedel 11 months ago

",,, there is no hope of ever controlling spending in our nation’s capital."

That's an odd sentence because the preceding paragraphs describe a growing future squeeze that will force controlling future spending.

Also, sometime before that squeeze the risks of a future squeeze become apparent to the bond market and government bond interest rates sharply increase when bond buyers start to doubt the government's ability to repay.

So yes, it would be smart for SB City to plan a budget future without federal grants or federal aid. I think most people of both parties would have an easy time saying that well off communities like SB shouldn't need federal aid when making federal budget cuts.

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John Weibel 11 months ago

Steamboat Springs and Routt county is well off, however it has large mort(death)-gages(grips), from its Latin origination. Throw in a world where the Feds and the rest of the country have to cut back, one where pensions get whacked, in purchasing power as the devaluation of the dollar continues, M1 printing rates today at about 6.8% today, inflating away the middle class lifestyle. That world will not have the current tourism levels, unless another country fills the void. That world will likely have lower property values in Routt county and lower sales tax revenues from tourism. In that scenario the county ought to be trying to further diversify its economy and cutting as much fat out of budgets as they can.

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jerry carlton 11 months ago

When the Federal government quits paying social security and military pensions, there will also be a lot fewer dollars in this county.

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Fred Duckels 11 months ago

Our little hamlet is addicted bigtime to the teat of free goodies and I doubt that many will even read this article. Add to this dilemma the fact that more each year look at retiring from the private sector and making it on handouts from pandering politicos playing the empathy card. Have a nice day!

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Scott Ford 11 months ago

Hi Jerry Here is a “fun-fact”. In aggregate the households in Routt County received retirement benefit from either Social Security and/or an employer provided defined benefit pension of about $38 million in 2011.
This amount represents about 3% of Routt County’s total aggregate household income from all sources.

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jerry carlton 11 months ago

Wow Scott! I would have thought it would be much higher with the quantity of retirees around here. Well, at least Steamboat will survive even if all us old codgers starve to death.

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Scott Ford 11 months ago

Hi Jerry –

It is estimated by Employee Benefit Research Institute that in 2012 over 50% of individuals age 55 and over had less than $50,000 in savings of any type. Of this, less than $50,000, group almost 70% had less than $1,000. There are a whole bunch of “boomers” nationally that are hurdling toward retirement that will be 100% dependent on Social Security benefits.

Although this group still views retirement with dignity as a possibility their dreaming; it is going to be nightmare for them personally and for the nation as a whole.

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Stuart Orzach 11 months ago

Scott- Social Security retirement benefits and defined benefit pension plan payouts are postponed wages, not government handouts. Employees and employers paid into them. They trusted that the custodians of the funds would manage them responsibly. In 20/20 hindsight, many people are wishing they were paid up front, but that was often not an option.

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Scott Wedel 11 months ago

Far more people continue working after 65 so those people are not generally expecting to stop working at what was once retirement age. It also appears that people change their habits and start saving more when they decide they expect to stop working in another 10 years.

The social security model was originally that working until 65 was more than the average lifespan and someone that old probably wasn't well enough to work much. The average lifespan has increased so much that it would be comparable to setting 75 as a retirement age now.

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John Weibel 11 months ago

Unfortunately, the defined benefit plans were given false hopes of large returns through the markets. Most are woefully underfunded and probably should be phased out.

The real problem lies in the bankster lobbying firms which have create incentives to carry debt, home interest deduction, and also investing in others, through 401ks which helped to fuel the unrealistic market returns.

Paying people up front, having them save, invest in themselves or locally is a far better way to have had the system work. Instill personal responsibility in people. Bono after years of trying to lift the poor up in Africa has come out and stated that capitalism has lifted more out of poverty than any government program or handout. We should be working towards a world where we empower people to do better for themselves. Ala the micro loan programs that have started up and have been giving people a hand up not a hand out.

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Scott Wedel 11 months ago

Well, debt to purchase something sooner that allows for substantial cost savings is actually more productive than always saving to purchase with cash.

The key is for the debt to purchase a productive asset that makes or saves enough money to easily cover the interest payments.

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Stuart Orzach 11 months ago

John- I'm fine with making changes going forward. But reneging on existing commitments is unacceptable.

As someone who intentionally took as much as possible up front, I'm not too thrilled with artificially low interest rates either.

It seems that our national policy has been to lurch from one asset bubble to another. This is a lottery economy. There can only be a few winners.

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jerry carlton 11 months ago

Stuart It is beyond unacceptable. If the government that took my money and my employers money for 51 years refuses to return it to me as promised, then that government does not deserve to survive.

John Unfortunately for whatever reason people live beyond their means. I am one of the lucky ones whose parents knew how to save and taught me how to.

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John Weibel 11 months ago

The government and companies should fulfill their obligations. I fortunately have lived very far below my means for most of my life, and have tried to provide opportunities for others to get ahead.

The only issue is that our great grand children will still be paying off the debts created by the pension system today. Is it any fairer to them to be shackled with debts created by those who you are trying to honor their debts. At some point the 6.8% annualized creation of money is going to come home to roost and even if you honor those debts, the value of that pension is worth less because of the Mugabe or latin american devaluations of the currency here. The system needs fundamental changes and partially dying, however, the foundation for this country is the most egalitarian there is.

I also have tried to live far below my means. Taking very few vacations and trying not to take on added debt, and at some point soon, returning to a debt free existence. Though Scott, some debt is also good, however, I think at this point in time... given the current need inflationary and want deflationary pressures that still exist, debt may not be such a good option today. If the economy contracts all the while the cost of living goes up, you have to tighten your belt two fold. Once to make up for the lost revenue and once to make up for the lost purchasing power.

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jerry carlton 11 months ago

Anybody see channel 4 news tonight? $200,000 of TAXPAYERS money for a judges conference at the BROADMOOR. $300 a night and $54.00 for a chicken dinner. Spouses attended on the TAXPAYERS dollars also. Chamber of commerce should work on getting one of these thieves conventions to Steamboat. This is precisely why I always vote against retaining all judges. Let a different crooked shyster steal our dollars every four years or however often they are on the ballot.

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Stuart Orzach 11 months ago

It's a clever ploy, on the part of politicians, to frame the issue as a simple binary choice between us and our great grandchildren.. If they repeat it often enough, people may start believing it.

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John Weibel 11 months ago

Stuart, soon that simple binary choice will become wether we choose between us and our children, not our great grandchildren. If you go read the article that Rob references and contemplate the implications of the federal government needing to pay a more historic rate on the public debt then you will understand the gravity of the debt situation.

In reality, there is a high probability those of us fortunate to live in the US will see a currency crisis in our country. In which we will see high if not hyper inflationary problems. Locally we should be pondering how to rebuild the local food distribution systems that were here years ago. There is some talk of it, but in order to actually bridge the gap, you need to figure out the key ingredients which we are now missing which would allow us to compete with the big boys of the world.

Unfortunately, it seems that many in the community feel that we can not compete with this model. I would counter that regionally that in order to maintain a somewhat decent quality of life that we have to find a way to compete. That will require capital to invest in systems in which to utilize the "waste" products from ag operations in ways that become income streams as opposed to economic drags. It will also entail, regional collaborations as wintering cattle in much of Routt County requires feeding for 6 months which is not sustainable, instead mimicking nature, and having the cattle migrate like the elk, deer and antelope herds do).

Throw in some creative solutions in order to find ways in which we can grow products in this climate without large propane bills, etc.. Throw in some flexibility in the processing facet of meat production, to allow product to be harvested at one point of the year, then refined into finished goods to be shipped out at other times of the year. Oak Creeks, Yampa, and Hayden could all use a shot in the arm and getting creative, flexible and trying to collaborate with others is the way out at the local level.

I believe that the point Rob was making is that the local governments, need to think about their budgets and try to run in the black, without aid from the federal government. Part of that comes from the expense side of the ledger and the other from the revenue. Part of the revenue side needs to be looked at from the perspective of bringing in new capital investments or simply figuring out how to retain some of the capital that locals have and it is invested elsewhere. Take for instance the community foundation, is there as way to invest those funds locally, without too much risk for the non-profits that hold their money with it?

Yes the world is not filled with binary choices - however, soon there will be a singular choice.

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Stuart Orzach 11 months ago

John- I totally agree with you and Rob, that the City should not count on Federal money, going forward. We should not count on use tax either, lest we get addicted to growth.

I also agree with you on the importance of restoring the local food system.

Perhaps I was being idealistic, but I think there is enough money for current obligations without harming future generations. As Jerry illustrates, It's a question of how the Feds prioritize their spending.

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