To paraphrase Winston Churchill, never before have so many owed so much to so many. Our Treasury is drowning in a sea of red ink and the Obama Administration is scrambling to establish at least a scintilla of fiscal discipline to pacify nervous investors. Meanwhile, Secretary of State Hillary Clinton was off to China urging the Chinese to keep showing up at the Fed’s weekly T-Bills auctions, auctions that keep our republic solvent.Bad times indeed.How did it start? When did Uncle Sam shift from a fundamental pay-as-you-go household to a addict of debt? When, exactly, did the Beltway’s financial Titanic set sail?It was Ronald Reagan who ran for President with a goofy promise that he would “cut taxes” and government revenue wouldn’t fall, it would rise. This happened to run contrary to 200 years of American history. In his support, Reagan had an economic guru, a professor from USC named Arthur Laffer. The Trojan’s “Laffer Curve” purported to show that Reagan tax reductions would more than pay for themselves with resultant economic growth.Nobody was buying it, not even the Republicans. George H.W. Bush referred to it as “voodoo economics” prior to joining the Reagan ticket as V.P. Republican John Anderson, who ended up running against Reagan as an independent, made Reagan’s Alice-in-Wonderland economic plan a center point of the Anderson campaign.Reagan was elected, and within days sent his huge tax cut to a Democrat Congress where it was most certainly headed for defeat.Then on March 30, 1981, barely two months into the 40th Presidency, Reagan was shot by John Hinckley Jr. Despite his advanced age and the severity of the wound (punctured lung), Reagan valiantly fought back to full recovery. On April 28, Reagan seized the moment for his return to public life with a nationally televised address to a joint session of Congress. Reagan called for passage of the “Tax Reduction Act of 1981” and Congress caved in before a heroic and beloved President.The rest, as they say, was history. Reagan cut revenue by around $200 billion a year and immediately began running $200-billion deficits. By the end of eight years, Reagan had nearly tripled the national debt to nearly $3 trillion. The Laffer Curve not only did not curve, it pointed straight down into a descending financial hell-hole that continues to this day.There are two incredible ironies. First, when Reagan took office there was a real opportunity at that time in our nation’s history to retire the national debt entirely. The debt was around $900 billion, nearly all old WWII and Korean war bonds nearing maturity.The second irony was a remarkably prescient warning about the national debt delivered in 1981: “For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals. You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?”The source of the warning? The First Inaugural Address of Ronald Wilson Reagan delivered on January 20, 1981.
Sailing a Sea of Red Ink:
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