"Be thankful we're not getting all the government we're paying for." Will Rogers

In the private sector, it is difficult to get a job where your salary increases regardless of the performance of your company or the bad decisions you make. For example, the company I work for is in deep trouble because they borrowed too much money to build power plants that aren't needed as badly as they thought. Needless to say, I'm not going to get a big bonus this year and I may not have my job much longer. When a private sector company is losing money they have to fix it one way or another. Since my company can't make the spark-spread(the difference between natural gas and power prices) go up, they are definitely going to cut cost. This is as it should be, the people that made bad investment decisions will no longer have the ability to waste hundreds of millions of dollars on projects that don't produce any return on invested capital. Sure some of the executives will walk away with a lot of money, but only the dumbest of bankers would trust them to make another billion dollar investment. Hopefully, somebody with a better track record will get to take a swing next time(it is in the best interest of all mankind that this happen). Unfortunately, this system is screwed up when "lenders of last resort", come along and bailout the people who have empirically demonstrated that they aren't very good at picking good projects to invest in. Back to the main point...

In the public sector things work differently, if someone is fortunate enough to get elected to the senate then it doesn't really matter how badly their policies do(up to a point). Over the last three years the economy has fallen into a recession and the federal budget deficit is hemorrhaging, as some estimate it could reach 500 billion dollars in 2003. Nevertheless, it is all peaches in cream in Washington DC, as congress has just voted themselves a nice raise and have now returned to their usual fund raising circuit to prepare for the next election. Thats right, today the congress took a brief break from preaching about corporate greed and discussing how to better spy on taxpayers, in order to announce they are raising their salaries.

Below, I've created a little chart showing the history of Senator's salaries. It appears something happened early in the 20th century that greatly increased the rate with which the Senators vote themselves raises.

I suppose that the Senate will continue to vote themselves bigger raises every year. What would stop them? It is their "right". I'm not sure where it says it in the law books, but I'm sure they put in there somewhere. Nobody could read through all of the laws in ten lifetimes so it wouldn't make much difference if it was in the big books or not. The annual raises aren't going to cause the government to default or even make a dent in the 2 trillion dollar budget. However, it is yet another signal that the America of today is not the same as it once was. The underlying principles, that made America great, have changed. Our country is now run by folks who will grab power for themselves at taxpayer expense every chance they get; and most people in this country are perfectly satisfied by what is happening. They keep sending the same people back to DC every year.

Anyone who pays attention to what the congressmen say and do, realizes that they will say and do anything to get re-elected. That is the only "principle" they have. A congressman's word means nothing and a congressman's creditors come a distant last in comparison to the campaign contributors. There is a reason why old guys like Warren Buffet say that the most important factor they look at when investing is the character of the person they are investing in. This raises the question of "Why would anyone trust the elected officials of the US government to pay back debt over the next 15 years, without first devaluing the currency with which they are supposed to pay the debt with?"

As the budget deficits increase, Americans will be force-fed a real lesson in economics. Right now foreign nations have no problem lending us a few billion dollars a day,(via buying mortgage back securities, buying government issued debt and by just holding onto US Dollars we send over to pay for real products). This willingness to invest in US Dollars makes things feel much better economically than they would otherwise. Eventually this will end.

In 1998, venture capitalist had no problem injecting money into dot-coms at ten, twenty, thirty million dollars a pop. They knew that the best place to put your money was startup technology companies. But after that went on for awhile they started getting nervous, they thought "how long would the companies take before they could start making a return?" "Apple and Microsoft didn't lose this much money in their early years". All of a sudden they were demanding that companies stop operating in the red. When this started, the dot-coms fell over like dominoes as companies like toys.com stopped using the services of doubleclick.com and that forced them to cut back on advertising at yahoo.com and all those companies stopped ordering routers from Cisco. VC's cut off the spickets quickly. Then the investors started to discover that the smart kid-wonders were actually snake oil salesmen. They never even planned on making money through selling goods and services. Entire companies were simply set up in order to dump them on naive investors as soon as possible. They wanted to sell stock. The tech boom ended abruptly.

It will work the same way when the owners of foreign capital realize that their favorite investment, US debt and US dollars, is not backed by anything but the word of the same folks who vote themselves nice raises as a reward for trashing the country. These are the same folks who have no intention of decreasing the budget deficit. Why should they? People are tripping over themselves to lend the US government money and that is too much temptation for people who find Chandra Levy difficult to resist. Anyone who is dumb enough to lend this government money for ten years at 3.7% interest deserves to be paid back in pretty green paper ten years from now. Soon they will be tripping over themselves to get out of the silly green paper before the next guy does. They will be lucky if that paper can be exchanged for 1/3 of what it's worth today. In ten years the people now investing in 10 year bonds are going to look as smart as the people investing in pets.com 4 years ago.