Eric Fry

Let’s play a little game of “True/Not true.” We ask the question and you answer, “True” or, “Not true.”

1) Two police officers in Colorado lost their jobs and face felony charges for shooting an elk.
2) Two police in Washington State lost their jobs and face felony charges for shooting a man in his bed 16 times.
3) America spends more money on the TSA each year than the nation of Nicaragua earns.
4) Pubic “crabs” are becoming endangered by Brazilian bikini waxes.
5) The sequester that began last Friday will cut the national debt by $85 billion this year.
6) Witches read The Daily Reckoning.

The correct answers are: True, Not true, True, True, Not true, True. This essay will focus only on the most surprising of these answers, #5. But for the sake of those who doubt our answers, we’ll provide supporting documentation.

1) True, read all about it here: Police Shoot Trophy Elk
2) Not true. Yes police shot a man in his bed 16 times, but the department determined that this use of force was “justified.” Police Shoot Man 16 Times.
3) True. See the nearby chart:

2010 Budgets of FBI, NSA and TSA vs. 2010 GDP of Nicaragua

4) True. Pubic crab lice have become the latest victim of habitat destruction. See: Bikini Waxing.
5) Not true. See below.
6) True. Following Wednesday’s posting of The Daily Reckoning, a number of Wiccans criticized us for being “extremely offensive to actual Witches and Wiccans.” We commend their postings to those who wish to educate themselves about the vibrant, modern state of Witchcraft, also known as the Wicca Way. See: Wednesday’s Daily Reckoning.

And now…back to statement #5, “The sequester that began last Friday will cut the national debt by $85 billion this year.

Not true. Not even close to true.

The truth hurts, as the familiar saying goes, which is why telling truths that deceive is such a popular practice. To illustrate the deceptive power of true statements, consider the following remark:

“Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion. As a result we are more than halfway toward the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”

President Obama made this remark in his State of the Union address…so it must be true.

But it is also very deceptive. Somehow, Obama’s $2.5 trillion of deficit reduction expressed itself as $5 trillion of deficit spending over the last five years. In other words, during Obama’s first four years in the Oval Office, the nation bankrupted itself by an additional $5 trillion dollars.

Expressed as a percentage of GDP, Obama’s deficit spending has totaled a banana-republic-esque 8.3% of GDP. That’s more than double the worst 4-year deficit that any president has delivered during the last three decades.

4-Year Government Deficit or Surplus Since Reagan's First Term

We do not offer this observation to tweak the president’s nose, nor to advance any particular political agenda. Republicans also know how to spend money they do not have. We offer this observation to remind our Dear Readers just how deceptive truths can be.

As a nation, we are broke. That’s the truth. But that hurts. So, instead of facing that truth head-on, and dealing with it honestly, the national debate revolves around how to become more broke less quickly than planned.

Most folks imagine that all the chatter about “sequesters,” “budget cuts” and “deficit reductions,” is about making the nation more solvent.

It isn’t. Not even close.

This grand political debate is only about calibrating the speed at which we impoverish ourselves.

Here’s some hurtful truth, folks:

A budget cut does not produce savings; it does not even reduce the national debt; it merely decreases the size of the debt increase.

A budget cut is simply a pledge to borrow less money than you were planning to borrow. It would be like you or me “maxing out” only nine of our 10 credit cards, instead of all 10…and then calling it “austerity.”

The dreaded axe of sequestration that sliced through the national budget last Friday lopped off $85 billion of planned spending. But even assuming these cuts remain in effect, the nation’s debt would still increase by $845 billion this year (according to the CBO), or about four times faster than the economy is likely to grow.

For additional perspective, an $845 billion deficit would be the fifth largest of all time. The trillion-dollar deficits of 2009 through 2012 captured the top four slots in this budgetary Hall of Shame.

So the next time you hear a politician talk passionately about budget cuts or deficit reductions, remember that old phrase, “Figures don’t lie; liars figure.”

Eric Fry
for The Daily Reckoning

Eric Fry

Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

  • Dean Mitchell
  • steve mcaine

    Dear Mr. Fry,

    The article is in error.
    “The dreaded axe of sequestration that sliced through the national budget
    last Friday lopped off $85 billion of planned spending. But even
    assuming these cuts remain in effect, the nation’s debt would still
    increase by $845 billion this year (according to the CBO), or about four
    times faster than the economy is likely to grow.”

    The CBO numbers were put out before the 60+Billion Sandy Bill. Also, the 845Billion CBO number above is the deficit. The debt grows quicker. For instance, whatever cash shortfalls occur in SS/Disability add to the debt, but not the deficit. Hence, the confusion over when the government reports debt/GDP ratios. One uses debt held by the public, around 70%, while one is over 100%, and includes the 4.5 (roughly) TRILLION of intergovernmental debt.

    That 4.5 + TRILLION, will be added to the debt, over the course of years, as each years shortfall is paid (borrowed) from the general account. BUT, it NEVER is included in deficits.

    Also, there are a number of ‘off balace sheet’ ( other than the obvious monster liabilities at
    Fannie, Freddie, Sally, FHA, FDIC, Post Office, PBGC. etc.) Some have ‘lines of credit’ they have exhausted, others just have insane liabilities.

    Sincerely,
    steve mcmaine

Recent Articles

Can Money Printing Cause Deflation?

Marc Faber

"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...


Forget the Oil Crash – Crush the Market With Biotech Stocks

Greg Guenthner

The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.


How Low Will Oil Go – And What Can You Do?

Matt Insley

The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”


Cuba’s Berlin Wall Moment

Peter Coyne

Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...


The $4 LED Trend You Don’t Want to Miss

Chris Mayer

The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.


How to Make the Casinos Pay You for a Change

Greg Guenthner

It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.