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As the various state primaries are held and incumbents from both parties are finding themselves being seriously challenged by newcomers, the question we must ask ourselves is will the voters back tough steps to reduce the deficits? So far the answer appears to be yes.

Despite the disdain that many in Congress feel for the American electorate, more of them are feeling the heat back home. Some have already lost their primary bids to run for re-election, becoming victims of hubris after they decided it was just a dandy idea to spend the nation into debt to a level never seen before with little hope of ever being able to pay it off. And should the Republicans manage to take back one or both houses of Congress, there's another question all of us have to ask them, that being do they "have the stones" to take the measures necessary to bring our government's fiscal house into order?

Reading comments to the two posts linked above it appears that a substantial number of people on the left cannot conceive of the actual size of the deficit or what it will take to fix it. More than one of those commenting wrote something along the lines of "All we need to do is slash defense spending and we'll have enough to pay for everything." All that phrase did was prove to me and others commenting that they really have no idea how much money we're talking about. As one commenter put it in response to the clueless:

If we cut defense spending to zero, we'd still have almost a trillion dollar deficit to deal with every year. Better to cut things that really do nothing more than suck up tax dollars with little, if anything to show for it.

This same commenter also brought up the point that defense is one of the duties of our federal government as defined in the Constitution. ObamaCare, Cap and Trade, corporate bailouts, union bribery, and government departments like the Department of Education, the Department of Energy, and a number of others are not. Yet we waste billions on them with little return for that 'investment' of our tax dollars except more needless regulation, more costs associated with complying with those needless regulations, and tighter restrictions on our economy's ability to function. How does any of this help anyone...except those in Washington wishing to exercise more power over our lives?

I have a feeling those in power are in for a rude awakening come this November and November 2012. A lot of them will be hitting the unemployment lines.

Many in Washington are wondering why more businesses aren't hiring. Anyone in business could give all kinds for reasons, many of them emanating from those self-same folks in Washington. With all kinds of new regulations, taxes, and other burdens coming why should anyone in business, large or small, want to hire when there are far too many unknowns? The answer: they wouldn't.

A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.

And what happens when the provisions of ObamaCare kick in and adds thousands more to the cost of hiring a new employee? The probability of hiring that new employee goes down.

More than one commenter to the op-ed piece linked above made it quite clear they had absolutely no understanding of business and why businesses hire new employees. To them all that was needed was for the business to hire new employees and the economy would start its recovery. They didn't understand that businesses won't hire them until they are needed. To do otherwise places a burden on those businesses with little or no prospect of generating any more income for that business and quite possibly turning a marginally surviving business into a money losing business. Businesses hire only the amount of employees they need to provide the goods or services their customers require. But these economic morons either can't or won't understand this simple concept.

My wife and I own a small business. (We both have other jobs.) While it is surviving it is barely viable. The economic downturn saw our income for the business shrink by almost 70%. My wife stopped taking a salary a year ago in order to ensure the business would survive. Both of us put in countless hours without pay in order to make sure we can pay our bills, our taxes, and meet our payroll. If the economy recovers we expect our customers to return as well (though not necessarily to the pre-recession level). But until then there's no way we could even consider adding another employee because if we did we wouldn't take in enough to pay them and pay all our bills, taxes, and business loan. In a short period of time we would be out of business and 5 employees would be unemployed. Yet this is exactly what the aforementioned economic/business morons want us to do.

Need I say more?

George Santayana once warned us about not learning the lessons of history: "Those who ignore history are doomed to repeat it." Over 6 of the past 7 decades I've seen this axiom proven again and again, yet somehow we still ignore history and go on to repeat the mistakes of the past.

One of the biggest mistakes we, meaning the US, have made over and over again during the past 234 years of our nation has been cutting defense spending too deeply and too quickly after a conflict has ended. Every time we have done that we have been caught with an unprepared and undermanned military that ended up causing much greater loss of American lives than if we had been prepared. That presumes, of course, that such an event would even have occurred if we'd still had a credible military. History abounds with examples where we made the wrong decision and ended up paying the price for it, sometimes for decades.

The prospect of an exit from Iraq and Afghanistan has sparked rumblings on Capitol Hill that it's time to cut the defense budget.

If there were ever evidence that it's impossible to learn from history -- or at least that it's difficult for politicians to do so -- this is it. Before they rush to cut defense spending, lawmakers should consider the consequences of previous attempts to cash in on a "peace dividend."

After the American Revolution, our armed forces shrank from 35,00 men in 1778 (plus tens of thousands of militiamen) to just 10,000 by 1800. The result was that we were ill-prepared to fight the Whiskey Rebellion, the quasi-war with France, the Barbary wars and the War of 1812 -- all of which might have been averted if the new republic had had an army and a navy that commanded the respect of prospective enemies, foreign and domestic.

After the Civil War, our armed forces shrank from more than a million men in 1865 to just 50,000 in 1870. This made the failure of Reconstruction inevitable -- there were simply too few federal troops left to enforce the rule of law in the South and to overcome the ruthless terrorist campaign waged by the Ku Klux Klan and other white supremacist groups. Segregation would remain a blot on U.S. history for another century.

The same thing happened after World War I, World War II, Korea, Vietnam, the Cold War, and the Gulf War. And each time it ended up crippling our military and causing far more problems and costing more than if we'd maintained some semblance of a strong military.

As the old saying goes, "If you want to preserve peace, prepare for war."

With a weak military, or one perceived as weak, enemies are more likely to push the limits, up to and including an attack on American forces or civilian targets. That has been the pattern throughout history, where an aggressor takes advantage of nation's weakness. Just because it's the 21^st Century doesn't mean there aren't nations or ideological groups out there waiting for us to cripple ourselves, allowing them to move with impunity. But if they know without a shadow of doubt that we would retaliate with the full force of our superior military forces, such an attack would be far less likely.

It's too bad our present occupant of the White House and the members of Congress are choosing to ignore the lessons of history and will be trying to send us down the same path to the same ends as many of their predecessors have.

Despite all it's promises to the contrary, the Obama Administration has failed to stimulate the housing market in any meaningful way. While the attempt made with the home buyer tax credits did boost home sales a bit, home sales tanked after the tax credit ended.

Last month mortgage applications for new homes and refinancing hit a 13-year low despite record low interest rates (see below). It's also expected the number of foreclosures this year will be greater than last year despite the Obama Administration's attempts to "bully and wheedle banks into stopping foreclosures", an effort that's failed for the most part.

Remember when the Obama administration announced its plan to spend billions of dollars to prevent foreclosures? The White House threatened banks that attempted to seize defaulted property and tried to get judges to reset the principal of the loans in court. None of that has helped stop the wave of foreclosures; it has only delayed and strung out the pain, ironically cresting just as voters go to the midterm polls.

The housing market won't recover until the economy actually starts creating more jobs. Without jobs, nothing Obama does is going to fix the worst housing market we've seen in decades.

None of the stimuli and the rescue plans worked, because none of them addressed the core problem: joblessness. Without jobs, people lose their homes no matter how much the government intervenes to stop it.

Until we get people back to work, these programs are simply futile. A homebuyer tax break doesn't help someone without a job qualify as a buyer, and restructuring plans for existing mortgages can't help an unemployed person make a mortgage payment.

Obama has put the cart before the horse, trying to bolster one part of the economy (housing) without making sure another part has the means to sustain it (jobs). Maybe he's expecting the housing market to lead the way to recovery. If so he has made a major faux pas as the housing market tends to be a lagging indicator of economic recovery. It's a leading indicator only if the economy starts heading down into recession.

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I took a look at today's finance rates from our local bank which shows a fixed 30-year mortgage at 4.375% and a 20-year fixed at 4.25%! That's the lowest I've seen, ever.

I ran the numbers for our present 30-year mortgage (at 5.75%) through their calculator and found we'd save $70 per month on our mortgage payment if we took out a 20-year mortgage for refinance. That means we'd take years off our remaining mortgage and still pay less than we're paying now.

Needless to say, we made the call and have started the ball rolling.

It was while reading the comments to this Brian Riedl piece about the myth of the Bush tax cuts and the deficit that a suspicion of mine was confirmed, that being that far too many otherwise educated and experienced people still have little understanding of the relationship between taxes, government spending, and economic growth.

First, the three myths.

The Bush tax cuts wiped out last decade's budget surpluses.

The next decade's deficits are the result of the previous administration's profligacy.

Declining revenues are driving future deficits.

I won't delve into the rebuttal Riedl provides as you are more than capable of reading it for yourself. However I can boil it down to a simple, easily understood phrase: It's the spending, Stupid!"

Tax cuts didn't cause the deficits during the Bush Administration. They didn't cause the unprecedented deficits during the first 19 months of the Obama Administration. The shortfall in revenue was not the problem then, and it's not the problem now. It's the spending by our government that exceeds what it takes in that is causing the deficits, period. Raising taxes won't solve the revenue shortfall because they won't generate the revenues Congress expects. Instead, revenues will fall off as the higher taxes discourage the very economic activity the government needs in order to expand the tax base.

Now comes the fun part.

Reading the 200+ comments to Riedl's op-ed piece, it is quite obvious who gets it and who doesn't.

Probably one of the most disturbing set of comments came from someone who is purportedly an experienced CPA, yet doesn't understand the Laffer Curve for what it is: a graphic representation of the relationship between tax rates and tax revenues. More than one comment showed her lack of understanding that the relationship between tax rates and tax revenues is not linear, meaning that if tax rates are doubled on some economic activity the revenue collected does not automatically double. It will be less than that because the higher taxes discourage the activity being taxed, hence less money changes hands, in turn decreasing the amount of money available to be taxed.

She also likes to make claims she doesn't back up or is unwilling to admit she was wrong when confronted with facts from the very sources she (sometimes) quotes. An example:

Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to.

She then goes on the quote economist Greg Mankiw, saying he wrote that the Bush tax cuts didn't raise revenues, in effect debunking the claim. But what Mankiw wrote was that they didn't raise revenues as much as had been expected, but they still rose. There was also a lag between when taxes were cut and the economy reflected the boost in available capital. It also depended upon which taxes were cut and by how much. That's not quite the same thing.

On the other hand, another commenter appeared to have a better understanding of the effects of the tax cuts on the average taxpayer and even provides some numbers generated using "some great tax preparation software" to debunk claims by others that the tax cuts actually placed a greater tax burden on them.

In the end what it all boils down to is that the only way to reduce deficits in a manner that won't take decades or generations to accomplish is for the government to spend a lot less money, not tax the bejeezus out of everyone that has an income. Or to put it more simply, again: It's the spending, Stupid!"

Back in June 2008, I predicted the Law of Unintended Consequences would assert itself in regards to the increase of the minimum wage.

Time has proven me right.

A sign of those unintended consequences can be seen in a memo from an employer to his employees, explaining why he's cut back on their hours across the board even though he wishes he could give them all the hours they'd like.

This is yet another example of how government intervention in the economy has a negative effect that far outweighs any possible positive effect that was used as the justification for such an intervention. Something as simple as raising the minimum wage 40% over three years can turn a money-making business into a money-losing business in very short order. I don't know of any business (other than government) that can absorb a 40% increase in labor costs and not suffer the consequences.

If the following story doesn't make you think twice about swiping your debit or credit card, I don't know what will. But it certainly has made me think of using cash or one of the pre-paid debit cards instead. From an Information Week newsletter (no link available):

The enjoyment (and despair) of working with security experts like Greg Shipley is the heightened awareness I get of just how vulnerable my personal information is.

As we put the finishing touches on [Shipley's] Security Brief about how retailers can manage the risks to Point of Sale systems--the card-swipe devices used at malls, grocery stores, gas stations and more--a story broke that data thieves had stolen debit and credit card numbers from several restaurants in the South.

Breach stories are all too common, but this one comes with a twist: the restaurants have filed a class-action lawsuit against two companies that produced and maintained the restaurants' POS systems. The suit contends that Radiant Systems and Computer World are responsible for the theft because they failed to protect the POS systems in two critical ways.

First, the suit says Radiant provided the restaurants with POS devices that stored card data after the transaction was complete. That's a big no-no under PCI, the industry rules that govern card data security.

What really makes me want to cut up my cards and go back to the barter system is the second allegation: that Computer World administrators who maintained the POS devices installed PCAnywhere and then used the same login and password combination at 200 locations. According to a report in Wired, the login/password combo was "administrator" and "computer."

You can guess what happened next: an attacker gained remote access to multiple systems, and then installed malware that copied card data as it was swiped through the POS devices.

The login/password blunder frustrates me because you don't need a computer science degree to know how bad an idea that was. Even more frustrating is the entire world knows bad guys are hitting card processing systems as hard as they can. Do we really need to make it this easy for them?

Having been a victim (twice!) of computer crackers stealing debit/credit card information from a local supermarket chain, I know what a pain in the butt such problems can be. In a period of less than a month our debit card information was stolen twice. We had to replace our debit cards twice. We did end up with some suspicious charges against our debit cards after the first breach (which our bank voided). It was an inconvenience not being able to access our accounts via an ATM, meaning we had to go to our bank and cash checks to get money until we received our new cards.

As convenient as it is to have ATM/debit/check cards, the breaches of electronic transactions systems have made me rethink using them for everyday purchases. At one point I carried very little cash (between 5 and 10 dollars), using the debit card for any purchase larger than $10. Those days have ended. Instead I'll carry a bit more cash and use the ATM/debit card for very specific purchases (and never for online buys). These actions have two benefits: I'm less likely to spend frivolously because of the limited cash I carry and I'm less likely to spend more than I can really afford. One other advantage of cash purchases: anonymity. For all intents and purposes cash is untraceable (at least by computer crackers).

The same can be said about pre-paid debits cards, which are as good as cash. They're anonymous and they're covered just like debit or credit cards if they are stolen or lost.

Am I being paranoid? Maybe. But on the other hand I might pose the question "Am I being paranoid enough?"

It looks like inflation is peering at us around the corner. Not in the short term, but it's coming, judging from this graph. Milton Friedman tells us to muster the will to stop the presses.

My dad keeps telling me to buy gold. But I'm more into ammo and guns. When the fecal matter hits the cylindrical fan that'll probably be more useful. But people obviously don't trust the U.S. dollar. As G. Gordon Liddy keeps saying, the Fed is printing money on toilet paper in the basement of the Treasury.