So we had one last night, with Reps Miller (FL-1) and Southerland (FL-2); The Destin Log covered it.

The presentation was interesting in that it was all debt and budget.  It was nice to see that out in public, with two Congressmen putting it "in your face."

But what followed from there was, in my opinion, both short of the mark and dishonest.

One of the points that Rep. Miller repeated (even under fairly pointed questioning by moi) was that those 50 and over will not see any change in their Social Security.  There's one problem with this, of course: The Seniors in the room, and there were many, all think of Social Security and Medicare as a package - and with good reason.  With "private" medical insurance costing upwards of $20,000/year in that age bracket it consumes effectively all of your Social Security check if you have to pay for it yourself!

The $100 billion being thrown around in terms of "budget discipline" is a joke.  We blew $1.7 trillion more than we took in last year.  Here's the chart, for those who haven't been paying attention:

Incidentally, this chart includes the theft of Social Security and Medicare money.  And let's be absolutely clear about the facts: The money is gone, and the law, which was changed as a consequence of Reagan's commission on Social Security, states that the OASDI (the legal name for Social Security) and Medicare funds are not counted in the budget. 

The fact of the matter is this Mr. Miller and Mr. Southerland:  I'm 47 and I am absolutely convinced that I will not see one dime of either Social Security or Medicare, despite the pretty statements I get every year "announcing" what I would otherwise qualify for when I "retire."

Why am I certain of this?  Because I agree with your graphs and charts from last night.  There is no way the Government is going to get away with what's being projected in those charts.  It will be forced into spending only what it makes.  And the unfortunate fact is that right now every single penny of tax revenue collected is spent on just five entitlement programs: Social Security, Medicare, Medicaid, Unemployment and Welfare.

This means that even if you cut every other program to zero you cannot balance the budget because you must still pay interest and it is obvious that you cannot cut defense to zero.  Slash it, yes, but cut it to zero, no.

Worse, all the money taken in via taxes has been spent.  It's gone.  Congress stole it and used it to make the deficit look smaller than it was.  Those so-called "Special Treasuries" in the so-called "lock box" are a bare promise without anything behind it, as they're non-marketable.  To redeem them Treasury will have to issue actual marketable securities. 

You stood before the people last night and promised to issue another $4.623 trillion in actual debt, and contract for the interest on a perpetual basis upon that debt, without a single shred of evidence that you will be able to do so.  You did this at the same time you said you were going to get the "budget" and "debt" under control.  One of those two statements is a lie.  Either there will be no budgetary control or you will screw retirees - including current retirees.  This is pure math and has nothing to do with politics, integrity or intentions.

In addition every time The Federal Government has claimed it was going to eliminate a department, it has instead expanded it.  The Department of Education, if you remember, we were told would go away under Gingrich's "Contract With America."  It instead doubled in size and cost within four years.

Mr. Southerland and Mr. Miller in particular kept running the "2012 is the most important election" meme, campaigning before the campaign has begun.  Of course the first job of any Congressman is to get re-elected, and I understand and accept that, whether I happen to like it or not.  It's part and parcel of the system we live under.

But let's be clear about where we are from a budget perspective: We have the ability to spend $1.5 trillion and more every year beyond our federal tax income for one reason only: Foreigners, who hold a huge part of our debt, believe we will pay them.

The minute that belief changes, and it both can and will, that ability will end - literally overnight. When this change comes, and it will if you do not get serious about the budget here and now, it does not matter whether you wish to spend that money on entitlements and other programs or not.  The mathematics are simple: You either tax the money from someone or you sell bonds to someone.  If you can't do either you can't spend it, and if you induce (or bludgeon) The Fed into playing QE-whatever (as has been done now for more than a year) you will further damage the lower middle class individuals ability to buy the basic necessities of life.  When a man's stomach growls sufficiently loudly, he will riot just as he did in Egypt.  There is a limit to this stupidity and neither you or I know where it is, nor will we discover where that limit is before it is too late to change course.  We thus must change course now.

The more times you stand before the people and say both "we will get the budget under control" and then in the same sentence "we will not change retiree benefits for people over 50" the more of your credibility you throw under the bus and then run it over, flattening it into a pancake.

Mr. Miller and Mr. Southerland said last night it was not appropriate to question someone's integrity or beliefs during the meeting, specifically referring to people on the other side of the aisle.  I disagree.  When a Congressman stands before the people and makes a pair of statements in the same presentation that cannot be both true then it is not only appropriate but necessary for the people to rise and ask which of the two statement is a lie, and demand an answer.

Mr. Miller did a great job of deflecting my question on this point, repeating only that "Social Security will be protected for people over 50" 

What he didn't do is provide a straight answer to how Congress is going to fund both Social Security and Medicare for all those people over 50.

That's because if Representative Miller did so, roughly half of the people in the room - who were retirees - would have instantly been up in arms, because the only possible answer is that it cannot be funded, and thus won't be.

If Congress is serious about the budget they need to cut $500 billion from today's spending levels for this year (ratably), another $500 billion for Fiscal 2012, and another $500 billion for Fiscal 2013 for a total of $1.5 trillion from today's spending levels.  Then Congress needs to cut the rest so there is a primary surplus in 2014 and start retiring debt.  The way I see it if Congress fails to start now, with the 2011 year, we will not make it to 2012 with the fraudulent claims of "getting the budget under control" before the market throws up on the lies and it all comes apart.

I'll make that prediction right now, and I will note that I made the same prediction - that the can kicking attempts in 2007 and 2008 would not hold things together until after the election - and was, in the fullness of time, proved correct. 

Let's see if I'm right again.

One interesting chart the Southerland and Miller had last night was an inverse-correlation between investment and unemployment.  They noted that investment has not returned despite the alleged "recovery." 

Thus, the GOP's focus on "jobs jobs jobs."

Ok, as a small-businessman for most of my career, I will repeat what I said last night and amplify it:

I, along with many other entrepreneurs, will not start small businesses so long as the dual legal system exists.  That is, as long as the privileged few can steal with impunity I will not risk my capital, which means I will not entertain getting involved in some sort of enterprise that might employ people.

In the 1990s a big part of why I sold MCSNet was due to the kleptocracy practiced by allegedly-regulated oligopolies that were violating black-letter law and regulation.  Telephone companies were improperly cross-subsidizing services between regulated and unregulated portions.  Allegedly-regulated things available to all (e.g. bare copper loops necessary for DSL service) were differentially provided or the facilities necessary to get service to those pairs were priced (on an unregulated basis) in an exorbitant and discriminatory fashion.

I saw the writing on the wall.  The local ISP was going to be squeezed not by competitive advantages of size or capital access but rather by improper and even blatantly unlawful actions of local carriers who were consolidating at a frightening rate.  MFS and TCG, two competitive local carriers that made my company's profitability possible by competing with Ameritech, were rolled up into major national conglomerates (MCI and AT&T, respectively.)  The ability to provision services on a competitive basis was one of the lynchpins of profitability and yet as the noose of oligopoly tightens the entrepreneur gets squeezed out and ultimately destroyed.  I'm not stupid and as I saw presentation after presentation by firms wanting to be alleged "partners" with MCSNet in which it was impossible for them to ever turn an operating profit it became clear that their entire strategy was to destroy competitors through capital access predicated on highly-implausible or even knowingly-false claims made to those investors. These firms clearly believed that both the exploitation of capital markets on fraudulent premise and the willful blindness of regulators would make their plans possible and that "nobody would go to jail."

Being beaten on a fair playing field is part of the American business experience.  But that's not what was going on.  The illegal cross-subsidization of regulated services by unregulated portions of these companies was rampant and, in at least one case, I managed to get this documented on paper in the form of a written quote.  That should have been sufficient for the ICC (regulator for the local phone companies in Illinois) to bring an enforcement action.  They refused.  The US Federal Government also refused to get involved despite the fact that this was an interstate operator and thus fell under Federal jurisdiction.

I'm good at what I do but you can't win a game where your opponent has a license to cheat.  It was clear that the rule of law was meaningless and eventually I would lose one of these battles and the firm not due to competitive failure but rather by being screwed.  I made the executive decision to shop the company and ultimately sold it to Winstar.  The truth of what these companies were doing - provisioning well below cost and playing games with their accounting, debt practices and claims in public, all came to the forefront with the collapse of Winstar, MCI, PSI and others about 18 months later.  The knock-on effect of Winstar's bankruptcy nearly took down Lucent, the former Bell Labs and one of the innovation engines in the American economy.

Just as with today handcuffs in 2000 were notably absent.  Yes, there were a few executives from MCI that were prosecuted.  But not many.  And many of these claims and actions taken by these firms prior to their blowing up were demonstrably and knowingly false.  Specifically, the claims, often-repeated, that the Internet was "doubling every three months" was a lie.  This was true for only a couple of quarters following the introduction of Windows 95, yet that lie was repeated over and over for more than two years and formed the foundation of countless public offerings of stock and the "pump job" in the Nasdaq, all of which subsequently collapsed.

It's against the law, and was then, to solicit someone to buy your stock based on a fraudulent premise.  The peddling of securities that you know are being sold under false pretense is a criminal act.  Yet the number of people who went to jail for anything related to the tech wreck can be literally counted on your fingers, and none of them were the bankers involved.

Now we've done it again.  I might like the idea of being a Real Estate investor.  But I can't do that, because I have no reason to believe that any of the land titles in this country are good.  How can this be corrected?  Only by prosecuting and imprisoning those who have corrupted those titles.  The 150,000 bogus affidavits, the bogus foreclosure processes, all of it - it has to be unwound and those who did these things must go to prison.  Until that happens I have no reason to believe that any investment I make in Real Estate will not be stolen.

Likewise, banks and their behavior in this mess, including the peddling of worthless securities they have admitted to knowing were fraudulent, such as Citibank's former Chief Underwriting Officer testified to before the FCIC, means that I cannot deal with any financial institution in the formation of a new business and be confident that either they will not rob me or, if they do, that I will be able to find recourse in the law.  To repeat: The former chief underwriting officer of one of the nation's largest banks, still in business today, has in the public record a sworn statement that 80% - eight out of ten - loans made and sold to investors did not meet the quality standards they published and claimed.  Multiple lawsuits have been filed claiming that ninety percent or more of some deals put together by other lenders were fraudulent.

If I produced a product or service and eight out of ten times I lied about what I was selling I would be properly prosecuted for criminal fraud, stripped of my assets and thrown in prison.  But this hasn't happened with any of the banksters in our largest financial institutions. 

The problem, Mr. Southerland and Mr. Miller, is that I must inherently deal with these institutions either directly or indirectly.  As such I must operate in a competitive world where loans and securities issued by these firms are part of the business landscape.  If I cannot be reasonably certain that these firms will actually adhere to the law, and those who do not adhere to the law will be punished by imprisonment when they commit fraud, I now have an uncontrolled risk of being robbed by these institutions and have no recourse if they rip me off or destroy my business through fraudulent and even criminal actions.

I will not invest and create jobs in such an environment, putting my capital at risk through business formation, and neither will anyone else who has half a brain in their head. 

If you want investment to return you must lock up the crooked and put a stop to the stealing and fraud.  It was bad in the 1990s with the Internet business but you could operate in some other sphere of the business world.  When the bogus acts are in the core of our financial system there is literally no way to avoid their effects, other than to run a small business that has no need for capital nor any competitors who can exploit it.  Mr. Southerland's funeral home business may be in that category but he's the exception; nearly all small businesses that can produce meaningful employment gains in fact have some exposure, either through loans or through competitors with access to the capital markets, that are intertwined with the banking system.

In the technology space, where I happen to have my expertise, it's even worse.  China steals anything that's not nailed down, replicates it and destroys their American competitors.  Tens if not hundreds of billions in intellectual property are stolen every year by these criminals and distributed and sold throughout China.  Our government does nothing - we rewarded this behavior with "Most Favored Nation" trading status.  The Chinese broke into Google, among others, and my systems today deflect thousands of daily attacks that come from China specifically.  If they could break into my systems and steal my intellectual property, they would.  China turns kleptocracy into a business practice and has for the last decade been the source of organized hacking attacks originating at universities and other government-connected sites.  Again, fair competition does not include a foreign government stealing everything you invent and then destroying your market while hiding behind your government as a "Most Favored Nation."  Yet that's exactly what's happening today.

Nobody in their right mind is going to get involved in opening a small business and putting their capital at risk where either they themselves or their competitors in the marketplace have to or can deal with these banks so long as they can steal with impunity.  They can either ruin you or fraudulently boost your competitors, with identical results - you get your head cut off through no fault of your own and not your own competitive failure but due to outright fraud perpetrated upon you for which there is no recourse.

And let's be clear: There is no recourse.  Both this administration and the last have ignored the law whenever it suited them, screwing people and violating the sanctity of contracts.  GM and Chrysler bondholders got screwed even though they were allegedly protected by the capital structure.  The current "foreclosure settlement" proposes to do the same thing to MBS investors, destroying the junior position of HELOCs and Second Lines and by doing so enriching the banks - again - at the expense of investors in those MBS.  There are literally dozens of examples of this behavior over the last four years including AIG's back-door bailout of both US and International banks, the automakers, Bear Stearns, WaMu, the machinations of The Fed and more. This sort of kleptocracy makes it impossible for me as an entrepreneur to control and price risk, and thus I cannot price products and services in the market.

I risked literally everything in the early 1990s and spent nearly ten years without a single vacation, being awoken to take care of some problem for a customer here or there more nights than not.  There was a literal three year period where I did not have twenty-four continuous hours of rest and there were weeks at a stretch where I never had an uninterrupted night's sleep.  I'm willing to take those risks again, both personally and financially, but I will not do so when there are a handful of large corporations intertwined with the government that are able to steal everything I work for and the effort I make with impunity, nor when our "Most Favored Nation" trading partners have a literal license to attempt to steal everything I produce.

Mr. Southerland and Mr. Miller, if you want investment to return, especially by small business formation, you need to start listening to people who have actually run small businesses that have employed dozens of people in the past and that have been exposed to these risks and costs.  This is not about running a funeral parlor or a coffee shop.  Both are honorable and good professions, but neither is going to solve the problems we have in this economy nor are they going to generate the jobs and incomes we need.

The policies of our government and the "free passes" given to big business and banks that have robbed the people repeatedly have thrown up serious barriers to entrepreneurs that generate actual prosperity and job growth.  These acts are all about the special interest groups and lobbyists that prowl Congressional halls.  I am more than willing to explain exactly what needs to happen to stop and reverse these practices but I suspect that if you've read this missive you already know where the answers lie, and you've also chosen in advance to ignore that which doesn't fit with the idea of huge financial institutions able to prowl the land, prey on the people, make crooked deals for sewer systems in Jefferson County Alabama, launder drug money for Mexican gangs and issue hundreds of billions in knowingly-defective mortgages in the space of just two years, not to mention refusing to put a boot on the neck of a "Most Favored Nation" trading partner who got where it is largely through stealing anything that wasn't nailed down in this country.

Your choice is between jobs and kleptocrats.  You cannot solve the budget problems without jobs.  You cannot have jobs created without entrepreneurs. 

And you cannot force people to start businesses and take risk, both financial and personal.

People like myself will start businesses and take risk, but only when the thieves are locked up. Congress and The Executive must demonstrate that if you break the law and screw people you will go to prison, not get a bonus.  At the same time China's theft of intellectual property must be stopped and their former acts in this regard punished.

Promises to do so in the future will not be believed.  We have a twenty-year history under both Democrat and Republican Administrations and Congresses that nothing will be done to punish these people, despite the fact that there are plenty of laws available to do so.  Congress is now in the position, by its own hand, where it has no credibility, and as such you must prove that you can be trusted and that unfair and fraudulent practice will be met with criminal sanction and trade barriers.

Congress can, of course, refuse to take these acts.

But until Congress does act and put a stop to the fraud and theft, along with the Administration, the jobs are not coming back.