President Obama is “the Best Food-Stamp President in American History”

Posted by PITHOCRATES - October 21st, 2012

Week in Review

Newt Gingrich called President Obama “the best food-stamp president in American history.”  Because, Gingrich said, President Obama has spent more on food stamps than any other president.  Supporters of the president have attacked Gingrich’s comments.  Calling them untrue.  And racist.  So is Newt Gingrich a lying racist?  Or is President Obama the “the best food-stamp president in American history?”  All we can do is look at the numbers (see Report: Welfare government’s single largest budget item in FY 2011 at approx. $1.03 trillion by Caroline May posted 10/18/2012 on The Daily Caller).

The government spent approximately $1.03 trillion on 83 means-tested federal welfare programs in fiscal year 2011 alone — a price tag that makes welfare that year the government’s largest expenditure, according to new data released by the Republican side of the Senate Budget Committee…

The data excludes spending on Social Security, Medicare, means-tested health care for veterans without service-connected disabilities, and the means-tested veterans pension program…

CRS reports that food assistance programs — the third largest welfare category behind health and cash assistance — experienced the greatest increase in spending, with 71 percent more spending in 2011 than in 2008. The agency explained that this spending increase was largely due to the growth in the Supplemental Nutrition Assistance Program, or food stamps.

Well, apparently President Obama is “the best food-stamp president in American history.”  At least, based on his 71% increase in food assistance programs spending.  Where most of the increase in spending came from food stamps.  So it would appear that Newt Gingrich is not a lying racist.

Total 2011 defense spending (military defense, veterans, foreign military aid and foreign economic aid) was $964.8 billion according to us government spending.  Or $0.9648 trillion.  Which is less than $1.03 trillion in spending on means-tested federal welfare programs.  Now here’s an interesting side note.  The Constitution calls for defense spending.  While it doesn’t call for any welfare spending.  So this is quite the deviation from our Founding.  And one the Founding Fathers would probably not approve of.  As you can enrich some defense contractors with that defense spending.  But you can’t buy a lot of votes with it.  Not like the votes you can buy by giving people lots and lots of free stuff.   And $1.03 trillion can buy a lot of stuff.

When you have an economic record that is an abject failure you can’t run on your record.  Because most people are not better off after 4 years of President Obama.  Unless, of course, they got some of that $1.03 trillion in additional federal spending.  Which is about all a failed presidency can hope for.  Grateful benefits recipients.  As long as there are enough of them.  And when you increase some federal spending by $1.03 trillion there just may be enough of them.

One final note.  We’ve had trillion dollar deficits in each of President Obama’s 4 years in office.  Deficits that we had to finance by borrowing from China.  Excessive spending and borrowing that caused the first credit downgrade in US history.  All, it would appear, to create more grateful benefits recipients to help with the president’s reelection.  Because his 4 years in office have been an abject failure.  With his only success being the expansion of the welfare state.  Leading to the aforementioned credit downgrade.  And a bleak future of a new normal.  High unemployment.  Low GDP growth.  High taxes.  Stagflation.  And Malaise.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , ,

Insufficient Spending Cuts triggers S&P Downgrade, not Insufficient Taxes

Posted by PITHOCRATES - August 6th, 2011

Ah, the Good Old Days when Communists didn’t school Americans in Capitalism

It happened.  S&P downgraded the U.S.  Just like they said they would if we didn’t make $4 trillion in spending cuts.  And our patron is not pleased (see China attacks US debt ‘addiction’ after America loses AAA credit rating by Richard Blackden posted 8/6/2011 on The Telegraph).

“The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” China said in a commentary carried by the Xinhua News Agency.

Ouch.  Strong words from a communist.  The Soviet Union never gave us lessons in capitalism when there was a Soviet Union.  Then again, we always had a AAA bond rating back then.  And their GDP growth wasn’t greater than ours.  Ah, the good old days.  When communists didn’t school Americans in capitalism.

Vince Cable, the British Business Secretary, said the downgrade was an “entirely predictable consequence of the mess that the Congress created a few weeks ago when they couldn’t agree on lifting the debt ceiling.”

Francois Baroin, France’s finance minister, said his country had total confidence in the US economy, while India called the “situation was grave” and Russia said it would keep the level of dollar investments in its national reserve funds, adding: “There is not a great difference between AAA and AA+.”

Those are some very supportive words from the Russians.  Which differ slightly from previous remarks when Putin said, “They are living like parasites off the global economy and their monopoly of the dollar.”  It’s subtle but it’s there.  On the one hand the downgrade is no big deal.  On the other we’re the scum of the earth.  It’s subtle but there is a distinct difference in these statements.  They resent us.  But they can’t live without us.  Kind of sweet.  In a bitter way.

In an explanation of the decision, S&P said that despite last week’s agreement, which raised the $14.3trillion debt ceiling and promised cuts of $2.5 trillion to the deficit over the next decade, the ratio of America’s public debt to the size of its economy may climb to 79pc in 2015 and 85pc by 2021. It is understood that an agreement that had delivered a $4 trillion reduction in the debt pile would have preserved the AAA rating.

S&P downgraded us, of course, for having too much debt.  Now debt grows from having annual deficits.  And deficits are caused by either taxing too little.  Or by spending too much.  S&P wanted to see the debt reduced by $4 trillion.  They only got $2.5 trillion.  Hence the downgrade. 

You can’t Reduce the Debt $4 Trillion by Raising Taxes, at least not Mathematically

Reducing the debt by $4 trillion won’t be easy.  That’s a lot of money.  About $333 billion each month.  Current tax revenue into Washington is about $200 billion each month.  So, to get this $4 trillion in deficit reduction with new taxes only would require raising monthly tax revenue from $200 billion to $533 billion (an increase of 166%).  Increasing taxes by 166% (income taxes, payroll taxes, capital gains taxes, etc.) is going to do some devastating economic damage.  The kind the economy is not going to get up and walk away from.  So it’s a non-solution.

But what about a balanced approach?  In addition to that $2.5 trillion in cuts we throw in $1.5 trillion in new taxes for a total $4 trillion in debt reduction.  $1.5 trillion is about $125 billion each month.  This would increase monthly tax revenue from $200 billion to $325 billion (an increase of 65%).  This will also do some serious economic damage.  So it’s a non-solution, too.

And sticking it to the ‘rich’ won’t work either.  For they can’t afford it.  Let’s look at the numbers.  The total adjusted gross income reported in 2009 was $7.626 trillion.  The percent of that total earned by the top 5% earners (earning $159,619 or more) is 31%.  So the total income of the top 5% in 2009 is $2.36 trillion.  Total federal income taxes paid in 2009 was $1.05 trillion.  The top 5% of earners pay 59% of all federal income taxes.  So the total they paid in income taxes in 2009 is $570 billion.  This leaves a balance of $1.79 trillion of their earnings they didn’t pay in federal income taxes, or about $150 billion each month.  Which is not enough to pay an additional $333 billion each month.  But it is enough to pay an additional $125 billion each month.  As long as these people are willing to pay an effective federal income tax rate of 87.6%.  Which I doubt.  For another 12.4% in taxes (state, country, local, property, gas, sales, etc.) and they’re working for free.  Like a slave.  Only without the free room and board.

You can’t reduce the debt enough by raising taxes a lot.  Or a little.  The rich people (those earning $159,619 or more) will run out of earnings before they can pay the $4 trillion in debt reduction.  It’s just mathematically impossible.  The only way you can do this is by cutting spending.  And they didn’t.  Hence the downgrade.

Paul Krugman ‘defends’ Ronald Reagan’s and George W. Bush’s Deficits

Meanwhile, while the S&P tragedy unfolds, Paul Krugman ‘defends’ Ronald Reagan‘s and George W. Bush‘s deficits.  Saying that big deficits aren’t a big deal.  And we don’t have to knock ourselves out trying to pay down the debt they create.  For depreciation of the dollar makes those once large numbers become trivial (see The Arithmetic of Near-term Deficits and Debt by Paul Krugman posted 8/6/2011 on The New York Times).

What matters for debt sustainability is the real interest rate, since what matters is keeping real debt, not nominal debt, from growing. (World War II debt never got paid off, it just eroded in real terms to the point where it was trivial). As of yesterday, the US government could lock in 30-year bonds at a real interest rate of 1.25%. That means that a trillion dollars in extra debt would mean $12.5 billion a year in additional real interest payments.

Meanwhile, the CBO estimates potential real GDP in 2021 at about $18 trillion in 2005 dollars, or around $19 trillion in 2011 dollars.

Put these together, and they say that an extra trillion in borrowing adds something like 0.07% of GDP in future debt service costs. Yes, that zero belongs there. The $4 trillion S&P said it needed to see clocks in at less than 0.3% of GDP.

Of course I’m extrapolating his remarks to apply them to the Reagan and Bush deficits.  For if they hold for a $1.6 trillion dollar deficit then they surely hold for a $200 billion (Reagan) and a $400 billion deficit (Bush).  The key is to make that old debt worth less by making the dollar worth less.  The more you devalue the dollar the less that debt held by the Chinese is worth.  As well as the debt held by pension funds and retirement accounts.  And our personal savings.  For inflation is a killer of dollar-denominated assets.  Which is good for the debtor (the seller of treasuries).  But bad for the creditor (the buyer of treasuries).

Further extrapolating Krugman’s remarks one must conclude that with the deficit being trivial he would endorse the economic boom of the Eighties.  And agree that Reaganomics was a success.  For the argument has always been that Reaganomics traded exceptional GDP growth for deficits.  But with deficits being trivial, there is no tradeoff for that exceptional GDP growth.

To Live within our Means we will have to Cut Spending 

True, inflation will make bonds easier to redeem 30 years later.  But too much inflation causes a lot of damage.  Especially to those living on fixed incomes.  No, a better solution would be to live within our means.  And that doesn’t mean raising taxes.  Besides, the rich don’t have much left to give.  No, if we’re going to live within our means we will have to cut spending.  As painful as that may be.  And the longer we wait to make those cuts the more painful those cuts will be.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

No Economic Recovery, Crushing Debt and a Credit Downgrade, the U.S. inching closer to European-Style Crisis

Posted by PITHOCRATES - August 5th, 2011

The Unemployment Rate is Down even though more People are Unemployed

That stubbornly high unemployment rate that has been dogging the Obama recovery has finally dropped (see Jobs report: A pig in lipstick by Nin-Hai Tseng posted 8/5/2011 on CNN Money).

The unemployment rate in July fell slightly to 9.1% from 9.2%

But…

The unemployment rate might have fallen slightly but that’s mostly because the number of people actively looking for jobs fell back – signaling that perhaps workers are feeling less confident about entering the job market.

So the only reason why it dropped is that more people have just given up looking for a job.  And the smaller the group is that is looking for a job the smaller percentage this group is of the total working population.  Ergo, smaller unemployment rate.  So the actual employment picture isn’t better.  It’s worse.

In July, labor participation fell by 193,000.

What’s more, though the economy added 117,000 jobs, it falls short of the 125,000 jobs a month needed just to keep up with population growth and prevent the unemployment rate from trending higher. And it would take at least twice that many to rapidly reduce unemployment.

“The bigger picture, then, is that two years after the recession ended the labor market has not really recovered at all, and may even have gone backwards,” writes economist Paul Dales of Capital Economics.

The economy is worse.  Not better.  So just how much ‘not better’ is the economy?

The Real Economic Recovery not as good as the Made-up One

Apparently pretty ‘not better’ according to the people who count the numbers.  They revised their past numbers.  And the new numbers are even worse than the not-so-great numbers of numbers past (see Distress signal by R.A. posted 7/29/2011 on The Economist)

BEA revised its national accounts numbers back to 2007 for this release, and the picture revealed is far darker than anyone previously believed. From 2007 to 2010, real output declined by 0.3% per year on average. Previously, BEA had estimated annual growth of 0.1% over that period…

Projected growth rates were simply overstated, and current unemployment is exactly what we’d expect given such a feeble recovery. Those overly optimistic assessments of the likely impact of interventions, from fiscal stimulus to QE, also make much more sense now. Policymakers were fighting a fire far more intense than they recognised.

So I guess the Obama administration was a little premature with that Recovery Summer talk.  Or they are not good at reading economic numbers.  Or they are good at reading economic numbers but they were stretching the truth a bit for political purposes in hopes that the real economic recovery would catch up with the made up one.

All right, so the economy isn’t doing so well.  What do we do?

The dire economic situation undergirds this point: Washington should delay immediate fiscal cuts. Indeed, it ought to be spending more now and revisiting the possibility of a payroll tax cut.

Really?  After the recent budget debate to raise the debt ceiling to avoid default and a credit downgrade because of excessive spending and debt?  The same kind of excessive spending and debt that has put Europe in an even worse financial crisis?  Shouldn’t we take a lesson from the European Union sovereign debt crisis?  And not follow them into a similar sovereign debt crisis? 

I mean, it was going to be Armageddon if they lowered our bond rating.  Don’t we care about that anymore?  (By the way, S&P did lower their bond rating today.  So hello Armageddon.)

A Small Negative Return in the U.S. is Preferred over any Investment in the Eurozone

Apparently not.  At least investors appear to be more worried about the debt crisis in Europe.  They’re so worried, in fact, that they’re dumping their European holdings and running to the safe harbor of U.S. banks.  Despite that possible downgrade (which has since happened).  And Armageddon (see Thanks a lot, Europe by Cyrus Sanati posted 8/5/2011 on CNN Money).

The massive selloff in U.S. markets on Thursday appears rooted in Europe as fears of a sovereign debt default in Italy and Spain caused traders to panic and run for cover…

The European Central Bank attempted to ease the market’s fears, but it seemed to have only exacerbated the problem. European leaders are now scrambling to avoid an all-out run on the euro as the European sovereign debt crisis enters a possible terminal phase. They will need to act fast to restore market confidence or the current correction could turn to capitulation.

This crippling debt crisis may very well take down the European Central Bank.  With the fear of default, investors don’t want to buy anything in the Eurozone.  They fear anything they buy today may lose most of its value in the not so distant future.  So they’re pulling their cash out of Europe and parking it in the United States.

All this cash is being dumped into custodial banks in the U.S. This led the Bank of New York Mellon (BK), the largest custodial bank, to start charging its institutional clients a fee for depositing what they consider an “extraordinarily high” amount of cash — it has no place to invest it either, and higher cash levels mean higher FDIC fees.

You know it’s bad when even the banks don’t want your money.

Indeed it is.  So investors will pay a bank to hold their cash.  Because that’s the safe ‘investment’ right now.  A small negative return versus what could be a catastrophic negative return.

The Economy may not be able to Survive much more Government Help

Employment numbers are bad.  GDP is bad.  Talks of an economic recovery appear to have been hopelessly premature.  Debt crises have gripped Europe.  And S&P downgraded U.S. credit and pushed them towards Armageddon.  The Keynesians advice, though, is the same.  More government spending.  Only this can stimulate the economy back to recovery.  Even though it was excessive government spending that gave Europe and the U.S. their crises in the first place.

It’s like Ronald Reagan said.  Government isn’t the answer to our problems.  Government is the problem.  It needs to do the things it does best.  And leave the economy to the private sector.  Because the economy just may not be able to survive much more government help.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,

No Deficit Reduction and the Credit Rating Agencies don’t Care

Posted by PITHOCRATES - August 3rd, 2011

The Credit Rating Agencies wanted Serious Spending Cuts and our Glorious Government Delivered 

It was scary.  We stared into the abyss.  We stood at the edge of the world as we knew it.  With one foot held up midstride, dangling precariously over the void.  Ready to tumble forward into the chasm of fiscal demise.  And then something happened.  Congress compromised.  There would be more debt.  There would be more spending.  And they restored our financial house to order.  We could put that foot down on terra firma.  Everything was going to be all right.  Like it was before.  Hallelujah (see U.S. Debt Rating: Economists Wait to Hear From S&P by Susanna Kim posted 8/3/2011 on ABC News).

Now that President Obama has signed the debt ceiling deal and averted a default, economists are waiting to see if ratings agency Standard and Poor’s will downgrade the nation’s credit rating…

At stake in all this is not only interest rates the US must pay on its $14.4 trillion debt, but a host of rates for consumers, from mortgages to car loans to credit cards. A downgrade of US debt would cause interest rates of all kinds to edge up and that would cost the US and consumers billions of dollars. The stock market plunged yesterday partly on worries about this possibility.

What a horrible fate this would have been.  God bless Barak Obama, Harry Reid, John Boehner and everyone else that did such an extraordinary job of saving us from this fate.  The credit rating agencies wanted to see some serious spending cuts.  And by God if that isn’t what our glorious government gave them.  Moody’s and Fitch have already given us the good news.  We’re still AAA with them.  Just waiting on Standard and Poor’s.  If they still like us we’re golden.

No spending cuts, no Deficit Reduction and no Credit Downgrade, were they Lying?

The only problem with this is that it is all bull [deleted expletive] (see Spending Cuts Seen as Step, Not as Cure by Binyamin Appelbaum posted 8/2/2011 on The New York Times).

There is something you should know about the deal to cut federal spending that President Obama signed into law on Tuesday: It does not actually reduce federal spending.

By the end of the 10-year deal, the federal debt would be much larger than it is today.

Indeed, both the government and its debts will continue to grow faster than the American economy, primarily because the new law does not address federal spending on health care.

Well how can this be?  More spending?!?  And not just a little but a lot.  So much that it will grow faster than the economy.  But they told us they made real spending cuts.  That they made some real deficit reduction.  Are you telling me that our government lied to us?

Stabilizing that [debt] ratio would require about $4 trillion in cuts over the next decade, according to a number of independent analysts. That is also the target that S.&P. declared the nation must meet, and it was the goal of the “grand bargain” that Mr. Obama tried to reach last month with Speaker John A. Boehner.

The deal they reached instead contains cuts of at least $2.1 trillion over the next 10 years. By the end of that period, the federal debt could equal as much as 80 percent of economic activity, and rising.

Guess so.  We barely made half of the recommended cuts and two of the agencies already gave us their blessings.  Which begs the question was all that fear mongering of the debt downgrade just bull you-know-what?  Just a trick to raise the debt ceiling?  I mean, this deal should have triggered the credit downgrade.  It doesn’t cut spending or reduce the deficit.  So how can it be the end of the world as we know it one minute and then credit rating bliss the next?  Because nothing changed.  Something fishy here.

With the Spending Crisis over, now comes More Spending

All right, so the spending cuts were only phantom spending cuts.  Just designed to fool the American people so the government can do what they do best.  What they always planned to do.  Even though the credit rating agencies said we can’t keep doing it.  Spend with reckless abandon (see Compromise achieved, reform’s the next chapter by Timothy Geithner posted 8/2/2011 on The Washington Post).

The agreement creates room for the private sector to continue to grow, without the threat of default and the burden of higher interest rates…

And by locking in long-term savings, Congress will have more room in the fall to pass additional short-term measures to strengthen the economy — such as extending the payroll tax cut, which provides an average of a thousand dollars to the after-tax incomes of working Americans; extending unemployment benefits; and financing infrastructure investments. After all, strengthening growth and putting more Americans back to work are among the most important things we can do to improve our fiscal situation today and over the long term.

This is like a chain smoker who just got the scare of his life.  A bad lung X-ray that could be cancer.  Only to find out later that it wasn’t cancer.  He feels so good that he lights up to celebrate his good health.

The government has already tried every Keynesian stimulus in the book.  A trillion dollar stimulus bill.  Subsidies for green energy (the economy of the future).  Tax credits.  Shovel ready jobs.  None of this helped the economy.  It just gave us a spending crisis that added so much debt that the credit agencies are threatening to downgrade the U.S. bond rating.  Additional spending is not going to improve our credit worthiness.  In fact, it will do that other thing.  The opposite thing.  It will make it much, much worse.  How can they not see this?  Was I the only one paying attention these past weeks?

When the Market Corrects things get Better; when the Government Corrects you get Double-Dip Recession

So it’s been all smoke and mirrors.  So what?  So they like to spend.  But their spending stimulates, does it not?  They’re investing in the future.  To win the future.  Like green energy.  The economy of the future.  They’re pouring money into this to create jobs and stimulate the economy.  And imagine how bad things would be if they didn’t do this.  Instead of a double-dip recession we may be in a triple-dip recession.  The recession could be one dip worse, then, couldn’t it?

Yeah, that’s a joke.  The economy is horrible despite everything they’ve tried.  Or perhaps it’s horrible because of everything they’ve tried.  Spending for the sake of spending hasn’t produced any results yet.  Just take a look at the Chevy Volt.  The car that was to lead GM back from the abyss.  And change the American automobile industry.  The Obama administration was going all in on this car.  Even ponying up $7,500 in tax credits per car just to make people buy these things.  But apparently the people don’t like the Chevy Volt.  Because they’re not buying them.  Even with a federal gift of $7,500 to sweeten the deal (see Chevy Volt: Still Not Selling by Jonathan V. Last posted 8/3/2011 on the weekly Standard).

The July sales numbers are out and the Chevy Volt continues to electrify (get it?) the country. GM sold … 125 Volts last month!

Way back in March I made fun of the Volt for selling 281 units in February. Turns out, February was a good month. But wait, there’s more! GM says they’re going to increase production to 5,000 Volts per month in order to keep up with demand. You see, they claim that the reason the Volt isn’t selling is that they can’t keep enough cars on the lot. A GM spokeswoman recently claimed that they are “virtually sold out.” Which is virtually true. Mark Modica called around his local Chevy dealers and found plenty of Volts waiting for an environmentally conscious driver to bring them home.

These numbers are so bad they’re embarrassing.  And building 5,000 units to meet a 125 unit demand?  You can tell the government is calling the shots at GM.

This is what happens when government starts running automobile companies.  They destroy automobile companies.  And wastes tax money.  They’ll keep raising taxes (and borrowing money) so they can ‘invest’ in jobs.  Creating jobs where people build things that nobody buys.  This is how the best and brightest tweak the economy.  Use Keynesian stimulus to correct for ‘market inefficiencies’.  Which in Washington is when people don’t spend their money ‘correctly’.

Of course, when the market corrects things get better.  When the government corrects you get a double-dip recession.

The Obama Administration did some serious Fear Peddling to get the Debt Ceiling Raised

The Obama administration did some serious fear peddling to get the debt ceiling raised.  First they tried to scare everyone that the government would default on their debt obligations.  When it was pointed out that there was some $200 billion of tax revenue coming in monthly they changed their story. 

Then they tried to scare old people by saying they couldn’t send out Social Security checks.  When it was pointed out that Social Security Trust Fund was full of treasury securities (i.e., IOUs) that could be converted into cash without any impact on the debt ceiling they changed their story. 

Then they tried to scare everyone that if they didn’t reduce the deficit with a balanced approach (new taxes and spending cuts, but mostly new taxes) the credit rating agencies would downgrade the U.S. AAA debt rating.  So far that hasn’t happened.  Despite there being no deficit reduction.

Well, they got their debt increase.  They may have been less than honest but they got it.  And what are they going to do with that additional $2.4 trillion?  Why, build more Chevy Volts, I guess.  And other winning-the-future job-creating Keynesian stimulus spending.  Because it’s worked so well these past few years.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Debt Ceiling Deal Light on Cuts and Sets Stage for Future Taxes

Posted by PITHOCRATES - August 1st, 2011

$2.4 Trillion Debt Ceiling Deal may spend $96.68 for each Dollar Cut

Everyone seems to hate the budget deal to raise the debt ceiling.  Conservatives are saying they’ve been screwed.  Liberals are saying they’ve been screwed.  Interesting.  So exactly what did they agree to in order to hike the debt ceiling $2.4 trillion?  Which, incidentally, is the largest increase in history (see Small spending cuts to have little economic impact by Christopher S. Rugaber, Associated Press, posted 8/1/2011 on Yahoo! News).

Discretionary spending, which excludes Social Security, Medicare and Medicaid, would be cut by only $7 billion in 2012 and $3 billion in 2013, according a summary by Senate Democrats. That’s a tiny fraction of the nation’s $14 trillion economy…

The independent Congressional Budget Office offered its own analysis Monday. It said the agreement would reduce government spending by $25 billion next year. That’s compared to current law, which factors in a projected increase in spending.

The first phase of cuts would reduce spending by $917 billion over 10 years. A congressional committee would decide on a second phase of cuts totaling $1.5 trillion.

Whoever’s numbers you believe one thing is sure.  That’s not a lot of cuts.  The cuts are dwarfed by the amount of new spending the $2.4 trillion debt ceiling increase will give.  In fact, if you use the high $25 billion number, one could say these cuts are negligible.  For if they spend that $2.4 trillion next year, the cuts will only be 1.03% of the new spending.  Or an additional $96.68 spent for each dollar cut.  Now, granted, my math skills may be outdated, but I think if you spend more than you cut while you already have a $1.6 trillion deficit, I don’t think you’re going to reduce the deficit.  But that’s just me using arithmetic.

$7 Billion is a little shy of the $4 Trillion in cuts S&P said would prevent Credit Downgrade

And this is what was important.  Deficit reduction.  To stop spending money we don’t have.  So the debt doesn’t rise so high that it threatens the full faith and credit of the United States.  As S&P warned would happen if we don’t make some serious spending cuts (see FreedomWorks Opposes Budget Control Act of 2011 by Jacqueline Bodnar posted 8/1/2011 on FreedomWorks).

“The deal has few immediate cuts totaling one half of one percent of the budget, with most savings coming in the later part of the decade,” commented Matt Kibbe, President of FreedomWorks. “How can we be serious about reducing the debt limit when we are not even talking about cutting programs like AmeriCorps and agricultural subsidies? This is not the serious reform Tea Partiers demanded last November.”

Standard & Poor’s has stated that anything less than $4 trillion in cuts will lead to an inevitable downgrade from the United States’ current AAA credit rating. “The ‘Cut, Cap, Balance Act’ is the only option on the table that would preserve the nation’s AAA credit rating and secure our long-term economic future,” added Kibbe. “

So S&P will downgrade the full faith and credit of the United States despite this deal.  So it doesn’t appear that the Republicans got much for that additional $2.4 trillion of spending.  So it would appear that the Democrats screwed the Republicans.  But that sure isn’t how some see it.

Ruthlessly dictating Terms to the Opposition is Okay as long as Liberals are doing the Dictating

In fact, some are spitting mad (see The President Surrenders by Paul Krugman posted 7/31/2011 on The New York Times).

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Come on, Paul, tell us how you really feel.

And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts…

And even now, the Obama administration could have resorted to legal maneuvering to sidestep the debt ceiling, using any of several options. In ordinary circumstances, this might have been an extreme step. But faced with the reality of what is happening, namely raw extortion on the part of a party that, after all, only controls one house of Congress, it would have been totally justifiable…

In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.

I don’t recall any such concern about the Democratic process that rammed Obamacare through the Congress along strictly party lines.  As bad as it is, the current deal was bipartisan.  Which is more than you can say about what Pelosi, Reid and Obama did with their health care bill.  Even the polls showed the people didn’t want it.  And many who voted for it paid the ultimate price at the next election. 

Apparently, ruthlessly dictating terms to the opposition is okay as long as liberals are doing the dictating.  In fact, liberals would be fine with doing away with the Democratic process if they held full power.  Let’s just hope they don’t resort to any legal maneuvering to make that happen.

The Sneaky Little Bastards are going to Escape those Spending Cuts and get their Tax Hikes

Liberals aren’t idiots.  They are very pragmatic.  And they’re liars and sneaks.  I think all this protesting is just smoke to make all the Tea Party Republicans think they’ve come out as winners in this deal.  Just take a closer look at the deal.  Negligible spending cuts up front.  A panel to determine future spending cuts (probably more heavily weighted on cuts that matter like out of control health care spending).  And a trigger for when that panel fails.  Which will make half of those future spending cuts come from defense.

And it gets better.  As this last round of negotiations has shown agreeing on spending cuts is next to impossible.  Even with the trigger those Medicare spending cuts are not likely to happen.  And with Obama just getting another $2.4 trillion to spend, that deficit isn’t going to get any smaller.  In fact, it’ll only get bigger.  Which means, of course, they will have no choice but to talk about revenue again (i.e., new taxes).  Say goodbye to the Bush tax cuts.  For they will let them expire next time.  Also, Obamacare kicks in after the 2012 election.  As do all those new taxes to pay for it.  More taxes upon more taxes.  Which is a lot of new taxes.

The sneaky little bastards are going to escape those spending cuts.  And get their tax hikes.  The Great Recession will linger on.  Or fall into full blown depression.  So it’s really clear who the winners and losers are in this debate.  The Ivy League liberal ruling elite are the winners.  And the American people are the losers.  As their country is transformed into a third world banana-republic.  Where the ruling elite at the top live very well.  And everyone else is poor and oppressed.  

Viva la Revolucion, El presidente.  Viva la Revolucion.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Raising the Debt Ceiling may be Worse than Default

Posted by PITHOCRATES - July 30th, 2011

Despite U.S. Debt Crisis, U.S. still the World’s Safe Asset of Choice

As Congress debates over the debt ceiling…blah blah blah…Armageddon.  Funny thing is, the U.S. debt problem is not that bad.  When compared to the debt problem in Europe (see Err, over here by Schumpeter posted 7/29/2011 on The Economist).

AS THE August 2nd deadline for a resolution of America’s debt-ceiling row approaches, other news is being drowned out. America’s debt debacle provokes rubber-necking fascination but the euro crisis is still the bigger threat to financial stability.

The chances (admittedly diminishing with time) are that America will get its house in order and avoid default; and that a ratings downgrade will happen but not threaten the pre-eminence of Treasuries as the world’s safe asset of choice. In contrast, the euro area’s crisis is already in full swing and policymakers, as this week’s issue of The Economist makes plain, have not found a way to stop it.

Things are worse in the European Union.  Especially the Eurozone.  And though Armageddon is at hand in the U.S., we’re still the “world’s safe asset of choice.”  So the end of the world as we know it may not be at hand.  But the out of control government spending and debt is fast approaching European levels.  So if we don’t cut our spending and reduce our deficits, we will follow lockstep behind Europe into fiscal ruin.  And then, of course, Armageddon.  

Partisan Democrats decry Republican Partisanship

So this Republican partisanship needs to end.  They need to be bipartisan.  Like the Democrats.  That is, when they’re not being partisan themselves (see For Reid, Durbin, and Obama, a (very) partisan record on debt ceiling by Byron York posted 7/30/2011 on The Washington Examiner).

A look at Reid’s record, however, shows that in the last decade his own voting on the issue of the debt ceiling is not only partisan but perfectly partisan. According to “The Debt Limit: History and Recent Increases,” a January 2010 report by the Congressional Research Service, the Senate has passed ten increases to the debt limit since 2000.  Reid never voted to increase the debt ceiling when Republicans were in control of the Senate, and he always voted to increase the debt ceiling when Democrats were in control…

At look at Durbin’s record shows that he, too, has voted along absolutely partisan lines.  In the last decade, Durbin never voted to increase the debt ceiling when Republicans were in control and always voted to increase the debt ceiling when Democrats were in control.  As for Obama, there were four votes to raise the debt ceiling when he was in the Senate.  He missed two of them, voted no once when Republicans were in charge, and voted yes once when Democrats were in charge.

So the Democrats have a history of being just as partisan as the Republicans.  Even now, as they decry the Republican’s partisanship, they refuse to compromise at all on what they’ve always wanted.  More taxes.  And more borrowing.  So they can spend a lot more.

Democrats open to Compromise, as long as it’s the Republicans doing the Compromising

And they’ve drawn a line in the sand.  No meaningful cuts without new taxes (see Senate Kills Debt Bill, Bipartisan Talks on Hold by Steven T. Dennis posted 7/29/2011 on Roll Call).

“We’ve got a closet full of triggers,” he said. But, he added, “I came to the conclusion that we are negotiating with ourselves. The Republicans will not agree to any triggers that have any revenues in it.”

And Reid noted that Democrats have drawn a line in the sand against any cuts to entitlement programs without revenue.

The Republicans refuse to raise taxes because America is still wallowing in the Great Recession.  Democrats refuse to drop their request to raise taxes.  And flat out refuse to cut entitlements.  Like Social Security.  Medicare.  And the new Obamacare.  Because, though fiscally responsible, it’s not politically expedient.  Which is going to become a BIG problem soon.

Repeal Obamacare and all our Current Troubles go Away

Health care spending will take the U.S. to European levels of spending and debt (see CMS Projections Confirm Runaway Health Care Spending by Kathryn Nix posted 7/29/2011 on The Foundry).

As the economy recovers and the major provisions of Obamacare kick in, national health spending is projected to grow at quite a clip—increasing, on average, 5.8 percent each year. By 2020, the nation will spend $4.54 trillion on health care, or close to 20 percent of GDP. (For the sake of comparison: In 2010, federal tax revenue totaled 14.9 percent of GDP, and all federal spending combined amounted to 23.8 percent of GDP.)

Of course, every cloud has a silver lining.  An S&P report calls for real spending cuts of $4 trillion or more over 10 years to avoid the credit downgrade.  And look at this.  Obamacare will cost $4.54 trillion over some 10 years.  Imagine that.  Save the AAA bond rating.  Leave Social Security and Medicare intact.  And all you have to do is cut one program that no one is receiving any benefits from yet.  Repeal Obamacare.  And all our current troubles go away.

Or you can Devalue the Currency

Of course, that’s one way of solving the current crisis.  There appears to be another.  One that is a bit more destructive (see Answers to the 7 big “what-ifs” of debt default by Lauren Young posted 7/30/2011 on Reuters).

Traders say Asian central banks, among the world’s biggest dollar holders, have been steady buyers of alternatives to the dollar such as the Singapore dollar and other Asian currencies as well as the Canadian, Australian and New Zealand dollars. “Foreigners are at the vanguard of the drop in the dollar,” says Dan Dorrow, head of research at Faros Trading, a currency broker/dealer in Stamford, Connecticut. “I don’t think anyone expects a catastrophic U.S. default. But a downgrade will make them more aggressive in moving away from the dollar…”

The bottom line? It will be more expensive to travel overseas, drink French wine or buy Japanese cars.

A little trade war anyone?  A weak currency is like a tariff.  It makes imports so expensive that we stop buying them.  And buy American instead.  Thus increasing U.S. GDP.  And there is a corollary to this.  Can you guess what that is?  Here’s a hint.  It does something to our exports.  And our vacation market.

Fixing our Economy by Destroying other Economies

A weak currency not only makes your imports more expensive, it also makes your exports less expensive.  Which helps your export market.  And encourages people to vacation in your country because those stronger, foreign currencies can buy so much more (see U.S. Economy: Growth Trails Forecasts as Consumers Retrench by Shobhana Chandra posted 7/29/2011 on Bloomberg).

The improvement in the difference between imports and exports added another 0.6 point [of U.S. GDP].

Overseas sales will remain a backstop for factories. Dow Chemical Co. (DOW), the largest U.S. chemical maker, said demand is “strong” in markets abroad.

“We captured strong growth in Latin America, and the emerging geographies more broadly, while North America experienced moderate growth,” Andrew Liveris, chief executive officer, said on a July 27 conference call with analysts.

So perhaps this is the grand plan.  Increase spending to unsustainable levels.  Incur record debt.  This spending and debt triggers a downgrade of U.S. sovereign debt.  Which devalues the U.S. dollar.  Which places a de facto tariff on imports.  And provides a subsidy for our exports.  And it makes the U.S. a vacation destination.  Until our trading partners retaliate for fixing our economy by destroying their economies.  Like everyone is saying the Chinese are doing by keeping their own currency weak.

Repealing Obamacare would Please the Credit Rating Agencies

So the only bright spot in the U.S. economy is other economies.  Where they’re experiencing growth.  And can easily afford U.S. goods.  Which is about the only market buying them these days.  But for the world’s largest economy (for now) to rely solely on exports can be a bit risky.  Especially if it triggers a trade war.  Which, incidentally, helped trigger the Great Depression.

No, it would probably be more prudent to keep that AAA rating by cutting spending.  Before we spend ourselves to European ruin.  That’s the key to everything.  In particular cutting the fastest growing government expenditure.  Health care.  Which makes repealing Obamacare made to order.  No one is benefitting from it yet.  So no one will even notice this cut.  Other than the credit rating agencies.  Who will stand up and applaud this action. 

For just raising the debt ceiling doesn’t solve the real problem.  In fact, raising the debt ceiling without the $4 trillion in spending cuts will just push us closer to European ruin.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Obama’s Choice – Cut Spending or Downgrade U.S. Sovereign Debt

Posted by PITHOCRATES - July 27th, 2011

The BIG Problem is the Excessive Spending, not the Debt Ceiling

I don’t know what’s more annoying in the budget debate to raise the debt limit.  The cries on the left for the Republicans to quit being partisan.  To instead propose a true bipartisan bill that has a chance of passing the Senate.  And by ‘bipartisan’ they mean one that gives the left everything they want.  Or is it the doom and gloom being bleated by the president, Congressional Democrats and the mainstream media if the debt ceiling isn’t raised (see Debt-ceiling threat has Wall Street scrambling by Nathaniel Popper and Jim Puzzanghera posted 7/27/2011 on the Los Angeles Times).

Without a deal, the most feared scenario is that the U.S. will miss payments on its bonds and default — which financial experts say would be disastrous. While still considered unlikely, the prospect is popping up more in conversations…

No.  This can’t happen.  There’s enough money to pay interest on the debt.  And to issue Social Security checks.  But they will have to make cuts elsewhere in some nonessential areas.  Like in some cabinet departments (Education, Energy, EPA, etc.).  This is all fear peddling by the Obama administration to do one thing.  Raise the debt ceiling.  So they can keep spending.  And this is the BIG problem.

The more likely scenario that investors are preparing for is that a temporary deal is struck to lift the debt ceiling. But such a makeshift plan is unlikely to allow the U.S. to maintain its AAA grade with bond rating companies. Citigroup analysts say the odds are 50-50 that the U.S. will be demoted to an AA rating for the first time ever.

Such a downgrade could lead to a temporary market panic. In the longer term it could push interest rates up for everyone from bankers down to ordinary people taking out car loans, and weaken the dollar’s position as the world’s reserve currency.

Even if they raise the debt limit in time there is a far greater problem.  And yet few are talking about THIS problem.  The excessive spending that will ultimately cause the credit downgrade.

To Avoid Credit Downgrade will Require $4 Trillion in REAL Spending Cuts

And it’s no secret.  S&P was very explicit in their report of what would cause a credit downgrade.  Unrestrained government spending (see The Real S&P Warning: A $4 Trillion Deal or a Downgrade by Veronique de Rugy posted 7/19/2011 on National Review).

As the debt-ceiling showdown heads into its final stages, the political maneuvering has intensified. Yet I fear that we are losing sight of the only reason why the fight over the debt ceiling matters: It forces a discussion of the country’s real problem — unrestrained government spending and the tremendous fiscal imbalances that jeopardize our financial safety.

This is the real message in the July 14 S&P report.

First, S&P writes that unless there’s a credible $4 trillion deal within the next three months, they will downgrade us. By “credible,” S&P explains, they mean a plan that will actually be put into place (i.e., not one where the tax increases happen but not the spending cuts). Not $2 trillion, not $1 trillion,  but $4 trillion. And it has to be credible.

That means REAL spending cuts.  Not those ‘future’ kind that never happen.  Those that Democrats have promised time and again only to renege on those promises.  Or the base-line budgeting type of ‘cuts’ that still increase spending.  The onus is all on Obama and the Democrats.  Because they are the ones steadfast in their opposition to any real spending cuts.

The Electric Car – Typical Wasteful Government Spending

To get an idea of their voracious appetite to spend, consider the electric car.  What the economy of the future is based on.  Green energy.  The thing that’s going to make America rich and prosperous again (see California dials back its electric car credits by Eric Evarts posted 7/26/2011 on Consumer Reports).

In large part, EV appeal was greater in California due to a $5,000 state rebate that came on top of the $7,500 federal tax credit. With the tax credits, the price of an all-electric Nissan Leaf could be as low as $21,000, making it cheaper than a Toyota Prius and putting it on par with other small cars. (The Chevrolet Volt was not eligible for the state credit, although it does receive the $7,500 federal tax credit…)

While the price of electric cars is going up for California drivers, other factors still make the Golden State more attractive than most for electric cars: California uses no coal to generate electricity; its major electric utility companies have time-of-use rates and special power rates for electric cars, effectively lowering their energy costs; and perhaps most importantly, pure electric cars are still eligible to use carpool lanes on the state’s notoriously congested freeways with just a driver onboard. In addition, public charging infrastructure is on a faster track than it is elsewhere in the nation.

So that’s $5,000 from the state.  $7,500 from Washington.  That’s a discount of $12,500 (37.3%).  And yet the price of the Nissan Leaf is still $21,000.  But that still isn’t enough to make this car sell.  They need a subsidized electrical rate as well.  Government at all levels is paying a lot of our tax dollars to make a car no one wants to buy.  And this is the kind of spending that they just can’t cut.  Wasteful.  And this is only one example from the multitude.

Repeal Obamacare – Save Money, Please the People

Cutting $4 trillion over 10 years will not be easy.  But we can halve this number with one stroke of a pen (See By a Margin of 21 Points, Americans Favor Repeal by Jeffrey H. Anderson posted 7/27/2011 on the Weekly Standard).

While President Obama’s notion of a “balanced approach” to deficit reduction isn’t written down anywhere, it’s quite clear that it doesn’t involve repealing Obamacare (despite the fact that the health care overhaul would cost over $2 trillion in its real first decade, from 2014 to 2023). Polling, however, strongly suggests that it should. The latest Rasmussen poll of likely voters shows that, by a margin of 21 points (57 to 36 percent), Americans support the repeal of the centerpiece legislation of the Obama presidency.

Repealing Obamacare would be a step in the right direction.  It will save $2 trillion in spending that is pushing the U.S. toward a credit downgrade.  And the people don’t want it by a margin of 21 points.  Save money.  Please the people.  It’s a no-brainer for responsible government.  If only government was responsible.

The Choice – Cut Spending or Downgrade U.S. Sovereign Debt

The president said we need to live within our means.  And he’s right about that.  But living within our means doesn’t mean taxing and borrowing more to pay for out of control government spending.  Living within our means starts by NOT spending money we don’t have.  Not to spend first and figure out how to pay later. 

And just because other presidents raised the debt limit doesn’t mean we have to raise the debt limit.  You don’t justify bad behavior with bad behavior.  We’ve borrowed too much.  The credit rating agencies have spoken.  We need to cut spending.  And not get all professorial and lecture the American people that we need to be ‘responsible’ and raise taxes to pay for the government’s irresponsible spending binge.

We either cut spending.  Or Obama and his Democrats will downgrade U.S. sovereign debt for the first time in history.  Those are the choices.  And a good place to start would be to repeal Obamacare.  Because that’s all future spending.  All $2 trillion.  Not like Social Security or Medicare.  You can cut Obamacare.  And no one will miss it.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,