Guns, Butter and Abortion

Posted by PITHOCRATES - February 24th, 2014

Economics 101

Democrats will cut Defense but not Entitlements because fewer People in Defense vote Democrat

A cornerstone of the Obama presidency is social justice.  Primarily through redistribution of wealth.  Raising taxes to fund a growing welfare state.  To help those not lucky enough to have won life’s lottery.  Such as expanding the food stamp program (Supplemental Nutrition Assistance Program).  Which has grown over 70% under President Obama.

Of course, this costs money.  A lot of it.  Added on top of an already costly welfare state.  Driven by entitlement spending.  Social Security.  And Medicare.  The biggest portions of federal spending.  And it only keeps growing.  Making the welfare state unsustainable without entitlement reform.  But the politicians won’t touch entitlements.  The third rail of politics.  Because they’re afraid of losing votes in the next election.  So they’d rather the country implode instead of reforming entitlements.  And hope that implosion comes after they’re dead and buried.  For as long as they get to enjoy their lives they could give a rat’s behind about future generations.

But they will touch defense spending.  And often do when they are looking for more money for the welfare state.  Even now.  The Obama administration is proposing spending cuts in defense spending.  That will shrink the size of the military.  And cut pay and benefits for some of the lowest paid people in the country.  The people who go in harm’s way for their country.  They won’t touch entitlement spending because it may hurt people that typically vote Democrat.  But they have no problem doing just that to those who wear a uniform to serve their country.  Who don’t always vote Democrat.  Just so they can have a generous welfare state like the European social democracies they so admire have.  Who can have them because they don’t have large defense budgets.  For the United States has been protecting them since World War II.

People can’t pay Taxes to fund a Welfare State without a Job that Provides an Income to Tax

If you watch television you’ve probably heard New York State’s commercials to attract new businesses to New York.  Where the state is promising that businesses will be “100% tax-free for 10 years.  No income tax, business, corporate, state or local taxes, sales and property taxes, or franchise fees.”  Which is a clear admission from the state with the second highest tax burden in the country that high taxes hurt business.

The tax burden is so great in New York that some businesses have moved their operations out of state.  And people with vacation homes in New York who only visit them a couple of weeks out of the year are selling them.  As the state is taxing their incomes as if they are permanent New York residents.  But despite these high taxes New York has suffered great budget deficits.

New York City is a Democrat city.  Their high taxes pay for a large welfare state.  A large public sector.  And the enormous costs of their public sector benefits.  In particular, health care and pension costs.  But their high tax rates have shrunk the tax base.  Because people can pack up and move out of state.  Just as businesses can.  Which is why they are doing a 180-degree turn on taxes.  In a desperate attempt to get businesses to come to New York.  For even if these businesses aren’t paying taxes their employees will.  Income taxes.  Sales taxes.  Property taxes.  Liquor taxes.  Cigarette taxes.  Etc.  None of which they can pay if there are no jobs to give them an income the state can tax.

The Number of Abortions is having a Direct Impact on the Economy and Tax Revenue

New York City released its SUMMARY OF VITAL STATISTICS 2012 THE CITY OF NEW YORK PREGNANCY OUTCOMES this month.  In it you can find why New York City, New York State and the federal government are having such a difficult time paying for their welfare states.  It’s because of liberal Democrat policies.  Not on the spending side of the equation.  But on the revenue side of the equation.

In 2012 there were 73,815 abortions.  Which are future taxpayers that weren’t allowed to be born.  That’s right, before anyone pays the high tax rates of a welfare state they have to be born first.  And when they are not born that’s future tax revenue the government cannot collect.  If we look at a 20 year period (about a generation) and assume 73,815 abortions each of those 20 years that’s 1,476,300 people that never will pay taxes.  If they earned on average $30,000 each that’s $44,289,000,000 of economic activity they never created.  And at a New York State tax rate of 11.7% that’s $5,181,813,000 in lost tax revenue for the state.

But it gets worse.  If you divide this number by two you get the total number of couples (a man and a woman) that could have started a family.  If each couple had 3 children this lost generation could have brought in another 2,214,450 taxpayers into New York City.  Adding them to their parent’s generation and assuming a median family income of $53,046 (an older generation established in their career earning more and a younger generation just starting their career earning less) brings the total lost economic activity for these two generations of possible New Yorkers to $195,779,524,500.  And lost tax revenue for the state of $22,906,204,367.  So the number of abortions is having a direct impact on the economy.  And tax revenue.  Making it necessary to cut guns to pay for more butter.  Whereas if these taxpayers were born we could have both our guns and butter.  And live in a world made safe by the most powerful military in the world.  Peace through strength.  The Ronald Reagan way.  And not a world where our enemies are constantly testing our resolve.  The Jimmy Carter and President Obama way.

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President Obama to Raise Taxes but it won’t Help our Budget Woes

Posted by PITHOCRATES - November 11th, 2012

Week in Review

It takes two things to make tax revenue.  Tax rates.  And economic activity.  For if you don’t have the economic activity it doesn’t matter what the tax rates are.  Because any given percentage of smaller amount of national income will be less than the same percentage of a larger amount of national income.  That is, higher incomes produce more tax revenue.  Not higher tax rates.  It’s simple arithmetic.  Something the Democrats talked a lot about in the recent campaign.  As if they understand this simple arithmetic.  Yet they don’t seem to understand that taxing a bigger pile of money produces more tax revenue that taxing a smaller pile of money (see Obama Wins 2012 Election: Why Your Taxes Are Going Up by Morgan Korn posted 11/7/2012 on Yahoo! Finance).

Obama has vowed to raise the top income tax rate for individuals to 39.6% and let the Bush-era tax breaks end for the highest income earners. The majority of Americans — those who are lower to middle class — could also see a 2% tax increase if Congress allows the temporary payroll tax holiday to expire at the end of the year…

Len Burman, a professor of public affairs at Syracuse University and a co-founder of the bipartisan Tax Policy Center, believes higher tax rates play just a small role in resolving the nation’s budget woes.

“In the long term [Obama] is going to need to raise taxes on more than just the rich,” Burman says in an interview with The Daily Ticker. “The budget problem isn’t going to be solved without broader-based tax increases, preferably done in the context of tax reform and also serious entitlement reform. We’re not going to be able to solve this on the tax side alone.”

After World War II our veterans came back home and started making babies.  Giving us the baby boom.  And the baby boomers.  Who entered the workforce about 20 years later.  Causing a boom in the tax base.  Resulting in a higher national income.  And higher tax revenues.  Which LBJ put to good use with his Great Society.  Giving us Medicare that cost a small fraction of our incomes in payroll taxes.  It was nothing in the grand scheme of things.  While the benefits were huge for our seniors.

So the welfare state exploded.  Thanks to that increasing tax base.  And those veterans making so many babies.  But then something happened in the Sixties.  Those baby boomers did not return the favor and continue the baby boom.  Instead opting to have fun instead.  Enter birth control.  And abortion.  Birthrates fell.  In time fewer people entered the workforce than left it.  Causing the population to age.  And the tax base to shrink.  All while those new entitlement programs continued to grow.  So fewer and fewer people paid for more and more entitlements.  A recipe for disaster.  A recipe for what we have today.  Entitlement spending obligations greater than the current tax base can afford.  And you can’t fix that with higher tax rates or new taxes.  You need a larger tax base (i.e., another baby boom).  Or entitlement reform.

It would take another 20 years for a new baby boom to produce new taxpayers.  So that leaves entitlement reform as our only choice.  And the only serious attempt to reform entitlements was roundly dismissed by the Democrats when Paul Ryan put his plan on the table.  Which was the only plan.  The only problem with the Ryan plan was that politicizing it would benefit the Democrats in the upcoming election.  So that’s what they did.  For winning elections trumps everything for Democrats.  Even saving Medicare.

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A Neutered American Lapdog is Advancing Agenda, not Reporting News

Posted by PITHOCRATES - July 22nd, 2011

Dirty Journalists keep Politicians Clean

Poor Rupert Murdoch.  He’s getting no love from the British Establishment over the phone hacking scandal.  Those who once courted the “feral beast” (British tabloids) are turning against it.  Probably because the other political party wooed them more successfully.  And if you’re in politics, you want them on your side.  Because they’re good at their jobs (see In Defense of Hacks by Toby Harnden posted 7/21/2011 on Foreign Policy).

Whereas our American counterparts have long viewed themselves as comparable to lawyers and doctors, we British hacks still see ourselves as practitioners of a grubbing craft rather than members of an upstanding profession. (The public, which views us as on a par with real estate agents, prostitutes and perhaps even criminals, tends to agree.)

Yes, they’re less Walter Cronkite and more Louie De Palma (a character on the American sitcom Taxi).  For a good journalist knows how to get dirty.  Like Louie, a good journalist is born dirty.

While the American press has certainly had its share of similar disgraces, it is true that American newspaper articles are in the main more accurate and better-researched than British ones; the Rupert Murdoch-owned Wall Street Journal was not wrong when it ventured that Fleet Street has “long had a well-earned global reputation for the blind-quote, single-sourced story that may or may not be true.” But stories in the American press also tend to be tedious, overly long, and academic, written for the benefit of po-faced editors and Pulitzer panels rather than readers. There’s a reason a country with a population one-fifth the size of that of the United States buys millions more newspapers each week.

For all their faults, British “rags” are more vibrant, entertaining, opinionated, and competitive than American newspapers. We break more stories, upset more people, and have greater political impact.

That’s the way American journalism was before the Political Class co-opted it.  And why ordinary Americans once read newspapers.  To keep an eye on the scoundrels we put into elected office.  It was one of the few things that kept our elected officials somewhat honest.  Or, at least, honest enough not to lose the next election.

In fact, for the British press, the most damaging revelation of the phone-hacking scandal is the degree to which it shows that journalists — or, to be more precise, News International executives — breached the inner sanctums of the British Establishment. A breed that had always taken pride in being made up of grubby outsiders was allowed in and made the most of the opportunity.

In the United States, journalists are already on the inside: Witness President Barack Obama’s private chats with op-ed columnists, the Washington Post and Time magazine types who effortlessly segue into White House press secretaries and the cozy consensus of Washington’s political-journalism-industrial complex. All too often, American editors, perhaps mindful of their future cocktail party invitations, would prefer their reporters stroke rather than stick it to authority. British journalistic excesses can rightly be condemned, but the American media could use a few more of them. It took the National Enquirer to bring Senator John Edwards to book — and Fleet Street would not have stood for the credulous U.S. reporting on the Bush administration that characterized the run-up to the Iraq war.

That’s the last thing you want.  Your journalists getting all warm and cozy with the people they’re supposed to keep honest.  You don’t want the media to be an adjunct of one party, following orders to advance an agenda while launching personal attacks on the other party.  A good journalist should hate all political authority equally.  And show no favoritism when destroying political careers.  

It is the very politicians who used every opportunity to ingratiate themselves with Murdoch and his acolytes who are now those calling for News International to be broken up — and for the media as a whole to be called to account. Their aim? A regulation system — probably headed up by new a government-appointed “independent” body — that produces a neutered press close to the American model. Having visited Washington and seen reporters stand up when the American president enters the room (British hacks do no such thing for the prime minister) and ask respectful, earnest three-part questions, no wonder our politicians would want more of the same.

The danger of the fevered atmosphere in Britain — where justified outrage over tabloid tactics is fast leading to a hasty public inquisition, with 10 official inquiries or investigations underway at last count — is that what Prime Minister Tony Blair once termed the “feral beast” of the media might be tamed and muzzled. Perhaps the worst outcome of all would be for it to be turned into an American-style lapdog.

If you want to learn about American politics (or journalism) read a British newspaper.  The British Establishment hates and fears them.  Because they do their job.  Whereas in America, the Political Class only hates and fears FOX NEWS and talk radio (Rush Limbaugh, Sean Hannity, etc.).  Which tells you where to go to get your news.  Because if you want objective reporting, you have to go where they dare to be unflattering.  Unlike the sycophants in the ‘mainstream’ media.  For an unneutered feral beast is the only thing that will go for the political jugular.  And restrain the excess of our elected scoundrels.  I mean representatives.

And sometimes you need to get dirty.  Because getting dirty is sometimes the only way to keep politicians clean.

Good Journalism is more Reporting and less Stroke

If you watch FOX NEWS or listen to talk radio you’ll hear a different ‘version’ of the news than that on the mainstream media.  For example, the mainstream media has reported repeatedly polls citing that Americans want the Republicans to stop being intransigent and raise taxes already so the budget deal to raise the debt limit can move ahead.  Interesting how that ‘report’ meshes perfectly with the Obama administration policy agenda.  And yet Rasmussen reports a completely contrary poll finding (see Most Voters Fear Debt Deal Will Raise Taxes Too Much, Cut Spending Too Little posted 7/22/2011 on Rasmussen Reports).

The latest Rasmussen Reports national telephone survey finds that 62% of Likely U.S. Voters are worried more that Congress and President Obama will raise taxes too much rather than too little in any deal to end the debt ceiling debate. Just 26% fear they’ll raise taxes too little. Twelve percent (12%) aren’t sure. (To see survey question wording, click here…)

There’s a wide difference of opinion, however, between the Political Class and Mainstream voters. Fifty-nine percent (59%) of the Political Class is worried the deal will cut spending too much, while 63% of Mainstream voters fear it won’t cut spending enough. Those in the Mainstream worry more than Political Class voters by a near two-to-one margin – 70% to 37% – that the debt deal also will raise taxes too much.

It sounds like ordinary Americans don’t want higher taxes and more spending.  In fact, they are worried that any deal may raise taxes too much or cut spending too little.  Now this opposes the Obama administration policy agenda.  So I wonder which journalism is more reporting and less stroke?  And which is truer?

Entitlement Spending is the Cause of all our Budget Woes

Americans should be worried about raising taxes instead of cutting spending.  Because there is a much bigger problem out there (see Missing the Debt by Yuval Levin posted 7/21/2011 on The Corner).

…starting in the 2050s, CBO projects that health-care spending will be greater than all other non-interest spending combined, and the federal government will basically be a health insurer with some unusual side ventures like an army and a navy.

…health-care entitlement spending is basically 100 percent of our medium and long-term debt problem.

That thing that Obama and the Democrats refuse to put on the table?  Entitlement reform?  Especially all the health care programs (Medicare, Medicaid and now Obamacare)?  They’re the cause of all our budget woes.  Ignoring this fact makes the budget debate pointless.  It’s just political theatre.  Fiddling while America burns.  Pity we don’t have an unneutered feral beast to put this issue front and center.  Besides FOX NEWS and talk radio, that is.

FOX NEWS will Report what the Political Class rather you not Hear

Interestingly, FOX NEWS is part of the Rupert Murdoch Empire.  And those on the left viciously belittle it as not being ‘real’ news.  But they sure incur the wrath of the Political Class.  Which should tell you a thing or two.  Because when it comes to news organizations, they only hate those who report things they’d rather you not hear.

Of course there is a chance that the FOX NEWS isn’t a legitimate news organization.  And that they are only reporting inflammatory pieces to make a buck.  And that the Political Class is pure and innocent as the winter’s snow.  That everything they do is for our own best interests.  Being the honest public servants that they are.

Yeah, right.  Pull the other.

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We have a Spending Problem, not a Debt Ceiling Problem

Posted by PITHOCRATES - May 14th, 2011

A Special Bond between the UK and the USA despite a Tea Party

A small group of protestors gathered outside the House of Parliament to protest excessive spending and debt.  It was only a small group that numbered in the hundreds.  A fraction of the thousands that protested the UK’s austerity cuts earlier.  Interestingly, they have been described as ‘Tea Party’ protesters.  Like in the USA.  Interesting because the original Tea Party protests kicked off the American Revolution.  Which ended in American independence from Great Britain. 

A lot has changed since then.  The UK kicked off the Industrial Revolution and created an empire that lasted a hundred years or so.  Then the Americans came into their own and became the world’s greatest economic power.  Took the baton, if you will, from the British Empire.  First the costs of World War I ended the British Empire.  Then the era of Keynesian economics began.  Government grew.  Government spending grew.  First in the UK.  Then in the USA.  And their economies tanked in the Seventies.  High debt.  High inflation.  High unemployment.  Then Margaret Thatcher started fixing things in the UK.  As Ronald Reagan did in the USA.  Things got better.  But old habits are hard to break. 

And here we are in 2011.  Both great nations suffering under unsustainable deficits and debt.  Austerity is now the name of the game.  Some understand this.  Like those few hundred across from the House of Parliament (see ‘Rally against debt’ activists call for more cuts in Westminster protest by David Batty and agencies posted 5/14/2011 on the Guardian).

Hundreds of pro-cuts activists have taken part in a “rally against debt” opposite the Houses of Parliament, in the first Tea Party-style protest to challenge the anti-cuts lobby…

Matthew Sinclair, director of the TaxPayers’ Alliance, said: “There have been lots of chances for other groups to register their protest, and we want to give a voice to people who represent quite a heavy majority who think spending cuts are right and necessary.

The tax consumers protested the austerity cuts.  The taxpayers, on the other hand, are protesting the deficit spending.  For they are thinking long-term.  And know someone eventually has to pay back this debt.  Or someone will at least have to service the debt.  And if it keeps growing, these interest payments are going to become a major budget item.  Requiring cuts in programs today to pay the interest on what they borrowed to pay for programs years ago.

Priti Patel, Conservative MP for Witham, said: “This government is all about deficit reduction. I don’t think enough people realise the extent of the debt facing this country. It is totally unsustainable…

Mark Littlewood, director general of the Institute of Economic Affairs, told the rally: “We won’t put up with this. We are the selfless movement. We’re not asking for money, we’re asking for cuts to make sure our children and grandchildren don’t have to foot the bill.”

It is interesting the use of the term ‘Tea Party’ given our common history.  They don’t recall the Boston Tea Party as fondly in the UK.  No, they don’t celebrate it like they do in the US.  So no doubt it’s the similarities of the movements (protesting out of control government spending) and not the name.  They probably even don’t call themselves a ‘tea party’.

Electoral commission records show that in March, Ukip activists registered the name Tea Party as a political party. It is not yet active, but they said they could field candidates in general elections, byelections and local elections.

Or perhaps they do.  Wow.  They’ve sure come a long way since 1773.  That’s nice.  For as George Bernard Shaw said, England and America are two countries separated by a common language.  There is a special bond between these two nations.  And always will be.  We love each other unconditionally.  Despite the US giving them Madonna.  And the UK giving the world John Maynard Keynes.

The Keynesians versus the Austrians

Governments everywhere love John Maynard Keynes.  Because he empowered governments to spend money.  So ‘borrow and spend’ governments everywhere embrace Keynesian economics.  As do Ivy League intellectuals.  Who tend to have high positions in the US government.  Because they just sound so darn smart.  Who are, at heart, anti-capitalists.   

The Austrian school of economics runs contrary to the Keynesian school.  The only thing the Keynesians learned from the Great Depression was that the Federal Reserve caused bank failures by not printing money soon enough.  And that a selloff of assets started a deflationary spiral.  Austrians, on the other hand, say deflationary spirals are good when they correct bad investment by popping asset bubbles.  Because bubbles have to pop.  Eventually.  And the longer you try to sustain these bubbles the more painful the pop will be.  Whereas Keynesians say double down.  When Wall Street was overvalued they pumped bailout dollars into Wall Street firms buying worthless paper assets to sustain their over-priced values (Fannie Mae, Freddie Mac, Lehman Brothers, etc.).  Didn’t work.  And the nation added a trillion to the debt in the process (see The End of Bernanke’s “End Game” by William L. Anderson posted 5/13/2011 on Ludwig von Mises Institute).

Thus, Bernanke’s minions entered the financial marketplace with a bottomless checkbook, purchasing assets that had lost value (like mortgage securities, AIG stock, and the like) in the marketplace. However, in order to make it look as though the markets were fine, the Fed purchased these securities at prices close to their precollapse worth; Bernanke and company were playing the let’s-pretend-this-worthless-paper-is-valuable game…

In the Keynesian analysis, assets are held to be homogeneous, and the economy is believed to be a bland mixture of those assets that are fully employed when the amount of consumer and investment spending is high enough to continue to give the economy “traction.”

When consumer and investment spending flag, however, Keynesians hold that the government must step in by borrowing and printing money in order to revive the spending circle. If the government spends enough, then the economy can move on its own to the point where consumers and investors keep it going — at least until the next crisis. Keynesians call this movement the “circular flow,” although it is more like circular logic, in which the premise is the conclusion and the conclusion is the premise.

What must never happen is a large-scale liquidation of assets, because that would trigger deflation, which would be accompanied by an endless downward spiral and an economy stuck in a “liquidity trap” with falling prices and high unemployment. Thus, in the Keynesian view, the Fed was justified in purchasing these worthless assets, because it prevented their liquidation and preserved at least their “paper” values.

They spent money like no other administration did and it did nothing.  The unemployment rate went up.  And now inflation is starting to tick up.  Not to mention a trillion dollar deficit adding to an already record debt.  A debt so great that they have to raise the debt ceiling to fund it.

Austrians, however, take a much different view. What Keynesians call idle resources, which need only an injection of spending to be reemployed, Austrians call malinvested resources. The different is crucial, because Keynesians believe that the Fed’s actions prevent an economic downward spiral, while Austrians hold that what the Fed has done furthers the economic downturn.

The difference in opinion centers on causality. Keynesians believe that the downturn is created simply by a reduction in spending, while Austrians hold that the recession is caused by the fact that the series of malinvestments created during the previous boom cannot be sustained. The drop in spending is the result of the downturn, not its cause. The difference in beliefs is crucial: in the Austrian paradigm, trying to sustain the boom conditions by injecting new government spending will always end in disaster.

Keynesian economics are demand-side.  People cause recessions by not spending enough.  So government steps in, borrows (and prints) money and spends in place of consumers.  In the hopes this spending will create jobs.  Austrian economics are supply-side.  Because we are, when it comes down to it, traders.  We trade things.  Or services.  So jobs come first.  Then consumer spending.  So the Austrians would rather create an economic environment that will encourage businesses to create jobs.  And see the market direct resources to the best investments.  Not have the government prop up investments that should fail.

The problem with temporary injections of cash is that they are temporary.  Whereas new jobs will be recurring cash injections.  The Keynesian solution is temporary.  The Austrian solution is sustainable.  It’s sort of like Granny Clampett’s cure for the common cold.  You take it and a week or so later the cold is gone.  Of course, the body just healed itself.  Which is how Keynesian economics works.  If the economy recovers in a year or so the Keynesians will take credit.  When it was just the business cycle finally coming around.  Despite being delayed by Keynesian policies.

The Size of the Debt is a Bigger Problem than a Technical Default

All this Keynesian economics has added greatly to government budgets everywhere.  The UK.  The social democracies of Europe.  And the US.  And it’s reaching critical mass.  Hence the protest outside the House of Parliament.  And the Tea Party protests in the US.  Debts are rising to dangerous levels. 

Now in the US the Keynesians are threatening doom and gloom if we don’t raise the debt limit.  Because that’s the problem.  Not the spending.  Which they don’t see as a problem (see What If the U.S. Treasury Defaults? by James Freeman posted 5/14/2011 on The Wall Street Journal).

Mr. Druckenmiller says that markets know the difference between a default in which a country will not repay its debts and a technical default, in which investors may have to wait a short period for a particular interest payment. Under the second scenario, he doubts that investors such as the Chinese government would sell their Treasury debt and take losses on the way out—”because I’ll guarantee you people like me will buy it immediately.”

Mr. Druckenmiller was once a fund manager for George Soros.  And he helped Soros short the British pound in 1992.  So he knows a thing or two about government finance.  And he’s more worried about the high debt level than a technical default.

Mr. Druckenmiller had already recognized that the government had embarked on a long-term march to financial ruin. So he publicly opposed the hysterical warnings from financial eminences, similar to those we hear today. He recalls that then-Secretary of the Treasury Robert Rubin warned that if the political stand-off forced the government to delay a debt payment, the Treasury bond market would be impaired for 20 years…

Mr. Druckenmiller notes that from the time he started saying that markets would welcome a technical default in exchange for fundamental reform, in September 1995, “the bond market rallied throughout the period of the so-called train wreck . . . and, by the way, continued to rally. Interest rates went down the whole time, past the government-shutdown deadline, and really interest rates never went back up again until the Republicans caved and . . . supposedly the catastrophic problem was solved.”

Back during the government shutdown in 1995, the bond market actually rallied.  Why?  Because investors are worried about being paid back.  High and growing debt levels decrease those chances.  Serious debt reduction talk increases those chances.  Ergo, the technical shutdown lets investors know that someone is serious about the nation’s long term debt paying ability.  Hence the bond market rally. 

He’s particularly puzzled that Mr. Geithner and others keep arguing that spending shouldn’t be cut, and yet the White House has ruled out reform of future entitlement liabilities—the one spending category Mr. Druckenmiller says you can cut without any near-term impact on the economy.

One reason Mr. Druckenmiller says he spoke up in 1995 was his recognition that the first baby boomers would turn 65 in 2010, so taxpayers would soon have to start supporting a much larger population of retirees. “Well,” he says today, “the last time I checked, it’s 2011. We don’t have another 16 years this time. We’re there. I don’t know whether the markets give us three years or four years or five years, but we’re there. We’re not going to be having this conversation in 16 years. We’re either going to solve it or we’re going to find ourselves being Greece somewhere down the road.”

Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government’s financial future can’t really be that bad. “Complete nonsense,” Mr. Druckenmiller responds. “It’s not a free market. It’s not a clean market.” The Federal Reserve is doing much of the buying of Treasury bonds lately through its “quantitative easing” (QE) program, he points out. “The market isn’t saying anything about the future. It’s saying there’s a phony buyer of $19 billion of Treasurys a week.”

It’s all smoke and mirrors.  Once the quantitative easing ends in June, interest rates will go up.  Adding to the interest on the debt.  Which will only get greater should they increase the debt ceiling.  And refuse to cut spending.  As in commit to entitlement reform.  Their future, in a word, is Greece.  Only without anyone being big enough to bail them out.

QE3, Anyone?

Some people get it.  The responsible ones.  The ones paying the taxes.  And the ones buying the bonds.  The debt is the problem.  Which means any deficit is a problem, let alone a trillion dollar deficit.  And there is really only one option that is doable to fix these problems.  Entitlement reform.  There will be no economic repercussions.  Other than a riot or two.  Perhaps.  Which is not that big of a concern for the politicians.  Their greatest fear is the next election.  Because there are so many people collecting these entitlements, cutting them will have an effect in the voting booth in the next election.

So the Keynesians will no doubt say, “QE3, anyone?”  And fiddle while the US economy burns down.  Rather that than admit that they are not important.  Or needed.

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Will the Economy make President Obama a Single Term President?

Posted by PITHOCRATES - May 13th, 2011

Inflation is Up

The economic outlook is good.  Or bad.  Depending on the spin.  Crude oil prices fell recently.  That’s good.  But they fell on bad economic news.  Because of stubborn high unemployment people will not be hitting the roads this summer.  Just as they did not last summer.  Doing the staycation again.  So oil prices fell.  Because anticipated demand for summer gas was low.  So, gas prices may come down.  Which is good news.  But the reason they may come down is because of the continuing recession.  Which is bad news.

The Federal Reserve has been trying to kick start this economy out of recession for quite a while now.  They’ve done some quantitative easing (i.e., printing money).  But no one wants it.  Except investors speculating in commodities.  I mean, there’s nothing like investing with free money.  But no one was borrowing that free money to expand their business and hire people.  Why?  For the same reason oil prices came down.  Low demand.  Why expand business and build more stuff when no one is buying?  Or can buy because they’re still unemployed?

So the loose monetary policy has failed to create jobs.  But it has been successful in creating something.  Inflation (see Inflation hits 2-1/2 year high, seen peaking by Lucia Mutikani, Reuters, posted 5/13/2011 on Yahoo! News).

Inflation hit the highest level in 2-1/2 years as food and energy prices moved higher, but there was little sign of a broader pick-up in inflation that would trouble the Federal Reserve…

The rise, which was in line with economists’ expectations, took the year-on-year inflation reading to 3.2 percent, the highest since October 2008.

So prices are up.  That happens.  From time to time.  So it’s not in itself bad news.  The bad news is this is happening while there are no corresponding gains in wages.

The stiff gains in food and energy costs in recent months has squeezed consumers, who are enjoying only tepid wage gains.

The department said that when adjusted for inflation, average weekly earnings fell 0.3 percent in April after declining 0.4 percent in March.

So we’re earning less while prices are rising.  This is not the best combination.  And it kind of diminishes the recent good news of the latest unemployment numbers.

Unemployment is Up

So how were the April jobs numbers?  Pretty good according to a lot of people (see Unemployment Numbers, Gas Prices Ease Economic Pain by Jim Avila, Alice Maggin and Michael Murray posted 5/7/2011 on ABC News).

Americans have been delivered a steady stream of encouraging economic news. Private employers went on an April hiring spree, adding 260,000 jobs, the strongest gain in five years and the third month in a row of at least 200,000 new jobs.

The unemployment rate rose to 9 percent in April from 8.8 percent, but even that figure is considered a temporary quirk, according to The Associated Press.

So the good news is that we added 260,000 jobs.  The bad news is that the unemployment rate increased from 8.8% to 9%.  Interesting.  We added jobs.  Yet more people are unemployed.  Again, I guess it depends on the spin.  This was a pretty positive spin.  Now let’s look at a not so positive spin (see Jobs Numbers Explained: Employers Add 244,000, But Unemployment Ticks Up by Dan Arnall posted 5/6/2011 on ABC News).

The broader unemployment rate, which includes people who took part-time work when they wanted full-time or were just not looking because they didn’t believe there was a job out there is now at 15.9 percent (or 24 million). That’s actually pretty good as this measure – called the U-6 – was at 17 percent a year ago.

Actually, this is a pretty positive spin on some pretty bad news.  A more realistic unemployment number is 15.9% (the U-6), not the rosy 9% (U-3).  But U-6 fell from the higher rate of 17% a year ago.  Good news, yes?  Still, 15.9% is high.  But it is not Great Depression high.  When unemployment was at 25%.  So the 9% is rosy because it is only 36% of the Great Depression unemployment rate.  But the more realistic 15.9% is far less rosy considering it is 64% of the Great Depression rate.

Entitlement Programs are going Broke faster than Projected

The economic outlook isn’t very rosy right now.  So can the news be any worse?  Yes.  It can (see Social Security deficits now ‘permanent’ by Stephen Dinan posted 5/13/2011 on The Washington Times).

Social Security will run a permanent yearly deficit when looking at the program’s tax revenues compared to what it must pay out in benefits, the program’s trustees said Friday in a report that found both the outlook for Social Security and Medicare, the two major federal social safety-net programs, have worsened over the last year.

Medicare’s hospital insurance trust fund is now slated to run out of money in 2024, or five years earlier than last year’s projection, while Social Security’s trust fund will be exhausted by 2036, a year earlier than the prior projection.

The trustees stressed that exhaustion of the trust funds doesn’t mean the programs will stop paying all benefits. Social Security could fund about three-fourths of benefits past 2036, and Medicare could pay 90 percent of benefits past 2024 under current trends.

This can’t be good.  No matter how you spin it.  These programs have been rescued through the years because of a fundamental flaw.  People are living longer than ever imagined.  And we’ve been having fewer babies.  Put the two together and you have a growing number of old people being paid for by a shrinking number of younger people.  And the only way to fix these problems is with entitlement reform.  Which, of course, no one wants to do because too many seniors vote.  There’s a reason they call these programs ‘third rails’.  You cut them and you will likely cut your political career short.

To leave them as-is will require higher taxes.  Or higher tax receipts generated by a booming economy.  We don’t have the latter.  And if we do the former we’ll definitely not have the latter.  Which leaves entitlement reform.

It’s the Economy, Stupid

You put all this together and what do you get?  A bad time to run for reelection.  Jimmy Carter ran into the same problems.  High unemployment.  And high inflation.  Stagflation.  You add the two rates together and you get the misery index.  And if inflation trends higher, Obama could find himself in Carter’s shoes.  Add to that as being the president who cut entitlements.  Or exploded the deficit to pay for unreformed entitlements. 

It’s the economy, stupid.  Always.  It made George H.W. Bush a single term president.  As well as Jimmy Carter.  Will the worst economy since the Great Depression do the same to President Obama?  Guess we’ll soon find out.

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It’s Entitlement Reform or Bust. Literally.

Posted by PITHOCRATES - April 27th, 2011

Boehner not Wedded to Ryan’s plan to Reform Medicare

Just when you thought someone was getting serious about addressing the 800 pound gorilla in the room.  That thing that is driving this car into the ditch.  Entitlement spending.  Unsustainable entitlement spending.  The young guns laid down a bold plan.  But the old guard is now backing away from it (see Boehner: ‘Not Wedded’ to Ryan Plan for Medicare by Danny Yadron posted 4/26/2011 on The Wall Street Journal).

House Speaker John Boehner (R., Ohio) said he is “not wedded” to Mr. Ryan’s plan to redo Medicare. “Paul Ryan has an idea that’s certainly worth consideration,” Mr. Boehner said in an interview with ABC News. “I’m for it. It’s our idea. It’s Paul [Ryan]’s idea. Now other people have other ideas. I’m not wedded to one single idea.”

For crying out loud, who do you gotta sleep with to get some entitlement reform around here?

This is why the Founding Fathers did not include Entitlements in the Constitution

Somebody needs to do something with Medicare and fast.  Because the current entitlement spending (the biggest chunk of which is Medicare) is going to bankrupt the United States.  The Heritage Foundation has published a new book chock full of charts (some of which they crunched from 2008 tax data).  If you’re looking for a good book to curl up with on a rainy night, this isn’t it.  But if you want to make some sense out of all these numbers being thrown around out there, this is a must read. 

Based on current projections, by 2049 spending on Social Security, Medicaid, Obama Subsidy Program and Medicare will consume all tax receipts, leaving nothing else to pay for military spending or interest on the debt (see Entitlements Will Consume All Tax Revenues by 2049 from The Heritage Foundation 2011 Budget Chart Book).

If the average historical level of tax revenue is extended, spending on Medicare, Medicaid and the Obamacare subsidy program, and Social Security will consume all revenues by 2049. Because entitlement spending is funded on autopilot, no revenue will be left to pay for other government spending, including constitutional functions such as defense.

Sure, some may not care that the military will be completely defunded.  But at the rate of growth of this entitlement spending on ‘autopilot’, we won’t be able to pay that other great expense.  Interest on the federal debt.  And that’s a big deal.  For it’s what everyone is talking about right now.  Now that we’re fast approaching the legal debt ceiling.  If we don’t raise it, the Obama administration claims, we’ll destroy the credit worthiness of the nation (see Treasury quietly plans for failure to raise debt ceiling by Lori Montgomery and Brady Dennis posted 4/26/2011 on The Washington Post).

The White House is warning that catastrophe will strike if Congress fails to raise the limit on the national debt: With too little cash to pay creditors, the U.S. government would default. Interest rates would skyrocket. And the economic recovery would collapse.

So, yeah, this entitlement spending is pretty serious.  If unchecked, its growth will make it impossible to pay for defense and interest on our debt.  And continuous deficit spending adds more and more to the debt.  Other than a spike during World War II, the national debt as a percentage of GDP was at or below 50%.  Obama has taken that above 50% for the first time since FDR.  And then it just soars after that.  By 2050 they project it to be 344% of GDP (see National Debt Set to Skyrocket from The Heritage Foundation 2011 Budget Chart Book).

In the past, wars and the Great Depression contributed to rapid but temporary increases in the national debt. Over the next few decades, runaway spending on Medicare, Medicaid, and Social Security will drive the debt to unsustainable levels.

Of course, a trillion dollar stimulus or two and a national health care program only compounds the problem.  Even Obama is now saying we can’t spend more than we have, implying that we’re just not taxing the people enough for the current level of spending.  But it’s not a lack of taxing that caused the problem.  It’s the orgy of spending that is (see Runaway Spending, Not Inadequate Tax Revenue, Is Responsible for Future Deficits from The Heritage Foundation 2011 Budget Chart Book).

The main driver behind long-term deficits is government spending[,] not low revenues. While revenue will surpass its historical average of 18.0 percent of GDP by 2021, spending will shoot past its historical average of 20.3 percent, reaching 26.4 percent in the same year.

But didn’t we cause the deficit by letting the rich not pay their fair share of taxes?  George W. Bush gave the rich unfair tax breaks.  And President Obama renewed the tax breaks for the rich.  It seems to me that if we would only stop the free ride of the rich we could solve a lot of our fiscal problems.  I mean, just how much are these cheap bastards paying anyway? 

Well, funny you should ask.  Because they’re paying a lot.  The top 1%, the richest of the rich (those earning $380,354+ annually)?  These cheap bastards are paying 38.02% of all federal income taxes.  The top 10% (those earning $113,799+ annually)?  These cheap bastards pay 69.94% of all federal income taxes.  It appears that these cheap bastards aren’t all that cheap after all.  The rich are paying the lion’s share of all federal income taxes.  While the bottom 50% (those earning $33,048 or less annually) are only paying 2.7% of all federal income taxes (see The Top 10 Percent of Earners Paid 70 Percent of Federal Income Taxes from The Heritage Foundation 2011 Budget Chart Book).

Top earners are the target for new tax increases, but the U.S. tax system is already highly progressive. The top 1 percent of income earners paid 38 percent of all federal income taxes in 2008, while the bottom 50 percent paid only 3 percent. Forty-nine percent of U.S. households paid no federal income tax at all.

It’s the entitlements, stupid.  They’re breaking the bank.  When the Founding Fathers wrote the Constitution there wasn’t any entitlement spending in it.  Why?  Because they didn’t want them in the Constitution.  It wasn’t in their plan for the federal government.  Why?  Because they all feared what would happen when people started voting themselves money from the federal treasury.  Franklin warned that it would be the end of the republic.  You see, he said if we started doing that we would eventually end up exactly where we are.  Wise man, that Franklin.  As were all the Founding Fathers.  They knew better than to give us a democracy.  They wanted people who knew better (or should know better) between the people and the treasury.  So that some demagogue couldn’t come along and promise federal benefits in exchange for votes.  Like they do today.  And plan to do until the country spends itself into the ground.  Obama’s 2012 budget calls for entitlement spending that consume 58% of the entire budget (see More Than Half of the President’s Budget Would Be Spent on Entitlement Programs from The Heritage Foundation 2011 Budget Chart Book).

In combination with other entitlements, Medicare, Medicaid, and Social Security constitute the lion’s share of President Obama’s 2012 budget. In contrast, spending on foreign aid represents 2 percent.

That’s an infinity percent increase ((58%-0%)/0%) since 1787.   For something the Founding Fathers didn’t want the federal government to do.  And trying to pay for this is forcing the nation into a “catastrophe.”  If they were alive today they’d probably say, “See, I told you so, you stupid sons of bitches.  And, by the way, thanks for taking our gift to you and destroying it in a little over 200 years.  Makes those 8 years of the Revolution all the more worth it.  You should have listened to us.  But no!  What do we know?  The English Civil War, the Enlightenment, the Magna Carta…what are these?  Sure, they influenced us.  But what do they mean to you?  Probably about as much as our constitution.  Whatever the hell you want it to mean.  Because it’s a ‘living document’.  “Sure, the Founding Fathers wrote this but they meant something completely different.”  Oh, did we?  How interesting.  We were so stupid we didn’t even know how stupid we were.  Gee, thanks for pointing that out to us.  You ungrateful sons of bitches.”

Or something like that.

American Civil War II

Everyone knows we have a problem with entitlement spending.  It will eventually bankrupt the United States.  We all know it has to be reformed.  But no one wants to because it may cost votes.  You see, you don’t buy votes by taking money back.  You buy votes by giving money away.  So everyone just kicks the can down the road.  All the while the cost of reform grows ever higher.  Much like it did in the first half of the 19th century.  When we kept kicking another can down the road.  Always trying to find a compromise to fix things for today.  And letting someone else worry about tomorrow.  I’m sure you know what I’m talking about.  If you don’t, here’s a hint.  That problem ended about 150 years ago.  At the conclusion of the American Civil War.

We have a growing underclass that pays no income taxes that is now half of the population.  We have a small middle class/rich that is paying most of the taxes.  And a ruling elite.  Kind of reminds me of another civil war.  The French Revolution.  So it is not inconceivable that our class warfare could turn into actual warfare.  There was civil strife in Greece when they went bankrupt.  But the European Union bailed them out.  The question here is who will bail out the United States?  Or, rather, who can bail out the United States?  For, at the moment, it doesn’t look like anyone can.

Speaking in worst case scenarios, it may become necessary to rewrite our history books.  We will have to revise the American Civil War to the American Civil War I (1861-1865).  To differentiate it from the American Civil War II.  Whose start and end dates have yet to be determined.

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The Battle to Raise the Debt Limit Begins

Posted by PITHOCRATES - April 11th, 2011

Like Sumter, the Budget Compromise is only the Beginning

The next big congressional battle will be over the debt ceiling.  Which will set the stage for entitlement reform.  And being that this is the sesquicentennial of the opening shot of the Civil War, how about a little Civil War analogy?  About 150 years ago today General Beauregard ordered his canon to open fire on Fort Sumter.  The Union surrendered the fort.  There were about 10 casualties.

The first major land battle of the Civil War was the First Battle of Bull Run (aka, the First Battle of Manassas).  The military then still used Napoleonic tactics.  Armies formed in line, fired and advanced with bayonets amidst cannon fire, drums and regimental colors.  It was quite the spectacle.  The good people of Washington DC planned to make a picnic of it.  They would watch a couple of musket volleys and charges, see one army retire from the field of battle and then go home.  The battle did not progress quite that way.

Though we were still using Napoleonic tactics, we were not using Napoleonic smooth bore muskets any longer.  The effective range of the new rifled muskets was almost three times that of the smooth bores.  So as these men marched to close ranks with the enemy with their bayonets at the ready, the enemy fired accurate volleys into their lines.  The picnickers were shocked by the carnage.   When the Union Army was driven from the field of battle, the roads back to Washington were jammed with picnickers and soldiers alike fleeing for their lives.  There were just under 5,000 total casualties.  A pall hung over the nation.  No one expected the war to be this bad.  Then, about 9 months later, the Battle of Shiloh (aka, the Battle of Pittsburg Landing) saw just over 23,000 total casualties in two days of fighting.  Three months later, the Battle of Antietam (aka, the Battle of Sharpsburg) saw just over 22,000 casualties in a single day of fighting.  About a year later the Battle of Gettysburg saw close to 50,000 in total casualties over three days.

Now comparing political debates with Civil War battles dishonors those who fought those battles.  But because it’s the sesquicentennial, I will do so just for history’s sake.  Besides, politicians like to use war metaphors all of the time.  Even those opposed to the military.  The budget deal recently passed is like the Battle of Fort Sumter.  The battle over the debt ceiling will be like the Battle of Shiloh.  And entitlement reform will be like the three days of Gettysburg.  In other words, though they act like they just went to hell and back over this budget compromise, they ain’t seen nothing yet.

You Fix a Spending Problem by Spending Less, not More

House Speaker John Boehner pulled off a miracle of compromise.  Or some are saying.  While others are saying he caved (see John Boehner’s real tea party test by Chris Cillizza posted 4/11/2011 on The Washington Post).

House Speaker John Boehner is being widely credited as having emerged victorious from last week’s budget showdown — receiving kudos for extracting nearly $40 billion in budget cuts and uniting a fractious tea party behind the compromise bill.

But, the real test of Boehner’s abilities as a party leader will come next month when Congress begins debate on raising the federal debt ceiling.

Because of a fractious Republican Party.  The Tea Party wants serious cuts.  Because that’s why they got elected.  Meanwhile, the old guard doesn’t.  They may disagree with the liberals in theory but they want to be part of the same Washington establishment.  The liberals have the best parties.  With the best celebrities.  And the old guard wants to enjoy that life.

On this issue, at least, the American people side with the Tea Party.

In an NBC/Wall Street Journal poll released last week, just 16 percent of people said the government should raise the ceiling while 46 percent opposed the idea and 38 percent said they didn’t know enough about it to offer an opinion.

Probing deeper, just 32 percent agreed with the statement that the debt limit increase was necessary to avoid the country being “unable to pay the nation’s bills” while 62 percent said that [they] agreed with the statement that such a vote would “make it harder to get the government’s financiaol [sic] house in order”.

Some may not understand the intricacies of the federal budget.  But they do seem to know that when you have a spending problem, you don’t solve it by asking the credit card companies to raise your credit limit.  People know that you fix a spending problem by spending less.  Not more.

But, judging from the concessions people like Rubio have laid out for a deal to be done — tax reform, regulatory reform, a balanced-budget amendment and entitlement reform — it’s hard to imagine the White House being able to give enough to make that sort of compromise possible.

And, all of that means that the burden will presumably be on Boehner to cut a deal that can garner 218 votes in the House while also avoiding a potential filibuster in the Senate from the likes of Rubio or South Carolina Sen. Jim DeMint.

President Obama is a tax and spend liberal.  He’s not going to cede any ground on big cuts.  So Boehner will have to see how little in cuts the Tea Party will accept to vote to increase the debt ceiling.  And that will be a tough sell.  Because they want meaningful cuts.  But that’s something a tax and spend liberal just can’t do.

So as the nation is jubilant over the budget compromise that kept the federal government open, a longer, more bitter and far more partisan battle awaits them.  Which means the sides will entrench.  They will refuse to give ground.  And the compromise we’ll probably get will be similar to the many ones reached over slavery.  Which made the ultimate day of reckoning on that issue far more costly than anyone had ever imagined.

A History of Kicking the can down the Road

With sesquicentennial fever in the air, a 4th grade teacher tries to bring to life the issue that caused the nation to go to war (see Va. teacher holds mock slave auction by Kevin Sieff posted 4/33/2011 on The Washington Post).

Trying to bring a Civil War history lesson to life, [a] teacher…turned her fourth grade Norfolk classroom into a slave auction: She ordered black and mixed race students to one side of the classroom. Then, the white students took turns buying them…

Sewells Point’s fourth grade class is about 40 percent black and 40 percent white.

Though an interesting experiment, she unfortunately made it purely a racial issue.  Which is historically wrong.  There were a lot of whites in the south.  But only a few of them owned the big plantations where the majority of slavery existed.  She should have had only a few of the white children buying slaves.  And she should have identified them as the rich planter elite.  Who was also the driving force behind southern politics.  The other whites should have been identified as poor southerners working on small family farms without any slaves.

Then she could have pointed to the planter elite and said their wealth and political power depended on slavery.  Because all that cotton wasn’t going to pick itself.  Which is why they cited the North’s hostile attitude toward the institution of slavery in their secession documents.  They told everyone else it was about states’ rights.  But it wasn’t.  For the planter elite didn’t respect states’ rights in the North.  The North didn’t want to return fugitive slaves.  So the planter elite demanded the federal government pass the Fugitive Slave Act to override states’ rights in the North.  And force them to return their slaves. 

The debate over slavery was always controversial.  The Southern economy was entrenched in it.  The only way they’d join the Union was with their slaves.  So the issue was tabled for 20 years.  The Founding Fathers hoped the institution would just go away.  And it might have.  If it hadn’t been for Eli Whitney‘s cotton gin.  Because of the amount of cotton it could process, the southern plantations grew.  As did the number of slaves.  And the problem just continued to grow.  The cost to reimburse the plantation owners for the slaves they purchased legally grew too great to even consider.  The North didn’t want to pay that cost.  Slavery was a Southern problem.  And the slave population grew so large that no one wanted to address a post-slavery biracial society.  Because there were none then.  But there were slave uprisings.  And the South feared that a freed slave may try to exact a little revenge on their former master.  So the problem was kicked down the road for someone else to solve.  Until it couldn’t be kicked anymore.

This is where we are in our budget debate.  We’ve kicked that can down the road so many times that federal spending has grown out of control.  Now we’re entering European sovereign debt crisis territory.  And we’ve seen what has happened over there.  It’s a little different over here, though.  Germany and the other financially strong members of the European Union can bail out a Greece, an Ireland, a Portugal, etc.  But who is going to bail out the world’s largest economy?  Don’t spend too much time on that question.  Because there isn’t anyone big enough to bail us out.

Unfortunately, you win Elections with Spending, not with Spending Cuts

History often shows us that the longer we wait to address a problem, the harder and more costly it is to fix that problem.  And yet here we are.  With far too many people in Washington willing to just keep kicking that can down the road.

Interestingly, two who support raising the debt ceiling now were dead set against it at an earlier time.  When George W. Bush was in the White House.  Of course, then Senator Barack Obama was playing pure partisan politics and attacked George W. Bush on everything.  He regrets that vote now.  Because his hypocrisy makes him look partisan and naïve.  Harry Reid also had a hypocritical partisan position on this issue.  Bush spent irresponsibly and it was wrong to raise the debt ceiling.  Obama has spent even more in less time.  But now raising the debt ceiling is the right thing to do.  Go figure.

That recent budget compromise?  It was but a minor skirmish in a long war to come.  And though there was a lot of nasty political rhetoric, the battles to come won’t be as nice.  The Republicans will try to make meaningful cuts.  And Democrats will say that they just want to kill women, children and the elderly.  Knowing full well that the cuts being requested by the Republicans are necessary.  But you don’t win elections with cuts.  You win them by spending money.  So they will resist those cuts.  And try their damnedest to kick this can down the road.

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