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.

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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.

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Debt Ceiling Debate is Masking the Horrific Economic News

Posted by PITHOCRATES - July 29th, 2011

The Meaning of Bipartisan Depends on your Point of View; on the Right it means Compromise whereas on the Left it means Unconditional Surrender.

In the budget debate to raise the debt ceiling, both sides have dug in.  The Left says the Right is being intransigent.  Saying they are unwilling to compromise.  Even though they have done far less in the compromise department themselves.  They want to raise taxes.  They want to borrow more.  And they will not compromise on these positions.  They refuse to pass any Republican bill in the Senate (and President Obama says he will veto any bill that makes it through the Senate) unless it completely gives way to the Democrat position. 

All the while this theatre is playing out credit rating agencies are lining up to downgrade U.S. sovereign debt due to excessive deficits, debt and out of control government spending.  Unless they see at least $4 trillion in real spending cuts (not promised cuts that never happen or baseline ‘spending cuts’ that still increase spending), the downgrades are a fait accompli.  At least according to an S&P report.

If they’re that Bad at Analyzing Data do we really want them Tweaking the Economy?

As cheerful as all that is at least we can look forward to some upbeat economic news.  Just like Obama, Biden, Bernanke, Geithner, et al have been promising with all their economic tweaks to win the future.  And the result of all that vey extensive and very expensive tweaking?  Hmm.  What would be a good choice of words?  How about abject failure (see Economy in U.S. Grows Less Than Forecast After Almost Stalling by Shobhana Chandra posted 7/29/2011 on Bloomberg)? 

Revisions to GDP figures going back to 2003 showed that the 2007-2009 recession took a bigger bite out of the economy than previously estimated and the recovery lost momentum throughout 2010. The world’s largest economy shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop. The second-worst contraction in the post-World War II era was a 3.7 percent decline in 1957-58.

The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 2.1 percent pace, the most since the last three months of 2009, compared with 1.6 percent in the first quarter, as higher oil and food costs pushed up the prices of other goods and services. The central bank’s longer-term projection is a range of 1.7 percent to 2 percent.

“This is the worst of all worlds for investors, certainly the worst of all worlds for the Fed,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in an interview on Bloomberg Television. “A little too much inflation, not enough growth, that is a tough scenario in the U.S.”

Of course, they’ll say it was even worse than they thought.  Again.  Blame George W. Bush.  Again.  Which doesn’t fill one with a lot of confidence.  For if they’re that bad at analyzing data, do we really want them tweaking the economy?

Still, they keep telling us how bad things would have been if they didn’t act?  Why, there’d be dingoes running in the streets eating our babies.  To be honest, we’re tired of hearing about how many jobs they created and saved.  We’d probably be further ahead today if we’d taken the chance with the dingoes and they left the economy alone.

The Obama Social Engineering is giving us Carter Stagflation

Inflation.  And low GDP growth.  That is a horrible combination.  But it’s what you get when you try to use monetary policy to fix fiscal problems (see Forget About The Debt Ceiling Debate, Where’s The Economic Growth? by Kevin Mahin posted 7/29/2011 on Forbes). 

I recognize that the debt ceiling debate may make for interesting political theatre for some.  I also recognize that the spending and revenue issues underlying the debate need to be addressed sooner than later.  However,  the heightened threat of stagflation*, now present in the system, is of paramount concern to me.

*Stagflation is a financial term often used to describe an environment where inflation (i.e. prices) is high and economic growth is low.  Periods of stagflation have historically been accompanied by high unemployment as well.

We are fast approaching the malaise of the Carter stagflation.  We need fiscal policy that is conducive to creating jobs.  Instead, this administration is more concerned about social engineering at the expense of job creation.

Killing the American Automotive Industry and Killing Americans

For all the talk about the auto bailouts to save American jobs, the latest policy appears to want to kill American jobs.  When the auto industry is suffering anemic growth, the Obama administration just made it harder to be in the auto industry by raising fuel efficiency standards to 54.5 miles per gallon by 2025 (see Obama to unveil auto fuel rule deal by David Shepardson posted 7/29/2011 on The Detroit News). 

The deal would extend a May 2009 agreement that boosted fuel efficiency standards to 34.1 mpg by 2016, costing the auto industry $51.5 billion over five years.

In the current budget debates, Obama keeps saying that because of the slow economic recovery we shouldn’t go on a cost cutting spree.  That would only pull consumer spending out of the economy.  Of course he has no such empathy for the struggling auto industry.  He’s more than willing to raise their cost of doing business.  Killing jobs in the process.

Incidentally, there are only two ways to squeeze this kind of mileage out of a car.  Making it so light that it (and its passengers) would probably not survive most accidents.  Or being unable to build a car to meet this standard.

Gas Prices must Rise to between $4.50-$5.50 for the Electric Car to Succeed

But what on earth would be the reason to enact standards that automakers can’t meet?  Well, how about this (see Gas must hit $4.50 to make electric cars cost-effective by Joel Gehrke posted 7/29/2011 on the Washington Examiner)? 

Gas prices must rise to between $4.50-$5.50, the study authors suggest, for electric vehicles to become less expensive to own than gas-powered vehicles…

Of course, this omits the other method of making electric cars competitive — enact fuel efficiency standards that make gas-powered vehicles illegal to make or impossibly expensive. Given President Obama’s announcement today that fuel economy standards are set to rise to 54.5 mpg between 2017 and 2025, it seems that the electric vehicle industry is getting the government props necessary to make consumers buy the cars.

This is not how you increase domestic auto output.  Or create jobs.  This is how you change human behavior.  By forcing people to act against their will.  And in the process making us all poorer by increasing the cost of food.  How?  Gasoline and diesel are a big component of food costs.  For it takes fuel to grow food.  And to bring it to market.

The One Thing the Obama Administration is Good At

It makes you think.  Is all of this debt ceiling debate pure theatre to distract us from the destruction of the economy?  Because this destruction is pretty good as far as destruction goes.  You probably couldn’t have done a better job if you tried.  Which begs the question was this all planned?  A social reengineering of the United States brought about by the destruction of the U.S. economy? 

If so, at least you can say there was one thing the Obama administration was good at.

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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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Unemployment, High Taxes, Obamacare, Uncertainty, Public Sectors and a Snow Crisis

Posted by PITHOCRATES - January 3rd, 2011

Obama Saves our Economy with 10% Unemployment and Job Killing Obamacare

The departing White House economist, Larry Summers, says that if it wasn’t for President Obama, the economy would be in a mess.  Unlike the near 10% unemployment stagnant cesspool it currently is.  Others say he may have stabilized the economy, but he is smothering the recovery because of the patent anti-business policies of the Obama Administration (see Judging Obama’s economics by Robert J. Samuelson posted 1/3/2011 on The Washington Post).

The trouble is that Obama, having stabilized the economy, weakened the recovery. What’s missing from Summers’s valedictory is any sense of contradiction between the administration’s ambitious social and regulatory agenda and the business confidence necessary for hiring and investing. Of course, the connections existed. The health-care law raises hiring costs by requiring in 2014 that all firms with more than 50 employees provide health insurance or be fined. The law brims with complexities and uncertainties that make it hard to estimate the ultimate costs. Will firms with, say, 47 workers eagerly expand beyond 50 if that imposes all the extra costs? It seems doubtful.

Woe to the business owner after 2 years of President Obama.  Obamacare.  It’s going to cost business big.  But how big no one knows.  Even the people who wrote that monstrosity.  As Dave Barry so eloquently wrote (see Dave Barry’s 2010 Year in Review posted 1/3/2011 in the Miami Herald).

The centerpiece of this effort is a historic bill that will either (a) guarantee everybody excellent free health care, or (b) permit federal bureaucrats to club old people to death. Nobody knows which, because nobody has read the bill, which in printed form has the same mass as a UPS truck.

In a word, uncertainty.  It’s anyone’s guess.  And that’s a pretty big variable to put into a business plan.  Better to circle the wagons and wait and see.  And by wait and see I mean don’t expand.  Don’t build.  Don’t hire.

But just think how worse things would be if it wasn’t for Obama.

High Unemployment and High Taxes – They Usually go Together

And this on top of some of the highest corporate tax rates in the world (see Pat Toomey says U.S. has highest corporate tax rates in the world posted 1/3/2011 on The St. Petersburg Times’ Politifact).

On the Jan. 2, 2011, edition of NBC’s Meet the Press, Sen.-elect Pat Toomey, R-Pa., cited a striking statistic in urging the United States to lower its corporate tax rates.

That striking statistic?

“We should be lowering corporate tax rates because we have the highest in the world right now.”

They fact checked.  There are different taxes to look at (statutory, effective, excise, payroll, etc.).  Their conclusion?

Still, if you rate Toomey on his specific wording by looking at “corporate tax rates,” he’s right that the U.S. does now have the highest corporate tax rates on the books, at least among the biggest industrialized democracies, which is most economists’ typical yardstick. So we rate his statement Mostly True.

Uncertainty.  High taxes.  And they wonder why unemployment hovers at 10%.

Tax and Spend Creates Business Uncertainty

And taxes won’t be coming down any time soon with the Obama administration.  The national debt has never been higher (see National Debt Tops $14 Trillion by Mark Knoller posted 1/3/2011 on CBS News).  And the Obama administration wants to raise the debt ceiling.  Because they want to keep on spending. 

You need to pay for spending.  With debt, printing or taxes.  All of which will add cost to business.  More debt increases interest rates.  Printing money causes price inflation.  Taxes just plain add costs.  And they pass all those costs on to you.  The consumer.

But it’s the uncertainty that plagues business. Yes, it’s bad.  But will it get worse?  Probably.  So business hunkers down.  They don’t expand.  They don’t build.  And they don’t hire.    Not for the indefinite future.  Until they have some sense of what’s to come. 

To Save Obamacare Obama Tries to Hide the Facts

Even the Obama administration know they’re not helping the economy.  And they know that Obamacare is a train wreck.  So they’re doing everything they can to lie to the people.  To get their propaganda front and center.  How?  They’re paying Google with our tax dollars to alter ‘Obamacare’ search results (see HHS is Paying Google with Taxpayer Money to Alter ‘Obamacare’ Search Results by Jeffrey H. Anderson posted 1/3/2011 on the Weekly Standard).

Obamacare is bad.  Even they know it.  So they’re trying to control Internet content.  Scary, isn’t it?  Censorship can’t be far behind.

A Snow Crisis is a Terrible Thing to Waste

FDR exploded the size of Big Government.  He gave birth to the nanny state.  But one thing he didn’t do was to neuter private business.  And empower the public sector employees.  He knew if you were going to partner with Big Labor you needed big taxes.  You get big taxes from businesses.  And from their employees.  In other words, it all trickles down from business.  If you shut down business, you shut down everything.

Today, though, it’s all different.  They don’t just take from business. They eviscerate business.  To feed the public sector.  Who produce nothing.  They just consume tax dollars.  And live a far better life than you or I.  Case in point, the NYC blizzard (see Sanitation Department’s slow snow cleanup was a budget protest by Sally Goldenberg, Larry Celona and Josh Margolin posted 12/30/2010 on the New York Post).

Selfish Sanitation Department bosses from the snow-slammed outer boroughs ordered their drivers to snarl the blizzard cleanup to protest budget cuts — a disastrous move that turned streets into a minefield for emergency-services vehicles, The Post has learned.

That’s your public sector.  When the mayor forces them to live like the rest of us they protest vehemently.  Taking advantage of a crisis, they paralyze a city.  Prevent emergency services from using the streets.  Because they’re not happy with wage and benefit packages similar to the private sector.  So they protest.  And ask for our support in their struggle against unfair labor practices the mayor is using against them.

Solidarity, Brother?  Or are you Giving me the Finger?

Even their union brethren have had enough.  And that says a lot (see Labor’s Coming Class War by William McGurn posted 1/4/2011 on The Wall Street Journal).

In theory, of course, organized labor is all about fraternal solidarity. For many years, it is true, private-sector unions supported collective-bargaining rights and better benefits for government workers, while public-employee unions supported the private-sector unions in their opposition to legislation such as the North American Free Trade Agreement in the 1990s.

Suddenly, it’s a different world. In this recession, for example, construction workers are suffering from unemployment levels roughly double the national rate, according to a recent analysis of federal jobs data by the Associated General Contractors of America. They are relearning, the hard way, that without a growing economy, all the labor-friendly laws and regulations in the world won’t keep them working.

The union trades are among the biggest group of laid off workers.  And while they sit unemployed waiting to pick up a call, the public sector goes on.  Living extremely well.  And the high taxes to pay those fat wage and benefit packages are killing business.  The very business they need to build stuff.

What’s more, “blue-collar union workers are beginning to appreciate that the generous pensions and health benefits going to their counterparts in state and local government are coming out of their pockets,” says Steven Malanga, a senior fellow at the Manhattan Institute. “Not only that, they are beginning to understand the dysfunctional relationship between collective bargaining for government employees and their own job prospects.”

And while the public sector bitches about pay cuts in their jobs, unemployment soars among the union trades.  I once complained about my wage and benefits until I met the man who had none.  So don’t go looking for the solidarity on the picket lines.

Over in New York, meanwhile, newly inaugurated Gov. Andrew Cuomo faces a similar battle. Mr. Cuomo campaigned on a cap on property taxes and a freeze on state salaries, both anathema to the powerful state-employee unions. As the New York Times reported last month, however, in this showdown Mr. Cuomo may have found a surprising ally in the 100,000- member Building and Construction Trades Council of Greater New York. Maybe not so surprising: The Times says unemployment for these workers is running at 20%.

These union employees at least provide value.  They build things.  And build them very well.  Sure, you can say some are overpaid.  And maybe some are.  But one thing you can’t say is that they haven’t been sharing any of the sacrifice during these down times.  Unlike their public sector brethren. 

In some ways, this new appreciation for the private sector is simply back to the future. FDR, for example, warned in 1937 that collective bargaining “cannot be transplanted into the public service.” In the old days, unions understood economic growth. Mr. Malanga points to AFL-CIO President George Meany’s strong support for the JFK tax cuts as an example.

These days the two types of worker inhabit two very different worlds. In the private sector, union workers increasingly pay for more of their own health care, and they have defined contribution pension plans such as 401(k)s. In this they have something fundamental in common even with the fat cats on Wall Street: Both need their companies to succeed.

By contrast, government unions use their political clout to elect those who set their pay: the politicians. In exchange, these unions are rewarded with contracts whose pension and health-care provisions now threaten many municipalities and states with bankruptcy. In response to the crisis, government unions demand more and higher taxes. Which of course makes people who have money less inclined to look to those states to make the investments that create jobs for, say, iron workers, electricians and construction workers.

Big Government and the Public Sector can’t Exist without Business

To tax and spend you need big piles of tax money.  Which anti-business policies won’t give you.  And raising tax rates will hurt business and consumers alike.  Which also won’t give you big piles of tax money.  Ditto for excessive government debt and printing money.  They all kill economic activity.  And we’re killing our economy.  Which is shrinking that pile of tax money.  And this is causing cities and states budget problems.  Requiring a reckoning with their public sector employees.  Which is going so badly that the public sector unions are now finding themselves an island unto themselves.  No one is feeling pity for these pampered prima donnas.  Even their fellow union workers in the building trades are abandoning them.

Things are bad.  But they can get worse.  If we try to bail out the public sector.  We do that and we’ll end up like Greece.  The only difference being that there won’t be anyone to bail us out.  So that’s not an option.  We have to cut spending.  Before we end up like Greece. 

We need to repeal Obamacare.  Cut taxes.  And stop attacking business.  If we want jobs.  And prosperity.  For one fundamental truth in life is that business can exist without the public sector.  But the public sector can’t exist without business.  Someone has to pay all those taxes.

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Democrats Seek to Increase the Debt Ceiling, Republicans Prefer Spending Cuts

Posted by PITHOCRATES - January 2nd, 2011

Obamacare Push the Deficit Higher than Reagan’s and Bush’s Combined

Ronald Reagan had deficits of $200 billion.  The Left said that was reckless and irresponsible.  George W. Bush averaged $800 billion deficits.  The Left said that was reckless and irresponsible.  Now Obama’s deficits approach $1,500 billion.  And the Left says, “Let’s raise the debt ceiling.”

It’s a reckless and irresponsible game Obama, Pelosi and Reid have been playing.  During the worst recession since the Great Depression they have gone on a spending orgy.  Hoping to pass as much as possible in as short of time as possible.  The goal being simple.  Get as many people as possible addicted to this new government spending.  Make it political suicide for the opposition to repeal.  Thereby giving the Democrats yet more things to frighten voters about should Republicans win elections.  That those rascally Republicans will take away those benefits they fought so hard to give them.

But they have increased spending to levels impossible to sustain.  Medicaid is bankrupting the states.  Medicare and Social Security are bankrupting the nation.  Despite this, Obama, Pelosi and Reid passed Obamacare.  This on top of stimulus spending that stimulated nothing but unions and Democratic loyalists.  They’re selling bonds and printing money to feed this orgy of spending.  In the process mortgaging our future.  And making the United States credit worthiness on par with a subprime mortgage.

The Best Way to Stop a Spending Crisis is to Stop Spending

The Left is now concerned.  They see spending is unsustainable.  With the current debt ceiling.  So they want to raise the debt ceiling (see Obama aide: Debt limit fight could be “catastrophic” by Caren Bohan posted 1/2/2011 on Reuters).

White House economic adviser Austan Goolsbee accused Republicans of “playing chicken” with the nation’s financial credibility.

“This is not a game. You know, the debt ceiling … is not something to toy with,” Goolsbee told the ABC News program “This Week.” “If we hit the debt ceiling, that’s … essentially defaulting on our obligations, which is totally unprecedented in American history.”

“The impact on the economy would be catastrophic. I mean, that would be a worse financial economic crisis than anything we saw in 2008,” he said.

Interesting.  When we get ourselves in trouble by maxing out our credit cards, what do debt counselors tell us?  To solve our problem by getting another credit card so we can keep spending?  Or do they tell us to cut all of our credit cards and sell everything we own to pay our bills?

When spending gets you in trouble you stop spending.  You don’t keep spending.  It’s what we the people do.  And it’s what our government should do.  Because the nation, the states and even our cities are all having spending and debt problems.

Big Government Spending Destroys Some of our Biggest Cities

Big Government at every level is failing.  Destroying great cities in its wake (see American Cities That Are Running Out Of People by Michael B. Sauter posted 1/1/2011 on Yahoo! Finance).

New Orleans has lost more than a quarter of its population in the past 10 years as the result of Hurricane Katrina. The rest of the cities that have lost major parts of their population have seen their flagship industries, which include coal, steel, oil, and auto-related manufacturing, fall off or completely collapse.

The big losers?  Flint, Michigan.  Cleveland, Ohio.  Buffalo, N.Y.  Dayton, Ohio.  Pittsburgh, Pennsylvania.  Rochester, N.Y.  Big, blue cities.   Big labor unions.  And big public sectors.  Is there any surprise that these cities are dying?

Targeted Tax Cuts and Incentives Don’t Stimulate

The evidence is all around us.  Government spending may get you votes in November, but it is bankrupting the nation, the states and the cities.  And you don’t fix that problem with more taxing.  And more spending.  Even liberal Democrats know this (see Goolsbee: Obama to Make ‘Tough Choices’ on Budget by Mary Lu Carnevale posted 1/2/2011 on The Wall Street Journal).

Mr. Goolsbee, chairman of the White House Council of Economic Advisers, said on ABC’s “This Week” that the administration is focusing on spurring investment and improving U.S. exports and innovation to boost economic growth. And he said that steps already taken, such as cutting payroll taxes by two percentage points and giving small businesses new tax incentives, should soon provide some economic fuel.

They know that cutting taxes stimulates the economy.  They admit as much by cutting payroll taxes.  And by offering tax incentives.  But they target everything.  It’s never across the board.  Because across the board tax cuts don’t offer tit for tat.  And what good is a tax cut to a politician if it doesn’t get you something in return?

Repeal Obamacare, Forget about Raising the Debt Ceiling

Cutting taxes will stimulate the economy.  It worked for Harding.  For Kennedy.  For Reagan.  And for Bush.  Reagan doubled tax receipts with his cuts.  But he still had $200 billion deficits.  Why?  Because the Democratic Congress spent the money faster than it came in.  And they reneged on their promised spending cuts.  Lesson learned?  You have to cut spending.

There’s hope.  Thanks to the Republican ascendancy at the 2010 midterm elections.  The Republicans have the power of the purse.  And a lot of Democrats lost their seats for voting for Obamacare.  You add this up, and you can take tough words about repealing Obamacare seriously (see House to vote early on health care repeal by Jake Sherman posted 1/2/2011 on Politico Live).

Incoming House Energy and Commerce Chairman Fred Upton (R-Mich.) says the new Republican-controlled House will look to repeal Democratic health care overhaul legislation before President Barack Obama delivers his State of the Union address later this month.

“We have 242 Republicans,” Upton said on “Fox News Sunday.” “There will be a significant number of Democrats, I think, that will join us.”

Upton, whose committee will key in the GOP’s effort to roll back the law, said that he believes the House may be near the two-thirds majority required to override a presidential veto. Short of repeal, Upton said the House will “go after this bill piece by piece.”

Social Security, Medicare and Medicaid are political third rails.  Too many people are dependent on them for significant reform.  But Obamacare is a no brainer.  No one is dependent on it now.  Repealing that will be pain free.   Other than a bruised ego.  But Obama can get over that.  When he retires in 2012.

You repeal Obamacare and our debt crisis all of a sudden gets a whole lot easier to manage.  So let’s cut that credit card.  Before we build up a balance that we’ll never be able to pay off.

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