Free Markets, Free People

budget deficit


Some sanity, sad as it is

It’s not often one finds a dose of sanity in the New York Times. When one does, it should be celebrated, rather than ignored. In this case, the sanity comes from David Stockman, former budget director for President Reagan. His bottom line is no different than what I’ve been predicting since 2009. It’s just as gloomy:

[T]he Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

He calls it a state-wreck, which is exactly what it is. An arrogant government that thinks it can fix everything, help everyone, and create money out of nothing has corrupted the markets & political culture, and mortgaged our future.

Even now, the Fed, after two previous rounds of "monetary stimulus"—code words for creating en ever larger supply of "money"—is dumping $44 billion cash into the market every month. And where it going? Creating millions of new jobs? No. It’s just going to Wall Street, where the equity markets have hit an all-time high.

The wheels have been wobbling for the last five years. Sometime in the not-too-distant future, they’ll simply…come off, and then we shall see what we see.

Read the whole article. Save it. Print it out. Keep it. That way, you’ll be be able to show your children how the richest, most powerful nation in the history of the earth committed suicide.

~
Dale Franks
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Observations: The QandO Podcast for 02 Dec 12

This week, Bruce, Michael, and Dale discuss the Fiscal Cliff.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


Observations: The QandO Podcast for 02 Sep 12

This week, Bruce, Michael, and Dale talk about the Conventions and whether any of it will matter in the end.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.


The shape of things to come

The US Postal service has a financial problem.  That’s not a surprise, especially is a time when the entire US government has a financial problem.  Unlike the rest of the US government, the USPS is relatively limited in the amount of government money it can receive, and is more or less—and often less, granted—supposed to rely on postage to fund its operations. It still manages to get nice subsidies from the government, but even then it’s supposed to pay those back. Eventually.

In other respects, though, it operates like the rest of the government. Nice federal workers’ and union bennies, heavy bureaucracy, a monopoly on the service it provides, etc., etc. So, that makes it sort of a canary in the coal mine when it comes to government financing. Which makes this interesting:

The U.S. Postal Service would eliminate about 220,000 full-time jobs and shutter about 300 processing facilities by 2015 under a proposal to bring its finances in order, a postal official said on Friday.

The Postal Service needs to cut payrolls to about 425,000 employees and take over its retirement and health benefits instead of participating in federal programs, Postmaster General Patrick Donahoe told Reuters.

This will require abrogating union contracts on layoffs on retirements and health care, and restructuring its employment and benefit rules, close about 3,000 post offices, and contract out mail services to private organizations.

Naturally the unions are already screaming, as are some Democratic lawmakers.

*shrug*

Cry me a river. This is what financial reality looks like.  This is the reality that’s coming to the rest of the Federal government in the not-too-distant future. Get used to it.

~
Dale Franks
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Balancing the budget on the back of the military

The very same people who spent us into fiscal insolvency have now decided that the way to recover budget savings in the coming years is to radically reduce the military and its effectiveness by reducing military spending dramatically. Certainly there are savings to be had within the military-industrial complex. But not like this.

Rep. Barney Frank’s Sustainable Defense Task Force claims to have found almost a trillion dollars that can be “saved” over 9 years by taking a meat axe to the services. Highlights, or lowlights if you prefer, of the 56 page document include:

-Reduction of the Navy from 12 planned aircraft carriers to 8 and 7 air wings.

-Reduction of the ballistic missile submarine force from the planned 14 to 6.

-Reduction of the nuclear attack submarines being built by half leaving 40 by 2020.

-4 active guided missile submarines cut.

-Freeze destroyer construction and cancel the DDG-1000 destroyer program.

-Reduce total fleet size from 287 combat ships to 230.

-Retire 6 Air Force fighter wings.

-Build 301 fewer F-35 fighters.

-Configure all nuclear strike bombers so they can only drop conventional munitions.

-Cancel additional C-17s and new refueling tanker project.

-Eliminate or curtail research on directed energy beam research and other advanced missile and space warfare defense projects.

-Slash the Army from 562,400 active duty personnel to 360,000 and eliminate approximately 5 brigade combat teams.

-Cut the Marine Corps by 30%, from 202,000 to 145,000.

-Cancel V-22 Osprey program and Expeditionary Fighting Vehicle.

-“Reset the calculation of military compensation and reform the provision of military health care” – which essentially means a reduction in pay and benefits of about $120 billion for the troops and their families.

Additionally the report unilaterally suggests the reduction of our Minuteman III nuclear deterrent missile fleet from 500 to 160 – something not required by the new START treaty.

As anyone can tell, this goes far beyond an attempt to “save” money. If all of these recommendations were accepted and passed into law, the US military would be virtually gutted, filleted and left to dry in the sun. It would essentially become a home defense force incapable of projecting the power necessary to protect the vital national interests or respond to treaty obligations of the United States. And it would leave the field wide open for super-power wannabes to make their moves.

In reality, the Frank report is the written form of an unrealistic but consistent liberal dream they’ve held close to their hearts for decades. While constantly mouthing the platitudes of supporting our military and the troops, they hold no real love for the institution or its role in our society. The real desire of the left and some Democrats is to reduce the military to a much smaller state, abandon our leadership role in the world and instead focus their efforts and our money on making the US a liberal utopia.

At this time there couldn’t be more misguided policy available even if we were to try and purposely think of one. Should the provisions of this study be put into practice, the US would go from being a protector of the free world to prey.

~McQ

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US credit rating in jeopardy if Obama budgets pass

I’m not sure how much more of a blatant warning than this can be sounded over the financial path the Obama administration plans on taking us:

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

That’s a very civilized way of saying “cut spending and cut borrowing or we’ll cut your credit rating so you can’t borrow and can’t spend”. The budget deficits projected by the Obama administration would eventually see 15% of the government’s future revenue committed to debt service – about the same as in 1983. However:

This time the servicing burden would be harder to reverse, however, because it would not be caused by high interest rates but by high debt levels.

Moody’s says it doubts the political will to raise taxes significantly from their present 14.8% of national income level or to cut spending from 25.4% of national income. That, of course, means an ever increasing gap between revenue and spending and jeopardizes the nation’s credit rating.

Moody’s isn’t the first rating firm to issue this type warning:

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.

Fitch said: “In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will start to approach levels by the latter half of the decade that will bring pressure to bear on the triple A status.”

Or, we’re headed toward a financial cliff and right now our leadership is hitting the accelerator. If you think we have financial problems now, watch what happens of we suffer through the downgrading of our national credit rating.

~McQ


Spinning A 1.4 Tillion Dollar Deficit

The Washington Post is just shameless. How else would you describe this:

The federal budget deficit soared to a record $1.4 trillion in the fiscal year that ended in September, a chasm of red ink unequaled in the postwar era that threatens to complicate the most ambitious goals of the Obama administration, including plans for fresh spending to create jobs and spur economic recovery.

Still, the figure represents a significant improvement over the darkest deficit projections, which had been as much as $400 billion higher earlier this year, when the economy was wallowing in recession.

Or said another way, 1.4 trillion in new debt isn’t so bad – some guy earlier this year thought it would be 1.8 trillion.

Here, let’s do the graphics and decide how much of a “significant improvement” this is:

budget deficit

A few paragraphs later after trying to sell everyone on how this chasm of difference has actually ended up being beneficial, the Post mentions:

At about 10 percent of the overall economy, the gap between federal spending and tax collections is the largest on record since the end of World War II, and bigger in nominal terms than the past four years of deficits combined. Next year is unlikely to be much better, budget analysts say. And Obama’s current policies would drive the budget gap into the trillion-dollar range for much of the next decade.

Geithner is mentioned saying that “deficits are too high” and Peter Orszag is quoted saying:

“The president recognizes that we need to put the nation back on a fiscally sustainable path.” As Obama draws up his second budget blueprint, due to be delivered to Congress in February, Orszag said, “we are considering proposals to put our country back on firm fiscal footing.”

Are “we”? Cap-and-trade. The take-over of the health care system. Government owned auto companies. Trillion dollar deficits for at least a decade. A doubled money supply and $533,000 jobs?

The Post manages to destroy all the happy talk, though, in what must have been an inadvertent fit of journalism contained in one sentence:

Orszag has already instructed federal agencies to identify spending cuts for next year’s budget, but the report comes as lawmakers contemplate proposals that would drive spending even higher.

And, of course, the guy right smack dab in the middle of encouraging all of that higher spending is the same guy Orszag is claiming wants to put the country back on “firm fiscal footing”.

If double-talk were money, this administration would be running a surplus. And the Washington Post isn’t so bad at it either.

~McQ

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