Free Markets, Free People
Apparently President Obama is sure his newest budget proposal is so good there’s no room or need for negotiation. Or so a senior White House official says:
“We don’t view this budget as a starting point in the negotiations. This is an offer where the president came more than halfway toward the Republicans,” a senior administration official told reporters Tuesday, speaking on condition of anonymity to detail the forthcoming document.
“So this is our sticking point,” the official said. “And the question is: are Republicans going to be willing to come to us to do serious things to reduce our deficits?”
Obama is proposing a $3.78 trillion dollar budget. Estimated tax revenues for 2014 are $3.22 trillion. Yet, this is being touted as a “budget cutting” budget and the White House claims it is exactly what the Republicans have wanted.
What … another deficit?
By the way, I don’t want “reduced deficits”. I want NO deficit. I.e. any budget that begins with an amount higher than the estimated tax revenues for the year is Dead On Arrival.
And that’s precisely the declaration this budget (like all the other budgets Obama has submitted) deserves.
Because of their false agenda, that’s why. They’re still convinced that, despite 17 years of no warming (as recently admitted by the head of the IPCC), oil is bad and “green” is good and that they’re doing something to save the world. Disregard the fact that green is still unviable. Disregard the fact that everywhere it has or is being pushed, energy costs are skyrocketing. Nevermind the fact that we are sitting on a sea of fossile fuel products that we only need to access. Screw the fact that science can find no discernable warming. Their minds are made up.
That said, there’s also the fiscal side of the house. The debt. The deficit. And the demand by Democrats to raise more revenue.
Unfortunately, because of their agenda, they’re likely to completely screw up a golden opportunity to bring in much more revenue and drive energy prices down, because their agenda is against fossile fuel. And we all know the party agenda comes before what is best for the country.
Enter the administration with a renewed plan to tax oil companies instead of opening access to the vast natural riches we enjoy. The result? Well this chart will help you comprehend the vast differences in the two policy choices (full size here):
So the either/or is “tax ‘em or open access”. The difference:
According to a 2011 study by Wood Mackenzie, increased oil and natural gas activity underpro-access policies would generate an additional $800 billion in cumulative revenue for government by 2030. The chart puts into perspective the size of these accumulating revenues – enough to fund entire federal departments at various points along the timeline. By contrast, Wood Mackenize also found that hiking taxes on oil and natural gas companies would, by 2030, result in $223 billion in cumulative lost revenue to government.
It only proves the old saw -”If you want more of it, reward it and if you want less, tax it”. Think about it – money to help run government and pay down the debt (not to mention the thousands, if not millions of jobs created) being passed up in the name of false science and agenda politics.
Meanwhile, we’ll be left in the cold and the dark, thanks to agenda driven policies with no foundation in reality.
The more I see politics of today the more I think George Orwell simply listed by about 30 years. Imagine a politician a few decades ago trying to make this argument and then calling the other guy’s argument “absurd”.
“While I’m willing to compromise and find common ground over how to reduce our deficit, America cannot afford another debate with this Congress over how to pay the bills they’ve already racked up,” Obama said in the East Room of the White House at what aides have billed as the final news conference of his first term. “To even entertain the idea of this happening, of America not paying its bills, is irresponsible. It’s absurd.”
But the problem is, thanks to both Congress and this administration, we are not paying our bills. We’re borrowing money that we don’t have and have been spending it. I find it ironic, that the president who has run up the largest deficit in history is talking about being irresponsible.
And then, there’s this:
“They will not collect a ransom in exchange for not crashing the American economy,” Obama said. “The full faith and credit of the United States of America is not a bargaining chip.”
But that is precisely what Obama is doing, using the credit rating of America as a bargaining chip – to justify more spending on credit. No irony there. Interesting that Obama is suddenly concerned about “not crashing the American economy” when his profligacy has put us in a position we are in today.
“The issue here is whether America pays its bills,” Obama said. “We are not a deadbeat nation.”
Yes we are. He just doesn’t know it yet, or at least won’t admit it. And much of the cause rests with him as signified by his absurd argument.
In the Telegraph today, Janet Daley tries to explain the same thing I’ve been trying to explain here for, well, years.
Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before – or that they will be able to resume as soon as this momentary emergency is over – was propelled into office virtually by acclamation.
So universal has this rule turned out to be that parties and leaders who know better – whose economic literacy is beyond question – are now afraid even to hint at the fact which must eventually be faced. The promises that governments are making to their electorates are not just misleading: they are unforgivably dishonest. It will not be possible to go on as we are, or to return to the expectations that we once had. The immediate emergency created by the crash of 2008 was not some temporary blip in the infinitely expanding growth of the beneficent state. It was, in fact, almost irrelevant to the larger truth which it happened, by coincidence, to bring into view. Government on the scale established in most modern western countries is simply unaffordable. In Britain, the disagreement between Labour and the Conservatives over how to reduce the deficit (cut spending or increase borrowing?) is ridiculously insignificant and out of touch with the actual proportions of the problem.
Just as our debate here on what constitutes a "balanced approach" to cutting the deficit. The truly silly part of that debate is the demand that "the rich" pay more in taxes, as if that money would somehow close the gap in financing the welfare state. In France, the government wants a 75% tax rate, but…
Barack Obama knows that a tax rise of those proportions in the US would be politically suicidal, so he proposes a much more modest increase – an income tax rate of around 40 per cent on the highest earners sounds very modest indeed to British ears. But that is precisely the problem. If a tax rise is modest enough to be politically acceptable to much of the electorate, it will not produce anything like enough to finance the universal American entitlement programmes, social security and Medicare, into a future with an ageing population. There is no way that “taxing the rich” – that irresistibly glib Left-wing solution to everything – can make present and projected levels of government spending affordable.
Right now, mandatory entitlement spending alone is 62% of the Federal budget, and it will rise continuously under present law. At the same time, federal revenues don’t even cover the cost of those entitlements, plus interest payment on the national debt.
Think about that. We could eliminate the entire Federal Government except for entitlement spending and interest on the national debt, and we would still have to borrow money to pay for it.
The president’s proposal for increasing taxes on "the rich" would bring in an extra $40 billion dollars next year. So, instead of borrowing $1.1 Trillion next year, we’ll only have to borrow $1.06 Trillion. Somehow, we are told, this will be massively helpful.
Meanwhile, if interest rates return to their historic average levels the cost of debt service alone will rise from $250 billion per year to $750 billion per year.
But, really, anyone who isn’t as dumb as a bag of hammers already knows that the amount of government we have is unaffordable, simply by noting that we’ve increased the national debt from $1 trillion to $16.3 trillion since 1980. It took us 190 years to accumulate $1 trillion in debt. And 32 years to multiply it more than 15 times.
We have three choices. We can cut all Federal spending by half. We can have massive tax increases on the middle class. We can do nothing and eventually default/hyperinflate our monetary and financial system away.
Based on the politics of 2012, I assume it will be the latter.
OK, look, I’m done with the election. It’s over. Romney lost. Time to move on.
Most of us who follow politics understand the reasons and have a pretty good idea of why he’s going home and the Obama’s are staying in the White House. Short version: They let the left define the election issues. It was a masterful job of distraction aided and abetted by a complicit media (hey, “60 Minutes”, you have NO credibility anymore). Period.
Guess what those issues weren’t? The winning issues: Jobs. Economy. Debt. Deficit. ObamaCare. Benghazi. Fast and Furious.
Lesson: Don’t let your opposition define the issues. A lesson as old as politics. Romney’s campaign blew it. It allowed the left to make it about “lady parts”, abortion, contraception, Bain Capital, class warfare and racism. They made being successful something of which to be ashamed. And, of course, a couple of idiot GOP candidates at state level who came off like jackasses talking about “legitimate rape”, etc. who made it even worse (because the complicit media made their stupidity national stories — unlike jobs, the economy, debt, ObamaCare, Benghazi and Fast and Furious.).
And that scared the usual suspects enough to turn out and vote (ye olde and reliable low information voters in swing states who scare easily) and dampened GOP turnout (didn’t even get the number out that McCain got for heaven sake).
That’s the election in a nutshell.
So, now we put that behind us and deal with the inevitable aftermath.
It’s worse than you thought and, of course, worse than they projected. Here’s the updated deficit spending chart:
Check out the gray “actual” numbers for the last two years. There is nothing trending down. Reminds one of the promises about unemployment and the “stimulus”, doesn’t it?
As for your part, well, nothing unexpected there – you’re and your kids and their kids are on the hook for a lot more than projected as well:
Yup, let’s give him 4 more years, shall we? I’m sure his administration could change the direction of this chart as well. We could “unexpectedly” owe $40,000 each by the time that term finished up.
Obviously it must be me, because I cannot figure out why anyone would contemplate giving such an abject failure another 4 yearshot at making their lives even worse. It’s time for a little accountability.
Seriously – I believe in second chances, however I don’t believe everyone deserves one. Barack Obama is one of those who doesn’t deserve a second chance.
Monty Pelerin, writing in The American Thinker, is thinking about the unthinkable. What would happen if the US held a bond auction..and no one bought any bonds? Even worse, what would happen if we were to default on the $16 trillion in bonds already outstanding?
What occasions this thinking is something he read in Bob Woodward’s new book on the Obama administration, a portion of which is excerpted in the Washington Post. This excerpt discusses last year’s debt ceiling crisis. In it Treasury Secretary Timothy Geithner tries to explain how bad it would be if credit markets stopped buying Treasuries.
But, here’s the thing:
Credit markets have (or nearly have) stopped US government debt financing. That’s why we have the Federal Reserve, the counterfeiter of last resort. If government can raise the debt limit, then it would be legal for the Treasury to issue new debt. The Treasury’s sibling, the Fed, would buy it by printing new money. That would allow the government to pay its bills for a while longer…
No one will buy US Treasuries other than the Federal Reserve. Raising the debt limit only puts the government more hopelessly in debt, ensuring that Treasuries will be even more difficult to sell. Without intending it, Geithner admits that Bernanke will be printing money until the electricity is shut off or until hyperinflation shuts everything economic down. In either case, we reach his "indelible, incurable" situation which will "last for generations."
Take a look at the monetary base of the United States, which I would describe simply as all the money of all types floating around in the economy. You know why that number has jumped massively since 2009? Because the Fed has been the major buyer of US treasuries, and it buys them by simply printing new money.
Now, the US Dollar is the world’s reserve currency. What that means is that it is expected to be strong, stable, and plentiful enough—though not too plentiful—to be used as the primary backup currency for the entire world’s global trade.
But, since 2009, we have essentially financed our massive debt, which is now at 104% of GDP by having the Fed print the money to buy the Treasury’s bonds. The chart you see here is the result of two separate rounds of Quantitative Easing of that sort, and the Fed is now considering QEIII.
Now, Greece, the sick man of Europe’s financial system, has a debt to GDP ratio of 128%. At the current rate of spending, we could reach that within a decade. But we won’t, of course, because at some point between 104% and 128% of GDP, we will have so much debt that the US will be the world’s financial sick man. At some point credit markets will simply not bid on US Treasuries, because the specter of inflation or default will loom so large that only the Fed would be stupid enough to show up at a bond auction.
When that happens, current foreign holder of US treasuries will face intense pressure to divest themselves of them. Prices will collapse, and interest rates will skyrocket. If the Fed steps in to buy those treasuries to support the price—which they almost certainly will, because politicians will demand it—we will then be clearly seen as fully monetizing the debt.
At that point, foreign holders of US dollars will demand that some other currency or asset be used as a reserve, at which point foreign holders of dollars will scramble to repatriate those dollars as quickly as they can.
The dollar will then become worthless in foreign trade, and we will face massive hyperinflation in the US.
On our current spending path, with our current level of debt, this is inevitable, and we have no idea when it will happen. We are literally a single bond auction away from a complete and utter collapse of the US financial and monetary system. We just don’t know when, exactly, that bond auction will be. It might be this week. It might be five years from now.
But, I repeat, at this point, barring a massive change to our fiscal and monetary policy, it is inevitable. There is no way credit markets will continue to buy US Bonds as our debt to GDP ratio climbs towards that of Greece. When that happens, we will either monetize that debt or default on it. Either way, the result will be years, if not decades, of American poverty.
And once that process starts, there will be no way to stop it. We can’t come back a week later and say, "hey, we fixed it!" Once it starts…we’re done.
After WWII, the US debt to GDP ratio was 124%. At the end of WWII, we slashed government spending by 50%, and eliminated the most onerous and confiscatory wartime taxes, and, though marginal rates were still high, offered a myriad of exemptions that essentially ensured that no one paid the marginal rates. We also scrapped the entire wartime system of industrial production regulation and eliminated rationing. And, of course, we had the only fully industrialized economy left in the world, as everyone else’s had been bombed, if not back into the Stone Age, at least into the Age of Reason, and we became the world’s chief industrial power, exporter, and global business leader.
To do something similar today, we’d have to completely eliminate the entirety of the Federal government, with the exception of the Departments of State, Defense, Justice, Interior, and Treasury, and cut Social Security, Medicaid and Medicare spending by at least 50%.
That’s not going to happen. I believe the current Republican plan to attack the debt and balance the budget won’t even eliminate the budget deficit until sometime around 2040.
Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha!b That’s rich. Like we have 30 years available to fix this. It is to laugh.
Update: And, this morning, right on time, I see that House Speaker John Boehner says he’s "not confident" that Congress and the administration can reach a debt deal. In which case, Moody’s has already warned that they will downgrade the US credit rating by another step. Meanwhile, the rumor is that the Fed is now preparing for another $840 billion in quantitative easing.
That bond auction just keeps getting closer.
That’s the argument Ruchir Sharma makes in the Atlantic this week. It is one of those contextual or perspective arguments that says, “of course it’s bad, but look at the rest of the world”. He also, heaven forbid, makes the American “exceptionalism” argument, saying":
Evidence of an American revival, against both developed and emerging world competition, is mounting, driven by the traditional strengths of the American economy–its ability to innovate and adapt quickly.
But … there’s always a “but”:
America’s worst worries — heavy debt, slow growth, the fall of the dollar and the decline of manufacturing — will look much less troubling when compared to its direct rivals. While US growth has slowed by a full point so has growth in Japan and Europe, leaving the United States on top of the league of rich nations.
Sharma says manufacturing is looking up and slowly growing. As for debt? Well, private debt is being shed in record numbers:
Consider the key challenge of "deleveraging" or digging out from debt. A new study from the McKinsey Global Institute shows that the United States is the only major developed economy that is even loosely following the path of countries that successfully negotiated similar debt-induced recessions, like Sweden and Finland in the 1990s. Total debt as a share of GDP has fallen since 2008 by 16 percent in the United States, while rising in Germany and rising sharply in Japan, the United Kingdom, France, Italy and Spain. As in Sweden during the 90s, the fall in total US debt is due entirely to sharp cuts in the private sector, particularly the finance industry and private households.
Note the emphasized points in the last sentence – “private sector”, “private households.”
So what’s our biggest problem, our biggest worry, in fact our biggest economic drag that is likely keeping us bouncing along the bottom of this recession/depression?
Well Sharma doesn’t hesitate in identifying it:
The weak link in the U.S. response to the debt crisis is the government. The Scandinavian cases show that government needs to start cutting spending and debt roughly four years after the downturn — exactly the stage where the US is today. Washington has so far failed to put in place a plan for long-term debt reduction, in part because some politicians and pundits are still pushing for more borrowing to ward off "depression." The Scandinavian cases suggest this is exactly the wrong worry right now. The public debt is a big reason that long-term US growth is likely to slow, but even then, it is important to keep America’s debt problem in perspective. China is arguably worse off, with total debt equal to 180 percent of GDP. The more wealthy you are, the more debt you can carry, so America’s total debt (350 percent) is actually less of a challenge.
Don’t worry, be happy … our debt problems is less of a challenge? No, that’s not the point. It means, relatively speaking, we’ve been somewhat lucky because the strength of our economy and its size has helped ameliorate the drag increased government debt has placed upon our economic recovery.
Note what Sharma says, given the evidence of the “Scandinavian cases” – we should be cutting spending and debt “four years after the downturn”.
That would mean what? No QE3. No trillion dollar budget deficits as far as the eye can see.
However, that’s the plan right now.
President Obama has a campaign ad out talking about how we don’t need to repeat the “Republican plan” because, in his words, we’ve tried that and it didn’t work.
Well I hate to break it to you but what he has planned for the next four years, if he’s re-elected, is a reprise of his first term. Spend, spend, spend and expand government programs and services (to the tune of $46 trillion over 10 years, much of it debt).
And the Fed? It’s easing its way toward another quantitative easing (QE3), essentially ignoring the fact that the first two pushed about $10 trillion in cash out there which it is going to have too wring out of the economy at some future date. Adding even more doesn’t hit many as a very sound move.
One of those is Mitt Romney:
"I am sure the Fed is watching and will try to encourage the economy. But I don’t think a massive new QE3 will help the economy," Romney said, referring to a program called quantitative easing.
"I can absolutely make the case that now is the time for something dramatic and it is not to grow government,” he said. “It is the time to create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people and that is going to happen.
Key takeaway? Romney gets the proper role of government in the economy – “create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people…”.
If government did that – became an enabler – then what should follow? You should see employment begin to rise.
We should be seeing 200, 300, 400,000 jobs a month to regain much of what has been lost. That is what normally happens after a recession, but under this president we have not seen that kind of pattern. We have just been bumping along with barely enough jobs to just hold the unemployment rate about the same – above 8% – 42 months like that. You have to have the Steve Jobs of the world beginning businesses, making products that want to be purchased around the world. That gets Americans back to work."
He’s right. Exactly right. And the current president is clueless. It isn’t about pumping more money into the economy and creating more debt and bigger government. If you want to see policies that continue to cripple what Sharma dubs the “traditional strengths of the American economy”, give the guy in charge 4 more years.
Government’s don’t produce wealth. The private sector does. Government spends that wealth.
(Oh, wait, the private sector “is doing fine”. Never mind.)
Romney gets that part and it is indeed the most important issue of this upcoming election. Getting government out of the way and into the enabler role of providing incentives and opportunities for businesses to grow and expand (while curtailing government spending and expansion) is what will get this nation on the road to recovery.
The current administration doesn’t understand that – at all.
And, for all practical purposes, that’s all you need to know to decide who should be sitting in the Oval Office next January 20th.
Hint: In case you somehow missed it, it isn’t the guy in there now.
How will this be spun?
By the end of the third quarter of fiscal 2012, the new debt accumulated in this fiscal year by the federal government had already exceeded $1 trillion, making this fiscal year the fifth straight in which the federal government has increased its debt by more than a trillion dollars, according to official debt numbers published by the U.S. Treasury.
Prior to fiscal 2008, the federal government had never increased its debt by as much as $1 trillion in a single fiscal year. From fiscal 2008 onward, however, the federal government has increased its debt by at least $1 trillion each and every fiscal year.
Bu … bu … but he has spent less money and created less debt than any president since Eisenhower.