In case all this contraception talk has distracted you (as it surely was intended to do), you need to know that the deficit continues to grow and is on pace to go over a trillion dollars for the 4th year in a row:
The federal government set a new monthly record deficit of $232 billion in February and has notched a total of $581 billion in the first five months of the fiscal year, according to the Treasury Department’s official count released Monday.
February’s record is $8 billion more than the previous monthly record, set in February 2011, and came chiefly because of a drop in individual income tax receipts.
The overall deficit remains on pace to top $1 trillion this year for the fourth year in a row — but is down slightly from its pace last year …
Sorry to intrude with such boring reality.
Now back to “slutgate”.
Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.” Getting into the details seems to validate Ryan’s point.
He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”
The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act. But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion). Analysis of the budget shows, at best, a savings of 300 billion over 10 years.
As for an “America Built To Last”, Obama approaches that in a very odd way. He goes after businesses and investors:
1. The top income rate would be raised to 39.6 percent vs. 35 percent today.
2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.
3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.
4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.
5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.
6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.
7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.
Those details alone are a basis for declaring his budget “dead on arrival” at Congress. These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022. The historical average is 18 percent. In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite. The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy. He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.
And here’s the bottom line truth about policies such as Obama is pursuing:
Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.
Given that, how does the White House justify such policies? Well, it simply makes up a rosy forecast for the future, that’s how. 3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018. As James Pethokoukis points out:
The U.S. economy has only seen a run like that three times in the past four decades.
Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate? Not likely.
Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate. Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.
Of course, on budget matters, it only takes a simple majority. And there are 53 Democratic Senators. If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0. Harry Reid, however, has introduced no budget in over 1,000 days.
And the gimmicks:
At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.
But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.
Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.
Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.
So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case. He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years. Meanwhile most of his spending cuts come from where? The military, of course.
Finally, remember this?
“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”
Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”
This budget does none of the above. In fact, it’s not even close. There are no “difficult decisions” included. There are now “challenges” faced. As Rep. Ryan said, Obama has again “punted”.
This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.
This out of control.
Obviously what I’m about to list isn’t going to make or break us as a nation in terms of monetary outlay. Each taken individually is but a drop in the sea of $16 trillion dollar debt we now float in. But the fact remains that each is an indicator of why we’re in that deep of a hole. Each points to another area where government has no business, especially spending taxpayer, or more likely borrowed money. Or it points to an expenditure not made on its reasoned merits, but on bureaucratic inertia, lack of control or monitoring or any of a great number of reasons the payment shouldn’t have been made. Doug Bandow provides us with the list.
Now, on with the show:
~The U.S. Agency for International Development (U.S. AID) spent $30 million to spur mango production and sales in Pakistan—and failed utterly.
Yup, mango production … in Pakistan.
~The Air Force spent $14 million to switch three radar stations to wind power; poor planning forced cancellation of one turbine and consideration of the same for the other two.
Because we all know windpower is proven and reliable.
~The Federal Aviation Administration devoted $6 million to subsidize air service at small, underused airports.
Market smarket … we’ll just create one. Until the money runs out, of course.
~A federal grant for $765,828 went to—I am not making this up, to quote Dave Barry—bring an International House of Pancakes franchise to Washington, D.C.
Because bringing IHOPs to DC is a primary function of the United States government and worthy of every dollar spent.
~The Department for Housing and Urban Development (HUD) provided a $484,000 grant to build a “Mellow Mushroom Pizza Bakers” restaurant in Texas.
Because it is not the market’s job to decide what restaurants should exist in a certain area, it’s the job of government.
~Another HUD grant, this one for $1 million, went to a foreign architectural firm to move its headquarters from Santa Monica to Los Angeles.
Because we knew you’d want us to do it. You need to move? Tough cookies.
~NIH gave the University of Kentucky $175,587 to study the impact of cocaine on the sex drive of Japanese quail.
Because we’re sure Japanese quail are the next target of drug dealers. Or something. But this is important … important enough to up the debt over and don’t you forget it.
~The Federal Highway Administration (FHA) gave $916,567 to underwrite horse-drawn carriage exhibits and survey shipwrecks in Wisconsin.
Because, well, we couldn’t think of anything else to do with the money.
~The Oregon Cheese Guild received $50,400 to promote cheese.
Because obviously the Oregon Cheese Guild wouldn’t be able to promote cheese without this.
~Uncle Sam spent $111,000 to send brewery experts to conduct classes in China.
Because the folks making Tsing Tao obviously couldn’t handle that.
~The ever busy NSF devoted $300,000 to developing a dance program to illustrate the origins of matter.
Because without it … oh nevermind.
And my personal favorite:
~Washington helpfully gave almost $18 million in foreign aid to China—money effectively borrowed from China.
The circle is complete. Borrowing money to give money back to the entity from which we borrowed it while still owing the balance.
Your government at work. Be sure to read the rest of the top 100 wastes of money that Sen. Tom Coburn has helpfully put together. And remember. They’re the top 100. There are plenty more than just didn’t make the cut.
If you wonder why there is this focus on the left on taxing the ‘rich’, part of it can be found here:
President Barack Obama asked Congress for another $1.2 trillion in government borrowing authority, the third and final request under an August deal with lawmakers that averted a U.S. default.
The president’s notification to congressional leaders yesterday starts a 15-day countdown for lawmakers to consider and vote on a joint resolution disapproving of the increase.
An “August” deal and we’re already on the “third and final request”? August for heaven sake. 5 months. Does that at all demonstrate how absolutely unconcerned this administration is with out-of-control spending? Does it help explain the class-warfare, anti-Wall Street, shift-the-blame campaign in which the President has been engaged?
We’ve already exceeded the national yearly GDP with our debt under Obama and now he’s going for more.
Well, except at DoD. There’s he’s slashing muscle and bone on the one hand while proposing a pay-hike for other federal employees on the other.
The debt ceiling increase is to meet commitments already made by the government. The Treasury Department has been relying on accounting maneuvers, similar to the ones employed during the year’s earlier dispute, to ensure that the previous $15.194 trillion limit wasn’t breached.
Since the budget law was approved, the debt limit has been raised twice, by a total of $900 billion. In the latest request, the limit would rise to $16.394 trillion, which the Treasury Department estimates will fund the government until late 2012.
We are so ill served by our current crop of politicians that it almost defies description. We’re past the generational theft of our grandchildren’s money and are working on that of our great-grandchildren.
This is simply inexcusable, yet like an alcoholic or drug addict it seems our politicians can’t help but do whatever is necessary to obtain their next fix of borrowed money. Meanwhile the credit rating for the country has been downgraded and is at risk for further downgrade. And the economic drag on the economy in general this sort of a debt load carries continues to increase.
You want a national tragedy … here it is. You want a national nightmare … its playing out right in front of you and there doesn’t seem like anyone is able to stop it.
But most rational people understand that at some point it has to stop … it has to come to an end. And when it does, this recession will look like child’s play, all thanks to the selfish short-sightedness of our political class. Oh, and yes, the gutless votes who keep rewarding this sort of behavior because it benefits them.
At the risk of sounding like some sort of extremist fanatic, the end is near. And it isn’t going to be a pretty end either.
This week, Bruce Michael, and Dale record the most pessimistic podcast ever.
The direct link to the podcast can be found here.
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.
Where has this man been? Or perhaps the most salient question is what planet has he been hiding on? This is what he said in Hawaii to a gathering of CEOs at APEC about why we’re apparently in the mess we’re in:
“We’ve been a little bit lazy over the last couple of decades. We’ve kind of taken for granted — ‘Well, people would want to come here’ — and we aren’t out there hungry, selling America and trying to attract new businesses into America.”
Yes friends, the blame-shifter-in-chief says it is we lazy Americans who’ve taken everything for granted these last few decades that are responsible for the economic downturn we are experiencing now.
Never mind the fact that this administration has openly warred on business. Never mind we have the highest corporate taxes in the world. Never mind that government intrusion and regulation have only gotten worse. Never mind that government has actively sought to block businesses which could make a world of difference in both jobs and competitiveness. For instance:
– blocking oil and gas exploration in the Gulf even after safety and spill prevention procedures were upgraded
– trying to keep one of our major manufacturers, Boeing, from opening a new plant (jobs) in one of our few major industries (aerospace) by attempting to block non-union labor from working in a right-to-work state.
– delaying the Keystone XL pipe line (again, thousands of high paying jobs) for political reasons (delayed until after the election).
Etc. Not to mention the government policy and enforcement of that policy (Community Reinvestment Act) that led to the housing bubble and financial melt down.
It isn’t about a lazy America. It’s about an over-reaching, intrusive government whose level of intrusion and market distortion have only gotten worse “over the last couple of decades”.
And here’s a clue Mr. Obama – we lazy Americans didn’t run up a $14 trillion dollar debt. You pandering politicians did. And that debt load is also killing our competitiveness and has led to a downgrade of the country’s credit rating — on your watch.
Yeah, blame it on others, Mr. Obama — but thinking Americans, Americans who’ve actually run something and done something, know the score. Hopefully they’ll put you in a new position in November of 2012, where your primary responsibility will be getting with your wife and picking out wallpaper for your presidential library.
Where on earth has he been?
Well it looks like the much touted Euro economic package for Greece may be coming apart more quickly than expected, thanks to the bombshell announcement by Greek PM George Papandreou. Papandreou has decided, apparently without consulting anyone else, that the package should be put up for a vote. As the Wall Street Journal points out, a no vote could be disastrous:
A "yes" vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.
A "no" vote, however, could bring down the government and cut off international funding for Greece, leaving the country facing a financial meltdown.
Of course the country is already facing a financial meltdown, austerity measures have sparked violent protests for months and the purpose of the package agreed upon by European leaders was designed to help avert a meltdown and save both the Greek economy (as much of it as can be saved), while propping up the Euro.
As you might imagine, the surprise announcement was not favorably met by other European leaders. In fact, it wasn’t met favorably by a lot of Greek leaders who apparently had no idea that a referendum was in the offing.
Jean-Claude Juncker, who chairs meetings of euro zone finance ministers, refused to rule out a Greek debt default.
"The Greek prime minister has taken this decision without talking it through with his European colleagues," he said in Luxembourg.
Asked whether a Greeks "no" vote would mean bankruptcy for Greece, Juncker responded: "I cannot exclude that this would be the case, but it depends on how exactly the question is formulated and on what exactly the Greeks people will vote on."
I think most understand that no matter how the “question is formulated”, a vote against the plan would most likely send Greece spiraling down the drain and the fear is it would take the Euro with it
Markets, which had calmed down after the plan was announced, have had the expected reaction to the Papandreou referendum plan. They’ve headed down:
Greek Premier George Papandreou said he will put the nation’s bailout deal through a referendum, potentially undoing a long-awaited agreement struck last week and sending European stocks down 3.3 percent. The region’s bank shares fell 6.4 percent.
"European leaders feel as if they’ve been blindsided by Papandreou," said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.
He said the move underscored the current risk in Europe and threw a wrench into the region’s stability plan.
The Dow dropped 2% on the news.
While our attention is on the Palinization of Herman Cain, we need to really keep an eye on this impending crisis. If Greece has a referendum and the vote is “no”, what Cain did or didn’t do in the 1990s isn’t really going to matter much. We’ll have another financial tsunami headed our way and we’d better begin to batten down the hatches.
Most intuitively know you can’t borrow your way out of debt, so it seems like a silly question on its face. But the theory is that government spending creates a simulative effect that gets the economy going and pays back the deficit spending in increased tax revenues. $14 trillion of debt argues strongly that the second part of that equation has never worked.
The current administration and any number of economists still believe that’s the answer to the debt crisis now and argue that deficit spending will indeed get us out of the economic doldrums we’re in. William Gross at PIMCO tells you why that’s not going to work:
Structural growth problems in developed economies cannot be solved by a magic penny or a magic trillion dollar bill, for that matter. If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more? As a matter of fact, savers will have to save more just to replicate their expected retirement income from bank CDs or Treasuries that used to yield 5% and now offer something close to nothing.
My original question – “Can you solve a debt crisis by creating more debt?” – must continue to be answered in the negative, because that debt – low yielding as it is – is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings and GDP growth at less than New Normal levels.
Not good news, but certainly the reality of the situation. Deficit spending has been the panacea that has been attempted by government whenever there has been an economic downturn. Some will argue it has been effective in the past and some will argue otherwise. But if you read through the 3 points Gross makes, even if you are a believer in deficit spending in times of economic downturn, you have to realize that there are other reasons – important reasons – that argue such intervention will be both expensive and basically useless.
We are in the middle of a global economy resetting itself. Technology is one of the major drivers and its expansion is tearing apart traditional institutions in the favor of new ones that unfortunately don’t depend as heavily on workers.
Much of the public assumes we’ll return to the Old Normal. But one has to wonder, as Gross points out, whether we’re not going to stay at the New Normal for quite some time as economies adjust. And while it will be a short term negative, the Boomer retirements will actually end up being a good thing in the upcoming decades as there will be fewer workers competing for fewer jobs.
But what should be clear to all, without serious adjustments and changes, the welfare state, as we know it today, is over. Economies can’t support it anymore. That’s what you see going on in Europe today – its death throes. And it isn’t a pretty picture.
So? So increased government spending isn’t the answer. And the answer to Gross’s question, as he says, is “no”.
The next question is how do we get that across to the administration (and party) which seems to remain convinced that spending like a drunken sailor on shore leave in Hong Kong is the key to turning the economy around and to electoral salvation?
James Pethokoukis reminds us that if we’re not watching the European debt crisis, we should. The one thing Tim Geithner apparently got right was how it could effect the US negatively. Geithner said:
Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand.
And that’s the obvious truth. If you need to catch up, here’s an article in the Financial Times to bring you up to date (you may need to sign up or register to read it).
Pethokoukis then points to a report from Barclays Capital that details what Geithner was talking about:
Our baseline forecast assumes that policymakers will prevent the turmoil in Europe from leading to a full-blown financial crisis similar to 2008 and that US policymakers will not impose excessive fiscal tightening starting in 2012. If, by contrast, either of these risks is realized, the potential for another recession will increase substantially. We use the Fed’s stress scenario under the Comprehensive Capital Analysis and Review (CCAR) as an alternative scenario to our baseline, but ratchet up the intensity modestly and analyze its effect on the outlook for house prices.
1) Our modeling suggests that in a recession scenario, house prices, as measured by the CoreLogic headline index, could decline another 7% in 2012 . … The scenario posits declining real GDP for four consecutive quarters, with Q2 12 having the deepest decline at 6% (q/q saar).
2) Real disposable personal income also declines for four consecutive quarters, albeit with a one-quarter lag relative to the decline in GDP, and the unemployment rate moves persistently higher, peaking at 12.1% by the end of our forecast horizon. …
3) Furthermore, the rising unemployment rate suggests that delinquencies would push shadow inventory higher, putting downward pressure on distressed home prices. Together, the two effects send home prices significantly lower in 2012.
Or in simple terms, if Europe goes, so does the US. Housing down another 7% and unemployment up into the 12% area.
Obviously this is all based on modeling and plugging in various numbers. So just as obviously those numbers could be off a bit. However, the basic premise is correct. If Europe can’t solve its debt crisis, the US will also suffer and, as you can see, suffer mightily (check out the chart at the link).
I think the political implications are clear even for the most partisan among us.
I know, you’re wondering, how does Obama plan to pay for his $450 billion plus job plan, right. Because in the speech he made the claim this was all going to be “paid for”, remember.
White House Office of Management and Budget Director Jack Lew outlined President Barack Obama’s plan to pay for his $447 billion jobs plan — mostly through tax increases.
Lew said itemized tax deductions and exemptions for those making more than $200,000, and families earning more than $250,000 would be cut — raising about $400 billion to pay for Obama’s jobs plan over 10 years.
A change to bring more hedge fund earnings under normal tax rules as opposed to carried interest rates would raise another $18 billion.
The new tax rules would not take effect until January 2013, Lew said. Obama is not offering any spending cuts to pay for the jobs plan.
The rest of the total would be raised by cutting subsidies for the oil and gas industries to bring in another $40 billion, and change the depreciation rules for corporate jets. All told, Obama would cut $467 billion to pay for his plan.
Lew added that the White House doesn’t anticipate that raising some taxes on high income earners would result in the loss of jobs.
Gotta love it. No politics in this. Nothing happens until January 2013 (how convenient). And the changes will pay for his spending now in 10 years. Wow, where have we heard that before? More debt boosting smoke and mirrors. More of the same old tired agenda.
And of course, we all know that no future Congress is obligated to any of this. And you wonder why there are those of us out here shouting about paying for something now vs the future?
Also, it is a litany of those interests and demographics which reside on the Obama “enemies list”. The rich and the fossil fuel industry. It is the usual class warfare politics. To sell this Obama has to attempt to demonize the rich and the oil companies – even more than he’s done so already. As everyone knows, I’m all for ending subsidies for everyone, but what Obama calls subsides in this case are tax breaks all businesses in all sectors take. They’re not direct subsidies at all (regardless of what the press or the White House choose to call them). This is selective taxation of the type that is meant to be punitive.
So here’s the money part of the great plan. It is absolutely nothing the Republicans have supported before. It should be Dead On Arrival. Obviously, knowing the Republicans won’t support such a funding mechanism, President Obama is not at all interested in a compromise jobs bill. Or bi-partisanship. He’s put a completely unpalatable poison pill in the bill and will now try to paint the GOP as intransigent obstructionists.
And, given the fact that taking those tax breaks away from the oil and gas industry will cost them an extra $40 billion it’s hard not to believe it won’t cost jobs. Note Lew didn’t address that point concerning the removal of the tax break. He’s only claiming that in regards to the so-called “rich”.
Business as usual. Tax and spend. And as usual it is spend now an collect later. Somehow we never get around to the spending cuts, do we? $14 trillion dollars of debt say “no”.