President Obama has embarked on a bus tour of the Midwest. Who is the only other national political figure to go on a bus tour in the recent times? Sarah Palin, of course. And the media ridiculed her. But now, Obama is following Sarah Palin's lead.
Thursday, August 18, 2011
Saturday, August 6, 2011
Debt Ceiling Deal: Nothing Is Being Cut
Here is some real eye-opening news.
During the last few weeks, there has been a non-stop soap opera in Washington about the federal government’s “debt ceiling”. Much of the debate has been about whether the government should cut spending or raise taxes or do some combination of both in order to get the deficit under control. We’ve heard about this plan that will cut X trillion in spending, and that plan that will cut Y trillion, and the compromise plan that will cut Z trillion.
You know all of that; it’s not news.
Here’s the news that has barely been mentioned because the big-spending, big government, career politicians don’t want you to be aware of it: Nothing is being cut, in any of these plans. Nothing.
Then why do we hear from supposedly legitimate news media that federal spending is being cut, with the only debate about how much, you ask. Dear reader, let me explain.
The federal budget is on autopilot that results in across-the-board increases occurring every year, automatically. It’s called “base line budgeting”, and here’s how it works.
Every year, the proposed federal budget increases from the previous year by eight percent. This increased budget proposal becomes the “baseline” for budget negotiations. If it is suggested that the budget should not increase by the proposed amount but by some lesser amount instead, which is still an increase over the previous year, that suggestion is scored by the Congressional Budget Office (CBO) as a “cut”.
Stay with me on this, because it’s vitally important.
Let’s put some hypothetical numbers on it as an example. We’ll say that last year’s federal budget was $100 (you can put as many zeros on that as you want). The budget proposal for this year will come out initially as $108. If this proposed budget were reduced to, say, $105, it would be billed as a cut.
Hypothetical Example – Federal Budget Process
----------------------------------------------------------------------
Last year’s federal budget: $100
Initial budget proposal for this year (the baseline): $108
Final budget for this year: $105
Scored as a $3 cut.
That’s right, even though the federal budget went up from one year to the next in this example, it’s called a “cut” in politician-ese. That’s how baseline budgeting works; it’s designed to mislead the public so that politicians can claim they’re cutting the budget when in actuality the budget is going up.
Now for the coup-de-grace. Under all the plans being debated recently in Congress concerning the federal debt ceiling, government spending will rise across the board, in some estimates by seven to nine trillion dollars over the next ten years. Nothing is being cut! Yet we hear about how these various plans will cut spending by so many trillion. That’s the intended effect of baseline budgeting, letting politicians call an increase a cut.
Let’s move on to two other fundamental dishonesties that are rampant in the debt ceiling debate.
There has been a lot of talk about the U.S. Government’s credit rating possibly being lowered from AAA to AA+. What is this all about?
When a lender loans money to a borrower, the lender wants to know ahead of time the likelihood of the borrower being able to pay back the loan and the interest. That need led to credit ratings.
If a borrower is unable to pay the interest or principle on the loan, they are said to have defaulted on the loan.
Everyone probably knows about their credit score and how a good score makes it easier for an individual to borrow money and to get a lower interest rate. That’s because the higher a person’s credit score is, the less likely they will default on a loan.
Government entities (and companies) are rated in a similar manner by the major credit agencies, Moody’s and Standard and Poors (S&P). Triple A is the highest rating. The U.S. Government has always had a AAA rating because there is almost no chance that it won’t be able to pay the interest on borrowed money or the principle amount when the time comes.
Throughout this federal debt ceiling saga, one of the major reasons given as to why we must raise the debt ceiling is to prevent the federal government from defaulting on it’s loans (bonds), and to keep its credit rating from being downgraded.
The truth is that even if the debt ceiling is not raised, the government will not default on it’s bonds. There will still be tax money coming in, and there will be enough to pay the interest on the bonds, even though other areas of spending would have to go without in that scenario. But a default would not occur.
Next truth factoid: No matter which plan concerning the debt ceiling is finally adopted, the U.S. Government’s credit rating will go down. S&P has already said that neither of the final two proposed plans reduces federal spending enough such that Uncle Sam’s AAA rating can be maintained.
Here are the salient points we can distill out of all of this blathering and disingenuineness about the debt ceiling:
1. Nothing is being cut.
2. The federal government will not default on its loans (bonds).
3. The federal government’s credit rating will be downgraded no matter which debt ceiling plan Congress adopts since none of them are serious about balancing the federal budget.
During the last few weeks, there has been a non-stop soap opera in Washington about the federal government’s “debt ceiling”. Much of the debate has been about whether the government should cut spending or raise taxes or do some combination of both in order to get the deficit under control. We’ve heard about this plan that will cut X trillion in spending, and that plan that will cut Y trillion, and the compromise plan that will cut Z trillion.
You know all of that; it’s not news.
Here’s the news that has barely been mentioned because the big-spending, big government, career politicians don’t want you to be aware of it: Nothing is being cut, in any of these plans. Nothing.
Then why do we hear from supposedly legitimate news media that federal spending is being cut, with the only debate about how much, you ask. Dear reader, let me explain.
The federal budget is on autopilot that results in across-the-board increases occurring every year, automatically. It’s called “base line budgeting”, and here’s how it works.
Every year, the proposed federal budget increases from the previous year by eight percent. This increased budget proposal becomes the “baseline” for budget negotiations. If it is suggested that the budget should not increase by the proposed amount but by some lesser amount instead, which is still an increase over the previous year, that suggestion is scored by the Congressional Budget Office (CBO) as a “cut”.
Stay with me on this, because it’s vitally important.
Let’s put some hypothetical numbers on it as an example. We’ll say that last year’s federal budget was $100 (you can put as many zeros on that as you want). The budget proposal for this year will come out initially as $108. If this proposed budget were reduced to, say, $105, it would be billed as a cut.
Hypothetical Example – Federal Budget Process
----------------------------------------------------------------------
Last year’s federal budget: $100
Initial budget proposal for this year (the baseline): $108
Final budget for this year: $105
Scored as a $3 cut.
That’s right, even though the federal budget went up from one year to the next in this example, it’s called a “cut” in politician-ese. That’s how baseline budgeting works; it’s designed to mislead the public so that politicians can claim they’re cutting the budget when in actuality the budget is going up.
Now for the coup-de-grace. Under all the plans being debated recently in Congress concerning the federal debt ceiling, government spending will rise across the board, in some estimates by seven to nine trillion dollars over the next ten years. Nothing is being cut! Yet we hear about how these various plans will cut spending by so many trillion. That’s the intended effect of baseline budgeting, letting politicians call an increase a cut.
Let’s move on to two other fundamental dishonesties that are rampant in the debt ceiling debate.
There has been a lot of talk about the U.S. Government’s credit rating possibly being lowered from AAA to AA+. What is this all about?
When a lender loans money to a borrower, the lender wants to know ahead of time the likelihood of the borrower being able to pay back the loan and the interest. That need led to credit ratings.
If a borrower is unable to pay the interest or principle on the loan, they are said to have defaulted on the loan.
Everyone probably knows about their credit score and how a good score makes it easier for an individual to borrow money and to get a lower interest rate. That’s because the higher a person’s credit score is, the less likely they will default on a loan.
Government entities (and companies) are rated in a similar manner by the major credit agencies, Moody’s and Standard and Poors (S&P). Triple A is the highest rating. The U.S. Government has always had a AAA rating because there is almost no chance that it won’t be able to pay the interest on borrowed money or the principle amount when the time comes.
Throughout this federal debt ceiling saga, one of the major reasons given as to why we must raise the debt ceiling is to prevent the federal government from defaulting on it’s loans (bonds), and to keep its credit rating from being downgraded.
The truth is that even if the debt ceiling is not raised, the government will not default on it’s bonds. There will still be tax money coming in, and there will be enough to pay the interest on the bonds, even though other areas of spending would have to go without in that scenario. But a default would not occur.
Next truth factoid: No matter which plan concerning the debt ceiling is finally adopted, the U.S. Government’s credit rating will go down. S&P has already said that neither of the final two proposed plans reduces federal spending enough such that Uncle Sam’s AAA rating can be maintained.
Here are the salient points we can distill out of all of this blathering and disingenuineness about the debt ceiling:
1. Nothing is being cut.
2. The federal government will not default on its loans (bonds).
3. The federal government’s credit rating will be downgraded no matter which debt ceiling plan Congress adopts since none of them are serious about balancing the federal budget.
Tuesday, August 2, 2011
Obama Voted Against Raising the Debt Ceiling As A Senator
"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government's reckless fiscal policies. Increasing America's debt weakens us domestically and internationally. Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. America deserves better."
Barack Obama, circa 2006
Barack Obama, circa 2006
Friday, July 29, 2011
Out Of Control Spending In Washington
It's worse than we thought. The out of control spending in Washington is so bad that Apple Computer has more money than the U.S. Government. Yes, that's right. Uncle Sam is so flat out busted that one private company has more cash on hand the the U.S. Treasury.
Apple currently has $74.4 billion in cash on hand, but the Treasury Department now has only $73.7 billion (as reported by the BBC).
How did Apple mange to accumulate a larger cash horde than the U.S. Government? Apple routinely, month in-month out, year in-year out, spends less than it takes in.
Apple currently has $74.4 billion in cash on hand, but the Treasury Department now has only $73.7 billion (as reported by the BBC).
How did Apple mange to accumulate a larger cash horde than the U.S. Government? Apple routinely, month in-month out, year in-year out, spends less than it takes in.
Friday, July 22, 2011
Why is there a debt ceiling?
As I watch the circus in Washington with regard to the Federal government’s so-called “debt ceiling”, I‘m now thinking that this issue is strange in one very fundamental, basic way.
We see various high ranking government officials and other supposedly smart people running around like Keystone Cops and hyperventilating about why we must, absolutely must, raise the Federal government’s debt limit on August 2 (not August 3), and that if we don’t, then the economy as we know it will cease to exist. We’ll drop off a cliff. The worldwide economy will implode, and we’ll never recover. It’ll be over, the end, fini, sayonara, the fat lady will sing, Armageddon will happen, etc. So we’re told by all of those people who are so much smarter than us.
Now here is the strange part. Ponder this: Why does the federal government have a debt limit, if once we reach it, we have no choice but to raise it? Why is the “debt ceiling” there in the first place if it’s not a ceiling at all?
“Debt” is, of course, borrowed money. That means it will have to be paid back some day. Think about buying a new truck. If you don’t have the cash to buy it, you can usually get a loan, and then you pay monthly payments, often for a long time, to pay the loan back.
Suppose you also buy a nice, new boat with another loan. Now, you have more monthly loan payments.
How about a house? Nobody has enough cash to buy a house, so you get a mortgage. More monthly payments.
And then there are those credit cards. Still more monthly payments.
If this keeps up, a person may reach a point where they just can’t make all of those monthly payments, and that’s a real problem. Foreclosure, repossession, nasty debt collectors calling, and other such unpleasantness will most likely ensue.
So the concept of limiting one’s debt seems like a good idea. Depending on the household income level, some specific number representing the total debt that a person or family can carry is established, and then they know not to go above that number in their total borrowing. This “debt ceiling” serves as a restraint on their borrowing, which is a good thing. It keeps them from getting “over extended”.
In concept, that is what a debt ceiling or limit is. It’s a tool for exercising basic, sound financial management by making sure that one doesn’t borrow too much money.
Currently, the federal government borrows about thirty-two cents out of every dollar it spends, so the debt is piling up. Right now, the total national debt is about fourteen trillion dollars, a lot of money to have to pay back to the lenders.
Let’s put that number in perspective.
The federal government currently is spending $3.8 trillion a year; of that, $1.2 trillion is borrowed. Percentage wise, thirty-two percent of the federal budget is borrowed.
The $14 trillion total national debt represents 3.6 years of the total federal government spending. In other words, if Uncle Sam did nothing but pay down the national debt, it would take 3.6 years to do it. Of course, that scenario is very hypothetical, since it means that all spending on the military, Congress, government agencies, Social Security and other entitlements, and everything else the federal government does would have to stop, which they won’t. In fact, because the government is borrowing money as described above, that total national debt figure isn’t going down at all; it’s going up.
Congress apparently realized that unlimited borrowing and spending on their part would lead to some very bad financial consequences. So Congress set a national debt limit, meaning that Congress couldn’t borrow more than that amount of money. I guess the intent was to force some self-restraint in borrowing and spending. But here we are, up against the $14 trillion debt limit and rising.
The big money sinks in the federal budget are Social Security and Medicare. The Social Security trustees estimate that, left on it’s current course, Social Security alone will run a deficit of $3.76 trillion in 2075. Add in Medicare, and you have a one-year deficit of $4.80 trillion, for just two entitlement programs. Those estimates are under an “intermediate” scenario, not a worst-case or best-case scenario.
Gross Domestic Product (GDP) is the total value of all goods and services produced in the entire country. That $4.80 trillion deficit will be somewhere between 24% and 50% of 2075 GDP, depending on the assumptions made.
Think about that. On the current trajectory, in 2075 we will spend between 24% and 50% of the value of everything produced in the country on two entitlement programs.
For you “sustainability” advocates, that is not sustainable.
Here are two conclusions we can draw from all of this.
First, since debt is caused by spending more money than is coming in, when a pre-defined debt limit is reached, shouldn’t spending be reduced?
Second, the only way to have any significant impact on federal spending is to make structural reforms to Social Security and Medicare.
No, raising taxes on the "rich" won’t solve the federal debt problem, especially something as meaningless as closing a tax loophole for corporate jets or some other such silliness. In previous columns, I have discussed who pays the most federal taxes, and space doesn’t allow me to repeat all of that here. But consider two factoids. One: In 2008, the last year for which IRS data is available, the top 50% of income earners paid 97% of all federal income tax. Two: If the feds took all of the taxable income of all people earning over $200,00, it would only pay the Social Security – Medicare - Medicaid bill for 2012, but not for any one year in the future since the costs of those programs are expected to rise rapidly. So increased taxes won’t do it.
Now we know the answer to the question. The debt ceiling is there to keep the Federal government from borrowing excessively, and once the limit is hit, spending needs to be cut.
We see various high ranking government officials and other supposedly smart people running around like Keystone Cops and hyperventilating about why we must, absolutely must, raise the Federal government’s debt limit on August 2 (not August 3), and that if we don’t, then the economy as we know it will cease to exist. We’ll drop off a cliff. The worldwide economy will implode, and we’ll never recover. It’ll be over, the end, fini, sayonara, the fat lady will sing, Armageddon will happen, etc. So we’re told by all of those people who are so much smarter than us.
Now here is the strange part. Ponder this: Why does the federal government have a debt limit, if once we reach it, we have no choice but to raise it? Why is the “debt ceiling” there in the first place if it’s not a ceiling at all?
“Debt” is, of course, borrowed money. That means it will have to be paid back some day. Think about buying a new truck. If you don’t have the cash to buy it, you can usually get a loan, and then you pay monthly payments, often for a long time, to pay the loan back.
Suppose you also buy a nice, new boat with another loan. Now, you have more monthly loan payments.
How about a house? Nobody has enough cash to buy a house, so you get a mortgage. More monthly payments.
And then there are those credit cards. Still more monthly payments.
If this keeps up, a person may reach a point where they just can’t make all of those monthly payments, and that’s a real problem. Foreclosure, repossession, nasty debt collectors calling, and other such unpleasantness will most likely ensue.
So the concept of limiting one’s debt seems like a good idea. Depending on the household income level, some specific number representing the total debt that a person or family can carry is established, and then they know not to go above that number in their total borrowing. This “debt ceiling” serves as a restraint on their borrowing, which is a good thing. It keeps them from getting “over extended”.
In concept, that is what a debt ceiling or limit is. It’s a tool for exercising basic, sound financial management by making sure that one doesn’t borrow too much money.
Currently, the federal government borrows about thirty-two cents out of every dollar it spends, so the debt is piling up. Right now, the total national debt is about fourteen trillion dollars, a lot of money to have to pay back to the lenders.
Let’s put that number in perspective.
The federal government currently is spending $3.8 trillion a year; of that, $1.2 trillion is borrowed. Percentage wise, thirty-two percent of the federal budget is borrowed.
The $14 trillion total national debt represents 3.6 years of the total federal government spending. In other words, if Uncle Sam did nothing but pay down the national debt, it would take 3.6 years to do it. Of course, that scenario is very hypothetical, since it means that all spending on the military, Congress, government agencies, Social Security and other entitlements, and everything else the federal government does would have to stop, which they won’t. In fact, because the government is borrowing money as described above, that total national debt figure isn’t going down at all; it’s going up.
Congress apparently realized that unlimited borrowing and spending on their part would lead to some very bad financial consequences. So Congress set a national debt limit, meaning that Congress couldn’t borrow more than that amount of money. I guess the intent was to force some self-restraint in borrowing and spending. But here we are, up against the $14 trillion debt limit and rising.
The big money sinks in the federal budget are Social Security and Medicare. The Social Security trustees estimate that, left on it’s current course, Social Security alone will run a deficit of $3.76 trillion in 2075. Add in Medicare, and you have a one-year deficit of $4.80 trillion, for just two entitlement programs. Those estimates are under an “intermediate” scenario, not a worst-case or best-case scenario.
Gross Domestic Product (GDP) is the total value of all goods and services produced in the entire country. That $4.80 trillion deficit will be somewhere between 24% and 50% of 2075 GDP, depending on the assumptions made.
Think about that. On the current trajectory, in 2075 we will spend between 24% and 50% of the value of everything produced in the country on two entitlement programs.
For you “sustainability” advocates, that is not sustainable.
Here are two conclusions we can draw from all of this.
First, since debt is caused by spending more money than is coming in, when a pre-defined debt limit is reached, shouldn’t spending be reduced?
Second, the only way to have any significant impact on federal spending is to make structural reforms to Social Security and Medicare.
No, raising taxes on the "rich" won’t solve the federal debt problem, especially something as meaningless as closing a tax loophole for corporate jets or some other such silliness. In previous columns, I have discussed who pays the most federal taxes, and space doesn’t allow me to repeat all of that here. But consider two factoids. One: In 2008, the last year for which IRS data is available, the top 50% of income earners paid 97% of all federal income tax. Two: If the feds took all of the taxable income of all people earning over $200,00, it would only pay the Social Security – Medicare - Medicaid bill for 2012, but not for any one year in the future since the costs of those programs are expected to rise rapidly. So increased taxes won’t do it.
Now we know the answer to the question. The debt ceiling is there to keep the Federal government from borrowing excessively, and once the limit is hit, spending needs to be cut.
Tuesday, July 19, 2011
The Great Toyota Hoax
Do you remember the Toyota Crisis of 2010? It was one of the biggest stories of the year. There was a grave danger in Toyotas: Some electronic gadget in the cars was causing them to suddenly lurch forward at high speed. They couldn’t be brought under control even with the brake pedal; millions of people were at risk due to these demon machines. It was such a threat to so many Americans that no less than the Secretary of Transportation Ray LaHood announced that “Toyotas are unsafe”. The Democrat controlled Congress jumped into action to avenge this death threat that had been inflicted on the American people. Hearings were held. Toyota executives were accused of lying and covering up the problem. The nation’s leading newspapers, news magazines, and television networks ran numerous stories on the “killing machines” theme. Toyota was fined $48.8 B for what the Obama administration called its inadequate response to the crisis. Toyotas stock price and market share declined.
Well, never mind. Earlier this year, after an exhaustive study by that very same Ray LaHood’s transportation department, assisted by NASA engineers, the U.S. government officially concluded that there was no evidence – no evidence whatsoever – of any mechanical or electronic defects in Toyotas that would cause sudden, unintentional acceleration.
Will their $48.8 billion be refunded?
Well, never mind. Earlier this year, after an exhaustive study by that very same Ray LaHood’s transportation department, assisted by NASA engineers, the U.S. government officially concluded that there was no evidence – no evidence whatsoever – of any mechanical or electronic defects in Toyotas that would cause sudden, unintentional acceleration.
Will their $48.8 billion be refunded?
Thursday, July 14, 2011
Eat Your Peas
President Obama has been telling us for some time that there must be shared sacrifice throughout the country, that we will all have to feel a little pain in order to solve the nation's problems. Now we know specifically what he means. We must all eat our peas.
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