4

Government Shutdown? If Only!

government-shutdown

 

Well, time for a phony government shutdown.  I say phony because all essential, and many non-essential, functions of government will keep ticking away.  The media will be filled with pictures of the Statue of Liberty being shut down and commentators damning Republican members for their “intransigence” in not recognizing that every whim of Obama is eternal law.  All humbug. Continue Reading

8

Illinois Taught Obama All He Knows About Governing

Lincoln Weeping

 

 

Well, the Land of Lincoln, and the home state of the South Side Messiah, has another distinction:

 

 

The Land of Lincoln now has the worst credit rating of any state in the nation:

llinois’ credit rating has taken another hit.   Standard & Poor’s Ratings Service downgraded the state from an “A” rating to “A-minus”, making it the worst in the country.

The New York ratings firm’s ranking means taxpayers may have to pay tens of millions of dollars more in interest when the state borrows money for roads and other projects.

The downgrade is the latest fallout over the $96.8 billion debt to five state pension systems.

The downgrade now ties Illinois with California, but California has a positive outlook.

Illinois’ fragile overall financial status netted it a negative outlook, putting it behind California overall.

The ratings came out now because Illinois plans to issue $500 million in bonds within days.

Finally…we beat California at something.

 

 

Continue Reading

32

Of Trillion Dollar Coins, Prancing Unicorns and Paul Krugman

 

 

 

I have written before of a truly wacked out nostrum popular among bloggers on the Left in this country to have a coin minted with a trillion dollar value in order to “solve” the debt crisis.  Go here to read my post on the subject.  Now economist Paul Krugman, Nobel laureate and barking mad Leftist moonbat, has endorsed the proposal:

Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.

So why not?

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years.Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin. Continue Reading

3

The Actual Fiscal Cliff

 

Well the so-called Fiscal Cliff was avoided through the mechanism that I predicted back in November:

 

What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts.  In short, the can will be kicked down the road.  Unfortunately for the nation, the end of the road is almost here.

 

85 Republicans in the House voted for the Fiscal Cliff deal, and 151 voted against it.  The Deal passed courtesy of 172 Democrat votes in the House.

The main  terms of the agreement are as follows:

1.  The Bush tax cuts were made permanent for single filers below 400,000 and married filers below 450,000.

2.  The Alternative Minimum Tax has been permanently fixed by adjusting it for inflation.

(I would note that these portions of the deal should be considered as victories for the GOP.  Permanently extending the Bush tax cuts for 98% of the population takes away from Democrats the opportunity to use this as a stick against Republicans.  The Republicans have fought for a permanent inflation fix to the the Alternative Minimum Tax since it was first proposed in 1969.)

3.  Yet another showdown over mandated spending cuts was set up for two months down the road.

4.  The tax increases on those earning over 400,000 for single filers and 450,000 for married couple will bring in an estimated 35 billion a year.

5.  Capital gains tax will go from 15-20 percent on those earning 400,000 for single filers and 450,000 for married couples.

6.  The Estate Tax goes from 35%-40%.  (The estate tax only applies to estates over five million dollars.)

7.  Factoring in the estate tax increase and the capital gains tax increase estimated additional taxes come to 60 billion a year.  For comparison purposes the deficit last year was 1.2 trillion dollars. Continue Reading

8

I am Shocked! Shocked!

In the Age of Obama, California under Governor Moonbeam is a reliable predictor of where the nation is headed:  Bankruptcy.

On Tuesday, California released a report that revealed state tax revenues have plummeted even further below Gov. Jerry Brown’s (D) estimates, even after residents voted to increase taxes via Proposition 30 in November’s elections.

At the end of November, “taxes were 3% short in the fiscal year that started in July,” which is “a gap of $936 million.” The state was 0.7% short a month before.

H.D. Palmer, a spokesman for the state’s Department of Finance, spun the poor numbers by saying Facebook’s stock vested earlier than expected, and “boosted October taxes higher, while decreasing November revenue.”

But the report found that tax revenues were below estimates nearly across the board, as total “year-to-date revenues are $936 million below the initial forecast.”

 

According to the report, personal income tax revenues were “$827 million below the month’s forecast of $4.387 billion.” Sales and use tax receipts “were $9 million below the month’s forecast of $1.601 billion” and the year-to-date sales tax revenue was $8 million below forecast. Continue Reading

8

Of Trillion Dollar Coins and Fiscal Lunacy

The idea of minting trillion-dollar platinum coins has been a lunatic nostrum of the wacked out left for about a year.  Today Brad Plumer on the wonk blog at the Washington Post looks at this scam:

Enter the platinum coins. Thanks to an odd loophole in current law, the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.

Under this scenario, the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.

“I like it,” says Joseph Gagnon of the Peterson Institute for International Economics. “There’s nothing that’s obviously economically problematic about it.” Continue Reading

6

Obamanomics: Trillions for Nothing

 

 

Another fine, and timely, econ 101 video from the Center for Freedom and Prosperity.  When future historians write the history of the Obama administration, and what a sad farce that tale will consist of, I think they will stand aghast at all the borrowed money poured out by the Federal government with virtually zero positive impact on the economy.  In regard to Keynsian economics, the Obama administration is proof that one of Karl Marx’s maxims has proven to be a largely accurate observation on human affairs:  Hegel remarks somewhere that all facts and personages of great importance in world history occur, as it were, twice. He forgot to add: the first time as tragedy, the second as farce. Continue Reading

46

Watch Illinois…And Do The Reverse

My beloved State of Illinois is a shining example of what not to do if a state wishes to be prosperous, cursed as it is with probably the worst state government in the Union.  George Will sums up the state of my State in a column this week:

After trying to tax Illinois to governmental solvency and economic dynamism, Pat Quinn, a Democrat who has been governor since 2009, now says “our rendezvous with reality has arrived.”

Actually, Illinois is still reality-averse, so Americans may soon learn the importance of the freedom to fail in a system of competitive federalism.

Illinois was more heavily taxed than its five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame duck Legislature (its successor has fewer Democrats) to raise corporate taxes 30% (from 7.3% to 9.5%), giving Illinois one of the highest state corporate taxes, and the fourth-highest combination of national and local corporate taxation in the industrialized world.

Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

Quinn raised personal income taxes 67% (from 3% to 5%), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois’ unemployment rate increased faster than any other state’s in 2011.

Its pension system is the nation’s most underfunded, and the state has floated bond issues to finance pension contributions — borrowing money that someday must be repaid, to replace what should have been pension money it spent on immediate gratifications.

Go here to read the depressing rest.  Illinois is now rated A2 by Moody’s, the lowest credit rating of any state.  When it lowered Illinois’ bond rating Moody’s made the following observation:

Illinois’ general obligation bond rating was lowered to A2 from  A1 on January 6 because of the state’s failure last year to implement  solutions to its largest credit challenges: severe pension under-funding  and chronic bill-payment delays. It remains to be seen whether  the state has the political will to impose new pension reforms and other  measures that restore fiscal strength in the near term.

Not a chance.  No serious reforms will be undertaken until State payroll checks begin to bounce.  Illinois has the worst, most feckless political class in the country.  Louis XV, he of apres moi le deluge, was a dedicated reformer compared to the idiots, crooks and empty suits who misgovern the Land of Lincoln.

 

38

Financing Government Out of Thin Air

 

In 2011 the Fed purchased 61%  of all debt issued by the Treasury Department.

The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.
“Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis,” Goodman writes.
Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.”
“This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.”
Continue Reading

6

Why Illinois Is Bankrupt

 

,

 

My beloved state of Illinois has a terrible economy, and a shrinking tax base but that is apparently no problem for the bi-partisan pirates who have been plundering the Land of Lincoln for decades:

When Republican state Rep. Roger Eddy announced his retirement from the House Thursday, you could hear the “ding, ding, ding” of a slot machine all the way from Springfield.
Eddy hit the pension jackpot.
He is retiring early from the House to run the Illinois Association of School Boards, which, among other activities, lobbies the Illinois Legislature. His start date is July 1 — although now that he’s leaving the Statehouse before the end of the spring session, he said it’s likely he’ll work for the association before July.
Why the sudden defection? One likely reason: He’ll be much richer in retirement, thanks in part to taxpayers.
In his new job, Eddy will not only stay in the Teachers’ Retirement System, he can collect more in benefits from it. He has been working both as a state representative and superintendent for Hutsonville Community Unit School District 1. He has been part of TRS through his Hutsonville job, where he earned a salary of $107,400. His new salary is expected to be at least $200,000, and his pension will be based on that.
Illinois Statehouse News reported that Eddy’s pension as school superintendent would have been about $70,500 a year. It will climb to at least $141,000 in his new job. His predecessor at the IASB, Mike Johnson, is earning an annual pension — get ready to swallow hard — of $193,273, according to TRS.
But that’s not the end of Eddy’s pension largesse. He’ll be eligible in two years to begin collecting a pension of about $24,000 a year from his nine years of part-time work in the Legislature. Illinois Statehouse News projected his lawmaker pension carries a lifetime value of $584,273. Eddy is 53 years old.
Continue Reading

7

The Obama Record: The Debt

 

The second in my ongoing series on the Obama record as President, the first part of which may be read here,  leading up to the election in November.  Few things show more graphically the disaster of the Obama presidency than the debt he has piled on this nation.  This week the Obama Debt reached a grim milestone, as he surpassed the debt run up by his predecessor George W. Bush in eight years.  That right-wing news organization CBS News, gives us the forbidding numbers: Continue Reading

23

Demography, Contraception and Fiscal Melt Down

 

 It should be the highest ambition of every American to extend his views beyond himself, and to bear in mind that his conduct will not only affect himself, his country, and his immediate posterity; but that its influence may be co-extensive with the world, and stamp political happiness or misery on ages yet unborn.

George Washington

 

Mark Steyn at National Review Online, notes that the fiscal lunacy of the Obama administration and the HHS Mandate are linked:

 

As for us doom-mongers, at the House Budget Committee on Thursday, Chairman Paul Ryan produced another chart, this time from the Congressional Budget Office, with an even steeper straight line showing debt rising to 900 percent of GDP and rocketing off the graph circa 2075. America’s treasury secretary, Timmy Geithner the TurboTax Kid, thought the chart would have been even more hilarious if they’d run the numbers into the next millennium: “You could have taken it out to 3000 or to 4000” he chortled, to supportive titters from his aides. Has total societal collapse ever been such a non-stop laugh riot?

Yeah, right.” replied Ryan. “We cut it off at the end of the century because the economy, according to the CBO, shuts down in 2027 on this path.”

The U.S. economy shuts down in 2027? Had you heard about that? It’s like the ultimate Presidents’ Day sale: Everything must go — literally! At such a moment, it may seem odd to find the political class embroiled in a bitter argument about the Obama administration’s determination to force Catholic institutions (and, indeed, my company and your company, if you’re foolish enough still to be in business in the United States) to provide free prophylactics to their employees. The received wisdom among media cynics is that Obama has engaged in an ingenious bit of misdirection by seizing on a pop-culture caricature of Republicans and inviting them to live up to it: Those uptight squares with the hang-ups about fornication have decided to force you to lead the same cheerless sex lives as them. I notice that in their coverage NPR and the evening news shows generally refer to the controversy as being about “contraception,” discreetly avoiding mention of sterilization and pharmacological abortion, as if the GOP have finally jumped the shark in order to prevent you jumping anything at all.

It may well be that the Democrats succeed in establishing this narrative. But anyone who falls for it is a sap. In fact, these two issues — the Obama condoms-for-clunkers giveaway and a debt-to-GDP ratio of 900 percent by 2075 — are not unconnected. In Greece, 100 grandparents have 42 grandchildren — i.e., an upside-down family tree. As I wrote in this space a few weeks ago, “If 100 geezers run up a bazillion dollars’ worth of debt, is it likely that 42 youngsters will ever be able to pay it off?” Most analysts know the answer to that question: Greece is demographically insolvent. So it’s looking to Germany to continue bankrolling its First World lifestyle.

But the Germans are also demographically exhausted: They have the highest proportion of childless women in Europe. One in three fräulein have checked out of the motherhood business entirely. A nation that did without having kids of its own is in no mood to maintain Greece as the ingrate slacker who never moves out of the house. As the European debt crisis staggers on, these two countries loathe each other ever more nakedly: The Greek president brings up his war record against the German bullies, and Athenian commentators warn of the new Fourth Reich. The Germans, for their part, would rather cut the Greeks loose. In a post-prosperity West, social solidarity — i.e., socioeconomic fictions such as “Europe” — are the first to disappear.

The United States faces a mildly less daunting arithmetic. Nevertheless, the Baby Boomers did not have enough children to maintain mid-20th-century social programs. As a result, the children they did have will end their lives in a poorer, uglier, sicker, more divided, and more violent society. How to avert this fate? In 2009 Nancy Pelosi called for free contraceptives as a form of economic stimulus. Ten thousand Americans retire every day, and leave insufficient progeny to pick up the slack. In effect, Nancy has rolled a giant condom over the entire American economy. Continue Reading

2

Shooting the Messenger

 

 

As intensely frustrated as I get at the idiocy frequently shown by government here in the US, for truly high handed over the top governmental lunacy we can rarely compete with the Europeans:

This week alone has seen a ratings downgrade for Spain as well as a threat by agencies to review France’s AAA status — and the markets have taken notice. Once again, it would seem, ratings agencies are making things difficult for European countries.


Now, the European Union is considering doing something about it.

European Internal Market Commissioner Michel Barnier is considering a move to ban the agencies from publishing outlook reports on EU countries entangled in a crisis, according to a report in Thursday’s issue of the Financial Times Deutschland newspaper.

In an internal draft of a reform to an EU law applying to ratings agencies obtained by the paper, Barnier proposes providing the new EU securities authority, the European Securities and Markets Authority (ESMA), with the right to “temporarily prohibit” the publication of forecasts of a country’s liquidity.

The European Commission is particularly concerned about countries that are negotiating financial aid — for example from the euro rescue backstop fund, the European Financial Stability Facility (EFSF), or the International Monetary Fund (IMF). A ban could prevent a rating from coming at an “inopportune moment” and having “negative consequences for the financial stability of a country and a possible destabilizing effect on the global economy,” the draft states. Continue Reading

16

Rand Paul Gets It

I have never been a fan of Ron Paul, to say the least, but I am rapidly becoming a fan of his son.

Yesterday the Senate in a 44-56 vote rejected the House proposal to cut 57 billion from the budget.  Then the Senate rejected a Democrat proposal to cut the budget by 5 billion dollars, 42 to 58. 

This year the federal budget deficit will be an estimated one and a half trillion dollars and that is probably on the low side.

Senator Rand Paul of Kentucky voted against both proposals because he believes that neither are serious attempts to come to grips with the sea of red ink which is threatening to destroy this nation’s future prosperity.  He is absolutely correct.

He has proposed 500 billion dollar cuts.  This would be a serious start, but would still leave a deficit this year of a trillion dollars.  Here, hattip to David Fredosso at the Washington Examiner,  are the details of his plan: Continue Reading

30

Government and Economic Health

Another fine econ 101 video from the Center for Freedom and Prosperity.  The day after we learned that the Federal debt now equals the annual size of the US economy seems like an appropriate time to watch the above video.  We have attained a size and cost of government in this country which threatens to severely damage the economy which pays our bills, public and private.  This cannot go on and will not go on, either by our elected representatives finally taking steps necessary to curb the size and cost of government or through de facto national bankruptcy.

3

Night of the Living Government!

In keeping with the mini-Zombie theme I have started here at TAC, we have the above Klavan on the Culture episode from 2009.  Hmmm, Zombies as metaphor for out of control government spending.  Actually I do not think it is apt.  After all, a horde of ravenous Zombies might eat a few brains, but they would quickly be dispatched to the nether regions since, if Hollywood can be trusted, Zombies are notoriously poor combatants, moving slowly, clumsily, and giving away their positions with incessant growling.  When confronting zombies, the only thing we have to fear is fear itself!  (Plus running out of ammo.)  Continue Reading

7

$13 Trillion of Debt…Nothing to Show For It

Recently a Senator made the following statement:

“We have managed to acquire $13 trillion of debt on our balance sheet” and, “in my view we have nothing to show for it.”

What right wing Republican made that statement?  Well actually it was Democrat Senator Michael Bennet of Colorado.

Of course Bennet’s rhetoric is completely belied by his drunken sailor voting record when it comes to spending.  However his statement is still interesting for two reasons:

Continue Reading

2

California Nightmaring

In a remarkably good article here at newgeography, Joel Kotkin details how California has been transformed from the Golden State to the state most likely to go bankrupt.  He sums up his argument as follows:

What went so wrong? The answer lies in a change in the nature of progressive politics in California. During the second half of the twentieth century, the state shifted from an older progressivism, which emphasized infrastructure investment and business growth, to a newer version, which views the private sector much the way the Huns viewed a city—as something to be sacked and plundered. The result is two separate California realities: a lucrative one for the wealthy and for government workers, who are largely insulated from economic decline; and a grim one for the private-sector middle and working classes, who are fleeing the state.

Kotkin notes that government spending was completely out of control prior to the present Great Recession:

Between 2003 and 2007, California state and local government spending grew 31 percent, even as the state’s population grew just 5 percent. The overall tax burden as a percentage of state income, once middling among the states, has risen to the sixth-highest in the nation, says the Tax Foundation. Since 1990, according to an analysis by California Lutheran University, the state’s share of overall U.S. employment has dropped a remarkable 10 percent. When the state economy has done well, it has usually been the result of asset inflation—first during the dot-com bubble of the late 1990s, and then during the housing boom, which was responsible for nearly half of all jobs created earlier in this decade. Continue Reading

11

Illinois is Broke

Long time readers of this blog know that I reside in the Land of Lincoln.  Illinois now has the distinction of perhaps being in the worst fiscal mess of any state in the Union, as this recent article by Josh Barro for Real Clear Markets indictates:

If you go to Sacramento this week, don’t be surprised to hear champagne corks popping and chants of “We’re #2! We’re #2!” The cause for celebration? Illinois has overtaken California as the worst credit risk among American states.

As of Monday, the credit default swap spread for Illinois general obligation bonds climbed to 313 basis points for a five-year contract — meaning a bondholder must pay over 3% of the bond’s face value per year to be insured against default.

That’s a higher price than for all but seven sovereign entities tracked by CMA, and slightly higher than California, whose five-year CDS spread sits at 293. Investors rate Illinois’s debt as slightly riskier than Iceland’s or Latvia’s, but not quite as big a gamble as Iraq’s.
Despite this environment, Illinois chose to issue an additional $300 million in taxable Build America Bonds last week. Unsurprisingly, the markets were not keen and demanded a high price: the new 25-year bonds were sold with a yield of 7.1%, a spread of 297 basis points over 30-year treasuries. Illinois’ last long term issues, in April, had spreads of 205 and 210 basis points, meaning investors were already nervous about Illinois and are growing moreso.
This issuance provides further evidence that the ratings agencies haven’t fully appreciated the dire nature of state finances, at least in states like California and Illinois. While Illinois carries a Moody’s rating of A1, six notches above junk status, the markets put Illinois’s debt close to the borderline between junk and investment grade. Continue Reading

1

Being Broke Can Sometimes Cure Stupidity

One of the few good things about hard economic times is that it affords us an excellent opportunity to regret the money that was wasted in good economic times (That timeshare in Honolulu sounded so good!) and also requires us, through bleak necessity, to amend our spending in the future.  Mark Steyn has a brilliant column on the likely impact of being broke on government spending.

How did the Western world reach this point? Well, as my correspondent put it, we assumed that we were rich enough that we could afford to be stupid. In any advanced society, there will be a certain number of dysfunctional citizens either unable or unwilling to do what is necessary to support themselves and their dependents. What to do about such people? Ignore the problem? Attempt to fix it? The former nags at the liberal guilt complex, while the latter is way too much like hard work: the modern progressive has no urge to emulate those Victorian social reformers who tramped the streets of English provincial cities looking for fallen women to rescue. All he wants to do is ensure that the fallen women don’t fall anywhere near him.

So the easiest “solution” to the problem is to throw public money at it. You know how it is when you’re at the mall and someone rattles a collection box under your nose and you’re not sure where it’s going but it’s probably for Darfur or Rwanda or Hoogivsastan. Whatever. You’re dropping a buck or two in the tin for the privilege of not having to think about it. For the more ideologically committed, there’s always the awareness-raising rock concert: it’s something to do with Bono and debt forgiveness, whatever that means, but let’s face it, going to the park for eight hours of celebrity caterwauling beats having to wrap your head around Afro-Marxist economics. The modern welfare state operates on the same principle: since the Second World War, the hard-working middle classes have transferred historically unprecedented amounts of money to the unproductive sector in order not to have to think about it. But so what? We were rich enough that we could afford to be stupid. Continue Reading

25

Are We All Greeks Now?

Hattip to Ed Morrissey at Hot AirAnother fine econ 101 video from the Center for Freedom and Prosperity.   Government debt is rapidly becoming the major issue of our time, both here and abroad.  The welfare states erected throughout the world have always had a resemblance to Ponzi schemes,  and all Ponzi schemes ultimately collapse, which is what is happening around the globe.  Robert Samuelson nailed it this week in the Washington Post:

What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.

Americans dislike the term “welfare state” and substitute the bland word “entitlements.” The vocabulary doesn’t alter the reality. Countries cannot overspend and overborrow forever. By delaying hard decisions about spending and taxes, governments maneuver themselves into a cul de sac. To be sure, Greece’s plight is usually described as a European crisis — especially for the euro, the common money used by 16 countries — and this is true. But only up to a point.

Euro coins and notes were introduced in 2002. The currency clearly hasn’t lived up to its promises. It was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel “European.” Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.

None of this has happened. Economic growth in the “euro area” (the countries using the currency) averaged 2.1 percent from 1992 to 2001 and 1.7 percent from 2002 to 2008. Multiple currencies were never a big obstacle to growth; high taxes, pervasive regulations and generous subsidies were. As for political unity, the euro is now dividing Europeans. The Greeks are rioting. The countries making $145 billion of loans to Greece — particularly the Germans — resent the costs of the rescue. A single currency could no more subsume national identities than drinking Coke could make people American. If other euro countries (Portugal, Spain, Italy) suffer Greece’s fate — lose market confidence and can’t borrow at plausible rates — there would be a wider crisis.

But the central cause is not the euro, even if it has meant Greece can’t depreciate its own currency to ease the economic pain. Budget deficits and debt are the real problems; and these stem from all the welfare benefits (unemployment insurance, old-age assistance, health insurance) provided by modern governments.

Countries everywhere already have high budget deficits, aggravated by the recession. Greece is exceptional only by degree. In 2009, its budget deficit was 13.6 percent of its gross domestic product (a measure of its economy); its debt, the accumulation of past deficits, was 115 percent of GDP. Spain’s deficit was 11.2 percent of GDP, its debt 56.2 percent; Portugal’s figures were 9.4 percent and 76.8 percent. Comparable figures for the United States — calculated slightly differently — were 9.9 percent and 53 percent.

There are no hard rules as to what’s excessive, but financial markets — the banks and investors that buy government bonds — are obviously worried. Aging populations make the outlook worse. In Greece, the 65-and-over population is projected to go from 18 percent of the total in 2005 to 25 percent in 2030. For Spain, the increase is from 17 percent to 25 percent.

The welfare state’s death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day — no one knows when — doubt governments’ ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder. Continue Reading

11

Why the Fiscal Lunacy?

One of my favorite living historians is Victor Davis Hanson.  I have read every book he has written and most of his articles.  Trained as a classicist and historian of antiquity, he has written on a broad range of topics, from the hoplites of ancient Greece, ancient Greek agriculture, a searching examination of the Peloponnesian War, the farming crisis of the 80’s, the history of warfare and culture, the teaching of the classics and the debacle of our non-policy on immigration, and I have been astonished at how skillfully this man writes and with what intelligence, and very dry humor, he cuts to the essence of whatever subject he addresses.  He moonlights as a pundit on current events and in that capacity I have found a recent column of his intriguing on the question of just why the Obama administration is hellbent on compiling such huge annual deficits.  Here is a portion of the column:

We are going to pile up another $3 trillion in national debt in just the first two years of the Obama administration. If the annual deficit should sink below $1.5 trillion, it will be called fiscal sobriety.

Why, when we owe $12 trillion, would the Obama administration set out budgets that will ensure our collective debt climbs to $20 trillion? Why are we borrowing more money, when Medicare, Social Security, the Postal Service, Amtrak, etc. are all insolvent as it is?

What is the logic behind something so clearly unhinged?

I present seven alternative reasons — some overlapping — why the present government is hell-bent on doubling the national debt in eight years. Either one, or all, or some, or none, of the below explain Obama’s peculiar frenzied spending.

1) Absolutely moral and necessary?

The country is in need of massive more entitlements for our destitute and near to poor. Government is not big, but indeed too small to meet its moral obligations. Deficits are merely record-keeping. Throwing trillions into the economy will also help us all recover, by getting us moving again and inflating the currency. And we can pay the interest easily over the next 50 years. Just think another World War II era — all the time.

So big spending and borrowing are genuine efforts of true believers to make us safe, secure, and happy.

2) “Gorge the beast”

The spending per se is not so important, as the idea of deficits in general will ensure higher taxes. Nationalized health care, cap and trade, new initiatives in education, more stimulus — all that and more is less important than the fact that huge defects will require huge new taxes, primarily from the upper-classes. I see no reason why the total bite from state income, federal income, payroll, and health care taxes cannot soon in theory climb to 70% of some incomes (e.g., 10% state, 15.3% FICA, 40% federal, 3-5% health care). In other words, “redistributive change” is the primary goal. This aim is premised on the notion that income is a construct, if not unfairly calibrated, then at least capriciously determined — requiring the more intelligent in the technocracy to even out things and ensure an equality of result. After all, why should the leisured hedge-funder make all that more after taxes than the more noble waitress?

So big spending and borrowing mean big deficits, and that means taxing the greedy and giving their ill-gotten gains to the needy.

3) Big Brother?

Or does rampant borrowing for government spending reflect our despair over the inability of millions to know what is best for themselves? For democracy to work, all of us must fully participate. But because of endemic racism, sexism, class bias, and historical prejudices, millions of Americans do not have access to adequate education and enlightenment. Therefore, a particular technocratic class, with requisite skill and singular humanity, has taken it upon themselves to ensure everyone gets a fair shake — if only government at last has the adequate resources to fix things. If it proves problematic for one to register and vote, then there will be a program to make 100% participation possible. If some of us are too heavy and too chair-bound, we can be taught what and how to eat. If some of us do not study, we can adjust academic standards accordingly. In one does something unwise, like buying a plasma TV rather than a catastrophic health care plan, then we still can ensure he is covered. In other words, an all-knowing, all-powerful, all-moral guardian class requires resources to finish the promise of participatory America. After all, why would we allow the concrete contractor to “keep” 70% of his income only to blow it on worthless things like jet skis or a Hummer in his garage or a fountain in his yard — when a far wiser, more ethical someone like Van Jones could far more logically put that now wasted capital to use for the betterment of the far more needy?

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Fiscal Health Care Reform: The Publics Option

Nancy Pelosi, Harry Reid, and Barack Obama continue to spend, spend, spend away money we don’t have.  With the public option now firmly established in the current Senate version of the health care bill, Election 2010 comes to mind.

Kick the bums out.

I love democracy.

(Biretta Tip: Glenn Foden of NewsBusters)

Spending Spree

Broke Uncle Sam

 

Hattip to Instapundit.  John Steele Gordon has a first rate article here detailing how we landed in the debt morass our nation is now bogged down in.    His last sentence is a completely accurate assessment of our options: ” Only necessity will force Congress to control long-term spending on its own.  And unless the body politic forces the needed changes, that necessity in the form of overwhelming debt is inescapable.”

Concord Coalition: 14.4 Trillion Dollar Deficit

14.4 trillion

In this earlier post I reported that the Obama administration is predicting a 9 trillion dollar deficit over the next ten years.  Now, the non-partisan Concord Coalition is predicting here a 14. 4 trillion dollar deficit over the next 10 years.

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Remember that 7 trillion deficit? Make that 9 trillion.

Obama Ink

As Obama goes on vacation, the Administration saw fit late Friday afternoon to release the news that the projected deficit was going up over the next ten years from 7 trillion to 9 trillion.  No doubt the Congressional Budget Office will have even more dire numbers, as the administration has consistently put the best face on the increasingly dire deficit numbers.  As I have constantly warned on this blog, our economy is about to hit a debt wall that will lead to a horrendous economy for years to come.  Fiscal lunacy, simple fiscal lunacy.  Some of my prior posts on the process by which we are careening towards national bankruptcy are below. Continue Reading

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Government Funded Health Care Open Thread

In light of Zach’s stellar posting which generated over 240 comments ranging from anarchism to Oscar Romero and which inspired a posting by Michael Denton.  These comments, although informative to a certain extent, may have detracted from the original intent of the posting.  Henceforth in regards to said activities being done on Zach’s posting concerning Representative Chris Smith, I am starting a new tradition here at American Catholic, the open thread.

So feel free to comment to your hearts delight that isn’t related to any other postings on this website.

The comments policy is still in place so don’t forget to treat each other as brothers and sisters in Christ.

Enjoy.

Marxist Health Care

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"Federal Budget on an Unsustainable Path"

Federal Debt Projections

As regular readers of this blog know, I have been sounding the tocsin regarding government spending since the Bailout Swindle of 2008.  Here is one of my posts in which I list other posts I have written on the subject.

Yesterday the Director of the Congressional Budget Office had a chilling post on his blog which you may view here.  He states in part:

“Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.” 

His chart is at the top of this post.

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

He concludes on this somber note:

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

This is fiscal madness.  We have the wealth and the ability to solve this problem by spending cuts, and minor tax increases if, and only if, combined with meaningful and deep spending cuts.  What we lack is the political will.  We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia.

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You Mean Running Up Trillions in New Debt May Not Be Good Politics?

Obama Broke

The Washington Post reported Sunday here, hattip to Instapundit, that the White House is getting nervous about the political fallout from the unprecedented spend-and-borrow binge upon which  Obama has placed the country.

“Results from a Gallup survey released last week show that although more than six in 10 Americans approve of Obama’s overall job performance, fewer than half say they approve of how he is handling the deficit and controlling federal spending. The poll also shows a decline from the previous month in the percentage of Americans who approve of Obama’s handling of the economy, although a majority still does.”

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$668,621

Household Debt

Hattip to Daniel Indiviglio at the Atlantic.  USA Today is reporting that the share of the Federal debt for each American household is $546, 668 with private average debt of 121, 953.  Of course these numbers do not include the average household share of liabilities incurred by states and local levels of government.  Does anyone believe that we will ever climb out of this debt abyss except through the terrible remedies of hyper-inflation or debt repudiation?  As I have often stated on this blog the debt that we are amassing is fiscal lunacy and our economy will soon smash into a brick wall of government debt.

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Debt Sun

 debt-sun

Hattip to Instapundit.  The Heritage Foundation supplied the above graphic which compares Obama budget “cuts” of $100,000,000.00 to the appropriations bill for fiscal 2009 of $410,000,000,000.00, the Bankrupt the Nation Act of 2009, sometimes erronously called the “stimulus” bill, which has a price tag of $787,000,000,000.00 and the estimated bill for fiscal year 2010 of $3,600,000,000,000.00.  How ludicrous is all this?  Ludicrous enough that the Obama supportive Associated Press makes fun of it.  Ludicrous enough that even Paul Krugman is chuckling.

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Money Meets Rathole

moneyrathole

The Bankrupt the Nation Act of 2009, sometimes called the “Stimulus” bill, looks like it might pass the Senate.  The amount of money we are about to saddle upon our grandchildren, if not our great-grandchildren, to attempt to pay back, may be as little as $780,000,000,000.  For the sake of comparison,  here is a list of how much other monumental undertakings in our nation’s history cost, adjusted for inflation.  Between the Bankrupt the Nation Act of 2009 and the Great Bailout Swindle of 2008, our government will be allocating funds in less than six months that represent one-third the inflation adjusted cost of the US expenditures in WW2 over three years and eight months.  This is fiscal lunacy on a cosmic scale and future generations will wonder at our abysmal folly.