Archive for the ‘Deficit’ Category

« Older Entries

U.S. Without a Budget for Four Years and Counting

Friday, April 12th, 2013

As of April 29, the U.S. government will have operated without a budget for four years.  Based on the budget he proposed this week, President Obama intends to keep the streak going.

Even the smallest mom-and-pop businesses develop a budget each year and stick to it.  Yet the world’s largest enterprise – the U.S. government – has operated without a budget for more than 1,400 days.  Of course, the mom-and-pop business wouldn’t spend $1.4 trillion more than it takes in every year, either, but that’s another matter.

Nitpickers would say that the government is operating with a budget; Congress just has not passed a budget resolution since 2009.  But it’s the job of Congress to pass and approve a budget – and it has not done so for four years.

As just one example of the absurdity of the Congressional budget process in recent years, consider that when President Obama proposed his budget for FY ’12, the Senate voted it down 97–0.  Every Senator in the President’s own party – even Senate Majority Leader Harry Reid — voted against the budget, even though many had praised it when it was proposed.

(more…)

Tags:, , , ,
Posted in Deficit, Federal Budget, President Obama, Sequestration, U.S. Congress | No Comments »

Sequestration: The Crisis Du Jour

Friday, February 22nd, 2013

It’s crisis time again in Washington, D.C.  Having just barely avoided a swan dive off the fiscal cliff, the leaders of our country are now locked in battle over the pending sequestration.

“Locked” is the operative word here, as the deep freeze that’s hit New England this week is likely to thaw well before the freeze in progress over sequestration.

If nothing else, this standoff has added to our vocabulary.  “Sequestration,” as we’ve learned, is a procedure that triggers automatic spending cuts.  It also means “the seizure of property for creditors,” as in, “China will begin sequestering U.S. property if we can’t control our debt and pay our bills.”  That definition may be more appropriate in years to come, but for now, let’s concentrate on the immediate future.

(more…)

Tags:, , , ,
Posted in Deficit, Federal Budget, Sequestration, The Economy, U.S. Congress, U.S. Debt | No Comments »

Fiscal Cliff Turns Into Fiscal Bluff

Friday, January 4th, 2013

“What’s a five letter word for ‘cliff’?“ an editorial page cartoon asked.  The answer: “Bluff.”

To bluff is to mislead and that’s an appropriate summary of the fiscal cliff agreement, which will raise taxes and spending, while failing to consider the country’s growing debt crisis.

The market reacted positively, with the Dow Jones Industrial Average initially up more than 2% and markets in other parts of the world showing similar gains.

The market reaction was not, we suspect, because a well-crafted agreement that benefits America had been negotiated, but because the “fiscal cliff” had been avoided at the last possible second.  Consider what the agreement does – and what it doesn’t do.

(more…)

Tags:, , ,
Posted in Deficit, Fiscal Cliff, Taxes, The Economy, U.S. Debt | No Comments »

So This Is Compromise?

Friday, November 30th, 2012

“We are both heading for the cliff.  Who jumps first is the Chicken.”

                                                                                                      – Rebel Without A Cause

Post-election, both Democrats and Republicans have promised to compromise and avoid the fiscal cliff.

So what would you consider a compromise?  A little tax increase, perhaps, along with some spending cuts, then call it a day?  That’s not happening.

Apparently, by “compromise,” they mean not giving an inch.  With the end of the year just a month away, both parties seem to be digging in and playing a game of chicken.

President Obama doubled down by calling for a $1.6 trillion tax increase – twice the increase that will take place if no action is taken and we go over the fiscal cliff.  Media has focused on a couple of Republicans who have said that they will break their pledge of no tax increase … but mostly there has been talk and no concrete plan for avoiding the fiscal cliff.

Remember the scene in “Rebel Without a Cause,” where two cars race toward a cliff and the first driver to jump out of the car is “the Chicken?”  The winner went over the cliff and died in a fireball as his car slammed into the ground.

Real life is resembling that 1955 film, but this time when the car goes over the cliff we will all be along for the ride.

Tags:, , ,
Posted in Deficit, Fiscal Cliff, Taxes, The Economy, U.S. Debt | No Comments »

Looking Over the Fiscal Cliff

Tuesday, November 27th, 2012

You’ve heard plenty about the fiscal cliff.  But little attention has been paid to what’s beyond it.

What’s beyond it is another higher, steeper cliff.

The federal debt now exceeds $16 trillion and Congress will need to vote shortly to raise the debt ceiling in order to keep the government operating.  We’re running an annual budget deficit exceeding $1 trillion, so the debt will only get higher.

The longer we try to maintain the status quo, the more difficult it will be to bring the debt back in line.  We’re reaching the point where every dollar in the federal budget will be needed just to service our debt.  That means your taxes will no longer go toward building new highways, helping the poor or protecting the United States.  They will be needed to pay off the enormous debt that the President and Congress have incurred.

The only way to keep the government functioning under those circumstances, even if we cut spending and raise taxes, will be to incur more debt.

The bigger issue, though, is the unfunded liabilities from government entitlement programs.  According to The Wall Street Journal, we have already incurred $86.8 trillion in liabilities for Medicare, Social Security and future retirement benefits for federal employees.  If we could freeze time and incur no further liabilities, we would still need to pay out $86.8 trillion.

Both Medicare and Social Security are “pay as you go” systems.  As baby boomers retire, payment for these two entitlements will come from those who are still in the workforce.  As they are a much smaller population than the baby boomer generation, they will need to pay more or both Medicare and Social Security will collapse.

But how much more will be needed?  A commentary in The Wall Street Journal, “Why $16 Trillion Only Hints at the True U.S. Debt,” includes the following glum assessment:

“When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually.  That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

“Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.

“In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.”

Tags:, , ,
Posted in Deficit, Fiscal Cliff, The Economy, U.S. Congress, U.S. Debt | No Comments »

News You May Have Missed

Friday, October 26th, 2012

With the election season in full swing, dominating the airwaves, Internet and print media, you may have missed some of the other news from the past week.  Here are a few lowlights:

What Recession?  We recently reported that the unemployment rate miraculously improved to under 8% just before the election.  Now, according to a preliminary report, annual growth in gross domestic product (GDP) is miraculously above 2%.

An unemployment rate under 8% is none too impressive and neither is a growth rate of just above 2%, but we live in times of low expectations – and these benchmarks, if achieved honestly, would indicate that the economy is moving in the right direction.

But have they been achieved honestly?  And are they accurate?

According to zerohedge.com, over one third, or 0.71% of the growth was contributed by an increase in “Government Consumption:’

“This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better.”

Recall that Q2 GDP was revised down from 1.7% to 1.25%.  Revisions to Q3 GDP will be released after the election.

As for the unemployment rate, none other than former GE CEO Jack Welch questioned the employment numbers in a Wall Street Journal op-ed.  Even if you accept the numbers from the U.S. Bureau of Labor Statistics, gains were in “involuntary part-time” help – meaning people who were looking for full-time work are now flipping burgers to make ends meet.

Because the unemployment rate excludes those who have stopped looking for work and includes those who are underemployed in part-time jobs, others put the real unemployment rate at 14.7%.  An analysis by The Wall Street Journal, which factors in historical shifts in the labor market, puts the rate at 9.3%.

Whatever analysis you accept, many Americans are still out of work and economic growth is well below what it should be.

Muni Massacre.  Moody’s Investors Service cut its credit ratings on more than $200 billion worth of municipal bonds through the first nine months of 2012, exceeding the total for 2011 – and “there’s no end in sight.”

Moody’s cites increased risk because of the “difficult economic and industry environments.”  And we thought the economy was improving!


Stimulus spending.  If government spending does, indeed, stimulate the economy, we should now be growing at a record pace.  U.S. debt has reached $16.6 trillion, while total GDP is $15.76 trillion.  In other words, debt exceeds GDP by 2.4%.

Lower Profits, Home Building.  The stock market’s performance continues to be erratic at best, reflecting economic data that one day sounds hopeful and the next day sounds hopeless.

Profits have been generally disappointing, as previously reported, but at least the housing market has been rebounding, as we announced last week.  However, anyone who jumped into homebuilders’ stocks to take advantage of the improving market would have to be disappointed by this week’s performance, as the SPDR S&P Homebuilders ETF dropped 1.2% this week.

The ETF dropped because the National Association of Realtors (NAR) reported that the speed of growth in housing sales decreased last month.

NAR Chief Economist Lawrence Yun said, “Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range. This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”

Sorry for being such an optimist last week!

Tags:, , , ,
Posted in Bonds, Deficit, Gross Domestic Product, Job Creation, Municipals Bonds, The Economy, U.S. Debt | No Comments »

This Is Progress?

Friday, September 28th, 2012

Economic growth for the second quarter of 2012 officially has been revised down to 1.25%, which is below the lowest previous estimate.

In an effort to stimulate the economy, the Obama Administration and the U.S. Congress have added $6 trillion to the federal debt, with annual deficits exceeding $1 trillion.  The Federal Reserve Board meanwhile has announced its third round of quantitative easing, on top of Operation Twist.

Yet the unemployment rate remains over 8% and, as we stated earlier this month, could be as high as 19% if you take a true and accurate count of everyone who is not working.

Since the current “recovery” began, real income for the average American has dropped 5.7%, and while inflation as a whole remains in check, the price of essentials such as oil and food has soared.  At least we can credit quantitative easing with taming deflation!

This all sounds pretty gloomy, but cheer up.  Alan Krueger, who chairs the President’s Council of Economic Advisors, says “we’re making progress.”

It’s All Relative

Progress, of course, is relative.  It’s true that the free fall that began in 2008 created the worst economic conditions we’ve encountered since The Great Depression, but in the past the rule has been the greater the recession, the greater the recovery.

Not so this time.  Cumulative growth for the past three years has been just 6.7%, according to the Congressional Joint Economic Committee.  In comparison, the average for all 10 post-World War II recoveries is 15.2%.

In other words, the economic growth we’re experiencing is well under half of what it has been historically after past recessions, even though it should have been among the best periods of growth ever, given the severity of the recession.

Worse still, we can look forward to the long-term impact of today’s failed economic programs.  Someday, the debt we’ve accumulated will have to be paid back.  And quantitative easing may keep the country’s debt payments manageable today, but it weakens the dollar and boosts inflation.

And sooner or later interest rates could rise to the point where our current tax revenues will not be enough to pay the interest on our debt, let alone support government programs.

So what do we do when the current economic programs produce the same results as they have in the past?  Prepare for a multi-trillion dollar stimulus package?  QE3, the third quantitative easing program is open ended and can last as long as The Fed wants it to last, so at least we don’t have to worry about QE4.

Tags:, , , ,
Posted in Deficit, Inflation, Interest Rates, The Economy, U.S. Debt | No Comments »

Is America Going Greek?

Friday, February 17th, 2012

The federal deficit of $1.327 trillion for 2012 marks the fourth straight year in which the deficit has exceeded $1.29 trillion.

The U.S. Debt Clock is now above $15.3 trillion, which comes out to just over $49,000 per American, but a whopping $135,776 per taxpayer.  If your family has four taxpayers, your total portion of the federal debt comes out to more than a half million dollars!

The Congressional Budget Office estimates that U.S. debt will double over the next decade to just under $30 trillion, so your family of four will become millionaires in reverse.

That figure does not include the estimated $56 trillion in unfunded obligations that The Peterson Foundation estimates is committed for Medicare and Medicaid, and pension obligations for government workers.  It also excludes trillions in state and local government debt.

Our total debt now exceeds our gross domestic product.  On an annual basis, it has exceeded 24% of GDP for each of the past four years, up from under 19% a decade ago.  At the same time, with a weak economy, tax revenues are below 16% for the fourth consecutive year.

As the chart from The Wall Street Journal shows, America is on target to become the next Greece.

Attempts at austerity measures in Greece have led to widespread rioting with buildings being burned to the ground.  Debt in Greece, Italy and a handful of other European countries had a bigger impact on the U.S. stock market than any other factor last year, even though Greece’s economy is about the size of the economy of the Dallas-Fort Worth area.

What impact will American debt have on the U.S. economy and the world economy when America becomes the next Greece?

Tags:, ,
Posted in Deficit, Sovereign Debt, The Economy, U.S. Debt | No Comments »

Beyond Sovereign Debt

Friday, November 11th, 2011

Put together a union of strong countries like Germany and weak countries like Greece and what will happen?  Will the weak countries learn from the strong ones and become fiscally responsible?  Or will they expect the strong countries to support them and drag them down in the process?

The later appears to be the case in Europe, where sovereign debt contagion has spread from Greece, Italy, Spain, Portugal and Ireland to threaten the European banking system.

Many European governments have spent recklessly and even attempts to keep the crisis from spreading are being met with wide resistance.  Once a government entitlement is given, it is difficult to take it away.

The crisis goes well beyond government spending.  As Stratfor Global Intelligence recently noted, while attempts are being made to control sovereign debt, “all of the broader problems of overcrediting, housing markets, pensions problems” are not even being addressed.

But the sovereign debt crisis and the European banking crisis are joined at the hip.  The severity of the problem was made evident by the October collapse of Franco-Belgian bank Dexia, which agreed to nationalize its Belgian banking business in exchange for a 90 billion euro ($121 billion) bailout.  Austria has also seen a couple of bank failures, and banks in France have also been reported as being in trouble.

Stratfor believes that “Europe’s banks are as damaged as the governments that regulate them.”  The firm’s analysis notes that, “As a rule the largest purchaser of the debt of any particular European government will be banks located in the particular country. If a government goes bankrupt or is forced to partially default on its debt, its failure will trigger the failure of most of its banks.”

In Europe, banks are more highly regulated and are more dependent on the government than in the U.S.

“You have got the states, who have the banks beholden to them, they are able to twist the arms of the bank executives and force them to do things they would not otherwise do,” according to Stratfor Vice President of Analysis Peter Zeihan.  “Banks just are not willing to challenge the regulators, and so you probably will be able to get a significant buy-in that is voluntary, although not very voluntary.”

And just as European banks are dependent on their government, the European economy is deeply dependent on European banks.

“Americans only use bank loans to fund 31 percent of total private credit,” Stratfor notes, “with bond issuances (18 percent) and stock markets (51 percent) making up the balance.  In the eurozone roughly 80 percent of private credit is bank-sourced.”

This interdependence hints at the complexity of the sovereign debt problem, while underscoring just what’s at stake and why all of Europe is so dependent on a solution to the sovereign debt crisis.

Tags:, ,
Posted in Deficit, Foreign Investment, Sovereign Debt, The Economy | 4 Comments »

Europanic Spreading

Thursday, November 10th, 2011

Stocks surged recently when a new plan for dealing with Europe’s sovereign debt was announced.  Then they came crashing back down when it became clear that the plan was more style than substance.

The continental crisis is much deeper than initially advertised, and the future of the euro, the European Union and Europe’s banking system is being threatened.  Likewise, though, when someone sneezes in Greece, America catches a cold.  American banks have more than $1.2 trillion in loan exposure through German and French banks, which is one reason why the sovereign-debt crisis has affected U.S. markets.

So how deep is the crisis and what impact can we expect in the U.S.?

Stratfor Global Intelligence recently noted that the plan agreed upon to date is “not even more than a baby step on the road to saving Europe.”

Stratfor Vice President of Analysis Peter Zeihan further noted that even after writing down a percentage of the debt, Europe is going to need to attract investments from countries like the U.S., China and Japan.  Unfortunately, such investments will likely carry more potential risk than reward.

“And so the Chinese, the Japanese and anyone else who thinks they have a vested interest in the success of Europe,” Zeihan said, “they have to be asking why would I put my money into a system that the Europeans are not willing to back?”

One problem is that profligate spenders aren’t changing their behavior.

“The primary reason Greece has not defaulted on its nearly 400-billion euro sovereign debt is that the rest of the Eurozone is not forcing Greece to fully implement its agreed-upon austerity measures,” according to Stratfor.  “Withholding bailout funds as punishment would trigger an immediate default and a cascade of disastrous effects across Europe.  Loudly condemning Greek inaction while still slipping Athens bailout checks keeps that aspect of Europe’s crisis in a holding pattern.”

Europe is trying to “rescue its rescue,” as The Wall Street Journal put it, but with little success so far.  The Europanic crisis of the day is that Italy is in danger of having financing cut off.  Italy is nearly 2 trillion euros in debt ($2.77 trillion).

The European Financial Stability Facility (EFSF) can’t raise enough to get European debt under control, but it hopes leverage will help.  Leverage … there’s a term we haven’t heard much since 2008.

Coming Soon to the U.S.A.

Europe’s woos should provide a cautionary lesson to the United States, with its $15 trillion in debt.  While a “super committee” is seeking solutions, one party wants to raise taxes without making significant spending cuts, while the other party wants to make cuts without raising taxes.

If the super committee fails and U.S. debt continues to grow, who will bail us out?

Tags:, ,
Posted in Deficit, Foreign Investment, Sovereign Debt, The Economy | No Comments »

« Older Entries