Archive for the ‘Deficit’ Category

Goodbye, Middle Class

Friday, February 7th, 2014

With all of the talk in Washington about equality, you have to wonder how the gap between rich and poor has widened to the point where even The New York Times is questioning the future survival of the middle class.

Disposable Income

Some have, indeed, made the transition from middle class to upper class and are enjoying a more comfortable lifestyle.  They may not be part of the 1%, but they’ve broken away from the middle.

The New York Times noted that, “In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995 … Even more striking, the current recovery has been driven almost entirely by the upper crust … Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.”

Put aside your class envy for a minute, though, and recognize that consumer spending by the top 5 percent is keeping the economy out of a recession – albeit, the current recovery has been so weak we may as well be in a recession.

The Great Divide

And while some are moving up, many more are falling down, creating a greater divide than ever between rich and poor.  Consider a few statistics from a cheery blog called, The Economic Collapse (and republished on Zerohedge): (more…)

No, We Can’t

Thursday, October 17th, 2013

Someone had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die.

                                          From “The Charge of the Light       Brigade”

Take pity on the can.  It’s been kicked so far down the road, it could circle the globe a dozen times.  It’s been battered more than the New England Patriots’ starting lineup.  It’s been kicked harder than an Adam Vinatieri football.

And still it persists.

This week, Congress and President Obama reached a deal that reopens the government through January 15 and suspends the debt ceiling through February 7.  Calling it a deal, though, is an exaggeration.  One side, the Democrats, refused to negotiate.  The other side, the Republicans, asked for something it had no hope of getting.  So everyone agreed to kick the can three months down the road.free-the-fowl-games-photo-420-1196-FF11015_0

Beyond that, according to The Wall Street Journal, “The bill includes one minor change to the health law sought by Republicans, setting new procedures to verify the incomes of some people receiving government subsidies for health-insurance costs.  It also provides back pay for all federal workers who were furloughed during the government shutdown.”

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Spending Our Way to Prosperity

Sunday, October 6th, 2013

Focusing on the government shutdown is like rearranging the deck chairs on the Titanic while drawing closer to the iceberg.

The iceberg in this case is the massive government debt that will be made worse by the implementation of the Affordable Care Act.

Later this month, Congress will need to lift the debt ceiling from its current $16.7 trillion to keep the government solvent and enable the U.S. to continue paying its massive bills.  In the meantime, as a result of the negotiations that led to sequestration, Congress had until the end of September (the end of the fiscal year) to reach a spending agreement.Yield Curve

It didn’t, of course, and now the government has shut down.  But what does the shutdown really mean?

The shutdown affects only “nonessential” services.  That means 85% of government services are still being funded and 63% of federal employees are still working.  Mail is being delivered, military personnel are still keeping us safe, and payments are still being made for Medicare, Medicaid, Social Security, the Supplemental Nutrition Assistance Program (SNAP) and the countless other programs that we can’t afford.  Amtrak trains will continue running, so if your train is late, don’t blame it on the shutdown.

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One Man’s Ceiling Is Another Man’s Floor

Friday, September 27th, 2013

“There’s been some hard feelings here
About some words that were said …
Remember, one man’s ceiling is another man’s floor.”
                                                         Paul Simon

Here we go again. Hold on to your wallets, taxpayers. It’s time for another debt ceiling “negotiation.”

We use the term “negotiation” loosely, as it’s now extinct in Washington.

On one side, we have House Republicans waging an unwinnable battle, saying they’ll agree to suspend the debt ceiling limit for a year in exchange for a one-year delay of the individual mandate for ObamaCare, tax reform, approval of the Keystone pipeline and other concessions. While such changes would potentially provide a huge benefit to the economy, they have zero chance of passing in the Senate, which is controlled by the Democratic majority.Debt ceiling

On the other side, we have President Obama and Senate Democrats saying the Republicans are trying to shut down the federal government, because they are not willing to lift the debt ceiling without concessions from the President.

There will be no concessions by the Democrats. As President Obama put it, “I will not negotiate on anything when it comes to the full faith and credit of the United States of America.”

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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.

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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.

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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.

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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.

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.”

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!