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Fiscal Suicide, Part II: A Swirling Motion
Fiscal Suicide, Part II: A Swirling Motion
Courtesy of Russ Winter of Winter Watch at Wall Street Examiner
The debt “negotiations” are going on in a vacuum, with little detail about what is on the table for “spending reductions” or revenue enhancements. For example, on this process over the weekend (in Part I of this article), I gave a list of high-impact FY 2012 budgetary roll-off items that, if extended, would constitute actual spending increases over the baseline fiscal budget. Yet, nowhere does one hear about how these specific items will be treated. Everywhere you turn, it’s all about rhetoric with nobody discussing any specifics. Among the rubber-meets-the-road issues, one to look for would be actual cuts, even small, for farm subsidies. Of course, this sets the stage for a murky and non-transparent headline when the debt ceiling is raised. This can be played as “saving the American way of life as we know it.” The smoke-and-mirror trade is at heart attack level now, first with so-called stick saves of Greece, then a phony European bank stress test, and now a phony “debt ceiling” scam. There is not even the slightest effort at credibility anymore.
Meanwhile, back in the reality-is-not-an-option world, I should add one more ingredient to the mix: medicare outlays. We already know that any serious attempt to constrain this was quickly scuttled. Rep. Ryan’s dead-on-arrival plan called for a simple freeze on Medicare in an attempt to stem the parabolic effects of a steady stream of new 65-years-and-older Americans. The second chart shows the reality of huge health inflation, even before the new crowd of recipients arrives. Therefore, this proposal (or lack of) would be essential for any credit agency evaluating the rating outcome. Even the second chart is likely to be optimistic, if the work force fails to expand and bring in a little premium growth. The Medicare gap therefore will be $350 billion in 2012, expanding afterwords.
Ryan Plan:
Presumably even if there are inadequate cuts in terms of what the credit agencies need to see, at minimum the bull market in government income supports — now 20% of personal income — is over.
Another large question relates to Federal grants and aid to the states and localities. In order to achieve any kind of spending cuts that would even remotely turn back the tide on the overly optimistic FY 2012 budget, cuts must be made.The discussion has centered around some cuts in Medicaid of $100 billion over ten years. That may not seem like much except that costs are accelerating. Even the president’s FY 2012 budget included cuts of nearly $50 billion in grants funded from discretionary appropriations, reflecting both the expiration of Recovery Act funding and new cuts to programs, such as Community Development Block Grants. Mandatory entitlements are on the block as well, with cuts in Medicaid matching reportedly being proposed by the administration in the Biden budget negotiations. The bull market (up $150 billion a year since 2007) in federal grants is over.
The NY Times quotes various Governors as anticipating more cuts in state funding. Additionally, when the US’s rating is reduced, the rating agencies will also reduce the ratings for $130 billion munis with direct links to the US. Obama’s Recovery Act stimulus program wrapped in June.
Even before the prospect in a break of endless Federal bailout money, Jefferson County looks to be near a Chapter 9 bankruptcy on $3.2 billion on bonds. Harrisburg, Penn., is in the brink with $300 million. There are incentives for sick localities to beat the stampede, quickly setting up a muni funding crisis. Back in January, I discussed the hardly heard real story: the big use of special authority revenue muni bonds. Instead, the apologists drone on and on about how tax-supported GOs rarely if ever default. Ok then.
On all fronts, this debt story feels like the swirling motion is starting. Even before the scheduled expiration of extended unemployment benefits at year end, some states are reducing benefit’s length of time.
[For part 1, click here]
This post was originally posted on the Winter Economic and Market Watch blog and Russ’s premium service, Russ Winter’s Actionable. Click here for information.
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That's not a swirling motion... that's the water in the commode going down the drain... LOOK! It's the Tidy Bowl man! Jiggle the handle already.
Jefferson County may be the proverbial straw. It would give the green light to munis everywhere who can shake the public sector union grip.
Chapter 9 baby!!!! Use it America. Chapter NINE is exactly what USAers need.
Time to put the WOOD to the JP Morgan Shotgun Weddings.
As long as The Bankers get their Multi Million Dollar Bonuses, who cares?
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm has 2011 interest at 385 billion so Ryan's isn't even mathematically correct in a year that's mostly done. Fantasyland.
Yeah the empire will just print its obligations until the huns/goths/visigoths/barbarians and others are tired of being paid in worthless fiat. That swirling motion is the Bernank's price wage spiral into oblivion. We could only be so lucky for the above mentioned parties to sack washington dc.
Question: Does carrying a pitchfork and hollering in an agitated manner make one a terrorist? If so, better start that drawdown on the double. DC will be the new Green Zone.
Oh gawd.
I will not accept such a Green Zone in this Nation's Capitol.
They can damn well pack the Government and relocate to Yucca Mountain for all I care and declare DC an open city so the children can visit Museums.
Remember when Hulk Hogan used to prance around a ring with headgear proclaiming the New World Order?
I hope Hulk doesn't end up caught up in a terrorism gulag.
Homeland Security crotch-frisking in the name of your protection (and fraud street bonuses): "You're either with us or against us!"
Don't forget the torches bitchez! Doubt there will be too many reasons to call it green though!
Notice how even in this article they obfuscate the nature of war spending. They should change the word "Security" to the word "Empire" and then people would better understand where the money is being spent.
If undeclared and unbudgeted expenses of war costs, added with ongoing interest of past wars and medical costs of veterans etc were all added to the "budgeted" expenses, the figures would be a lot more closer to the truth.
You still get idiots who will state that the costs of these wars are "only a few hundred billion". If they had done their homework and added up correctly and fully, adding defence spending to war costs (budgeted and unbudgeted), ongoing interest on past war costs, undeclared medical costs etc, the true value of the "empire" is over $1 Trillion dollars a year to the economy (and that's a conservative one). You could slash the defence budget by half and still keep America "safe". But they seem not to realise this.
"But they seem not to realise this.."
They get paid big bribes aka political contributions not to realize it.
I will be so bold as to say we should stop living in National Fear and dispose of the total Homeland Security thing. Bin Laden is dead and ever more we capture or kill terrorists wherever they may be found. They are not the Grandma or the 7 year old child being sexually assaulted at the TSA check point.
That should redirect some funds to things proven to work. 9-11 did enough damage. It's time spending related to that other than Military is stopped.
That pull you feel with this subject of debt is that of a Event Horizon near a black hole. What you do now will determine what you can do later.
+1
However they won't.
Thanx, Ilene. I've given you some Hell lately but this is a good'un.
So..., when it comes to cuts, why stop here?
CW
That swirling motion is the toilet flushing.
Without trying to sound stupid, the problem is not so much the problem as the guaranteed counterproductive political response. Obama and this entire congress have no clue whatsoever what they are doing. Who doubts that Nixon, or Johnson or Eisenhower or Rossevelt would do a better job of this? Those people, while often wrong, at least had their OWN opinions and worldviews. These current leaders know nothing and have no convictions. They are worthless whores. IMHO
Shock Doctrine, American Style. Could make a helluva tv series.