On Rick Santelli's "Meet The Press" Appearance, A $113 Trillion Future Rounding Error, And The Metamorphosis Of The American Dream To A Nightmare
Today, appearing on Meet The Press, in addition to Susan Rice, Dick Durbin, Lindsey Graham, Jennifer Granholm, Harold Ford, and Ed Gillespie was CNBC's uber contrarian voice, Rick Santelli. The topic: reigning in government spending, a topic which will be with America until its last bond issuance, sometime in the next 5 years. And while Rick was quite subdued this time around (it seems the CBOT voice only sees red when confronted with the likes of Steve Liesman), he did compare the crisis facing America now to the events from 9/11... "I think this is an issue that needs to be put out into the air and
see--many, many other states, ultimately, might have--not have the same
balance sheet as Wisconsin, but I think, ultimately, collective
bargaining, even from a federal level, these are big issues, and these
costs need to be put under control. If the country is ever attacked
like it was in 9/11, we all respond with a sense of urgency. What's
going on on balance sheets throughout the country is the same type of
attack." He also noted the critical Illinois muni situation whose alternative is a forced austerity plan (and considering that various Wisconsin politicans received death threats over what is finally being perceived a loss in some entitlement benefits, the outcome of inevitable austerity in America will not be pretty): "Senator Durbin is from my state: $3.7 billion muni issuance that they need to bring to the market. They
haven't paid vendors. You know, it has come to the crossroads where if
we don't start to make the changes that the governor and the congressman
know are going to take time, we will have austerity forced on us, and
that type of austerity is going to be much messier. There really isn't
much opportunity for debate here. We do need action." But most importantly is the realization that nobody has any idea what to do, and as an article just penned by the Global and Mail screams, "Wake up, Americans. Your economic dream is a nightmare." Luckily, with everyone's head in the sand, nobody really minds.
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And now for some facts: On February 28, 2001 George Bush said this about his 2002 Budget: “It will retire nearly $1 trillion in debt over the next four years.” Instead, US debt, which at that point was $5.7 trillion, rose to $7.7 trillion. $3 trillion rounding error? Also in the same budget, Bush predicted a $5.6 trillion surplus over the next ten years, which would wipe out all of America's debt by 2011. The latest debt figure was $14.1 trillion. A $14.1 trillion rounding error, or a nearly five fold increase in "rounding errors" in a decade. At this point, the 2021 total debt (including insolvent Social Security) is expected to be $24 trillion. Applying the same rounding error variance to government "projections" means... $113 trillion in debt?
Most jarring, total US Debt to GDP will be over 100% in under 6 months. Paging Reinhart and Rogoff...
A little more on future rounding errors as per Bill Buckler's latest Privateer:
As did Mr Bush’s fiscal 2002 budget, Mr Obama’s fiscal 2012 budget delivered on February 14 includes projections ten years into the future. Unlike Mr Bush’s projections, Mr Obama’s projections for the period between now and 2021 do not contain a single budget surplus. Instead they add up to a cumulative deficit over the next ten years of $US 7.2 TRILLION. The biggest projected annual deficit - $US 1.65 TRILLION - is for the fiscal year ending on September 30, 2011. The smallest - $US 619 Billion - is for fiscal 2018. By 2021, the total annual outlay of the US government is predicted to be $US 5.697 TRILLION. That is an increase of 49 percent over the projected outlay for the current (2011) fiscal year. By 2021, the total annual revenue of the US government is predicted to be $US 4.923 TRILLION. That is an increase of 126.5 percent over the projected revenue for the current (2011) fiscal year. By 2021, government revenues are predicted to have risen 2.5 times as fast as government spending.
How is this to be done? GDP is “projected” to rise from $US 15.1TRILLION to $US 24.6 TRILLION.
The surreal nature of watching as this country dissolves into insolvency prompted the Globe and Mail to write the following must read article, "Wake up, Americans. Your economic dream is a nightmare":
Our southern friends are living the American dream these days, a dream that’s removing them from reality. Their federal legislators, including the President, are imagining a brilliant future that cannot be. None of them, it would appear, wants to awaken Americans from this dream.
The dream? Economic recovery followed by the return of prosperity, built on borrowed money. And not just some borrowed money, but trillions and trillions of borrowed money.
In this scenario, the rest of the world will keep lending to the United States, borrowing costs won’t rise, inflation will be banished, and the punishment that would befall almost any other country that ran such a lopsided budget will not strike the U.S.
Like all dreams, this one has lost touch with reality. In Washington, legislators seem to accept that amassing trillions of dollars of additional debt is a bad idea. Then they argue furiously about a mere 12 per cent of the budget that, even if half of it were to be eliminated, would still leave the government in a deficit position this year.
The discretionary part of the budget contains programs people count on, everything from education to the environment, food inspections to basic research, farm aid and student assistance. The other parts of the budget are debt, the military and the so-called entitlement social programs of health care for the poor and seniors and social security.
Two bipartisan non-governmental commissions have instructed the country in simple arithmetic: namely, that the budget can’t be restored to sanity without cuts to discretionary spending and entitlement programs, and tax increases. In the dreamland of U.S. discourse, however, no one wants to talk about cuts to entitlement programs or tax increases. Worse, just before Christmas, Congress and the President forged a deal that continued the fiscally ruinous tax cuts of George W. Bush, the ones so tilted toward the already wealthy, and pumped even more discretionary spending into the U.S. economy.
American friends who despair of dreamland discourse acknowledge that it will take a “crisis” to awaken enough people so serious action can occur, instead of the shadowboxing that passes for action.
What would constitute a “crisis”? The stock market is roaring; happy days have returned to Wall Street financiers. Interest rates are low. True, the unemployment rate is above 9 per cent, but that means 91 per cent of Americans are working.
Would a huge run on the dollar be a “crisis”? Would a serious surge in inflation? Or a nose-diving stock market? Or another housing plunge? Or all of the above? No one wants any of the above, but what will it take to awaken Americans from their dream?
It might have been thought that their President would try to alert them to the damage being done daily to their future, and to the serious shift in world power and influence away from a country so hobbling itself with debt.
Barack Obama has obviously calculated that the political risks are too great for candour, so he, too, operates within the dream by proposing some restraint on discretionary spending without touching the entitlement programs, the military or taxes. In this, he is complicit with Republicans in deforming the nature of the debate and ill-informing Americans.
He has obviously reckoned that, with the Republicans believing the problem can be solved by discretionary spending cuts alone, he isn’t going to do anything credible before the next election.
So health care for seniors and the poor continues to rise by 8 per cent annually. The bloated Pentagon budget will be a staggering $670-billion. Still, the Secretary of Defence says any cut of more than $9-billion would cripple the nation’s capacity to defend itself.
With a 5-per-cent national sales tax, of the kind every other industrial country has implemented, the U.S. would be halfway home to budgetary solvency. In dreamland, however, such a dose of reality is unthinkable.
Unfortunately, dreamland will soon be nightmareland. And nobody will have seen it coming. Nobody.