Sparrow's Belch in a Typhoon

Bruce Krasting's picture

Who knows where the headline risk will come from this week. It could be a
surprise number from one of the many releases. I'm looking for hot
inflation numbers from all around the globe. We might have a riot
someplace new that gets people’s attention. There has been a lot of that
lately. Hard to believe it is just going to fade. One area that might
get some press (and move prices around) is the President’s budget.

This budget covers the period 10/1/2011 through 9/30/2012. That makes this all about elections. That being the case don’t expect to see any evidence of that “fiscal responsibility” we keep hearing about.

That’s not to say that the Administration won’t make a big deal of some
big cutbacks they will propose. We got a whiff of that from the
Presidents budget director Jacob Lew. He listed $750mm of savings that
will be proposed in a NYT OpEd piece.

The billion or so of savings will not make a dent in the growing
expenditure line. Depending on where the revenue estimates are made the
deficit will come in around $1.2 T (1.5T in 2011). Depending on how
honest the numbers are, the media is going to have a field day, and so
will the Republicans. While the notion of another mega deficit in 2012
is not a surprise on Wall Street it is not going to over so well on Main
street. But what can the President do? Answer: Nothing.

One character in this drama is Alan Simpson. The former Co-head of the
Deficit Commission is 80 years old and has a very bad habit of saying
things that color the debate. He did it again recently. But as whacky as
this guy is, he is right. There is no way the US is going to
make any dent in the deficit unless Social Security, Medicare, Medicaid
and the Military (“the Big Four or BF”) are put on the table and sliced
up. The discretionary budget comes to only 10% of outlays. There is no
room to make big changes. Simpson had this to say about cuts outside of
the BF: (Bloomberg link)

Promises to cut earmarks, waste, fraud and abuse and foreign aid are a “sparrow belch in the midst of the typhoon”.

Simpson put it on the line with this comment about the need to make cuts outside of discretionary spending:

Anybody giving you anything different than that, “you want to walk out the door, stick your finger down your throat, and give them the green weenie.

Just a question, What is a green weenie? Keep in mind that this
guy is serious player in the outcome of this. It’s too bad he is such a
nut. A saner elder statesman might have made a difference.

It’s possible that the US budget will be a ho-hummer for the markets. It’s hard to expect this to be one of those ‘confidence boosters’.
Depending on how the foreign press handles the story it could be a
source of some dollar weakness. I think the long end of the bond market
might not like to be reminded how bad the supply problems really are.
The question is, do we see any leakage in the short end. If two’s and
fives react, the broader market will take note. The equity market is
oblivious to any bad news of late. That said, You can’t ignore this elephant forever.

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Pee Wee's picture

"...and has a very bad habit of saying things that color the debate."

Pot, meet kettle.

Orly's picture

Bruce writes an opinion piece...keyword: opinion.  Alan Simpson is supposed to be neutral and weigh everything into recommendations and leave those decisions to someone else.

Silly, PeeWee.

ZackAttack's picture

There's little or no point in screwing around at the margins. You have to make cuts in defense, Medicare, Medicaid and/or Social Security.

The Red Team members calling for a balanced budget amendment are out of their minds. You could cut every dollar of discretionary spending - including defense - and *still* have to cut mandatory spending by 35% to achieve it, every year from now on.


the grateful unemployed's picture

dod is untouchable. they lost millions during Bush, just vanished, well some of it was thrown out of pickup trucks to Iraqi contractors. pallets of money, pallets of money stolen and funneled into REPUBLICAN campaign funds by the The Hammer. So much corruption it makes me puke, and no one including the current puppet in chief have any desire to turn over that rock. Point is they will never cut defense, even if they say they are cutting defense they aren't cutting defense, they just move it over into the black column, label it classified and start up all over again.

look i hoped when Pelosi congress took over in 2006 that they could starve the beast, using Paygo. aha, put a cap on the budget and then force Congress to decide where the money that was available would go. at least that way you could stop the sucking sound from the Pentagon. you'll never do through committee, they're ironclad, and if you're on committee you're either being bribed or threatened. 

so starve the beast, the DOD beast by capping the budget, while we pay our obligations to the sick and poor and the retired who built this friggin country with their hard work.

SSN needs to classify their budget as top secret, just to make it a level playing field before we begin to discuss spending cuts. 

topcallingtroll's picture

Who cares about the budget? Cramer and Goldman Sucks both say gold is going higher. Gold 36000 booyah!

disabledvet's picture

it's been fixed.  you get to work until you die.  they get the money.

nonclaim's picture

That has been the trend in most (all?) countries.

If the common man has to work past "retirement" (sometimes compulsory) to keep his standard of living why pay anything at all to the gov. retirement fund?

The younger generation is getting the message but a lot more is needed to enlighten the masses. An opt-out in needed: I don't want the gov to "help" me in my old age. But who is brave enough these days to say it?

Bruin4's picture

if we dont reign in military spending and take control of the military industrial complex there is no way to put a dent in the deficit. Sure there are your entitlement programs that every politician is always on about, but look through that smokescreen to see where our real tax dollars go. Starve the beast.

Bruce Krasting's picture

Of course you're right about this. But let me give you some perspective.

In 2011 Afghanistan is expected to cost $40b. A very big deal.

Social Security spends $60 billion EVERY MONTH.

The military is an issue. It is not the problem however.

LehmanRefugee's picture

Your $40bn number is not right. The FY 2011 request for war funding which in Fed budget land is called "overseas contingency operations" was $160 bn (more like $12bn a month). Add to that $550 bn of the DoD core budget and you are spending approx. $60bn a month about the same as social security. However, unlike social security there is no offsetting revenue associated with Defense spending.

Orly's picture

You guys are forgetting the fact that the Taliban had the poppy crop at ten percent of where it is now.  Now the Marines of Kandahar are actually operating at at net profit for the Outfit.  Too bad all that money is "off the books."

Weisbrot's picture

what about evicting the illegals, ending medicaid fraud, and eliminating citizenship for jackpot babies? by correcting the previous 3 issues a serious dent can be made in spending at all levels of government. and that doesnt even begin to cover issues of efficiency and honesty.


unnamed enemy's picture

A serious dent - lol - Pedro took your jerb?

heres a different point of view - most of it is true i think.



Financial_Guardian_Angel's picture

That article you reference is a bunch of left wing garbage. I could easily refute nearly every arguement puked up by that idiot.

We have a structural unemployment issue. There are fewer jobs and that is not going to change anytime soon. If the illegals were to give up those jobs, eventually the stigma for an unemployed American taking a busboy/dishwaher job would end and those jobs would be filled. Unemployment eventually runs out and your stomach eventually tells you to get a job, any job.

LehmanRefugee's picture

Can you show some math on that. How would this make a serious "dent" in the federal budget. My guess is that illegals are a net positive for the FEDERAL government (might not be true for local governments) as they are still subject to payroll deductions but will never collect on the benefit.

Bruce Krasting's picture

You're probably right about those lost payroll deductions. BUT. The law is very clear on this. If an illegal alien works in the US with a favke SSN for sufficient years, then this person can get SS benenfits.

SS has a whole departmetn working on these cases. Billions are paid to people who wer never legal in this country.

The funny thing about the law that permits this? The person who gets the checks from SS must live outside of the US. Net result? SS send the money to Mexico.

Hell of a system.


Bruce Krasting's picture

I think illegals are a net positive at the federal level as they pay (collectively) a ton of FICA taxes.

At the state level it is the other way around. They are losing on this....

Blano's picture

Who gives a shit about the math??  Illegals shouldn't be here, period.  They need to GTFO.  Sheesh.

Temporalist's picture

Hmm, not headline numbers but maybe an eyrar of black swans:


"Thousands of protesters converged on Milan over the weekend to call for Silvio Berlusconi to resign as prime minister in the face of an escalating corruption and sex scandal."


"Former US President George W Bush has reportedly cancelled a visit to Switzerland amid concerns that he could be arrested for allegedly authorising the torture of prisoners"


"The Serbian capital Belgrade has seen its biggest anti-government protest in years as thousands of disenchanted Serbs demanded early elections."


"A protest against austerity measures in Turkish Cyprus has strained ties between Ankara and the Turkish Republic of Northern Cyprus (KKTC)"


"A Kuwaiti youth group called on Sunday for a mass rally outside parliament on Tuesday to protest the government’s “undemocratic practices” and to press for its ouster."


And if those weren't bad enough:

"Some Minnesota Girl Scouts say they will sit out an upcoming cookie sale to protest plans to sell off some of their camps.

Financial pressures and declining membership have led the Girl Scouts of Minnesota and Wisconsin River Valleys council to sell four of its 12 camps."


thegr8whorebabylon's picture

Hey, that elephant needs a bigger golden para-balloon.

sbenard's picture

I know COMPANIES that have cut more than Lew's proposed $750 million cut!

sbenard's picture

We have "entitled" ourselves to a black hole of debt. It is THE Mother of All Bubbles, and since there still is NO poltiical will for significant cuts in Washington, we must all assume that one day, we will be swallowed by that black hole. It is a reasonable assumption!

Plan accordingly!

QQQBall's picture

I know this is stoopid, but sometimes I forget that $1B is $1,000MM.

ebworthen's picture


There will need to be lots of dead people, unfortunately.

It will be preceeded by lots of commercials, promises, bread and circuses, patriotism, nationalism, polarization, demonization, then World War (not regional conflicts).

We might not survive this one.

It is not just our debt that is unpayable, it is the world's.  The spike in food prices are the harbinger.

Same as it ever was...regular people sold out by the politicians, money-changers, the greedy and lustful...and sooner or later it collapses the society.


RockyRacoon's picture

Looks like I unwittingly front-ran you on the same sentiment.  I think we agree.

Shameful's picture

It's all just theatre, couldn't fix it even if there was a real desire to.  The vested interests are simply to strong.  So who is going to break it to the people that they got suckered into a multi generational ponzi scheme?  I can think of all of 1 (maybe 2) politicians who would be willing to say it, much less do anything about it.  Still in the loot and scoot phase of this game, and playing kick the can.  No one wants to take any pain, which is normal, and now we are at the point where the cancer is inoperable.  Come on what are the odds that the war machine is dismantled or someone has the political courage to tangle with SS and Medicare? They see the warfare state as "security" as well as a back door jobs/training program.  And as for cutting SS/Medicare, turns out old people who get that stuff vote, and cutting it for the younger is rough as they are the suckers paying and they might vote.  So we can't cut and we can't grow our way out without massively increasing debt in a system saturated by it. 

Think about it what would happen if we owned up to our insolvency, the dollar would crash and we would enter a nightmarish depression.  What happens if we ignore our insolvency, the dollar crashes and we enter a nightmarish depression, just happens further down the road.  It's a false choice at this point, got to love a faith based economy.  About the only good we could do from admitting it is to take down the TBTF with us.  As it stands they and the political classes will take the politically expedient route and simply loot till the ship finally sinks.

RockyRacoon's picture based economy...

I believe that's called fiat money based economy.  Thanks for your concise comment.

The pols who get it, and understand the situation, the "good guys", will leave the sinking ship and retire or not run again.  It's already happening.   What we'll end up with is half-wits who don't understand what's going on.  They will be the ones with some narrow agenda (abortion, fundamental religion, guns, "Constitutional reform", and the like) and we'll have a Legislative branch which will simply accelerate the decline and cause social division that will foment violence and unrest.  

I think we've seen this movie before.

RockyRacoon's picture

Alan Simpson -- too late to the party, but thanks anyhow.

marctmiller's picture

bruce, "green weenie" is marine corps' way of saying: getting it in the ass.

edwardo1's picture

That someone whould actually highlight a less than billion dollar "savings" in a NYT Op-Ed is nauseating since that amount is but a fart in a mild hurricane.  As for the third rail of D.C. budgetary business, the military, they will do next to no cutting there.  There are two reasons for this, A.) the military is all this nation has left by way of a mechanism to continue its international thuggery, and B.) what do you think will happen with all those hundreds of thousands of young men if they aren't taken off the reservation.  School is a way to get children out of the hair of their parents, thereby allowing them to work like dogs for someone else, and the military is a way to get jacked up young males, with few, if any, decent employment prospects, off (crumbling) the streets before they "go off."

IQ 145's picture

 Ccorrect. The fundamental problem is over-population; but this is politically incorrect. so here we are. and here is the world.

fredquimby's picture

I think actually, the fundamental problem is technological unemployment. i.e dem frikkin machines is takin all the jobs!


A Nanny Moose's picture

At ths point, someone has to build the machines, and the parts that comprise those machines. Some has to then install the machines, and the networks on which the operate (more machines). Someone needs to perform the maintenance, and make sense of the telemetry so they operate profitably.

I have other issues with the mechanization/automation, but creating unemployment is not really one of them...not yet anyway.

lunaticfringe's picture

Budget cuts a sparrow belch in a typhoon? That's one cliche' I have never heard of. I likened those miniscule cuts to pissing in the ocean. I just keep wondering when anybody in Congress is going to show any aptitude for basic math. Did the whole MSM-politicos...go fucking awol in 5th grade math class?

Rogerwilco's picture

Hmm, the deficit will be $1.5T, Treasury needs to deal with $2.7T of maturing debt, and the interest and wars add another $300B or so to the mix. For the year, $4.5T total. Every month Bernanke's dynamic economy is generating $45B of "wealth" to cover $380B of debt.

What could go wrong?

QQQBall's picture

How did you arrive at the $45B figure? Not questioning its accuracy, just asking. TIA.

Rogerwilco's picture

GDP growth at 3% / 12 months + monthly interest (the SOBs count interest as "growth").

$45B a month +/-

TJW's picture

"While the notion of another mega deficit in 2012 is not a surprise on Wall Street it is not going to over so well on Main street."

Mega deficit? Hell this isn't even a giga-deficit. This is another friggin tera-deficit.

ThirdCoastSurfer's picture

Didn't we go through all this during Bush '41 into Clinton when along comes and presto, budget surplus!?! All this doom-n-gloom budget prognostication has become the boy cries wolf and until the wolf actually eats the boy this time no ones really gonna wanna budge.  

gwar5's picture

I like Alan Simpson but why did he wait 20 years to become a deficit hawk?

He was there when the spending was being carved in stone.  Little late.

DoChenRollingBearing's picture

Believe none of this crap from .gov.

If you believe me, join me in buying TBT...

wkwillis's picture

They'll probably try to solve the problem by solemnly enacting a bill that ten years from now the new president and the new House and the new Senate will be elected by voters determined to cut their own benefits and raise their own taxes to pay for us.

Which will work precisely as long as the Chinese believe this will happen.

Orly's picture

Alan Simpson is not such a buffoon as you think.  He is actually well-respected in Washington as a former senator who could pull all the right levers and make things happen.  Don't regard his ranch-hand humor as a lack of intelligence.  He has a different way of making his point but that should not defer from the message.

He said unless we do something with social security and medicare, the budget problems will not be solved.  I think he's right.

the grateful unemployed's picture

that's because he is the other senator from Wyoming.( see Dick Cheney)  what he is implying is deep deep cuts to SSN and Medicare and iddy iddy biddy cuts to defense, or at least their continued off balance sheet expenditures, or black contracting license to print money. Simpson is a right wing nut from a state whose population wouldn't make a decent city. Why did we spend all that money on the bailouts, wheres' Simpson on that? And the continued disabuse of the middle class in America. What are Simpsons thoughts on employment? Gosh I think I have an idea that he doesn't give a shit. Go round up the doggies, America.

nevadan's picture

Actually Cheney served in the House of Representatives.

nmewn's picture

LOL...good point, meanwhile AOL is buying Huffington Post.

Maybe they will hire some fact checkers now ;-)

pemdas's picture

The average Hufpo reader still uses AOL.  Lots of synergy!!

A Nanny Moose's picture

A vertically integrated echo chamber. How nice.