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Busted

Bruce Krasting's picture




 

 

- The Post Office has to come up with $5.6Bn by September 30 to pay for its share of health and retirement benefits. There’s not a chance in hell that this will happen. The PO has just 4 days of operating cash flow left in the till and has no borrowing authority left.

 

The relevant statement from the PO:

 

This low level of available cash means that we will be unable to make the $5.6 billion legally mandated prefunding of retiree health benefits due by September 30, 2013.

 

 

Add to the $5.6Bn the $11.1 Bn that the PO has already defaulted on in 2011/12 and you get an important institution that is totally bankrupt. The PO has a plan to “fix” the problem – it wants to set up its own health insurance system:

 

A vital component of the Plan is the requirement that we sponsor our own health care program, independent of the federal health insurance programs.

 

And I thought Obamacare was going to fix all these problems….

 

 

- The President has been touring the country trying to sell his plan for infrastructure investment. O’s plan is to lower corporate tax rates and use a one time gain from companies repatriating cash back home to fund the needed investment. This may sound good to some folks as it’s clear that the country needs new ports, bridges etc., but there is zero chance that O’s plan will be adopted by Congress.

 

Rather than creating some new infrastructure bank, the President should focus his efforts on fixing what is in place today for infrastructure. Consider the status of the Highway and Surface Transportation Trust Funds. From the CBO:

 

The current trajectory of the Highway Trust Fund is unsustainable. Starting in fiscal year 2015 (October 2014), the trust fund will have insufficient resources to meet all of its obligations, resulting in steadily accumulating shortfalls.

 

 

This is nothing new. The Highway Trust Fund has been broke since 2008. It has avoided a default by Congress providing a total of $51Bn of transfers from the General Fund of the Treasury. The Highway Trust Fund is living on borrowed time. There are only 14 months before the situation goes critical. There is next to no chance for a fix before the bi-elections.

 

 

- The Disability Trust Fund is running out of money. This is a big deal. 11 million people get monthly checks. Those on DI face a 25% cut in benefits as of October 2014. There is no plan at all to deal with this problem. To keep DI alive D.C. will have to rob the coffers of the much larger Social Security Trust Fund. More band aids from DC.

 

 

- The Federal Budget is due on 10/1. As of today this deadline will be met with another continuing resolution to keep the government going. The US will go into its fifth year without a budget.

 

 

- Sometime in mid-October the debt ceiling will have been breached. I don’t expect that this will result in a showdown or a crisis. Washington will gloss this over. A new debt ceiling will be established to keep the music going.

 

 

None of the issues I’ve highlighted have to be a crisis. All of them could be “fixed” if only the Administration and Congress get down to the job that they were elected for. But that will not happen. I do wonder where all of this bad leadership will end. I have to assume that the rating agencies are looking at America’s inability to deal with its problems and will respond at some point. S&P downgraded the USA in 2011 on the basis that America had lost its ability to govern and confront problems:

 

the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges

 

Nothing has changed since 2011. If S&P had any guts it would lower the US another notch. While the economy has stabilized somewhat thanks to cheap money from the Fed, the real issue of America’s inability to confront problems and creating kick-the-can solutions remains the same.

 

 

On Infrastructure

 

I went looking for some evidence that D.C. was actually doing something to promote infrastructure investment. I’m pleased to tell you that I did find one good example. A much-needed expansion of electricity capacity has gotten the financial backing from D.C. The commitment to finance a portion of the project will go a long way to insure that this project is completed, and many jobs will be created as a result. Fred Hochberg (newly appointed by Obama) had this to say about the project and the willingness of Washington to provide the necessary loot:

 

The US would lend as much as allowed under the rules

 

The tag for the infrastructure investment will come to $10Bn. Hochberg has said he would put up half of the money. This is the kind of “can do” attitude that is required to get the much-needed investment completed. Hurray for Fred! Finally, a guy in D.C. that is getting something done. Right?

 

Well, actually, that’s not the case at all. Good old Fred is the boss at the EXIM bank. The $5bn commitment he’s made has nothing to do with infrastructure in America. The $5bn of taxpayer money is going to the Czech Republic. The money will be used to expand the Temelin nuclear power plant.

 

WTF?

 

signs-full-wtf-18

 

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