Last night, we already expressed our amusement at the fact $130 billion of Obama's proposed "savings" would come from the change in the CPI calculation to a "Chained CPI" - a rough analogue would be using GRPN accounting to represent EPS as net of all costs and expenses and make it equal to revenue (we said rough; a more fine tuned explanation can be found here). What comes next: Chained Employment? Think of the cost savings (offset by spending on brand new whips of course). Today, we are just as amused at the other key component of the spending cut proposal namely that $290 billion of the savings would come from lower interest payments. And this is where one's Excel refs out, because the interest payment on Treasurys, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately.
To summarize the spending components proposed by Obama:
- $400 billion from health programs
- $200 billion from mandatory spending
- $200 billion from other programs of which $100 billion from defense
- $130 billion from Chained CPI
- $290 billion from "Interest Savings"
And what makes this plan absolutely insane, is that the offset is increased near-term spending to the tune of $80 billion. In other words: a spending cut plan some time in the future, offset by more spending now.
Bottom line: we are getting a mini "kick the can down the road" worst case outcome, which will need a new Fiscal Cliff just to deal with the outcome of not resolving this Fiscal Cliff in as little as 12 months.