Tag Archives: Debt

The Buck Doesn’t Stop Here

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From the Wall Street Journal:

The Buck Doesn’t Stop Here
President Obama is applying ‘a scalpel to the discretionary budget, rather than a machete.’

By STEPHEN MOORE

We hear that the White House was caught off guard by the near-universal panning of President Obama’s budget proposal. So yesterday morning Mr. Obama was rushed in front of the TV cameras for a press conference to rebut the wave of negative reaction to his status quo spending plan released on Monday.

The press was unusually harsh in its questioning, and Mr. Obama was clearly on the defensive. At one point he even said that the media is too “impatient” for budget cuts. Asked why he isn’t willing to cut more spending to bring the deficit down faster, he said he’s applying “a scalpel to the discretionary budget, rather than a machete.”

What has the White House worried is not the negative reaction from Republicans but criticism from fellow Democrats and friends in the media. MSNBC, for example, called the budget “the big punt.” The Los Angeles Times said that it “landed with a thud.” Even the New York Times groused that “the budget is most definitely not a blueprint for dealing with the real long-term problems that feed the budget deficit.” During a Senate Budget Committee hearing yesterday, North Dakota Democrat Kent Conrad said that the president’s budget “cannot be the answer for this country’s fiscal future.”

The overarching problem for Team Obama is that the budget contains trivial cost savings. In the first two years the deficit is actually worsened. Democratic deficit hawks are upset about the total absence of savings in Medicare, Medicaid and Social Security. Mr. Obama explained his whiff on entitlement reform by saying it should “be a negotiation process” and that Republicans and Democrats need to get “in that boat at the same time so we don’t tip over.” It was hardly Harry Truman saying “the buck stops here.”

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The Cee Lo Green Budget

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From the Wall Street Journal:

The Cee Lo Green Budget
The cynical and unrealistic White House budget.

This was supposed to be the moment we were all waiting for. After three years of historic deficits that have added almost $4.5 trillion to the national debt, President Obama was finally going to get serious about fiscal discipline. Instead, what landed on Congress’s doorstep on Monday was a White House budget that increases deficits above the spending baseline for the next two years. Hosni Mubarak was more in touch with reality last Thursday night.

The White House actually touts as tight-fisted a budget proposing a record $1.645 trillion deficit for fiscal 2011, due largely to a new surge in spending to 25.3% of GDP. That’s more spending than in any year since 1945. Federal debt held by the public—the kind we have to pay back—will rise to 75.1% in 2012, which is the highest since 1951 and more than double what it was as recently as 2007. (See the nearby chart.)

Senior Economics Writer Stephen Moore breaks down the President’s spending and taxing plans. Also, Anne Jolis, editorial writer for WSJ Europe, has the surprising data on extreme weather events.

This $3.73 trillion budget does a Cee Lo Green (“Forget You,” as cleaned up for the Grammys) to the voter mandate in November to control spending. It leaves every hard decision to the new House Republican majority. And it ignores almost entirely the recommendations of Mr. Obama’s own deficit commission. No wonder the commission’s Democratic co-chairman, Erskine Bowles, said Monday that this budget goes “nowhere near where they will have to go to resolve our fiscal nightmare.” And he’s an ally.

How unserious is this budget? Although the White House trumpets $2.18 trillion in deficit reduction over the next decade, those savings are so far off in the magical “out years” that you can barely see them from here. More than 95% of the savings would happen after Mr. Obama’s first term in the White House is over, and almost two-thirds of the promised deficit reduction would arrive after 2016. Pretending to cut deficits by pushing all real cuts into the future is Budget Flimflam 101.

From hard experience, we know that what matters are the cuts and reforms a White House is willing to make now. The Obama budget doesn’t cut a penny from the deficit in the last seven months of fiscal 2011. Over the next three years—through 2013—the spending reductions in this budget add up to a paltry $20 billion net, out of a projected $3.5 trillion deficit. That’s a 0.57% reduction in red ink and less than what the feds spend every two days.

As for Medicare, Medicaid, Social Security and other entitlements, which account for roughly 60% of federal expenditures, the proposed savings are close to zero. The President would allow these programs to continue on automatic pilot, meaning they nearly double to $2.7 trillion in 2021 from $1.4 trillion in 2010.

Every serious analyst agrees that the time to fix these retirement programs is before 75 million graying baby boomers start collecting the benefits and voting as beneficiaries rather than as net payers. Meanwhile, Medicaid spending would grow by 115% over the next decade thanks to that renowned deficit reducer, ObamaCare.

The proudest White House boast is that its budget would cap domestic discretionary spending at current levels for five years. These are programs ranging from NASA to the Washington Metro to school lunch programs to wind turbine grants, which overall and including stimulus expanded by more than 80% in Mr. Obama’s first two years. This spending freeze would cut these programs from 2011-2013 by a grand total of $14 billion.

By contrast, the plan now emerging from House Republicans would cut about $80 billion immediately, and nearly $280 billion over three years—some 20 times the White House savings. Mr. Obama’s budget also assumes annual economic growth of more than 4% from 2012-2014. That’s far more robust than anything this recovery has produced so far, and it is at least a percentage point higher than most private economists or the Congressional Budget Office predict.

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Debt now equals total U.S. economy

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From the Washington Times:

Debt now equals total U.S. economy

President Obama projects that the gross federal debt will top $15 trillion this year, officially equalling the size of the entire U.S. economy, and will jump to nearly $21 trillion in five years’ time.

Amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out — both because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.

Mr. Obama’s budget said 2011 will see the biggest one-year jump in debt in history, or nearly $2 trillion in a single year. And the administration says it will reach $15.476 trillion by Sept. 30, the end of the fiscal year, to reach 102.6 percent of gross domestic product (GDP) — the first time since World War II that dubious figure has been reached.

In one often-cited study, two economists have argued that when gross debt passes 90 percent it hinders overall economic growth.

The president’s budget said debt as a percentage of GDP will top out at 106 percent in 2013, but only if the economy booms.

“I still don’t see a sense of urgency from the president about the massive federal debt,” said Sen. Lamar Alexander, Tennessee Republican. “His budget calls for too much government borrowing – even though the debt is already at a level that makes it harder to create private-sector jobs.”

Speaking on MSNBC on Monday, Jacob “Jack” Lew, the White House budget director, said their long-term plan to lower deficits will stabilize the debt.

“When we came into office, when President Obama took office, the deficit was climbing to over 10 percent of the economy. We have a plan that would bring it down to 3 percent,” he said. “That is the most rapid reduction in the deficit in history. It is what we have to do to be able to say we’re paying our bills and we’re not adding to the debt.”

The administration said debt as a percentage of GDP will stabilize at about 105 percent in the middle of this decade, though those calculations assume economic growth levels significantly above projections of the non-partisan Congressional Budget Office.

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WSJ: Runaway Trains Obama’s high-speed rail plan is a fiscal pipedream

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From today’s Wall Street Journal:

Runaway Trains
Obama’s high-speed rail plan is a fiscal pipedream.

We suppose every President is entitled to a pipedream, but President Obama’s vow in his State of the Union address that 80% of Americans should have access to high-speed rail in 25 years is a doozy. Vice President Joe Biden has followed up by proposing $53 billion in high-speed rail funding over the next six years. Seriously?

On recent evidence, this train is running in reverse. Though the Obama Administration has allocated more than $10 billion for high-speed rail projects the past two years, the new Republican governors of Wisconsin and Ohio, Scott Walker and John Kasich, have rejected the federal money. They don’t want to put their taxpayers on the hook for projects destined for Insolvency Junction. Florida Governor Rick Scott is also reconsidering his state’s proposed Orlando-Tampa line.

Even California, that famous incubator of pipedreams, is having second thoughts. The state has proposed an 800-mile high-speed rail plan from San Diego to San Francisco. Bay area residents are now protesting that the line will damage property values, while Central Valley farmers complain the line will ruin their land. The greater wonder is how the state will pay for a $43 billion train even as it’s facing a $28 billion budget gap over the next 18 months and $20 billion annual deficits four years after that.

Two years ago California taxpayers approved a $9.95 billion bond initiative to fund the train, buying the pitch that it would create hundreds of thousands of jobs and attract 94 million riders. The state’s high-speed rail authority told voters a one-way ticket from San Francisco to Los Angeles would cost $55—about the price of a Southwest flight. They said private equity firms were dying to invest, and that the train would operate without a public subsidy.

Studies by economists and financial consultants Alain Enthoven, William Grindley and William Warren have since debunked the rail authority’s claims. Based on the costs of high-speed rail lines in Europe and Japan, the price tag likely will fall between $62 billion and $213 billion. A one-way ticket from San Francisco to Los Angeles will cost about $190, which means more people will choose to fly.

Because of uncertainty over costs and ridership forecasts, private equity firms say they won’t invest without a revenue guarantee, i.e., an operating subsidy. Even if the state somehow manages to attract $10 billion in private equity, its business plan calls for another $5 billion in local grants and $15 billion more in federal funds. The $15 billion that they want from the feds would be nearly a third of Mr. Biden’s $53 billion figure. Maybe high-speed rail is a back-door bailout for California.

Messrs. Obama and Biden argue that the U.S. has to invest in high-speed rail to stay competitive with the world. Only if we’re competing in the Debt Bowl. Two high-speed railways in the world have broken even, and those are in densely populated areas of France and Japan where people drive less because gas prices are twice as high as in the U.S., and many foreign intercity highways levy tolls.

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Sen. Rand Paul Hits the Nail on the Head – Compromise is NOT a Noble Position

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The GOP tsunami of 2010 should have sent a clear message to the established political forces in the nation’s capital: no more socialism. Instead, the Tea Party has continued to be the recipient of constant ridicule. Ordinary citizens who are standing up to an out of touch government have been painted as extreme, and a problem for the GOP. Members of the intelligentsia have determined that the only way for Republicans to real move forward is to compromise with the Left, and ignore the Tea Party.

Ignoring the voters is a dangerous political position. More importantly, why should the GOP compromise? “In any compromise between food and poison, it is only death that can win. In any compromise between good and evil, it is only evil that can profit.” The GOP should take Ayn Rand’s advice, and avid compromises with the Democrats. Compromise bequeathed a $14 trillion dollar debt. Compromise sickened voters and lead to the GOPs demise just four years ago. Compromising with the Democrtas will be the end of the Republican Party.

Thankfully, there is a growing roster of solid conservatives on the GOP bench. One new rising star is Senator Rand Paul:

Social Security is Broke

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In his soporific State of Union address, President Obama refused to address any serious entitlement reforms. No talk of eliminating deficits can be serious if the fast growing segment of the budget, which already represents over half of the overall budget, entitlements, is not addressed.

Social Security is the entitlement most in need of immediate reconstruction. The program was created by Franklin Roosevelt in an effort to secure votes for the Democrats. Roosevelt believed that his party would be able to scare seniors by claiming that Republicans intended to cut their benefits. Roosevelt was right, and Democrats have run on that message for over eighty years.

However, reality is finally catching up with the government’s mandatory Ponzi scheme. The Associated Press reports:

The Congressional Budget Office said Wednesday that Social Security will pay out $45 billion more in benefits this year than it will collect in payroll taxes, further straining the nation’s finances. The deficits will continue until the Social Security trust funds are eventually drained, in about 2037.

First, there is no trust fund. In Helvering v. Davis, the Supreme Court affirmed that Social Security was constitutional because the funds were not specially earmarked. Therefore, Social Security taxes were, and still are, part of the government’s general revenue, like income tax receipts.

Second, take a look at the definition of a Ponzi scheme:

A form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

Social Security is the world’s largest Ponzi scheme. Future generations are treated as ‘investors,’ who are really just paying off older investors. Ponzi schemes fail when the schemer cannot find new investors. Social Secrity is in the red because the economy tanked and there is not enough new money coming in to pay old ‘investors.’

There are solutions to this problem. The most effective answer is to privatize Social Security. However, using the Roosevelt playbook, Democrats have demonized this option.

In reality, Social Security has been privatized in the United States before, and it works:

The original Social Security Act allowed for counties to opt out of the government program. Seeing the writing on the wall, Galveston County, Texas opted out of the program in 1981. Galveston voters passed the opt-out provision by a 3-1 margin. Their solution should be the model that Social Security is remodeled after.

The system goes as follows:

Our plan, put together by financial experts, was a “banking model” rather than an “investment model.” To eliminate the risks of the up-and-down stock market, workers’ contributions were put into conservative fixed-rate guaranteed annuities, rather than fluctuating stocks, bonds or mutual funds. Our results have been impressive: We’ve averaged an annual rate of return of about 6.5 percent over 24 years. And we’ve provided substantially better benefits in all three Social Security categories: retirement, survivorship and disability.

The results:

Upon retirement after 30 years, and assuming a 5 percent rate of return – more conservative than Galveston workers have earned – all workers would do better for the same contribution as Social Security:

  • Workers making $17,000 a year are expected to receive about 50 percent more per month on our alternative plan than on Social Security – $1,036 instead of $683. [See the Figure.]
  • Workers making $26,000 a year will make almost double Social Security’s return – $1,500 instead of $853.
  • Workers making $51,000 a year will get $3,103 instead of $1,368.
  • Workers making $75,000 or more will nearly triple Social Security – $4,540 instead of $1,645.
  • Galveston County’s survivorship benefits pay four times a worker’s annual salary – a minimum of $75,000 to a maximum $215,000 – versus Social Security, which forces widows to wait until age 60 to qualify for benefits, or provides 75 percent of a worker’s salary for school-age children.

In Galveston, if the worker dies before retirement, the survivors receive not only the full survivorship but get generous accidental death benefits, too. Galveston County’s disability benefit also pays more: 60 percent of an individual’s salary, better than Social Security’s.

Two government studies of the Galveston Plan – by the Government Accountability Office and the Social Security Administration – claim that low-wage workers do better under Social Security. However, these studies assumed a low 4 percent return, which is the minimum rate of return on annuities guaranteed by the insurance companies. The actual returns have been substantially higher.

Even in 2010, after the stock-market meltdown of 2008, the Galveston plan is light years ahead of Social Security.

With this record of success, the government did the only logical thing. In 1983 Congress passed a law making it illegal to opt-out of Social Security. Instead, Democrats offer serious solutions, like Rep. Anthony Weiner, who said, “[Obama] was then followed by a guy who was bumming us out, I felt like I just needed a drink when I was done with Paul Ryan,” of Rep. Ryan’s response to the State of the Union.

Democrats have demagogued entitlement reform for two generations. The Left builds scores of dependent constituency groups, then accuses conservatives proposing “reckless budget cuts.” The underlying belief supporting this tactic is that the Left can turn artificial groups of citizens against each other, with over half of the electorate on the receiving end of government largess. Driven by a lust for power, Democrats have erected a monstrous federal state that is simply unsustainable. As Paul Ryan said last night the United States is at a “tipping point,” from which there can be no turning back.

The China Threat

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Seventeenth century philosopher Baruch Spinoza coined the idiom “nature abhors a vacuum.” With President Obama planning withdrawals from Iraq and Afghanistan, severe cuts in military spending, and a talking down of American Exceptionalism, the United States is creating a power vacuum.

President Obama has pursued a course of peace through weakness and surrender. Obama’s gutting of the military is emboldening America’s enemies (as I have written about on previous occasions).

In 2001, Osama Bin Laden explained “when people see a strong horse and a weak horse, by nature, they will like the strong horse.” Can anyone honestly say that President Obama’s apology/bow to dictators tour has made the United States look like the ‘strong horse’?

Instead, countries like China see the Obama presidency as an opportunity to fill the vacuum that the United States is creating.

If it is true that the ‘mystery missile’ fired off the California coast was indeed launched from a Chinese submarine, it would just be the latest provocation from the ChiComs.

A recent article in the LA Times, that appeared is this weeks Sunday Feature, detailed China’s increasing presence in the Middle East. China has been trading with and helping to fund regimes in Turkey, Syria and Iran. Now, China has an eye on expanding in Iraq, following the withdrawal of the United States. China’s funding of enemy regimes like Iran and Syria is no mistake.

As President Obama downsizes the United States military, the Chinese are expanding and modernizing their military. The Chinese are regularly shocking experts with their advanced military capabilities (see: U.S.S. Kitty Hawk stalking). Where is the money coming from for the Chinese to rapidly upgrade their military? American tax payers. According to Mark Steyn, by 2015 the entire Chinese military will be funded by American debt interest payments. To drive that point home, Steyn said, “when the Commies take Taiwan, suburban families in Connecticut and small businesses in Idaho will have paid for it.”

There are three important takeaways here:

The first lesson is that, as Secretary Rumsfeld said, “if we know anything, it is the weakness is provocative.” Cutting defense spending is always a terrible idea. The Chinese are assembling a 21st century military. The United States cannot afford to ever fall behind.

The second lesson is that President Obama’s planned withdrawal from a world at war is dangerous, reckless and inexcusable. The power vacuum an American retreat from the Middle East would create will have disastrous results. It is absolutely not in America’s best interest to cede power to the ChiComs, especially in the tinderbox region that is the Middle East.

The third lesson is that the national debt is a deadly serious issue. The United States cannot continue funding the expansion of the Chinese military. After WWII the entire world was seemingly in debt to the United States. Now the United States is the world’s largest debtor. The United States’ largest creditor is China. At this time it is undeniable that the national debt is a national security threat.

These are serious times that require a strong leader; something Barack Obama is not.