Archive for the ‘Debt Ceiling’ Category
As you folks all know I’ve been pounding the table for years about the fact that if we’re serious about addressing what’s wrong with our budget we must break the medical monopolies.
Indeed, there’s an entire sub-category of Tickers dedicated to Health Reform, which I started writing on when the entire Obama mess began and the discussion took off in earnest.
But lately I’ve been asked to look once again at exactly what sort of realistic budget cuts we could make, especially now that the “fiscal cliff” game has been “punted.”
Let’s remember something here folks — last calendar year’s deficit was $1,210 billion. That’s from 12/30/2011 to 12/31/2012, the last “working day” of each year, measured by the outstanding debt.
So here’s the problem in a nutshell. Anyone can find $20 or $30 billion to cut in the budget. That’s so trivial that it’s not funny. $100 million here and $100 million there and you get there. It’s not hard at all.
But it’s inconsequential, because if you cut $30 billion that’s only about 2.5% of the deficit.
Indeed, even $120 billion, or 10% of the deficit, is not enough to matter. That would “count” as $1.2 trillion to the wonks in DC, but that’s a lie, for two reasons — there’s a new budget each year and you cannot bind the next Congress no matter what you pass, so only that which you do right now counts.
$120 billion is not enough to matter fiscally. But this much is assured — if you try to cut $120 billion in real spending 5,000 lobbyists are going to descend on your office and make your life a living hell, no matter which party you are in.
And that, my friends, is for a symbolic change in spending that will do exactly nothing to solve the problem.
If we’re going to make a real difference we have to get to zero. In fact we have to further and into surplus, but let’s just for a moment go with the IMF’s numbers (or the ECB’s and Eurozone’s in general), which are that a “roughly 3%” deficit is “sustainable.” That is, let’s allow the government (for right now) tosteal the productivity improvements that you, I and everyone else make.
That, by the way, is why the IMF and Eurozone believe 3% is a “sustainable” deficit although they will never tell you that.
3% of $16 trillion (the size of our economy, roughly) is $480 billion. To get there we must cut, this year, $720 billion from the budget.
You know those 5,000 angry lobbyists? They’re at your door.
So let’s ignore them for a minute and ask the question – can we get there?
The answer is “Yes.” But there is only one way to do it.
We must break the medical monopolies.
The Oklahoma Surgical Center shows us what happens when you break the cost shifting and monopoly game.
Costs come down by 80%, roughly.
Last year we spent about $850 billion at the federal level on medical care.
What if we spent 80% less because we broke the monopolies?
We would spend $680 billion less.
Now can you find another $40 billion in the budget to cut between everything else?
You bet you can.
So let’s ask the question:
If you’re going to take heat from the lobbyists and everyone else, why not actually solve the problem?
I’m not going to tell you this is some sort of panacea. We’re talking about taking an actual $700 billion, more or less, out of the economy in the first year. Right here, right now. And when we do that there will be real economic consequences. A real recession. Real, but temporary, job loss. A real realignment in the medical industry, and there will be lots of oxen gored.
But seniors will be mostly protected. Those who are younger will be mostly protected. Everyone’s costs will come way down, which means that (1) money will get spent elsewhere in the economy and in those other sectors jobs will be gained and (2) seniors and others will mostly be able to paycash for their needed care.
America will become much more internally and internationally competitive as well, as labor costs will dramatically decline.
There is no free lunch folks. There is only the choice to either play “dog and pony” show once again, which will lead to downgrades and ultimately collapse of our economy, markets and possibly even our government, or we stop with the BS and do the right thing.
This is where the problem has come from. It is irrefutable in the arithmetic — $53 billion for all medical spending combined by the Federal Government in 1980 to $850 billion this last year.
That’s where the problem is, and unwinding this mess is the only way to fix it.
I stand ready to help with doing the right thing. I can help take a sharp pencil to this problem, as can many others, and I stand willing and able to do so. But you, dear Congressperson, must be willing to take the slings and arrows, and those who are serious about this need to both press for it and be willing to sell it.
From the wire:
*MOODY’S SEES CUTTING U.S. WITHOUT DEAL TO LOWER DEBT/GDP RATIO
Parse that and think about it.
It means that unless there is a deal that stops adding debt faster than GDP advances Moody’s will cut the US credit rating.
That’s public (not including Social Security and Medicare) debt-to-GDP by the federal government.
Before you cheer over the 1993-0200 time frame as a potential model note what happened to total debt-to-GDP during that period.
We’re using the Federal Government’s borrowing to cover for the fact that the private economy hit the debt-acceptance wall in 2007.
That’s why it’s happening — the government is desperately trying to evade recognition of the serial bubble blowing of the last 30 years and the economic consequences that must follow from what we have done.
And now Moody’s joins S&P in telling the government: Cut it out or face the consequences.
This is not priced in.
While it is possible that the federal government could play accounting tricks to try to postpone the day of reckoning until after Election Day, things aren’t looking good on that margin of safety for which Obama negotiated last August.
The math says September 9th is the current target date when the debt limit will be hit, since the current debt total is $15,618,088,043,505.60 and it has been rising an average of 5.19 billion dollars per day from the $14.294 trillion limit it was at on August 2, 2011, and the new limit is $16.394 trillion.
In the meantime the US Department of Labor is reporting average daily gross earnings of approx. 12.78 billion dollars (i.e. 110.8 million workers * $23.39 per hour * 34.5 hours/week) for all private sector workers in the USA during March. This means that the government is going further in the hole at the rate of 40.6% of our wages on a debt which will eventually have to be paid back in full with compounded interest.
See http://www.bls.gov/data/home.htm and http://www.treasurydirect.gov/NP/BPDLogin?application=np for the detailed data used to make this analysis.
h/t Degaston from the Forum
Discussion (registration required to post)
Back on January 5, when we first broke the news that the US debt ceiling has been reached, and breached, yet again, we said “And now the Social Security Fund pillaging begins anew until Congress signs off on the latest interim debt ceiling increase.” Sure enough, operation rape and pillage is a go.
- U.S. SUSPENDS PAYMENTS TO PENSION FUND TO AVOID DEBT CAP BREACH
- GEITHNER INFORMS CONGRESS ON SUSPENSION OF PAYMENTS TO FUND
- GEITHNER SAYS `G’ FUND PARTICIPANTS `UNAFFECTED’ BY SUSPENSION
- GEITHNER SAYS `G’ FUND TO BE MADE WHOLE AFTER DEBT LIMIT RAISED
- GEITHNER: DEBT LIMIT WILL BE INCREASED JAN. 27 UNLESS BLOCKED
In other words: Congress better pass the debt ceiling prontt, or else it will have to explain to government retirees the tens of billions in deficit funds, i.e., marketable debt, already issued will permanently offset the level in G-fund holdings.
Lastly, any comparison to similar acts of commingling performed by other insolvent entities in recent months is purely coincidental and no Obama handlers were thrown in jail as a result of this post.
A 634 Point Stock Market Crash And 8 More Reasons Why You Should Be Deeply Concerned That The U.S. Government Has Lost Its AAA Credit Rating
Are you ready for part two of the global financial collapse? Many now fear that we may be on the verge of a repeat of 2008 after the events of the last several days. On Friday, Standard & Poor’s stripped the U.S. government of its AAA credit rating for the first time in history. World financial markets had been anticipating a potential downgrade, but that still didn’t stop panic from ensuing as this week began. On Monday, the Dow Jones Industrial Average dropped 634.76 points, which represented a 5.5 percent plunge. It was the largest one day point decline and the largest one day percentage decline since December 1, 2008. Overall, stocks have fallen by about 15 percent over the past two weeks. When Standard & Poor’s downgraded long-term U.S. government debt from AAA to AA+, it was just one more indication that faith in the U.S. financial system is faltering. Previously, U.S. government debt had a AAA rating from S&P continuously since 1941, but now that streak is over. Nobody is quite sure what comes next. We truly are in unprecedented territory. But one thing is for sure – there is a lot of fear in the air right now.
So exactly what caused S&P to downgrade U.S. government debt?
Well, it was the debt ceiling deal that broke the camel’s back.
According to S&P, the debt ceiling deal “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
As I have written about previously, the debt ceiling deal was a complete and total joke, and S&P realized this.
Forget all of the huge figures that the mainstream media has been throwing at you concerning this debt ceiling deal. The only numbers that matter are for what happens before the next election.
The only way that the current debt ceiling deal will last beyond the 2012 election is if Obama is still president, the Democrats still control the Senate and the Republicans still control the House. If any of those things change, this deal ceiling deal is dead as soon as the election is over.
Even if all of those things remain the same, there is still a very good chance that we would see dramatic changes to the deal after the next election.
So in evaluating this “deal”, the important thing is to look at what is going to happen prior to the 2012 election.
When we examine this “deal” that way, what does it look like?
Well, Barack Obama and the Democrats get the debt ceiling raised by over 2 trillion dollars and will not have to worry about it again until after the 2012 election.
The Republicans get 25 billion dollars in “savings” from spending increases that will be cancelled.
The “Super Congress” that is supposed to be coming up with the second phase of the plan may propose some additional “spending cuts” that would go into effect before the 2012 election, but that seems unlikely.
So in the final analysis, the Democrats won the debt ceiling battle by a landslide.
25 billion dollars is not even 1 percent of the federal budget. The U.S. national debt continues to spiral wildly out of control, and our politicians could not even cut the budget by one percent.
Somehow our politicians believed that the rest of the world would be convinced that they were serious about cutting the budget, but it turns out that global financial markets are tired of getting fooled.
It has gotten to the point where now even the big credit rating agencies are being forced to do something. Not that they really have much credibility left. Everyone still remembers all of those AAA-rated mortgage-backed securities that imploded during the last financial crisis. The reality is that the big credit rating agencies are a bad joke at this point.
Several smaller credit rating agencies have already significantly slashed the credit rating of the U.S. government. But a lot of pressure had been put on the “big three” to keep them in line.
But now things have gotten so ridiculous that S&P felt forced to make a move.
Sadly, our politicians are still trying to maintain the charade that everything is okay. Barack Obama says that financial markets “still believe our credit is AAA and the world’s investors agree”.
Once again, Barack Obama is dead wrong.
The truth is that the credit rating for the U.S. government should have been slashed significantly a long time ago. This move by S&P was way, way overdue.
Moody’s might be the next one to issue a downgrade. At the moment, Moody’s says that it will not be downgrading U.S. debt for now, but Moody’s also says that it has serious doubts about the enforceability of the “budget cuts” in the debt ceiling deal.
This crisis is just beginning. It is going to play out over time, and it is going to be very messy.
The following are 8 more reasons why you should be deeply concerned that the U.S. government has lost its AAA credit rating….
#1 The U.S. dollar and U.S. government debt are at the very heart of the global financial system. This credit rating downgrade just doesn’t affect the United States – it literally shakes the financial foundations of the entire world.
#2 As the stock market crashes, investors are flocking to U.S. Treasuries right now. However, once the current panic is over the U.S. could be faced with increased borrowing costs. The credit rating downgrade is a signal to investors that they should be receiving a higher rate of return for
investing in U.S. government debt. If interest rates on U.S. government debt do end up going up, that is going to make it more expensive for the U.S. government to borrow money. The higher interest on the national debt goes, the more difficult it is going to become to balance the budget.
#3 We could literally see hundreds of other credit rating downgrades now that long-term U.S. government debt has been downgraded. For example, S&P has already slashed the credit ratings of Fannie Mae and Freddie Mac from AAA to AA+. S&P has also already begun to downgrade the credit ratings of states and municipalities. Nobody is quite sure when we are going to see the dominoes stop falling, and this is not going to be a good thing for the U.S. economy.
#4 10-year U.S. Treasuries are the basis for a whole lot of other interest rates throughout our economy. If we see the rate for 10-year U.S. Treasuries go up significantly, it will suddenly become a lot more expensive to get a car loan or a home loan.
#5 The current financial panic caused by this downgrade is hitting financial stocks really hard. The big banks led the decline back in 2008, and it looks like it might be happening again. Just check out what CNN says happened to financial stocks on Monday….
Financial stocks were among the hardest hit, with Bank of America (BAC,
Fortune 500) plunging 20%, and Citigroup (C, Fortune 500) and Morgan Stanley
(MS, Fortune 500) dropped roughly 15%.
#6 China is freaking out. China’s official news agency says that China “has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets”. If China starts dumping U.S. government debt that would make things a lot worse.
#7 There are already calls for the Federal Reserve to step in and do something. If the U.S. economy drops into another recession, will we see more quantitative easing? It seems like we have reached a point where the Fed is constantly in “emergency mode”.
“If you add up all the promises that have been made for spending
obligations, including defense expenditures, and you subtract all the taxes that
we expect to collect, the difference is $211 trillion. That’s the fiscal
Dick Cheney once said that “deficits don’t matter”, but the truth is that all of the debt we have been piling up for decades is now catching up with us.
The United States is in such a huge amount of financial trouble that it is hard to put into words. The days of easy borrowing for the U.S government are starting to come to an end. We have been living in the greatest debt bubble in the history of the world, and it has fueled a tremendous amount of “prosperity”, but now the party is ending.
A whole lot of financial pain is on the horizon. Please prepare for the hard times that are coming.
Ok, someone please explain this one to us because we must be a little slow. Wasn’t the whole thing with the debt ceiling hike such that no more Congressional melodramas would have to be inflicted upon the population until after Obama [won|lost] the 2012 elections? Because according to the one again exponentially increasing debt balance of the US Treasury (there is another $51 billion in debt/cash coming in next week), the total US treasury balance (subject to the ceiling) is $14.54 trillion (and $14.58 trillion for total), an increase of $20 billion overnight, the Treasury will hit its latest ceiling no later than the end of September.
As the latest DTS statement indicates, the debt ceiling now is $14.694 trillion: a number which Tim Geithner will hit in about a month. So if this is due to a planned expansion as part of the two step plan, we would like to understand how it works, because the $400 billion additional ceiling is barely sufficient to cover the catch up in funding for the SSN and the various governmental trust funds.
And the far bigger concern is that tax receipts are about to plunge courtesy of the imminent double dip. So we wonder just based on what assumptions does the Treasury believe that its issuance needs will be met by this paltry debt ceiling.