Tag Archives: debt

Budgets, Deficits, and Debt

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In his press announcement last week, President Barack Obama made a lot of…interesting…comments.  Here are some, with some editorial remarks associated.

We’ve created more than 6 million jobs in the last 35 months.

However, if our economy were undergoing the recovery he promised his stimulus spending would produce, it would have produced 8 million jobs in that time, and we wouldn’t have fewer Americans working today than at the start of that spending.  If we were undergoing a normal recovery, we’d have even more jobs “saved or created” by now.

But we’ve also seen the effects political dysfunction can have on our economic progress.  The drawn out process for resolving the fiscal cliff hurt consumer confidence.  The threat of massive automatic cuts have already started to affect business decisions.

And

Deep, indiscriminate cuts to things like education and training, energy, and national security will cost us jobs and will slow down our recovery.

True enough.  But given that, he shouldn’t have demanded such indiscriminacy in his sequester demand of 2011.  Today, he needs to get out of the way and let budgets be passed that cut spending responsibly and in a carefully targeted manner.  More, he needs actively to help this process by requiring his Party-controlled Senate to put House-passed budgets (see below) up for vote and passage.

[W]e’ve been reminded that while it’s critical for us to cut wasteful spending, we can’t just cut our way to prosperity.

As someone said repeatedly in 2008, “Yes, we can.”

He also had this riff:

Democrats and Republicans have been able to come together and cut the deficit by more than $2.5 trillion….  [A] balanced approach [of tax increases and spending cuts] have achieved $2.5 trillion in deficit reduction.  That’s more than half way toward…$4 trillion in deficit reduction…required to stabilize our debt.

And

There’s no reason why we should keep [loopholes and deductions] at a time when we’re trying to cut down on our deficit.

And

If we’re serious about paying down the deficit, the savings we achieve from tax reform should be used to pay down the deficit.

Notice that: deficit, and not debt.  Obama cares not a fig for the magnitude of our national debt—100% of our GDP today, including all of our national debt, not just the publicly held portion—and its rapid growth.  “Reducing” our deficit leaves a continuously growing debt—not stabilization.

He also was careful to include his stock demand for higher taxes as a quid pro quo for even token spending reductions:

And I still believe that we can finish the job with a balanced mix of spending cuts and tax reform.

Obama’s speech adds up to an ignorance of how a free market economy actually works that’s breathtaking in its scope.  Or a cynical disdain for free markets and the associated individual freedoms.

The WSJ noted,

House Democrats have drafted a plan to replace all of the March 1 spending cuts with a plan that calls for both tax increases and spending cuts.  The proposal, drafted by rep. Chris Van Hollen (D, MD), calls for tax increases on the wealthy, reducing tax breaks for oil and gas companies and a reduction in farm subsidies.

Notice this, too: more tax increases, especially on the hated wealthy, and the Progressives’ standard singling out of evil oil and gas producers.  Van Hollen carefully is seeking to protect “green” energy companies (I hesitate to call them producers) from a similar reduction in tax breaks or subsidies for “green” energy companies.  The Progressives—not just Obama—are busy designating winners and losers in our economy.

There are, though, some in Congress (not on the left side, alas) who do understand.  House Ways and Means Committee Chairman Dave Camp (R, MI), for instance:

Tax reform should be about making the code simpler and fairer for American families and helping employers create more jobs.  The president’s proposal is nothing more than another tax hike to pay for more Washington spending.

House Speaker John Boehner (R, OH) said before Obama’s speech,

Republicans have twice voted to replace these arbitrary cuts [Obama’s sequester] with common-sense cuts and reforms that protect our national defense.  We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes.  The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.

Because balancing the budget—actually eliminating the deficit, not just “paying it down”—is a critical first step to reducing—paying down—our debt.  After all, the CBO says that

continuing large deficits would push the level of government debt held by the public—a commonly used measure that excludes the US Treasury bonds held in Social Security and various trust funds—to 76.3% of GDP at the end of September, the highest level since 1950.

and

[Failure to fix will cause] the gross domestic product, the value of all goods and services produced in the US, to grow by just 1.4% this year, measured from the fourth quarter of 2012 to the fourth quarter of 2013.

That’s less than last year’s 1.9% growth.  And full employment won’t be reached before 2017, the CBO says.

Americans, Deadbeats, and Bills

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President Barack Obama, the other day, announced that we’re a not a nation of deadbeats; we pay our bills.  What are the facts?

Brett Arends, in a recent Wall Street Journal Market Watch article offers some.

Far from paying our bills, the current generation of Americans—or some of them—have set records for default which probably have no parallel in the history of the human race.  During the last five years, US individuals have walked away from a staggering $585 billion in mortgages, credit card debts and other personal loans.  That works out at about $6,000 per household.

And if the numbers are to be believed, there is probably a lot more to come.

For instance,

According to the Federal Reserve, US household debts peaked five years ago at a gigantic $13.8 trillion.  Since then it has declined to $12.9 trillion—a decline of about 7%.  To put that in context, household debts today still exceed those seen at the end of 2006, near the peak of the bubble.  They are three times what they were in 1998.

The outcome includes

The total debt reduction from the peak, says the Fed, is $954 billion.  Loan write-offs [from those “walk aways”], at $585 billion, account for 60% of that.  In other words…in the last five years Americans have walked away from $3 in debt for every $2 they’ve paid off.

Does all of this make us a nation of deadbeats, though?  Let’s look at some more facts.  Arends notes

[T]his has occurred even while the federal government has bailed out bankrupt financial institutions, and flooded the economy with massive deficits, low interest rates and free money to make it all easier.

The policies have altered the incentives to make it easier to walk away from our debts.  But that’s not all there is to it.

Richard Vetter, in a same-day WSJ op-ed, offers some more facts.

From the mid-17th century to the late 20th century, the American economy grew roughly 3.5% a year.  That growth rate has since declined significantly.  When the final figures are in for 2012, the annual rate of real output growth for the first dozen years of this century is likely to be about 1.81%.

What accounts for the slowdown?  An important part of the answer is simple: Americans aren’t working as much today.  And this trend reflects more than the recession and sluggish economy of the past few years.

This chart, covering the last 65 years, illustrates the matter starkly.

Before continuing, a digression is in order.  Recall a couple of the dates Arends mentioned above.  Today’s household debt is greater than it was during the housing bubble peak in 2006.  At that time, we were already well on the way down in workforce participation, yet the Panic was still two years off.  Today’s household debt is three times what it was in 1998.  1998 is the 65-year peak in Americans’ workforce participation.  Fewer people are working today, relatively, than then, and that has nothing to do with our present economic malaise.

Back to the main program.  Vetter asked why fewer Americans are working today (after all, we have to earn an income in order to pay our debts.  Don’t we?).  After all,

[i]f today the country had the same proportion of persons of working age employed as it did in 2000 [the end of the peak in work force participation], the US would have almost 14 million more people contributing to the economy.  [Aside: so much for those 3-5 million jobs Obama’s policies have so proudly saved.]

It comes back to incentives.  The Obama administration’s Progressive policies encourage Americans to not work.  Some of those destructive policies are these:

Food stamps. Above all else, people work to eat.  If the government provides food, then the imperative to work is severely reduced.  [Food stamp program use] has grown considerably, but especially so in the 21st century: There are over 30 million more Americans receiving food stamps today than in 2000.
The sharp rise in food-stamp beneficiaries predated the financial crisis of 2008: From 2000 to 2007, the number of beneficiaries rose from 17.1 million to 26.3 million, according to the Department of Agriculture. That number has leaped to 47.5 million in October 2012.  The average benefit per person jumped in 2009 from $102 to $125 per month.
… But more is going on here.
Compare 2010 with October 2012, the last month for which food-stamp data have been reported. The unemployment rate fell to 7.8% from 9.6%, and real GDP was rising steadily if not vigorously.  Food-stamp usage should have peaked and probably even begun to decline.  Yet the number of recipients rose by 7,223,000.  In a period of falling unemployment and rising output, the number of food-stamp recipients grew nearly 10,000 a day.

Social Security disability payments. The health of Americans has improved, and the decline in the number of relatively dangerous industrial production and mining jobs should have led to a smaller proportion of Americans unable to work because of disability.  Yet the opposite is the case.
Barely three million Americans received work-related disability checks from Social Security in 1990, a number that had changed only modestly in the preceding decade or two.  Since then, the number of people drawing disability checks has soared, passing…6.5 million by 2005, and rising to nearly 8.6 million today.  In a series of papers, David Autor of MIT has shown that the disability program is ineffective, inefficient, and growing at an unsustainable rate.

Pell grants. Paying people to go to college instead of to work is traditionally justified on the grounds that higher education builds “human capital” that is vital for the country’s economic future.  But a study Christopher Denhart, Jonathan Robe and I did for the Center for College Affordability and Productivity (that will be released soon) shows that nearly half of four-year college graduates today work in jobs that the Labor Department has determined do not require a college degree.  For example, over one million “retail sales persons” and 115,000 “janitors and cleaners” are college graduates.
In 2000, fewer than 3.9 million young men and women received Pell Grant awards to attend college.  The number rose one-third, to 5.2 million by 2005, and increased a million more [one-fifth] by 2008.  In the next three years, however, the number grew over 50%, to an estimated 9.7 million.  … The result is fewer people in the work force.  Meanwhile the mismatch grows between the number of college graduates and the jobs that require a college education.

Extended unemployment benefits. Since the 1930s, the unemployment-insurance system has been designed to lend a short-term, temporary helping hand to folks losing their jobs, allowing them some breathing room to look for new positions.  Yet the traditional 26-week benefit has been continuously extended over the past four years—many persons out of work a year or more are still receiving benefits.

We don’t pay our bills.  But we’re not deadbeats, either; Progressive policies have simply altered the incentives.  It’s the rational (if not moral) choice to go the cheaper route—the route that welfare programs and Progressive excusals incentivize—the route of not working, and “walking away” from our debts.  Even bankruptcy itself has lost its moral stigma.  (That failure is on us, though, not our government.)  Obama is right—we’re not a nation of deadbeats.  But he’d like us to become a nation of government dependents for whom the rational, if not moral, choice is continued dependency.  And that makes it tough for us to pay our bills—individually or as a nation.

Debt Ceiling Negotiations

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President Barack Obama had some thoughts on this in a press conference the other day.  Surprise—I have some thoughts on his thoughts.

Obama said this in response to a question from CBS News‘ Major Garrett on how Obama reconciles his refusal to vote to raise the debt ceiling while a Senator (the raise would be a “leadership failure”) with his current refusal, as President, to negotiate his demanded raise of the debt ceiling:

And, you know, the fact of the matter is, is that we have never seen the debt ceiling used in this fashion, where the notion was, you know what, we might default unless we get 100 percent of what we want. That hasn’t happened.

Actually, we’ve seen this repeatedly in the recent past.  Under Presidents Ronald Reagan and Bill Clinton, for instance, spending cuts (or what passed for them—reductions in the rate of growth of spending) were explicit parts of the deal to raise the ceiling.

Obama then added this:

Now, as I indicated before, I’m happy to have a conversation about how we reduce our deficits further….

There are a couple of things about this one.  One is that bit about being “happy to have a conversation.”  A conversation is an “exchange of thoughts and feelings.”  It’s not a negotiation.  Obama is willing only to engage in idle chit-chat on this subject; he’s not willing to enter into serious negotiation.

The other thing is that nonsense, “reduce our deficits further.”  As a man of Obama’s learned education knows—as his economic advisors in the White House and in his Cabinet know—a reduced deficit is still a deficit, and so it still grows our nation’s debt.  Once again, Obama is unwilling to take our debt seriously.

Obama then concluded his evasion of the original question (he never did address Garrett’s question of how Obama reconciles his Senatorial “No” with his Presidential “Raise it now” demand on the debt ceiling) with this:

But what you’ve never seen is the notion that has been presented so far at least by the Republicans that deficit reduction will only count spending cuts, that we will raise the deficit—or the debt ceiling dollar for dollar on spending cuts.  …what we’re not going to do is put ourselves in a position where in order to pay for spending that we’ve already incurred, that our two options are; we’re either going to profoundly hurt the economy, and hurt middle-class families, and hurt seniors, and hurt kids who are trying to go to college, or alternatively we’re going to blow up the economy.

The first part of that is true.  Having seen the failure of tying reduced spending growth rates to raising the debt limit, the House Republicans now are tying actual spending cuts to raising the debt ceiling.

The rest, though, is exactly what Obama is threatening.  He’s holding out for “100% of what [he] want[s],”  or he’ll blow up our economy.  He’s the one demanding a debt ceiling raise with no strings attached (he’s even called for ceding borrowing authority to him) and refusing to discuss any alternative.  He’s the one who’s said he won’t negotiate at all on the debt ceiling.

Yet, it’s his demand for continued borrowing, for continued expansion of our debt, that is profoundly hurting the economy, the middle class, seniors, the poor (who are notably absent in his “concern” for the welfare of others).   The opposition has already agreed to raise the borrowing limit.  They just want real spending cuts, also, so as to break the DC addiction to spending, and so as to reduce—or even eliminate—the need to borrow more.

Nominations

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Here are three and their positions on various matters of some import.

Chuck Hagel, Secretary of Defense:  President Barack Obama has put him up to forward Obama’s defense policy of global retrenchment and defense cutbacks.

Hagel thinks it’s appropriate to negotiate with terrorists—Hamas, for instance—and he refused to join a US Senate letter to the EU calling on them to label Hamas a terrorist organization.

In a 2006 op-ed for The Washington Post, he called for a troop withdrawal in Iraq—right before the successful surge, which he also opposed when it came up.

In response to current SecDef Leon Panetta’s statement that the present sequester would gut Defense, and while the Joint Chiefs of Staff were telling Congress that the sequester would lead, variously, to “a severe and irreversible impact on the Navy’s future,” “a Marine Corps that’s below the end strength to support even one major contingency,” and “an unacceptable level of strategic and operational risk” for the Army[,]” Hagel insisted that the “Defense Department, I think in many ways, has been bloated….  So I think the Pentagon needs to be pared down.”

I won’t go over his anti-gay verbal assault on a Luxembourg ambassador nominee, except to note that his attitude will impact Defense’s (repealed) Don’t Ask Don’t Tell policy.

John Brennan, Director, CIA: Obama selected Brennan to put forward Obama’s policy of no intel collection, just kill them with drones:

Brennan is closely identified with the Obama administration’s expanded policy of using drones…to strike at suspected militants in countries such as Yemen, Somalia, and Pakistan.  The Washington Post refers to Brennan as “the principal architect of a policy that has transformed counterterrorism from a conventional fight centered in Afghanistan to a high-tech global effort to track down and eliminate perceived enemies one by one.” The Post adds that Brennan is at the “core” of the White House centered effort to use drones and that “when operations are proposed in Yemen, Somalia or elsewhere, it is Brennan alone who takes the recommendations to Obama for a final sign-off.”

In truth, there’s much to be applauded about this policy; however, like all things, it can be overdone—and it is here, through the blind, unconsidered application of drone strikes.  The biggest symptom of the policy’s failure?  The utter lack of intel coming out of these strikes.  Dead men, after all, tell no tales.

Brennan compounded this failure, though, with this lie:

There hasn’t been a single collateral death because of the exceptional proficiency, precision of the capabilities we’ve been able to develop.

On top of this, Brennan has no understanding of the fundamentals of terrorism: he’s called jihad a “legitimate tenet of Islam,” insisting instead that these poor, misguided violent extremists are victims of “political, economic, and social forces.”

Jacob “Jack” Lew, Secretary of the Treasury: Obama selected him to continue Obama’s policy of extended (and extensive) borrowing and spending.  But he, too, cannot be trusted.

When Lew was Obama’s Director of OMB, he testified before Congressional committees on Obama’s budget proposals:

Our budget will get us, over the next several years, to the point where we can look the American people in the eye and say we’re not adding to the debt anymore; we’re spending money that we have each year, and then we can work on bringing down our national debt.

President Obama’s budget proposals then added at least $600 billion to the deficit every year.

As Senator Jeff Sessions (R, AL) puts it

[Lew’s] testimony before the Senate Budget Committee less than two years ago was so outrageous and false that it alone disqualifies him.

There’s more.  Lew claimed that the reason the Democratic Senate hadn’t adopted a budget is that it was being filibustered by Republicans.  This demonstrates breathtaking ignorance of the Congress, or further dishonesty, or both.  Budgets cannot be filibustered—they get up or down votes and the majority carries the outcome.  He also misrepresented the fact that the House (led by Republicans) has passed a budget every year since 2010, and the Senate (led by Democrats) have refused even to debate them.

And there’s this exchange between Bernie Sanders (I, VT) and Lew [emphasis added]:

When asked by…Sanders…at a Senate confirmation hearing in 2010, when Lew was nominated to be head of the Office of Management and Budget, whether the deregulation pushed by Rubin and former Fed Chairman Alan Greenspan had “contributed significantly” to the banking crisis, Lew responded:

“Senator, I don’t consider myself an expert in some of these aspects of the financial industry.  My experience in the financial industry has been as a manager, not an investment adviser.  My sense, as someone who has generally been familiar with these trends, is thatthe problems in the financial industry preceded deregulation.  There was an increasing emphasis on highly abstract leveraged derivative products that got us to the point, that, in the period of time leading up to the financial crisis, risks were taken, they weren’t fully embraced, they weren’t well understood.

I don’t personally know the extent to which deregulation drove it, but I don’t think deregulation was the proximate cause.”

That is a statement of such profound (faux) ignorance that it’s awe-inspiring that Lew would say such a thing out loud.  Moreover, he was one of the senior economic advisors working for President Bill Clinton when Clinton signed the legislation making all of those “derivative products” exempt from the reach of any existing government regulation or regulatory agency.

National Default on the National Debt

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President Barack Obama and his Senators keep saying that House RepublicansCongress must raise the debt ceiling or the US will go into default.  The latest example of this claim came when Obama, through his White House Press Secretary, Jay Carney, said in response to the idea that the administration could simply mint a $1 trillion coin and then spend that,

There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default[.]

Here’s what the Constitution says on the matter (you might recall that bit of paper—a document that Progressives insist ought to be scrapped or that already is useless and non-binding; maybe its inconvenient limits on government are why).  From Article I, Section 8, in relevant part:

The Congress shall have Power…to pay the Debts…;

To borrow Money on the credit of the United States;

Thus only the Congress can borrow—or create the conditions for paying what it has borrowed.  The President, as with all laws (nearly all of which, by the way, have his signature on them—he’s actively agreed with them, except in those very rare cases where his veto has been overridden), has only to execute them—here, to spend the money authorized, to collect the taxes authorized, to borrow according to the Congress’ budget and borrowing limit.  He’s Constitutionally, and by his oath of office, required to faithfully execute those laws.

(Incidentally, a later clause in that Section 8 says this:

To coin Money, regulate the Value thereof….

Thus, only Congress can mint a $1 trillion coin, not Treasury.)

The 14th Amendment, which some Progressives like to cite as a means for Obama to bypass Congress on the national debt, says in relevant part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Notice that confusing part—it being more than 100 years old—”authorized by law.”  The clause not only says that the US’ debt must be paid—no getting around that—but the only debt that must be paid is that authorized by law—that budget thing (from an even older and apparently even more confusing part of the Constitution), which must be passed by Congress and signed by the President or his veto overridden.  The president cannot (not may not—cannot) create debt on his own recognizance.

On the first part above, then, Obama has it right—Congress can agree to continue spending and borrowing, or it can decide not to act (or anywhere between the two extremes: cut spending enough to fit it into current revenues, thereby eliminating the deficit and stopping the growth in borrowing altogether, or cut spending to fit within projected revenues and raise the debt ceiling somewhat, with a view to gradually reducing spending, eliminating the deficit over time, and ultimately stopping the growth in borrowing altogether, for example).

What are the practicalities of the matter?  Say the debt ceiling is not raised; what results?

The interest on our current national debt (some $16+ trillion at the end of 2012, an explosion of 60% in Obama’s first four years) ran to $220 billion.  Total revenue collected from various tax sources (including payroll taxes for Social Security, et al.,) by the Federal government was $2.5 trillion—a shade over 10x those interest payments.

In short, there is no risk of default from Congressional inaction.  There is plenty of money with which to pay the interest, thereby keeping our debt current and not in default.  There’s plenty of money with which to roll existing debt that’s coming due—essentially to refinance by paying off that old debt with new borrowing—within the current debt ceiling.  This is the same as us refinancing our homes, which we must do within our own debt ceilings, values our lenders determine based on our credit rating.  There’s even plenty of money with which to begin in aggregate paying down that debt, reducing it below those $16 trillion, and to reduce it further in subsequent years.

Thus, if Congress declines to raise the debt ceiling at all, there would be spending cuts, but no default.  Federal spending in 2012 ran to $3.7 trillion, rather more than those $2.5 trillion in collections.  Progressive (and Conservative) favored programs would be drastically curtailed.  Welfare programs like food stamps, subsidies for “green” energy companies, farm price supports, and the like would be severely curtailed.  Entitlement programs like Social Security, Medicare, and Medicaid transfers to the States would be greatly circumscribed.  Withal, no default, and not even very many existing programs eliminated.

However, if Obama and his Senators truly are concerned about “not paying for our spending on the backs of our seniors and the middle class” (and the poor—that group these Progressives have been ignoring right along), they’ll get serious about spending cuts, the deficit, and the debt.  The cuts then could occur in a deliberate, controlled manner, across programs about which Conservatives and Progressives compromise on curtailing.

Obama and his Senators know what the Constitutionally mandated priorities are.  They simply are lying when they make their claim of debt default, and the NLMSM are complicit in the claim’s spread.  What these Progressives really mean is that, absent a debt ceiling increase, they will default on their vote buying promises.  And that terrifies them, since among those to whom they “owe” their vig are unions.