Money, lies, politics, and our future

So Congress and the Senate have passed the budget compromise deal . . . a deal which is a lie from beginning to end, as I mentioned a couple of days ago. Since my earlier article, the Congressional Budget Office (a non-partisan source that's proved generally trustworthy in the past) has calculated that it cuts this fiscal year’s deficit by just $352 million, not the $38 billion touted by its authors. Furthermore, the Associated Press reports that the so-called 'deal' was a con game from beginning to end.

The historic $38 billion in budget cuts resulting from at-times hostile bargaining between Congress and the Obama White House were accomplished in large part by pruning money left over from previous years, using accounting sleight of hand and going after programs President Barack Obama had targeted anyway.

Such moves permitted Obama to save favorite programs - Pell grants for poor college students, health research and "Race to the Top" aid for public schools, among others - from Republican knives, according to new details of the legislation released Tuesday morning.

And big holes in foreign aid and Environmental Protection Agency accounts were patched in large part. Republicans also gave up politically treacherous cuts to the Agriculture Department's food inspection program.

The details of the agreement reached late Friday night just ahead of a deadline for a partial government shutdown reveal a lot of one-time savings and cuts that officially "score" as cuts to pay for spending elsewhere, but often have little to no actual impact on the deficit.

As a result of the legerdemain, Obama was able to reverse many of the cuts passed by House Republicans in February when the chamber approved a bill slashing this year's budget by more than $60 billion.

There's more at the link. Bold print is my emphasis. (Note that, given the reversal of previous cuts mentioned, the mere $352 million 'saved' by this 'deal' [according to the CBO] is completely wiped out, and Federal expenditure for this fiscal year slips many billions into the red once more. So much for the 'deal'. It's an accounting chimera, a confidence trick perpetrated on the American people by politicians of both parties.)

To make matters worse, the USA's fiscal chickens are coming home to roost with a vengeance. Inflation, at a true rate of almost 10%, is once again rearing its ugly head (although you'd never know it from official statistics, because - as I mentioned last year - our government has been lying to us about inflation for years!). Furthermore, not content with an over-fourteen-trillion-dollar deficit, our government is about to ask Congress to approve yet another increase in the statutory limit on US public debt. (Since the limit was imposed in 1917, there have been - according to my research - 79 adjustments to that limit. The last decrease was on June 25th, 1963, reducing the authorized debt limit to $300 billion. Thanks to all the increases since then, the authorized limit - which is about to be exceeded - stands at $14.294 trillion . . . almost 48 times higher than the 1963 limit.)

We have got to stop borrowing money to fund our government expenditure. If we don't, our nation will go bankrupt. As Warren Meyer so aptly points out:

Obama and Bush (I haven’t forgotten your culpability in all this George) sold the country, or at least Congress, on emergency spending for wars and bailouts and stimulus. This was supposedly one-time spending only for the duration of the emergency. But now Democrats and Obama are treating the peak of this emergency spending as the new baseline, from which cuts are impossible.

This lack of desire to cut spending and a resetting of norms as to "what is normal" is not just a government problem, it is endemic to every organization. Private organizations face this problem all the time. The difference is that when times go bad, private organizations do not have fiat taxation power, so that when they are underwater, they must cut bloated budgets or die. Either way, the problem goes away. Private companies differ from government not in that they don’t have problems with bureaucracy and risk aversion and deadwood and bloat and bad incentives - because they do. The difference is that private companies cannot get away with allowing this stuff to linger forever, and governments can.

Government will never, ever, ever, ever cut spending unless all hope of new taxes is removed, and even then they will likely try to cut spending on the most, rather than the least, popular programs to build public support for more taxes.

In the early 90′s, after the fall of the Soviet Union, we talked about a peace dividend from reductions in military spending. I want a sanity dividend.

Again, more at the link; and again, bold print is my emphasis.

The trouble is, the American people are schizophrenic about dealing with this crisis. The Pew Research Center, in a recent survey of public opinion, reported: "Yes, Americans agree that the nation’s finances are in a precarious state and, yes, something needs to be done. Yet they overwhelmingly reject any specific ideas for reducing the deficit - particularly when it comes to changes in entitlement programs." That's a recipe for disaster, right there! We can't reduce the deficit without cutting spending, and we'll also have to increase taxes - or, at the very least, reduce (if not eliminate) most tax avoidance loopholes. Yet, if the public won't get on board with these measures, can we truly blame our politicians if they hesitate to take these essential steps?

The inimitable Karl Denninger, who's been a prophetic voice throughout our financial crisis, summarized the situation perfectly in his response to President Obama's budget proposals. Here's a brief excerpt.

What I like has no relationship to what we can do on a sustainable and honest basis. Unfortunately there has been zero willingness by our criminal political class to tell the truth. The truth is that we must spend only what we make in government, which means that the size of the Federal Government must be cut in half, taxes must double, or some combination of the two.

Worse, it must happen now, because the laws of exponents make clear that the longer you wait the worse the numbers get. It was about 25% in 2007. It's almost 50% today. If you don't cut this crap out a collapse will become inevitable.

. . .

You have to cut entitlements. In half. You have to cut everything else. In half. That just about balances the budget and allows for payment of interest on the debt, and a tiny (less than $100 billion) payment to reduce it.

. . .

The longer we wait the more compounding of interest upon interest occurs. We are dangerously close to where we can't do it and will collapse instead. We must do it now, not "phased in."

. . .

We have to face the facts: We made promises we cannot keep. Those who made them must admit to this and suffer whatever consequences the electorate serves upon them for their lies and frauds. This must happen, and it must happen now, or our government, our economy and our political system will collapse.

. . .

The fact is that we can write hot checks with our technology in the medical realm that we cannot cash with actual money. There's no solution for this other than for people to accept that some day they will die. We cannot bill someone else for the last four months of life if you have metastatic prostate cancer, we cannot provide every senior with replacement hips and we cannot fund triple bypasses for everyone in the country. It's not possible. We must accept reality. I recognize that this is unpopular politically, but it doesn't matter if its popular or not. We simply cannot afford to provide what politicians have promised.

. . .

Social Security can be saved. The rest cannot. That's the arithmetic.

. . .

When - and only when - we cut $1,700 billion from spending this year and every year forward we can then talk about both taxes and program increases. To reach parity and start paying down debt that is what has to happen.

If services must be increased from that baseline once the cuts were made, and the people want it, then they have to pay for it. But until we reach that parity against current revenue asking for tax code changes is idiotic. Congress will simply spend every penny given to them, then $1,700 billion more. They've done it three years running, and will continue to do so.

. . .

And our nation, our economy and our political system will, if you don't cut this **** out, collapse.

There's more at the link. Bold print is Mr. Denninger's emphasis.

I strongly urge you to read Mr. Denninger's entire response - it's that important. Every word he says is the exact and literal truth, economically speaking. We're staring down the economic equivalent of a double-barreled shotgun, pointed straight at our heads. The two barrels are debt (and the interest owed on it), and inflation. Both of those threats are aimed right at our faces, right here, right now - and unless our leaders take immediate action, the pitiless, emotionless, factual reality of economics will pull the triggers, firing both barrels right into us.

Meanwhile, our politicians are fiddling while Rome burns.





Peter