Comments

Obama’s budget — 41 Comments

1. There’s a reason both parties have, in recent years, been so keen on distributing federal government money to give people stuff–it’s because we’ve come to expect and demand it.

   It’s a chicken-and-egg situation IMHO: we’ve come to expect and demand it because the politicians assure us that we’re entitled to it.

   Which is why I say from time to time that the country’s problems are systemic. (Yes, Obama is shaping up as far worse than Bush, but recall that Bush did not veto a single spending bill while his party controlled Congress.) We wouldn’t be in this mess if we had either an adult electorate or an adult political class.

   Still, I put the bulk of the blame on the political class because governance is supposed to be their expertise.

   If the fiscal mess is ever confronted, it will involve harsh methods that will cause much more pain than is necessary. The worst pain will fall on the most vulnerable among us. Unfortunately, the only alternative I see is to let the country stagnate, decline or worse.

2. Social Security is a Ponzi scheme of sorts. It worked pretty well when two people had four children. When two people have one or two children it gets dicey. Also, when those original four children retire, the bill gets very big.

3. I wrote about this a couple of weeks ago. Part 1:

   http://www.wesurroundthempa.org/?p=2575

   Here’s my summary at the end:

   “The Social Security Trust Fund exists to shore up the system when Social-Security income falls short of payouts. Annual shortfalls will begin this year and continue indefinitely. However, the money in the Trust Fund has already been borrowed and spent on other programs. Therefore, the Trust Fund is a heap of debt, not a pile of money. So the government will have to borrow money to make up the continuing shortfall. (Unless it chooses to make up the difference by cutting other spending – as if – or by raising Social-Security taxes.) Other proposals are long-term solutions to an immediate problem. That’s why it can be said that Social Security Is Broke.”

   Part 2:

   http://www.wesurroundthempa.org/?p=2603

   My concluding observation:

   “Only government could call a collection of debt instruments a ‘trust fund’; only willing accomplices in the media would let them get away with it.”

4. “Feed me Seymour!!!!” – Audrey II

   -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

   Audrey II: Feed me!
   Seymour: Does it have to be human?
   Audrey II: Feed me!
   Seymour: Does it have to be mine?
   Audrey II: Feeeed me!
   Seymour: Where am I supposed to get it?
   Audrey II: [singing] Feed me, Seymour / Feed me all night long – That’s right, boy! – You can do it! Feed me, Seymour / Feed me all night long / Ha ha ha ha ha! / Cause if you feed me, Seymour / I can grow up big and strong.

   -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

   Audrey II: [singing] I got killer buds / A power stem / Nasty pods / And I’m using them! / So better move ’em out / Nature calls / You got my pun? / I’m gonna bust your balls!

   -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

   Everything I learned about entitlements I learned from Audrey II in Little shop of horrors.

   even the quote as to Chicago streets applies!

   “you just don’t meet nice guys on skid row mr bushnick”…

5. The supreme tragedy is still not seen that in Germany it was largely people of good will, men who were admired and held up as models in the democratic countries, who prepared the way for, if they did not actually create, the forces which now stand for everything they detest.

   Few are ready to recognize that the rise of fascism and nazism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies.

   Hayek

6. The change amounts to a complete reversal of the trend we have sketched, an entire abandonment of the individualist tradition which has created Western civilization. Hayek

   What has always made the state a hell on earth has been precisely that man has tried to make it his heaven. F. Hoelderlin

   Stalinism is worse than fascism, more ruthless, barbarous, unjust, immoral, anti-democratic, unredeemed by any hope or scuple and is better described as superfascist. Hayek

   Just remember who they admire and so who they will copy when the fit hits the shan… Artfldgr

   Many a university teacher during the 1930’s has seen English and American students return from the Continent uncertain whether they were communists or Nazis and certain only that they hated Western liberal civilization.

   “…A famine that came about without drought and without war.”
   Alexander Solzhenitsyn, The Gulag Archipelago

   “This was the first instance of a peacetime genocide in history. It took the extraordinary form of an artificial famine deliberately created by the ruling powers. The savage combination of words for the designation of a crime – an artificial deliberately planned famine – is still incredible to many people throughout the world, but indicates the uniqueness of the tragedy of 1933, which is unparalleled, for a time of peace, in the number of victims it claimed.’
   Wasyl Hryshko – Survivor The Ukrainian Holocaust, 1933

   “Famine was quite deliberately employed as an instrument of national policy, as the last means of breaking the resistance of the peasantry to the new system where they are divorced from personal ownership of the land and obligated to work on the conditions which the state may demand from them… This famine may fairly be called political because it was not the result of any overwhelming natural catastrophe or such complete exhaustions of the country’s resources in foreign and civil wars…”
   William Henry Chamberlin – (Correspondent for The Christian Science Monitor), Russia’s Iron Age p.82

   Frost in Mexico kills crops, food prices skyrocket

   How insane Federal policy turned the Breadbasket of the World into the Unemployment Capital of America

   California’s Central Valley is a 450 mile long stretch of flat and fertile land that produces much of the food that we enjoy every day. But the people in small towns like Mendota (the cantaloupe capital of the world) are suffering these days, in part due to two federal policies.



   In order to protect a threatened fish species called the Delta Smelt, much of the water that used to be pumped from the Sacramento-San Joaquin Delta to farms on the west side of the San Joaquin Valley is now allowed to flow into the ocean. The result is predictable: hundreds of thousands of acres of farm land lies fallow and tens of thousands of jobs have been lost. In Mendota, the unemployment rate is over 40% and food lines are the norm.


   But people going hungry in a region dominated by agriculture is only one of the contradictions in the Central Valley.



   Nearly all the valley’s farm workers are immigrants from Mexico and Central America, and many of them are undocumented. These people are crucial to the valley’s economy, but they’re breaking the law according to the federal government.

   anyone wants to go back where Hux asked how would it be done, and i laid out things similar to whats going on now…

   i wonder what hux would say at the news about the food supplies and oil prices and loan refusals, etc…

   Rising food prices and the Fed’s shady alibi

   The Fed says it’s not to blame for rising food costs. But could its money printing be a cause?

   -=-=-=-

   QE safeguarded 3m American jobs, says Federal Reserve chief Ben Bernanke

   The Federal Reserve’s quantitative easing (QE) programme may have safeguarded 3m jobs in the US, Ben Bernanke told Congress, as he also sought to dismiss concerns about the threat of inflation.

   -=-=-=- -=-=-=- -=-=-=- -=-=-=- -=-=-=-

   Ben Bernanke says that the Fed is not monetizing the federal debt. He’s trying to confuse his critics. The process shouldn’t be confusing. It’s pretty simple.

   1. The Fed buys $25-30 billion a week in Treasury notes and bonds from the primary dealers. That’s $50-60 billion every two weeks.

   2. When the Fed buys the paper, it pays for it by depositing the cash in the dealers’ accounts at the Fed – $50-60 billion over two weeks.

   3. Every other week, the Treasury sells more notes and bonds, normally $50-60 billion in new paper every two weeks.

   4. The primary dealers buy that paper with the $50-60 billion in proceeds from their prior two weeks of sales of inventory to the Fed. However, they only need to use part of it, because they have leverage. The rest stays in their trading accounts which they leverage up to buy stocks, commodities and even more bonds if they so choose.

   5. The $50-60 billion in cash which the primary dealers paid to the U.S. Treasury for the new Treasury debt it just issued goes into the Treasury’s account at the Fed.

   6. In the ensuing weeks, the Treasury spends that $50-60 billion, whereupon it enters the banking system.

   It’s that simple. This is how Dr. Bernanke’s “printing press in the basement” works. You can call it whatever fancy names you want – monetization, quantitative easing, QE. I call it “printing money.”

   As long as the Fed is printing money in this way, it is up to the primary dealers to decide what to do with it. The signs from the first three months QE2 are clear. The dealers will continue to purchase Treasuries from the government, as is required by their role as primary dealers. The government will continue to spend this newly printed money. This will continue to stimulate the economy as it has done already.

   That’s the apparent upside. But there’s an insidious downside. The primary dealers have also elected to use this cash at the margin to push stock prices and commodity prices higher. This bull run can only continue for as long as the Fed continues to pump this cash into their trading accounts. Once the Fed ends the program, the market could face a demand vacuum.

   seekingalpha.com/article/251883-the-fed-s-not-monetizing-don-t-be-fooled

7. “The global wheat market is caught between freezing winds and a sirocco. Prices, up 13% since the start of December, likely will keep rising.” Liam Denning WSJ

   “Prices of agricultural commodities have jumped to new highs, with sugar hitting a 30-year peak, as global weather conditions continued to adversely affect production prospects. // “Food commodities traders and agriculture officials increasingly believe that the worst effects of the current spike in agriculture inflation are still to be felt, both in terms of further price rises and the potential for civil unrest.” Javier Blas – financial times

   “House Democratic leaders on Wednesday urged Congress to ramp up spending on research and infrastructure projects for the sake of job creation, while also vowing ‘a laser-like focus’ on deficit reduction. mile lillis, the hill

   High Commodity Prices To Filter Down To Consumers, Supermarkets http://www.huffingtonpost.com/2011/02/14/high-food-prices_n_822768.html
   [think that they would be honest as to why? ]

   World food prices hit a record high in January, meaning food is now more expensive than it has ever been in real terms since the U.N. first began tracking the numbers in 1990. Grains, in particular, are more expensive than ever, with corn prices up 53% in 2010, wheat up 47% and rice now at its highest level in more than two years. TIME…

   Kraft’s Stock to Slim Down as Commodity Costs Surge

   PepsiCo warns on commodity prices
   ‎
   A new report says the United States will have a reserve of 675 million bushels left over in late August when this year’s harvest begins. That’s roughly 5 percent of all corn that will be consumed, the lowest surplus level since 1996. PRICE HIKES: News of the small corn reserves caused future prices to surge 3 percent to settle at $6.98 a bushel. Corn prices have already doubled in the last six months, rising from $3.50 a bushel to nearly $7 a bushel.

   Commodity price rises can’t stoke inflation-Tumpel
   “What is important now is that higher commodity prices do not feed through to the services sector, for instance, and other price and wage increases,” she was quoted as saying in an interview published on Thursday.

   “The price rise must thus be seen as temporary. In our view we will have price stability in the medium to long term.” (Reporting by Michael Shields)

   wait till march… or april..

   note that the price of chicken will rise first
   then later will come beef and so on…

   ‎

8. Largest bond fund cuts US government holdings
   Pimco Total Return slashes portfolio share from 22% to 12%

   US ‘tried to press Huawei suppliers’
   Pressure said to have been placed on potential European suppliers

   from commenters in finance
   There have been stunning and dramatic moves in the market since wrote my earlier piece. The Long Bond is trading at a yield of 3.43 percent and the dollar price has exploded 9 points today. I have done this for nearly 30 years. I have never witnessed this before. Even more incredible is the 30 year swap spread and swap rate. The 30 year swap rate is 2.84. It has dropped about 80 basis points on the day and is about 60 basis points rich to the 30 year Treasury.I just spoke with an options trader about this historic move. He said that there structured product trades buried in trading books all over the world which are melting. There is a massive short in the 30 year sector (in Treasury paper and in the swap market) which resulted from sales of cheap volatility. Some of these positions have been on the books of various entities for years and it is only recently that the chickens have come home to roost. Each time the spread turns more negative, that movement forces some one to receive in swaps to hedge there position. There are short the long end trades in every permutation and combination along the curve. The receiving creates a self fulfilling prophecy which compels someone else to receive. He had no opinion on when this would end.

   a negative swap spread!!!!

   China economy overtakes Japan
   Fourth-quarter data confirm place as world’s second-largest economy

   South Carolina lawmaker asks if state should print its own money
   ‎ State Senator Lee Bright recently introduced a bill to study “whether this State should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System.” Boston Globe

   and dont think china is the safe bet. want to guess what its been printing TOO?

9. gs wrote, Bush did not veto a single spending bill while his party controlled Congress

   Which is why many of us have been unhappy with Bush.

   Yes, he proposed and received tax rate reductions. Yes that helped. But on the spending side of the equation the budgets for education, VA, environment etc all BALLOONED !

   What urks me is that liberals acted like Bush did not care about the environment even though the budget for environmental issues grew more than any other president’s time in office.

   Yes we need adults – this is why we are a republic – now our representatives need to stop being Pander Bears (as Paul Tsongas used to say)

10. Artfldgr,

    Excellent info. And, coming sooner rather than later to a gas station and a grocery store near you, oil and other commodities are no longer priced in dollars.

11. Artfldgr says,

    “… and don’t think china is the safe bet”

    I see no safe haven anywhere around the globe. Ashes, ashes, we all fall down.

    However, there is three good bets you can make in your personal life: reduce or eliminate any personal debt you may hold, stay fluid, and keep you family and friends united because you are going to need each other when the debt-credit bubble bursts.

12. I think we here, all of us, are united in our despair that any attempt to motivate all of us to sacrifice productively and incrementally fix the now-palpable national fiscal crisis will be made.

13. Artfldgr mentioned food prices.

    See also Subotai Bahadur, with his usual brand of sunny, devil-may-care optimism:

    On February 8, there was a sound that those who were listening might have heard. It was the SPLAT of the organic waste impacting the rotating airfoil. The Dark Times are no longer a matter of if; but rather of when, how long, and how bad. The Great Depression is now one of the best-case scenarios. It IS going to get hungry out there. “Out there” meaning outside our own homes.

    Y’all probably want some details. OK, bear with me.

14. http://www.ft.com/cms/s/0/0298323c-3878-11e0-959c-00144feabdc0.html#axzz1DysZpYxh

    So how come they received millions in bail out money?

15. (Yes, Obama is shaping up as far worse than Bush, but recall that Bush did not veto a single spending bill while his party controlled Congress.)

    But Bush did attempt to reform social security. Somehow I doubt Obama will do the same.

    Bush was far from ideal, and medicare Part D was perhaps his worst legislation. And, it was a Republican bill Bush championed. Of course, the Dems felt it was too small, and proved that with Obamacare.

    Other bad Bush laws: Ted Kennedy’s No Child Left Behind (obviously a Dem bill, but also championed by Bush), and of course TARP.

    I like Bush. I don’t like many of the things he did. I find it funny that he recieves so much hate, when he was very much a centrist who passed legislation with bipartisan support. Even going to war in Iraq, 60% of Senate Dems and 40% of House Dems voted for war. The hate directed towards Bush from the left is odd.

16. Dr. Sanity has written a great deal trying to understand the Left’s obsessive, irrational hatred of Bush. IIRC, she thinks it mostly comes down to displacement: the real threat is Islamism, but recognizing that would be “racism” or some other kind of “ism”, so they hate Bush instead.

17. But Bush did attempt to reform social security. Somehow I doubt Obama will do the same.

    There’s nothing stopping the Republicans in the House of Representatives from passing a bill to gut Social Security and Medicare.

18. InTheory:

    So you like to watch train wrecks and mass suicide a la Jonestown?

    Koolaid with special ingredients in Congress?

19. In Theory says: There’s nothing stopping the Republicans in the House of Representatives from passing a bill to gut Social Security and Medicare

    Just a lot of old boomers, angry minorities, illegal aliens and single mothers.

    I’m 43, what do you think the chances are that I will see anything out of Medicare or Social Security?

    Just stop taking money away from my family. Stop now.

20. I’m 43, what do you think the chances are that I will see anything out of Medicare or Social Security?

    They are pretty good.

    Even the most pessimistic calculations show you will collect at least 75% of promised Social Security benefits.

21. But no Social Security benefits are actually “promised”. We are just encouraged, or at least allowed, to believe so. Those “promises” are similar to the “trust fund” filled with debt instruments: form but no substance.

22. Even the most pessimistic calculations show you will collect at least 75% of promised Social Security benefits.

    In theory….

23. Those “promises” are similar to the “trust fund” filled with debt instruments

    Are you saying U.S. bonds are a bad investment, ELC?

    Then why are so many people, corporations and foreign countries buying them?

24. U.S. bonds are a wonderful investment for everybody and everything except for the U.S. government: for the federal government, they aren’t assets, they’re liabilities.

    Let that sink in for a bit.

25. Then why are so many people, corporations and foreign countries buying them?

    It’s mostly the Fed and foreign companies buying them now ‘cuz they are a shitty investment, but a decent place to park money in the short term.

    Most people don’t want to get locked into long bonds just now ‘cuz they are betting the bonds won’t keep up with interest rates.

    Gotta finance that huge Obama debt somehow….

26. I’m not buying bonds, I’m buying large and mid-cap equities ‘cuz I’m 43 and have another 27 years before retirement. I’m counting on no Social Security.

    Or I die at my desk, whichever comes first….

27. Back at the top gs says, ” I put the bulk of the blame on the political class.”

    I’m of the other opinion, I put the bulk of the blame on the voters. We the people have consistently voted for free pie in the sky for many decades. And, these same people believe government accounting practices have some vague relationship to reality and government cost/benefit projections are somehow different from asking the local psychic to see into your future.

    Gray,

    My oldest children is 5 years younger than you. I apologize for the (too) many members of my g-g-g-generation who didn’t die before they got old and are leaving your generation holding a bag of IOUs.

28. I apologize for the (too) many members of my g-g-g-generation who didn’t die before they got old and are leaving your generation holding a bag of IOUs.

    I accept your appology and I appreciate The Who reference.

    Somebody has to be the “reset” generation. My dad was a Korea vet born ’33, and that was his lot. My family is planning to Have Less and I’ve set up our lives that way.

    We are must live the Old Virtues now of thrift, delayed gratification, making-do; and Not Keeping Up With the Jonses. ‘Cuz the Joneses are in their 60’s with company pensions, Social Security and Medicare, a McMansion and a Prius.

    Remember when the cultural signs of a life well-lived was a gold Cadillac and a big cigar? Now it is a smoke-free Smart Car and an Obama sticker. F’ing Maoists….

29. 1. Even if the government pays Social Security during the indefinite future, I wonder how much those dollars will be worth. (The sort of thing they might try is to inflate and warp the cost-of-living adjustments so they don’t keep pace with real inflation.)

    2. I am not giving financial advice, but it seems to me that if significant inflation lies ahead, the thing to do is to borrow as much money as “prudently” possible at a fixed interest rate and spend it on long-term purchases.

    3. Wasn’t there a libertarian sci-fi novel that explored how counterintuitive proper money management is during periods of high inflation? Healer by F. Paul Wilson?

    4. Before Bill Clinton the convention wisdom was that Democratic Presidents triggered inflation by being fiscally irresponsible. We’ve forgotten what inflation is like…having each successive gallon of mild cost more…and we’ve never had a President as fiscally irresponsible as Obama…

30. From Federalist 73 on the veto:

    ” But it will not follow, that because it might be rarely exercised, it would never be exercised. In the case for which it is chiefly designed, that of an immediate attack upon the constitutional rights of the Executive, or in a case in which the public good was evidently and palpably sacrificed, a man of tolerable firmness would avail himself of his constitutional means of defense, and would listen to the admonitions of duty and responsibility.”

    The veto power of the President was never envisioned as a means of overriding the power of the purse which was lodged in the Congress. George Bush was focused upon his Constitutional duty to conduct foreign affairs and to be Commander in Chief of the armed forces. Politically he compromised with the forces in Congress to assure the funding to fulfill his responsibilities.

    The idea that the President was ever invested with the powers to guide domestic affairs came late in our history and has had decidedly mixed results.

31. Gary,

    Congratulations to you and your family. Those ‘old virtues’ you adhere to will see you through the good and the bad times.

32. “having each successive gallon of mild cost more” -> “having each successive gallon of milk cost more”

33. gs,

    I remember 20% interest rates and 15% inflation circa 1979-80. That was tough, what’s coming down the track is going to be a lot tougher.

34. I am not giving financial advice, but it seems to me that if significant inflation lies ahead, the thing to do is to borrow as much money as “prudently” possible at a fixed interest rate and spend it on long-term purchases.

    Usually true, but I don’t trust the Fed to honestly report and react to price inflation of goods and services. They have a bullshit formula based on “like value” that consistently underrepresents inflation.

    Food is going up, transportation (oil) is going up, everything is going up, but interest rates are held low for political reasons.

    If you did go (prudently) into debt to buy long-term goods cheaper with inflated dollars, you’d find yourself buying a rapidly depreciating asset now with artificially depressed dollars in a depressed labor market. It’s insanity.

    Inflation is when a potato(e) is 10 bucks, but you now make 200K a year. Deflation (where we are now) is when a potato is 10 cents, but you don’t have a job.

    The bond market says inflation is coming, but the Fed keeps marking down interest rates and buying bonds as stimulus (keynesian).

    Money is cheap, but the long term things it can buy right now are losing value faster from lack of demand. Besides, I gotta buy gas and food right now!

35. Lots of states have tax free holidays. I’m thinking we should have “future of progressivism” holidays. That’s where we quadruple the tax on everything you buy that day while limiting or requiring special govt licensing privledges for what you are even allowed to buy.

36. InTheory wrote, There’s nothing stopping the Republicans in the House of Representatives from passing a bill to gut Social Security and Medicare.”

    Interesting choice of words.

    Reforms = STRONGER social security.

    Gutting = less benefits.

    I’d say IT that you want a weaker social security and a weaker country if I chose to debate like you.

37. I’d say IT that you want a weaker social security and a weaker country if I chose to debate like you.

    In a perfect world we could rationally determine what needs to be done and come up with logical solutions.

    Unfortunately, we don’t live in a perfect world.

    The budget ball is in the House Republican’s court now and all the poisonous rhetoric they directed at the Democrats during the last election to win the job of writing the federal budget is coming back at them the moment they release their budget.

38. IT: actually, we don’t have to wait for a perfect world.

    We’re not in Congress. We can rationally debate anything we want, and come up with whatever solutions we want. They won’t be implemented of course, but what the hey?

    As for “poisonous rhetoric,” I think it is both rational and wise to distinguish between poisonous rhetoric and pointed yet valid criticism. The two are not the same, although they are sometimes confused.

39. 1. Given that we cannot trust the “facts” that the political class tells us, let alone their proposed solutions, I support the idea of across-the-board spending cuts. Such cuts would do serious harm to the federal programs that are actually needed, but IMHO more good than harm overall.

    2. Good grief: Left is livid over budget safety net cuts.

40. IT wrote, “Unfortunately, we don’t live in a perfect world

    Exactly. We have people like you referring to reform as “gutting”.

    You can start now by communicating with us instead of accusing of “gutting”.

    Be part of the solution not the problem.

41. There’s nothing stopping the Republicans…

    Like there was nothing stopping Obama from closing off Gitmo, like he said he would but didn’t?

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