Stagnation

With unemployment continuing high, retail sales bopping up and down, and the housing market and foreclosure rates still dropping, it's hard to see where the President's claim that the economy is recovering comes from. The economic picture is far from clear, and multiple indicators show some stabilization, but those felt on the individual level (consumer confidence, under- and unemployment, the state of the housing market, etc.) are still deeply mired, that recovery is seen as, at best, very modest. Fears of a either a continued jobless recovery or a double-dip recession persist.

While the solution for some on the left is to increase stimulus spending to new heights, the failure to restrain spending, particularly spending which merely prolongs failed systems and bolsters government employment, will accelerate the growth in both annual deficit and the national debt. These will in turn hamper economic growth in both the near and long-term. The Federal Reserve, CBO, and the OMB have all expressed concern recently about the dramatic rise in both indicators over the past two years, and the lack of any real plan to control them. Indeed, the OMB's Mid-Session Review revealed the government's concern that deficits will continue to accelerate while unemployment remains high. Unusually, the report was released late Friday the 29th (a news-burying tactic), and came on the heels of Peter Orzsag's announced resignation following strong disagreements with the White House over deficit-reduction.

The real dangers of rapid, long-term increases in the debt, and dramatic increases in deficit-spending, compounded with a shift from a market-driven to a government-driven economy, have been clearly seen in Greece this summer. The CBO has warned repeatedly of the growing possibility of a debt crisis, a la Greece, here in the US. These trends were of course begun under the previous administration, and have been greatly accelerated under the current one. If we fail to come to grips with our spending and borrowing habits, belt-tightening will be the first style to last for decades.

Comparing Relative Deficit, Debt and Spending Levels

This article from Robert Robb provides a good comparison between the relative debt, deficit and spending levels of the Bush and Obama Administrations, as well as providing several historic benchmarks. The entire article is well-worth reading, but these points jumped out (apologies for excessive quotation):

'From 2008 to 2009, federal spending increased 18 percent. This was a budget year that straddled the Bush and Obama presidencies. But the spending increase was driven by anti-recession measures, predominately the Bush stimulus and bailouts. Obama supported these measures. In fact, his complaint about the Bush stimulus was that it was too small. This raises a question of political ontology: If Obama agreed with Bush, is it still just Bush's fault? ... Obama proposes that the federal government spend over 25 percent of GDP in 2011, compared to a historical average of around 20.5 percent. He justifies this as necessary to continue to fight the recession. Obama, however, projects that the recession will be fully over in 2011 and robust growth under way. Yet he proposes that federal spending continue to be nearly 24 percent of GDP through 2020. In other words, rather than wind down the additional recession spending after recovery, Obama is proposing that it simply become a new, higher base. After the World War II debt was reduced, accumulated federal debt never exceeded 50 percent of GDP until 2009, when it reached 53 percent. Under Obama's recommendations it would grow to 77 percent by 2020. If Obama were to recommend a path to return spending to its historical share of economic output, in 2020 the deficit would be just $255 billion, about what the federal government spends each year on large capital projects, and just 1 percent of GDP. In other words, not a problem. And federal spending would have still increased by more than 4 percent a year since 2008. Instead, Obama recommends a 2020 deficit of over $1 trillion and a troubling 4.2 percent of GDP.'

Scary stuff indeed. Unfortunately, the president seems to feel he only needs to 'explain' things a little more clearly for the public to get over its annoying habit of judging his fiscal policy based on these numbers.

Debt, Deficit and the Health Care Debate

(I apologize for the extended posting delay - multiple ill family members (including myself) kept me away from the laptop along with frantic dissertation work. On to the topic at hand):

I'm refraining from posting anything about Sen. Kennedy. There is more than enough material out there, and it seems more fitting to leave his memory to those who knew him. Instead, we return to a familiar topic at The ModCon, deficit and the national debt, and in particular, their impacts on the health insurance/health care (depending on the week) debate. This post begins a series of discussions between BMG and a more liberal friend who will be posting counter-point (or at least, alternative ideas).

A recent article by David Gergen at the CNN AC360-blog site, was entitled "Deficits: Why they might threaten health reform - and what Obama might do." The implied question - "Can the President win the health reform debate given the dramatically increasing deficit and debt burden?' - is an excellent one. Putting aside the merits of particular aspects to the five bills circulating through the two houses of Congress, the very fact that the deficit and total national debt have grown so dramatically in the last eight months, is a large factor in much of the opposition to the proposals. The heart of Gergen's musings are laid out in four paragraphs:

'Yet even the Bernanke story cannot fully deflect attention from the other economic story engulfing the administration today: its official announcement of new economic projections – in particular, its acknowledgment that deficits over the coming decade will be even higher than it said only three months ago. Now, the administration is predicting that instead of $7 trillion in new deficits, the country will rack up a staggering $9 trillion in new deficits for the 2010-2019 period. (The Congressional Budget Office has published its own numbers today that are largely parallel.). Deficits of that magnitude would be extraordinarily dangerous and irresponsible for the country. They would double the national debt, risk much higher inflation, saddle future taxpayers with annual interest payments of over $900 billion, make us even more reliant upon China as a creditor, and over time would weaken us as a great nation. Talk about trend lines that are unsustainable! ... In view of all this, President Obama has a choice. He can push forward with health reform efforts, giving short shrift to these deficit concerns. If so – if he continues to insist that Washington is just too “wee-weed up” — he will find that some of his strongest allies will become more reluctant on a big health reform bill this year. Or he can come to grips with these grim forecasts and present to the nation a credible, comprehensive plan for reining in long-term deficits before Congress acts on health reform. The second path demands more courage – and is also the one of real leadership.'

The CBO's economic projections for the next decade were grim to begin with, and have been revised further downward over the last month. Spending $1 trillion on overhauling 1/6 of the economy, when the debt has been revised upward to $9 trillion (and the deficit to $1.6 trillion) and within months of TARP 2, the stimulus package and the largest budget in US history, is going to be a tough sell even to supporters.

Many of the Congressional leadership, and in the Administration, seems completely unwilling or incapable of accepting that much of the anger expressed in the Town Hall meetings is not about racism, gasping conservatism, or even plain contrariness, but rather a deep, abiding dislike of governmental creep and stratospheric debt. Dan Gerstein, a former adviser to Sen. Lieberman, recently published a telling article in Forbes.

'In the best-case scenario, the cumulative toll of all this spending and intervening would test most voters' tolerance for another major government expansion on health care. But for many already anxious Americans, it has rapidly resuscitated their skepticism about government and its competence in managing one-sixth of the economy. The fact that so much of what has come out of Congress is every bit as partisan and one-sided as the last eight years is only compounding those doubts--particularly for swing voters.'

The concept that the President and Congress are trying to sell, that one will lower the long-term deficit and debt by increasing government involvement and spending, is ludicrous to most voters. They're well-aware that increasing spending, and increased involvement leads to increasing debt, and therefore the increased need to pay for that debt. There are only two ways to pay the bill: increase taxes, decrease spending. The latter is the principle reason there is so much concern over rationing and a loss of Medicare benefits. The former is already being floated by multiple Administration officials. The more sordid aspects (cronyism and favoritism in particular) of pushing a bill this large are not helping sweeten voter temperaments. Neither is the 'tone-deaf' aspect of the sales pitch coming from the President. Until 'listening' to these real concerns becomes important to the Administration and Congress, the people are going to continue to push back. They desperately need a new tact and fresh ideas; in fact, they should scrap all the current bills under discussion and begin anew. I doubt they have the sense, guts or humility enough to try.

Raising the Debt-Ceiling Will Impress Our Lenders?1

On August 5th, I wrote about the three possibilities for Congress to deal with ballooning expenditures and debt: '... there are only three options available to he and to the Congress: cut spending (not going to happen with all the continued spending proposals), allow the debt to balloon to the point where we create long-term stagflation (which will kill any possibility of a second term), or increase income in the form of taxes.' In that same post I also discussed Treasury Secretary Geithner and Larry Summers floating the idea of raising taxes on all but the poor. Now Geithner wants Congress to pick door-number two, requesting that it raise the debt-ceiling from $12.1 trillion (where it was set to accomodate the stimulus package) to an as yet undetermined amount. The annual deficit expanded to $1.3 trillion in the first six months of the year, and is expected to hit $1.8 trillion by October when we also are expected to reach the current debt ceiling.

Geithner's argument? '"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in the letter.' This request is already raising a debate about the effectiveness of the debt ceiling and the message we send to our lenders:

'"It's a clear that we've got a sign that we've got a federal government that is out of control from the fiscal standpoint," said Rep. Tom Price (R., Ga.), who leads the conservative Republican Study Committee in the House. "I don't see how anyone can vote in favor of an increase in the debt ceiling and say they're doing it is a responsible way." Robert Bixby, executive director of budget watchdog the Concord Coalition, said the debt ceiling has little practical application in curtailing government spending. "You can't not raise it, because if you do, the Treasury in effect would be defaulting on the debt, which would be crazy," Mr. Bixby said. "It doesn't really provide a whole lot of restraint."'

Continuing down this road of out-of-control deficit-spending may very well force us through both increased taxes and the type of debt cycling we experienced in the late 1970s and 1980s. During that period, deficit loads increased dramatically enough that the nation was forced to print money, devaluing the currency and helping to create stagflation. What a legacy that would be. Further, there is no particular reason why increasing the debt-ceiling while failing to reign in spending will reassure our lenders (particularly China which has expressed increasing concern over our current fiscal policy). Congress and the Obama Administration may be collectively pushing us into a situation from which there is no clear or easy return.

The CBO Continues to Deep-Six Obama Proposals

From the failure of the current 'cap and trade' proposals to do much to either help the environment or limit cost over-runs, to the current health-reform proposals (with analysis sent by request to members of Congress here), to the long-term effects of various budget proposals, the CBO has continued to throw cold-water on Congressional and Administration claims that the stimulus, annual budget, and spending proposals will do much if anything to help the economy. Much of their analyses point to a further increase of both annual deficits as well as the national debt, and to an increase in costs. And yet, Congress and the Administration continue to hawk their proposals as benefiting the overall economy, decreasing the debt and deficit and improving the prospects of middle-America.

Now it seems that there is a serious debate within the Administration about the raising of taxes on the middle class. Timothy Geithner and Larry Summers, both of whom were heavily involved in the current economic meltdown prior to entering the Administration, have floated the idea as a necessity to reduce the deficit. While President Obama certainly doesn't want to look like he's backing out on his version of the 'read my lips pledge,' there are only three options available to he and to the Congress: cut spending (not going to happen with all the continued spending proposals), allow the debt to balloon to the point where we create long-term stagflation (which will kill any possibility of a second term), or increase income in the form of taxes. Given the ambitions and preferences of both the Congressional leadership and the President, it's pretty clear that continued tax hikes for most income levels are in store. Some increases may be hidden (as in the cap and trade package), and some may be open (after all, taxes are our 'patriotic duty' according to VP Biden, who also has declared that the stimulus is a success), but they're going to happen. Another clue: 'Everyone must sacrifice' according to President Obama.

CBO Expanding Its Analysis

The CBO Directors' Blog states:

'In this year’s discussion of health reform, many people have put forth the goals of “bending the curve” of the federal budgetary commitment to health care, the federal budget deficit, or overall national health expenditures. Accordingly, Members of Congress are asking CBO to analyze the extent to which different health reform proposals meet these goals. Last month we wrote to Senator Conrad and Senator Gregg: “CBO does not provide formal cost estimates beyond the 10-year budget window because the uncertainties are simply too great. However, in evaluating proposals to reform health care, the agency will endeavor to offer a qualitative indication of whether they would be more likely to increase or decrease the budget deficit over the long term.” ... We are very reluctant to extend these extrapolations further into the future, because the uncertainties surrounding them magnify considerably. Although we publish projections of the federal budget 75 years ahead, those projections are inherently uncertain and are designed to identify broad trends rather than to reflect specific pieces of legislation. Trying to project several decades ahead not just the evolution of the health care system under current law but also the effects on that system of a particular comprehensive and interacting set of reforms is extremely difficult. One particular challenge is that our long-term projections under current law incorporate changes that we expect would be made by state governments and the private sector in response to the growing burden of health care spending (responses which could occur under current federal law). Because that burden will mount over time, the responses will likely increase in intensity as well; as a result, determining whether reforms proposed in current legislation might ultimately have occurred through the actions of these other agents becomes increasingly complicated as the time horizon lengthens. Indeed, our Panel of Health Advisers has encouraged us to focus on estimating the effects of legislation during the next couple of decades and not to attempt to estimate effects further out.'

I can't help noticing two items. 1. It appears that Congress is putting some pressure on CBO to project past the point where statistical analysis can comfortably take them. Hence, CBO will attempt a qualitative assessment, that they warn should be taken with a good dose of salt. 2. In reading the whole blog, one gets the feeling that the pressure is to make some sort of an indication that the very long-term effects of the proposed health-care reform will have a positive effect on the deficit and multi-decadal debt. It leads me to wonder if Congress may be giving up on selling the proposals as fiscally prudent in the short-term.

Spending, Deficit and the Dollar

Secretary Geithner now says that he sees signs of confidence and a strengthening of the dollar:

'U.S. Treasury Secretary Timothy Geithner said on Tuesday he saw signs of confidence returning to the U.S. financial sector and pledged that the United States would pursue policies that preserve the dollar's value. ... "We are seeing very active issuance in corporate bonds and equity markets and the banking system itself in the United States shows signs of more confidence," Geithner said. ... He said a $787 billion U.S. economic stimulus program, designed to boost demand over a two-year period, will have its largest impact on the spending side over the next six months. Geithner made no mention of calls from some U.S. lawmakers to consider another stimulus package, instead emphasizing the need for patience with the current one. ... That is "slower than typical for recoveries, but recovery nonetheless," Geithner said.'

He says this while many objective signs are heading in the other direction however. The US deficit topped $1 trillion this week, with every indication that it will continue to climb to levels never seen before either in terms of percent of economic spending or in terms of absolute value.

'The Treasury figures showed that the budget deficit so far in the financial year, which runs to 30 September, was $1.086 trillion - a widening of $94.316bn from the month before. And the situation has led to increasing anxiety among the foreign buyers of US debt, including China. It may force the Treasury to pay higher interest rates to those who buy its debt, to make it a more attractive long-term prospect, observers say. "These are mind boggling numbers," said Sung Won Sohn, an economist at the Smith School of Business at California State University. "Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run."'

The Wall Street Journal discusses how deficits of these levels not only impact the strength of the dollar, but the spending plans and economic recovery.

'The U.S. Treasury Department on Monday said the government's annual deficit reached almost $1.1 trillion by the end of June, a once-unthinkable level that could threaten any nascent economic recovery by undermining the dollar and driving up interest rates. ... Surging deficits could also tie the administration's hands in responding to the economy's problems, by eroding support among voters and making Congress leery of adopting policies -- such as an overhaul of the health-care system -- that the administration believes are necessary for sustainable growth. It could be hard to win congressional approval for another round of fiscal stimulus, if that was seen as necessary, even as the economy continues to lag and the unemployment rate continues to rise, hitting 9.5% in June.'

However, getting the deficit under control is a matter of political will, and given the super-majority in the Senate, and total Democratic control of both the legislative branch and executive branch, the necessary push back will have to come from within. The Blue Dog Dems have already begun this process with their opposition to the health care proposals as they stand.

'But events are pushing Obama to a crucial decision: when and how to plunge more directly into the specifics of the sensitive negotiations. In particular, he is under mounting pressure to spell out where he stands on two of the most divisive questions confronting lawmakers: how to pay for an overhaul that will cost at least $1 trillion over the next 10 years, and whether it should include a new government-run insurance program as an alternative to private coverage.'

Of greater concern is the long-term impact on the strength of the dollar and the ability of the economy to recover within the next two year. The prior history of deficit-spending compared to strength of the dollar is not encouraging.

Obama Proposes Pay as You Go???

President Obama - you know, the man whose stimulus package and budget combined are going to increase the nation's debt and deficit (yes, both) beyond anything we've ever seen in our nation's history - now says that we should make 'pay as you go' the law of the land.  'The so-called PAYGO proposal requires Congress to balance any increased spending by equal savings elsewhere, Obama said in announcing the measure that now goes to Congress.'

Excuse me while I find my rear end.  I just lost it laughing. ... Now that I've taken care of that, look at the projections from the Congressional Budget Office.  Any thoughts as to where we're really headed?

Bernake: The Newly-Hatched Deficit Hawk

Yesterday's 'Marketplace,' with the inestimable Kai Ryssdal, asked the question, 'Why is Bernanke a deficit hawk now?' It's a perfect question. The opening paragraphs set the stage:

'When Ben Bernanke decides to make news, he doesn't really pull any punches, does he? The chairman of the Federal Reserve was on Capitol Hill today. And he used his moment in the spotlight to warn Congress about the growing budget deficit. Washington is going to shell out almost $2 trillion more than it takes in this year. Of course all that spending was meant to rescue the U.S. economy from disaster. And there are signs that some of the money may be doing what it was supposed to do. So this morning's pronouncements by the Fed chairman prompt this question: Why's he such a deficit hawk now?'

Bernanke is now trying to control the costs of borrowing? Why? Congress is having such a great time spending. Why rain on their parade a year later? Enjoy reading.

Oh, is that all? - a $1.84 trillion deficit

The White House prediction for the deficit is growth to $1.84 trillion. The LA Times reports:
'The projected deficit for 2012 stands at $557 billion in the new report, which still will represent a larger dollar figure than any deficit the former administration projected in setting its own records during the eight years of George W. Bush's presidency. The new record deficit this year -- driven by the federal government's efforts at bailing out financial institutions and automakers, the $787-billion economic stimulus act that Congress approved one month into Obama's term and slumping federal tax revenue -- will amount to 12.9% of the nation's Gross Domestic Product.'

Of course these numbers are significantly higher than originally predicted by the Obama Administration, and much higher than any other administration including the final Bush term. For crying out loud, a deficit equivalent to 12.9% GDP, and they think they'll fix it by the end of the term? What fantasy land are they living in? And of course, these are the rosy predictions by the WH-OMB. Other, somewhat more sober, analyses place the deficit much higher.

The Congressional Budget Office predicts that the economy will not recover at the pace that the OMB predicts, and that the massive growth in spending will consume any recovery that does occur for quite some time. In fact, the CBO's predictions look downright gloomy next to those of the OMB. The CBO Director's blog does a nice job of summarizing their outlook, and is worth reading in full, but the this morning's report ('Budget and Economic Outlook: Fiscal Years 2009 to 2019') gives the full details. A small snapshot encapsulating surplus vs/vs deficit is at right (click to enlarge). Not a pretty picture.

Send Your Ideas for Limited Spending to the White House (no, it's not April Fool's Day)

The AP is reporting that President Obama wants to hear ideas for limiting government spending from federal workers:
"After all, Americans across the country know that the best ideas often come from workers, not just management," Obama said in his weekly radio and Internet address. "That's why we'll establish a process through which every government worker can submit their ideas for how their agency can save money and perform better. We'll put the suggestions that work into practice."

How about: stop putting out gigantic bills that will indebt the next three generations? Of course:
Obama said his administration would make $2 trillion in deficit reductions in the next decade, a pledge he has made repeatedly during his first three months in office. He also said he wants to re-evaluate priorities in the capital and urged Congress to pass legislation that would force lawmakers to pay for new policies and avoid large deficits. He also told agencies they could keep a part of the money they save.

If you're interested, send your comments to: http://www.whitehouse.gov

UPDATES: President Obama's Address on the Economy at Georgetown University

UPDATE 1: Full text of the speech can be found here.

Standard intro's and thanks, with plenty of ums and uhs before spitting out names.

"... even our critics will agree that we've been busy."

"... I want to explain our strategy as clearly as I can. ... Each policy we pursue is driven by a ... vision ... that will generate 'good jobs...'" (what's a 'good' job?).

"This recession is different. ... This recession was caused by a perfect storm of poor-decision-making."

At least he briefly holds home-buyers also responsible for bad decision-making, as well as lenders who offered bad loans, before moving on to the standard 'bad guys' list.

"We had no choice but to attack all fronts of our economic crisis simultaneously. ... My Administration boosted demand by passing the largest economic recovery plan ever [I'll say] ... "
He went on to make the 3.5M jobs claim again, and that the stimulus is not responsible for increasing the deficit and debt (huh?). He then stated that dealing with the long-term deficit (a contradiction in terms; deficit refers to annual negatives not to long-term accrual of debt) and national debt is all about getting health care costs under control, not about actual government spending. What a bizarre argument.

The President is claiming that the 'nationalization argument' doesn't work (implying that no nationalization is occurring), because it would cost more in the long-run. But then argues that intervention and forced restructuring is OK (and apparently isn't nationalization). I'm not sure if he sees the internal contradiction. If borrowers can't repay TARP funds when they want and in full, than the government is regulating that as well. If we're nationalizing, we should at least admit to it and deal with the fallout. Case in point, he's just started discussing requiring new business plans from GM and Chrysler.

Ahh, on to the G-20. "All agreed to [stronger] regulatory reforms ... and to triple [lending by the IMF] ... This is not charity because America's success depends on our ability to [export]."

"The actions are starting to generate ..." work, jobs (cited the Fire Station House that has screamed that gov't. funds had nothing to do with the stoppage of their lay-offs), credit, etc.

Concluding the first part with calling for regulatory reform (it sounds like he's bought into the notion that bad regulation is the real reason for the recession), new education, clean energy (says that we're behind other nations on this. Hmm - like France (nuclear), Britain (oil), Spain (oil), etc.?), etc. In other words, the only way to stop a recession from coming again is to spend, spend, spend (but apparently only the government because he mentioned moving to a saving and spending society), and regulate everyone and everything. I'm hearing no details here, just a restatement of his goals that have been out there since the campaign. Used the parable of the house on the rock vs. the house on the sand, to say that moving on his agenda will put America's house on the rock.

Major points ("pillars of our new foundation"):
1. Regulate Wall Street much more toughly
2. 20% higher college graduation rates; tax credits for college-attendees; teacher-performance pay; movement of students into fields that cause them to 'make things' (what - are you going to dictate degrees?)
3. Green energy. "We've allowed a lot of other countries to outpace us ... the investments we've made in the recovery act will double America's supply of renewable energy in the next three years." Big claim! Sticking with cap and trade on carbon.
4. Stop "sky-rocketing [health] insurance premiums," move to electronic records, make "quality healthcare affordable for everyone." "We've made a committment to fully fund health care reform without [raising costs]." Pure BS, that one. Efficiencies won't fund what you're proposing.
5. Get rid of the debt after economic recovery. Mr. President, by the time recovery comes around, we'll be so deeply in debt, it won't be paid for three generations! Tinkering with savings on the margins isn't going to cut it.

He wants us to focus on the "... medium and long-term budget picture." He's basically making the arguement that investment and spending now will eventually pay off. How do we know this? I've yet to see anyone on his economic team present data that shows why their projections would work, and there's nothing on the recovery.org site that gives this either. He slams entitlement programs (but includes the defense budget in that -huh?), and says we "... will need to get serious about entitlement reform ... by getting serious about health care reform." He's not letting go of that bone. Says that SS-reform and shutting down tax loopholes along with health care reform will balance out the budget long-term.

"That is the house upon the rock: proud, sturdy, and unwavering ..." The American Dream is now the House Upon the Rock - just a leeetle bit out of the context.

Get me some of the rose-colored glasses!

The CBO is once again screaming (in a nice, polite, rational kind of way) that the Administration's projections of real GDP and annual deficits, over the next ten years, are too high and too low respectively. Last week, the CBO released it's revised estimates of the President's budget proposals. The graph below shows a much larger than expected estimate of deficit-spending resulting from the budget proposal:
You can access the accompanying PDF here.

Now the CBO has released an analysis of the real GDP under the budget proposal. A key point made in the director's blog is:

• CBO’s projection of real GDP is lower than that of the Administration throughout the next 10 years

While the CBO office still advocates stimulus spending, it has consistently assessed the actual legislative proposals as having a moderate detrimental impact. These figures possibly explain the current push by the Administration to promote its budget and tax proposals, and why Congressional members and the public alike are becoming concerned about the long-term impact to the country's economic stability and strength.

We can do it all, now, and eliminate the deficit - in four years (and I have a nice bridge for you)

President Obama is currently addressing Congress, and has just stated that health care reform must be done this year, that the auto industry must and will be saved, that the spending spree must continue, and that anything wrong is the fault of the prior Administration (well, that was more implied than said, but was obvious). All this, AND we'll halve the deficit within 2 years and eliminate within 6 (implying a second term). Anyone interested in the Brooklyn Bridge? All-in-all, it's a speech that promises all things to all people with no explanations as to how and what the costs will be. In other words, a typical political nothing.

A few musings along the way.

The checks are in the mail for the tax cuts: all $13 per household.

Ahh - bribery for service - a higher education for all. I'm not totally opposed as long as service is determined by the individual and not the state, and no brown shirts or jack boots are required. I'm still a little worried about that non-voluntary, as-strong-as-the-military, not-the-police, civilian 'security force' the President talked about on the campaign trail.

The markets were up for the first time a few weeks today after the Fed Chair, Ben Bernanke, managed to calm fears that the Administration is planning on a wholesale takeover of the banking sector. Instead, Bernanke implied, there would be a partial and temporary government stake in the most troubled institutions.

Note to the President: find a way to not have Nancy Pelosi smirking at the Republicans right behind you when you're trying to look dignified and Presidential. She either looks like she's in rictus, or trying not to sneer. Either way, it's really undignified.

UPDATE 2: Another Day, Another Market Tumble

All three major US stock indicators (Dow, NASDAQ, S&P) are down again, the Dow sliding to levels below those seen after the tech/internet-bubble blew.

It seems every time President Obama, Sen. Dodd, Sen. Reid, Rep. Pelosi or any of the President's economic team speaks about the economy, the markets slide even further. Maybe they should just be quiet.

Meanwhile, the President insists he can cut the deficit in half by the end of his first term (talk about optimism), and is set for a third shot at the Secretary of Commerce with Gov. Locke of Washington State. He also managed to add on to his growing list of promises yet to be fulfilled, by promising that states would receive the first portion of the stimulus bill by the end of this week.

So, we're going to spend a ton of money on untested programs, most of which have nothing to do with stimulating anything except re-election campaigns, starting this week. Why would would any of us be surprised that the markets are reacting badly?

UPDATE 1: Reuters calls it like it is: the grand-standing today on the debt was an "all day talk fest."

UPDATE 2: Fox News is reporting that a good many of those at today's Fiscal Responsibility Summit were representing various special interests, none of which are more interested in fiscal responsibility than in promoting their own interests. The transparency pledge takes yet another hit.

Fluidity: The Ever Changing Bailout Plan

Henry Paulson defended himself before Congress today, arguing that the original concept of the bailout plan (excuse me, economic recovery plan), which largely involved buying up 'toxic securities' (tied to unknown amounts of bad mortgages), is no longer the best solution to the credit and financial crises. Paulson now argues that $700 billion in tax dollars should be used to buy partial ownership stakes in the banks themselves. Nationalization of banks in the good 'ole USA? The idea boggles the mind. Perhaps it'll mean better management; at least AIG won't use any more of the loan to take its Exec's on nice spa trips; but I can't help thinking that this trip down socialism's memory lane it just going to keep getting darker.

In the meanwhile, AIG is getting another $40B, while American Express convinced the Fed. to allow them to become a real bank in record time, which may now use that status to request a share of the pie. And to top it all off, the Dynamic Duo of Henry Reid and Nancy Pelosi, backed by that happy socialist, Barney Franks, is demanding to bailout the auto industry, mortgage-holders, and just about anything not nailed down, while increasing spending at an enormous pace, deficit-be-damned.

Most of us are sensible enough to cut back on spending when times get tough - to be a little more thrifty. Not the Congress. They seem to think that increasing spending, increasing taxes, and taking over private industry is just the ticket to fix the economy. Now where have we heard this before?

Fuzzy Math

Sen. Obama's tax and spending proposals have been dissected in this blog and elsewhere ad nauseum, so I will not dwell on all of them here. My concern in this article is to specifically address the blatant attempts on the part of the Obama campaign do deceive through fuzzy math. The deception specifically relates that most basic of household activities, balancing a checkbook. A caveat: I do not always succeed at this activity myself (mostly from failure to take time), so I can relate to someone who might struggle to do so. I can not however, excuse a planned, deliberate national policy that is not only designed to end in imbalance, but is designed to deceive the public.

Our national debt currently stands at over $1 trillion. Obama's proposed plans for tax rebates and increased spending, amount to around $1.6 trillion. Additionally, he proposes an additional $1.4 trillion according to the National Taxpayers Union. Multiple reports have stated that Obama's proposals would dramatically increase the deficit, would eventually increase taxes on the very middle class he purports to protect, and would slow growth just as we're entering a global recession. Would people get money from from the government under Obama's plans? Yes they would. Would these policies be the best way to grow the economy and spread opportunity (rather than 'the wealth')? No they would not. It is physically impossible for 5% of the populace to take care of a $4 trillion + deficit, and the demands that the Obama policies place on business and individuals in exchange for the benefits they supposedly will receive are onerous at best. The government should be in the business of creating a favorable climate for growth, and then allowing that to succeed or fail, not ensuring that everyone is the same. Freedom and equality depend on limits on government action as much as they do on government action.

How are we going to pay for this massive deficit under the Obama plan? We don't know for certain since Obama has been particularly vague (even more than normally) in stating if he would cut any spending, and what his intentions toward the deficit are. We might have some clues however. In an interview on CNBC the other day, Rep. Barney Franks alternately said we should forget the deficit for awhile and find the 'plenty of other rich people' out there to increase taxes on. There have been several reports examining a possible market reaction to the anti-growth nature of the Obama proposals recently, and of course, we Obama's promise to spread the wealth and Biden's statement that paying taxes is our religious and patriotic duty.

I would agree that paying taxes are necessary and important for government functions. I would even agree that there's a case to be made for increasing the tax rate somewhat on higher income levels. But I find it ludicrous that liberals are constantly referring to all increased taxes as 'progressive' and all decreased taxes as 'regressive' (particularly as concerns higher income tax brackets). The higher the burden a small or middle-sized business has to bear, the less they'll be able to pay for additional work-force. If a small business is pulling in a million a year, after paying the additional taxes under the Obama plan (which the owner is charged at an individual rate as if the business income is a personal take for the owner), the additional health care, the additional Medicare, overhead costs, and reinvestment in the business, there would be precious little left to make the business worthwhile. If the owner then invested what little he or she took home, Obama would then increase the rate of the capitol gains tax paid upon those investments, and increase the tax rate upon the inheritance built over the years.

The Obama policies are quite simply, anti-growth. They are socialist in nature, but worse, they will hand a tremendous deficit down at least several generations. What really bothers me the most, is the consistent attempt by Obama and Biden to sell these policies, in the vaguest of terms, as helpful to the middle-class. These proposals simply don't add up, and are deceptive. This is not change we can believe in. In fact, it's our patriotic duty to vote against it.

Barney Frank Tells the .... Truth?

Thanks to Uppity Woman for this gem.