September 2013 Economic News
Deficits falling. . .
President Obama gave a speech at the White House on September 16th that included the following statement: “Our deficits are now falling at the fastest rate [35%] since the end of World War II. I want to repeat that. Our deficits [annual losses] are going down faster than any time since before I was born.”
Folks, here are some real facts:
The loss in 2008 was $458 billion. The loss in 2009 (Obama’s first year) was $1.4 trillion. The loss in 2012 was $1.0 trillion. Using 2008 as a base year, 2009’s losses grew by 208%, in 2012 it grew by 118%.
So, Mr. Obama wants us to celebrate the fact that the 2013 loss (which he is assuming will come in at $642 billion) will be 35% below the 2012 loss.
Here are my thoughts: Even if the loss is only $642 billion for fiscal 2013, it is still way too high and it continues to layer hundreds of billions of dollars on the national debt. In fact, while the national debt is currently about $17 trillion, if you add to that the estimated losses per the Congressional Budget Office (CBO), by the end of 2018 the national debt will exceed $20 trillion. There is no doubt interest rates will be much higher in 2018. Assuming, say an overall interest rate of 4% by that time — multiply that times $20 trillion and you get annual interest payments of over $818 billion. This horrific number compares to about $220 billion for 2012. Assuming the rest of the world figures out that the U.S. Government will never be able to repay its debts, the 4% number will be significantly higher.
As a side note, I follow the CBO’s estimates for revenue, spending, and losses on a routine basis. I can tell you that the numbers are a moving target – perhaps because there is no real Federal budget. On September 9th, the CBO reported the loss for the first 11 months of 2013 was $753 billion (inferring a 12 month deficit of $818 billion). The 2013 estimated loss number Mr. Obama used for his September 16th speech was $642 billion. By the way, the Office of Management and Budget (which reports to the White House), has a website that shows the 2013 estimated loss will be $973 billion (see http://www.whitehouse.gov/omb/budget/historicals). I wonder which number is correct????
In any event, I believe it is an arrogant and misleading statement for the President to boast about deficits declining at a record pace. It’s like bragging about the fact the United States is now going off a cliff at a slower pace. It’s insulting — how stupid does he think we are?
Lastly, while I am not a fan of watching C-Span, Doug Elmendorf, director of the CBO (the non-partisan bean counters), testified before the House today and his testimony is very interesting because he tells the deficit and debt story in a very blunt and to–the-point manner. Perhaps the most important statement he made was that if the deficit spending is not fixed soon, it would have a catastrophic effect on the nation. He went on to say the only question is when, not if. You can see the C-Span video at http://www.c-span.org/Events/CBO-Director-Testifies-on-Long-Term-Budget-Outlook/10737441691-1/.
The House of Representatives have a proposed bill to fund the Governement through December 15
The House of Representatives have come up with a proposed bill for funding the Federal Government through December 15, while holding spending at slightly below its current rate. The bill also include:
- Saving $256 billion over 10 years.
- Defunding Obamacare.
- Approval of the Keystone Pipeline.
- Revamping the tax code.
- Cutting certain government regulations.
- Easing regulations on energy production.
This bill is dead on arrival to the Democratically controlled Senate. Also, the President has said he would veto anything that proposed a defunding of Obamacare. So get ready for some ugly politics this week as we approach the Oct. 1 deadline for raising the debt ceiling.
Even if the Senate approved the House bill as-is, it does not address the urgency for a balanced budget. There just isn’t any hint out of Washington that they are at all interested in saving our nation from a cataclysmic economic disaster.
To them, it’s just business as usual…
Feds to Print More Money
On September 18th, the Federal Reserve Chairman, Ben Bernanke, announced the Fed’s strategy with regard to its open market purchases of treasury security and mortgages (I.e. Quantitative Easing — a.k.a. “printing money”). It was widely expected the Fed would cut its monthly purchase rate of $85 billion by $10 or $15 billion. Instead, Bernanke surprised everyone when he stated that the Fed would not reduce its purchases because the economy was still too weak.
The Fed’s buying spree began after the great recession of 2008/2009 with the money supply increasing by over $2 trillion. The intent was to add liquidity to the economy and [artificially] lower interest rates to help jump-start the economy. Unfortunately, all the Fed’s money-printing activity has not achieved the desired effect.
Bernanke also stated that it appears the economy is weaker than expected because of, among other things, the government’s sequestration and related reduction of spending. Government spending has skyrocketed in recent years to the point where it now represents 25% of our GDP! And, if you think about it, the Fed is printing money at a rate comparable to the rate of government losses. I.e. $85 billion times 12 equals a little over $1 trillion a year, which is slightly less than the amount of annual losses the government is generating. In other words, the Fed is financing the government’s losses and must continue to feed this monster for the sake of keeping the economy from collapsing.
Perversely, Wall Street celebrated the news out of the Fed today since continued low interest rates should eventually be good for business — plus the fact that low interest rates are causing fixed income investors to abandon low paying securities and shifting to stocks.
To me, this is all very sad news. Our economy is on life support and the Fed is not even ready to reduce the morphine drip. At some point in the future, government deficits MUST STOP, and the Fed must sell the treasuries and mortgage securities it has been hording under its Quantitative Easing strategy. When that happens, there will be tremendous upward pressure on interest rates — thus putting pressure on the economy. Folks, this is not going to end well……We can only pray that the economy will be incredibly strong, much stronger than it’s ever been, in order to absorb this mess that is being created today.
Other than praying what else can we do? Contact your representatives and tell them the government’s deficit spending needs to be fixed, NOW. You can reach your senator by calling 1-888-894-1028. Spread the word with family, friends, and co-workers.
Also, join one of the grassroots organizations that are fighting for our economic freedom: The Concord Coalition, Americans For Prosperity, The Come Back America Foundation, The Tea Party, or You Cut America.
Federal Government Overpays Social Security Benefits by at Least $1.3 Billion
On September 13, the General Accounting Office (GAO) reported that it had overpaid SS benefits to 36,000 people. Some were overpaid by as much as $90,000. The overpayments were made to people who did not qualify for benefits because they made too much money to qualify. The GAO will have to conduct a [costly] case by case investigation to determine exactly how much was overpaid.
This is just another case where the Federal Government has mismanaged hard-earned tax money. We can imagine that there are many other circumstances like this that go unreported as the Federal Government does not seem to accountable to the citizens of the United States.
Proposal for the “Information Act”
Republican Senators Kaine and Thune, along with Democratic Senators Coons and Portman have introduced a bi-partisan bill for introduction in the House of Representatives sometime soon. The bill requires the General Accounting Office and the Office of Management and Budget to do fiscal gap accounting and generational accounting on an annual basis and upon request by Congress. The generational accounting measures the burden on today’s and tomorrows children of closing the fiscal gap between projected entitlement payments and tax revenue. The bill expresses grave concern about the sustainability of U. S. fiscal policy and its potential impact on our children. The bill is supported by 14 Nobel Laureates in Economics.
The Congressional Budget Office has been sounding the alarm for our fiscal mess for some time. Let’s hope that this proposed bill is passed and that it is a catalyst for Congress to start paying attention to the fiscal crisis before us.
The G-20 figures out the solution to Government overspending is to raise taxes from Google and Apple.
The first week of September the G-20 group of nations met to discuss world economic issues and international finance. Due to chronic mismanagement and lack of proper stewardship, many of the G-20 nations are mired in debt (just like the U.S.) and seeking ways to get out of trouble. Their solution: It’s time to make Google, Apple, and other multinational companies pay more taxes. Just what we need; take more money from the evil corporations and their evil shareholders and give it to the Government so they can turn around and waste even more. (When I say waste, I am not referring to the entitlements that have been promised under Social Security and Medicare, defense, nor the programs aimed at helping the truly needy.)
This continued vilification of corporations by politicians is completely out of line, works against the principals of freedom and capitalism, and is pure demagoguery!
As pointed out by Tim Cook, Apple CEO, when he spoke before a congressional hearing, if you want more taxes from corporations fix the tax code. The multinational corporations that Congress vilifies are simply following the tax code and paying their fair share. No more, no less.
Many of our corporations compete on a global basis. Because they are profit driven, they will go to where their investments are treated best. If say Ireland or Canada has a lower corporate tax rate than the U.S., a corporation may be more inclined to expand in those countries. Cisco Systems president recently announced their company will not be expanding in the U.S., but will be investing in plant and equipment in other lower-taxing countries. Obviously, these kinds of moves will not help our unemployment problem, and will detract from our economy.
Washington needs to understand that it exists to help our nation, not hurt it by rapacious taxation and wasteful spending. Our government is broke financially, and is chasing away the golden gooses (our entrepreneurs) with a terrible tax code and legislation that deters growth and expansion.
There are a number of smart economists, corporate executives, and Congressmen who have come up with recommendations on how to restructure the tax code so the base of payers is broader, loop-holes are eliminated, and the overall rates are lower; resulting in more tax revenue – but less per tax payer. Doesn’t this seem like the right thing to do??? Warren Buffett has famously said, “I don’t pay enough taxes…” because the tax code is messed up.
Listen here Congress; DUMP THE MILLION PAGES OF TAX CODE AND SIMPLFY OUR TAX REVENUE SYSTEM!! I can tell you there isn’t one Congressman who doesn’t agree with that state. We just lack leadership to get it done. So, instead of showing some courage and leadership, the administration just goes on telling everyone how evil private sector corporations are. This behavior would be comical if the underlying problem was not so serious.
Our tax code problem is very much emblematic of what happens when the people running this country cannot work together as a team. Much to the detriment of we the people.
Hard times are ahead of us folks. When the Federal Government finally fesses up that it cannot afford to repay the national debt and that dramatic changes in our democracy are needed to stay solvent, we will be desperate for leaders who can pull the nation together for a common cause.
Unemployment report for August shows economy still treading water
On September 6th the Bureau of Labor Statistics reported that August jobs gained by only 169,000 – the estimate was for 180,000. The rate of unemployment was 7.3%, however, I believe that number is distorted by the large number of “discourage workers”, those who have given up looking for a job. Some economists think the “real unemployment rate” is closer 13.7%
Good News! Second Quarter GDP Growth
2013 Economic News — GOOD NEWS. On August 29th, the government released a revised number for the second quarter GDP growth. They revised it up to 2.2%, compared to their preliminary estimate of 1.7%. It’s good news, but makes you wonder why they even release a preliminary number if it turns out to be so far off.
Anyway, let’s hope this is a trend that keeps improving. Remember, we desperately need at least 3% growth to meaningfully reduce unemployment. Let’s also pray the government doesn’t see this better number as a reason to increase more (wasteful) spending.