CRAMNIBUS II – How Did It Happen Again?

CRAMNIBUS II - Money

CRAMNIBUS II – More Long Term Federal Debt for Short Term Spending

For the second year in a row, the American people got stuck with a massive CRAMNIBUS Spending Bill to fund the Federal Government through another year. Spending more today, in exchange for more debt and interest costs later. The GOP bears full responsibility for this one, as they controlled both houses of the Congress for the entire year.

Sen Mitch McConnell campaigned in 2013 on restoring regular order. Republicans across the country fought tooth and nail working to return the Senate to the GOP, under the expectation that late night release; massive spending, surprise bills would be a thing of the past. So how did this happen again?

The answer lies in the “CRAMNIBUS II” itself. The bill nearly quadruples the number of H-2B visa workers admitted to the U.S. next year to about 250,000. Big money GOP donors and the Chamber of Commerce wanted immigration reform. McConnell and Behner knew that the American People were adamantly opposed increasing immigration. The only way to secure the visa increase was to bury it in a 2000+ page last minute bill.

There was time to avoid this, but McConnell and Behner intentionally ran out the clock. They let the legislative calendar slip, and kicked the can with a two month Continuing Resolution which funded the government through 11 Dec, the scheduled final day before the Senate went on recess. All was in place. The OMNIBUS itself wasnt released until the 11th hour, and hid the visa Trojan horse within 2000+ pages. The leadership created the crisis, and the American workers will pay the price.

Shame on McConnell, and shame on Paul Ryan for his complicity in the second CRAMNIBUS in as many years.

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American Social Spending, How Much Is Enough?

rp_1200px-Seal_of_the_President_of_the_United_States.svg_-300x300.pngPresident Obamas SOTU speech provided the latest fuel on the fire of wealth redistribution in America. The President wants to tax us, funnel the money through the government bureaucracy, and send pennies on the tax dollar to pay for programs like community college. He also called for more regulations, for example to enlarge paid work leave. Forbes described the President’s speech as “More spending, dependency, and regulation”.

The blogosphere, twitter, and comments to online reports are full of the progressive army touting redistribution.

“It’s time that the 1% pay their fair share!”

“A caring country needs to support its citizens in need.”

“Republicans are uncaring and out to fill the pockets of the rich.”

The progressive left is never satisfied with how much tax money their programs cost, acting as if America doesn’t care about its citizens. Most likely however, most have no idea how much America already spends each year on social programs and wealth redistribution. A simple look at the Federal Budget shows that conservatively, over 60% of every federal dollar spent goes to these types of programs.

In 2014, that amounted to over $2.3T, and equaled 61.5% of the budget. In a few years, that amount is projected to climb to $2.7T in FY18. Table 1 below shows those figures, and the years in between. Funding for what I call “Regular Government” loosely aligned to what the US Constitution would support, in only $1.2T in FY14 (32.6% of the budget), and remains nearly unchanged through FY18, but shrinks to 27.8% of federal spending. Interest on the Federal Debt, which is the legacy of America’s social programs/wealth redistribution to date, is $223B in FY14, and more than doubles to $461B in FY18, growing from 5.9% to 10.4% of the budget.

Table 1

Table 1

The same information is shown in Chart 1 below. The bars correspond to the left axis (funding), while the lines correspond to the right axis (% of federal spending).

Chart 1 - Total Social Spending and Wealth Redistribution Funding vs the Rest of the Budget

Chart 1 – Total Social Spending and Wealth Redistribution Funding vs the Rest of the Budget

Progressives are either ignorant of these facts, or willingly hiding them. They speak as if taxpayers aren’t paying a dime in social spending. Americans, Republicans chief among them, are compassionate people, but the social safety net isn’t infinite, and this level of spending escalation is bankrupting our nation, and robbing future generations of their fortunes and liberties. The growth in annual interest alone will soon exceed the DoD budget, just to cover the minimum payment on America’s credit card.

The question is not one of more spending, but one of how to eliminate wasteful, duplicative social programs, and reform of the remaining programs to allow a solvent long term safety net. According to The Heritage Foundation for example, Social Security

“Beneficiaries face a 19 percent indiscriminate benefit cutif the Congress and president fail to act soon.”

Table 2 below breaks out the programs attributed to Social Programs/Wealth Redistribution and Regular Government above.

TABLE 2

TABLE 2

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Where are Your Tax Dollars Going?

Do you ever wonder where your tax dollars go? The Office of Manpower and Budget (OMB) uses accounting buckets to aggregate programs and spending. It calls large program groupings “Superfunctions”. The below chart clearly exposes that Superfunction monster. The blue line is the Superfunction named “Human Resources”, and it’s growing at an frightening rate.

US Federal Budget - Human Resources dwarfs the rest of the budget, including National Defense!

US Federal Budget – Human Resources dwarfs the rest of the budget, including National Defense!

The Human Resources Superfunction consists of a number of smaller program groupings called “Functions”. The Functions within it are:

  • Education, Training, Employment, and Social Services
  • Health (Including Obamacare)
  • Medicare
  • Income Security
  • Social Security
  • Veterans Benefits and Services

My next Blog will break out those Functions in another chart, to show the magnitude of each Function. If we are going to solve our unsustainable spending, we all need to understand where the money is going.

Note: The purple line, which is the Superfunction “Interest” (on the National Debt), is growing at nearly the same unsustainable rate as Human Resources.

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America’s Federal Spending Future In Pictures

CBO Projected Spending: The Budget and Economic Outlook

CBO Projected Spending Feb 2014: The Budget and Economic Outlook

The series of slides in this blog are modified from the Congressional Budget Office’s (CBO) February 2014 report “The Budget and Economic Outlook: 2014 to 2024”. The above slide shows federal spending broken out by major spending category. Note the vertical red dotted line showing where we are today.

CBO Projected Spending Net Interest

Explosive Interest Growth – American Taxpayers On The Hook

The above slide highlights the growth in Net Interest, an increase of 1.9% of our GDP vs current spending levels. This is the largest area of growth projected in the budget, and is like the interest you pay on you credit card. America’s interest payments are just starting to accelerate, having been masked the last few years by historically low interest rates. If the actual interest rates exceed what CBO projects, roughly 5%, the costs of Net Interest will grow.

CBO Projected Spending Other Mandatory

Other Mandatory Spending – Only “Mandatory” Spending Projected To Decrease

Other Mandatory Spending decreases relative to GDP by -0.3%, and is the only Mandatory Spending category that isn’t protected to consume even greater portions of the GDP.

CBO Projected Spending Non Defense Discretionary

Nondefense Discretionary Shrinks Relative To GDP

Non-defense discretionary decreases by nearly 1% relative to GDP. This category, minus the Defense Department, includes most of the federal government’s agencies such as the Department of Homeland Security, NASA, National Science Foundation, Environmental Protection Agency, Departments of Justice, Labor, Agriculture, State, Transportation, Interior, HUD, Commerce…

Slide1

Defense Shrinks Dramatically vs GDP To Levels Not Seen Since The Interwar Years Of The 1930’s

Defense Discretionary, partly due to reductions instituted by Secretary Gates, and partly due to Sequestration, is projected to continue it’s decline relative to GDP. It is projected to drop to levels not seen since the 1930s, and as shown by the red circle and arrow, is projected to drop below interest spending by 2021. Interest spending is projected to begin dwarfing defense spending there on out. The increased cost of interest, along with health care and social security will dominate federal spending.

CBO Projected Spending SS

Social Security If Projected To Continue Eating Ever More Of The Federal Budget – And Cause Ever More Borrowing

Social Security, now that the baby boomer retirements are well underway, continues to swell. Reforming it, in order to save the program from pending collapse, is essential. Despite it’s growth of 0.7% relative to GDP, that increase comes in third behind Interest and Health Care spending.

CBO Projected Spending Maj Health Care

Major Health Care Programs Constitute The Largest Part Of The Federal Budget, Eclipsing Social Security In 2014.

Major Health Care Spending, thanks to the passing of Obama Care, or the “Affordable Care Act” is now the largest part of the federal budget, and is projected to eat an additional 1.3% of America’s GDP by 2024. Combined with Social Security, Interest and Other Mandatory Spending, they are projected to eat 17.2% of GDP. The rest of the federal budget gets the scraps.

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America’s Breaking Point?

America Struggles Under Mounting Weight

America Struggles Under Mounting Weight

The recent flood of immigrants across America’s southern border is sparking heated discussions about what to do with the tens of thousands of children and other illegal immigrants swamping our border enforcement. Some say we should send them home, others say we should care for them, grant them amnesty, and welcome them as American citizens. The critical question that must be answered first is where is America’s breaking point?

Certainly the left would answer that the United States is the most powerful country on earth. Certainly we can care for a few tens of thousands or over time hundreds of thousands but starving helpless children. Taken as an isolated problem, the answer is of course yes, America could afford to care for them. The problem is, that this is not an isolated problem. Deciding to care for hundreds of thousands of new indigents is not America’s only burden. Collectively, they are becoming insurmountable.

This discussion requires an analogy to bring it into focus. Michael Phelps is the most decorated athlete in the history of Olympic sports. He currently has a total of 22 Olympic medals: 18 gold, 2 silver, and 2 bronze. His strength power and speed in the pool is legendary.

Let’s take Michael Phelps and say that he was in a lake surrounded by people struggling to stay afloat. Each one of them was carrying a small weight some the size of the BB, others a small rock, and still others weighing several pounds. In order to save their lives let us assume that Michael Phelps began to take on their burdens. From some he would take a BB, and the impact would be nearly unnoticeable at first. His ability to swim to the next struggling person and take on their weight unhampered. As Michael moved from drowning person to drowning person one can see a time when he would shift from being the rescuer to being in danger of drowning himself. At some point the weights that Michael Phelps would be forced to carry would drag under the greatest swimmer in the history of mankind.

This analogy is meant to show what many don’t understand. America does have limits. How many burdens can we take on before like Michael Phelps we would succumb to their combined weight and sink below the surface? America is $17.6 trillion in debt and climbing. The “War on Poverty” has cost the American tax payers $22 trillion so far. We’ve gone from adding BBs every year to adding large rocks as the weight of the interest on that debt mounts. Every month the percentage of people working in this country, acting as Michael Phelps, declines. Regulations, terrible burdens on businesses of all sizes, pour from nearly every federal agency. Obama care alone is responsible for tens of thousands of pages of regulations. America’s social safety net is at the point of collapse adding even more weight to a crop and economy struggling to stay afloat. The world is becoming ever more dangerous with a resurgent Russia, aggressive China, and spread of radical Islam. With all of these burdens, the cumulative affect of adding hundreds of thousands of more illegal immigrants to this country comes into focus. Where is America’s breaking point? All American’s should be frightened to face this question. America is the greatest force for freedom in the history of mankind, and yet now we must question how long she can stay afloat?

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Behind the Curtain – Total US National Debt

Projected US National Debt Based Upon Current Rates Of Spending

Projected US National Debt Based Upon Current Rates Of Spending

This graph tells a very scary story, and complements my last blog, “Global Warming vs the National Debt”, which compares the hoax of Man Made Global Warming with the stark reality of America’s National Debt. The data was derived from the White House’s own data (OMB supporting tables) from the “2013 Long Range Budget Outlook“.

The first critical element of this chart, which shows constant year 2013 dollars, provides a look at TOTAL US Debt, not oneobscured by debt to GDP ratios. As bad as the gap between the two lines looks, it is most likely optimistic. OMB data assumes a constant 3% interest rate on America’s debt, basically forever. The more that America borrows, however, the greater the risk that our credit rating will get downgraded again, and force those rates up. Just a small increase would be devastating. America also faces the real risk that it becomes a bad credit risk. Nobody knows when that will happen, but every year that we stay on this clearly unsustainable path, increases the odds that America hits the borrowing cliff.

The chart’s second critical element is the decreasing number of years needed to add $10 Trillion blocks to the debt. Each $10 Trillion takes considerably less time to accumulate and is proof of how dire America’s fiscal situation is. Spread the word, pass this chart around, elect fiscal conservatives to Congress, and hound your representatives to balance the budget. Time is running out!

 

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Global Warming vs The National Debt

Weatherman Al Roker interviewed President Obama on Tuesday in response to the recently released National Climate Assessment Report. During the interview Obama said

“But the truth of the matter is that if we don’t do more, we’re going to have bigger problems, more risk of … extreme weather events that can result in people losing their lives or losing their properties or businesses. And we’ve got to have the public understand this is an issue that is going to impact our kids and our grandkids unless we do something about it.”

It’s a real tragedy that he is so fixated on global warming when he should make precisely the same warning about our national debt. Let’s look at the reality of the mounting debt, as opposed to the invented 100 year global warming crisis.

1. “If we don’t do more, we’re going to have bigger problems.”

Yes Mr. President, you got that right. In a few short years at your current rate of dangerous spending, debt interest payments alone will exceed a Trillion dollars each year. That’s far greater than the defense budget, and billions of that interest will go to China, so that they can build up their military as we dismantle ours.

2. “Events that can result in people losing their lives or losing their properties or businesses.”

Right again Mr. President. The massive debt will result in rapidly rising interest rates, and is unsustainable according to the Congressional Budget Office. Businesses will go under, and Americans will lose their jobs, properties and homes when they can’t pay their mortgages due runaway interest rates and rampant inflation bound to come. Long before the ocean swallows New York City, our debt will swallow America.

3. “And we’ve got to have the public understand this is an issue that is going to impact our kids and our grandkids unless we do something about it.”

Mr. President, no more accurate statement could be made than that we are foisting an impossible debt burden upon our kids and our grandkids. Their future America will be crippled by the excessive spending you, your administration and reckless Democrats and Republicans created. You will go down in history as the greatest debt creator in all of human history.

Given his statement on saving American’s future, however wrong global warming is, it’s clear that President Obama can think strategically, with an eye on the future. Why, why, why then can’t he use the same foresight to address our debt? Why aren’t there democrats screaming with a global warming-like fervor to stop the destruction of our economy? Why indeed?

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Frightening CBO Forecasts from THE BUDGET AND ECONOMIC OUTLOOK: 2014 TO 2024

The following quotes were taken from the CBO’s own report, found here. They tell the very frightening story that if our country doesn’t change the fiscal path that it’s on under the Democrat’s tax and spend policies, our country is headed for a disaster. We need to stand up, get vocal, vote out the spenders and force our elected officials to balance the federal budget, before the mounting trillions that we owe dooms us!

  • “Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades.”
  • “Such large and growing federal debt could have serious negative consequences, including eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt).”
  • “Interest rates on Treasury securities, which have been exceptionally low since the recession, are projected to increase in the next few years as the economy strengthens”
  • “Deficits Are Projected to Decline Through 2015 but Rise Thereafter, Further Boosting Federal Debt”
  • “In addition, changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output during the next 10 years lower than they would be otherwise.”
  • “Over the next decade, debt held by the public will be significantly greater relative to GDP than at any time since just after World War II. With debt so large, federal spending on interest payments will increase substantially”

In the below chart, also from the OMB report, note that the discretionary items in the budget get squashed by mandatory spending of interest, social security, and major health programs.

OMB Figure 1-2

OMB Figure 1-2

 

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The Fallacy of Unemployment Insurance Benefits

President Obama and prominent democrats are once again pushing an increase to unemployment benefits. They even label them as “emergency” payments while at the same time telling us that the economy is rebounding and growing stronger. One of the left’s claims to sell the program extension, a clear fallacy of unemployment insurance benefits, is that it would create jobs.

Saying that paying unemployment benefits creates jobs is like saying digging a hole creates dirt!dirt_pile

Money that goes out to one person in unemployment payments first gets taken from another as a tax. The tax creates a hole in their bank account just as digging creates a hole in the ground. Leftist economic illiteracy claims that the payments create jobs as each person spends their unemployment checks, bringing revenue to businesses such as heating companies and grocery stores.

What’s missed, either through ignorance or deception, is that the person who got taxed no longer has their own money to spend on heat or groceries, negating every unemployment check dollar. In reality, it’s far more likely that the extension of benefits costs the economy jobs due to government inefficiency, but it most certainly doesn’t create any.

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What Our Government Won’t Show Regarding The Debt

The Congressional Budget Office released a report in September 2-13 (updated in Oct) called the 2013 Long Term Budget Outlook. http://www.cbo.gov/publication/44521

Both Republicans and Democrats heavily quoted the report. Republicans were quick to reference that the report concluded that America can’t sustain the debt path we are currently on. Democrats used a very slight near term improvement to the annual Debt to GDP ratio as great evidence that President Obama and the Democrats in Congress were improving the economy and the US debt picture. As often occurs, the Democrats are stretching the truth to the breaking point. The comparison of spending to GDP, used everywhere in the report, is camouflage for what’s really happening. See a couple of the report’s GDP comparisons by clicking here. Nowhere does the report show the debt in actual dollars. The two charts below expose the truth, extrapolating from the report’s supporting data tables, and proves that fundamentally the US is on a disastrous spending path.

Chart 1 below throws the Debt to GDP ratio away and provides raw constant year 2013 dollars for both Total US National Debt and GDP. Democrats trumpet the minuscule dip of the debt (Red Curve) below the GDP (Green Curve) in the 2018 time-frame as great news. Despite the fact that it was caused by the Republican House, it’s so insignificant that you can barely see it. Unless we control the reckless federal spending tidal wave, the red curve (US real debt) will grow exponentially vs our GDP. US debt will pass $30 Trillion by 2030. At some point in the not so distant future, we’ll cross the point of no return, a cataclysmic debt “event horizon”. The responsible answer involves cutting federal spending.

Government Debt Projections Exposed

Government Debt Projections Exposed

Chart 2 shows two potential futures from CBO’s report. A $2T reduction across ten years reduces the debt growth to the green curve. A further reduction to $4T across ten years dramatically (purple curve) cuts the debt’s growth more, but it does not yet cut the debt. Additional reductions (beyond $400B/yr), along with pro-growth economic policies are critical to balancing, and perhaps dare I say, paying it off.

Only Immediate and Deep Cuts Stabilize Budget Future

Only Immediate and Deep Cuts Stabilize Budget Future

For comparison purposes, the Debt to GDP ratio was added to Chart 2 (dotted blue line). Notice that the Democrat’s touted reduction in Debt to GDP clearly happens at the same time that the Debt itself explodes.

BOTTOM LINE: Significant cuts are essential and need to happen yesterday.

NOTE: Comparisons to GDP are useful to assess one time in history to another. However, our goliath government created a new paradigm that makes the debt to GDP ratio a poor future comparison and pundit “feel good” conclusions based upon them grossly misleading. Why?

Past spending spikes were more “single year” events as opposed to spending baked into the Federal baseline as they are today:

  1. Huge spikes in past Annual Debt to GDP were largely due to military wartime spending, easily reduced after wars ended to return to sustainable spending. See below chart.
  2. Today’s spending, which drives each year’s budget deficit, is increasingly caused by sources that can’t be easily eliminated (unlike the case with wartime spending).
    1. Interest on the national debt. The interest avalanche grows each year, as shown here, and must be paid or the US Government defaults on its obligations. Even Progressives admit that’s a bad thing.
    2. Social welfare programs are the third rail of politics. Democrats use them to buy votes, and bludgeon anybody who suggests responsibly reforming them.

Interest and social welfare programs, which now include Obama Care’s massive costs, will consume the budget, pushing all else aside. That “all else” includes what our Constitution mandates the Federal Government actually do.

From CBO's "The 2013 Long-Term Budget Outlook"

From CBO’s “The 2013 Long-Term Budget Outlook”

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