Posts Tagged ‘We’re Broke’

by Jonah Goldberg, LA Times, July 20, 2010

Rep. Paul Ryan’s manifesto doesn’t do away with the social safety net, yet it stays true to the libertarian notion that the best government is that which governs least.

Rep. Paul D. Ryan’s wonky manifesto “A Roadmap for America’s Future” is not what most would call thrilling reading. It makes one want to shout, “Nobody told me there would be math!” Charts battle tables for supremacy over bullet points. But it is an exciting document nonetheless, because it offers something many of us yearn for: a do-over.

The Wisconsin Republican’s Roadmap is not a “reactionary” document, as the left usually describes most anything that involves substantially reducing the size, scope and cost of government. It doesn’t seek to turn back the clock. Rather, it breaks with a strain of libertarian logic that is always at war with the State, while staying true to the idea that the best government is the one that governs least. It advances libertarian ends by admitting the limits of libertarian means.

–SNIP– Non-defense discretionary spending is frozen for 10 years and corporate and capital gains taxes would be replaced by an 8.5% value-added tax.

–SNIP– Yes, there are elements of the plan that can be fairly debated, even on the right. For example, Ryan’s push for private accounts in Social Security strikes me as a political dead letter for now — and too costly. Others fear that his nod to the VAT will help Democrats push for yet another kind of tax.

Read more at http://www.latimes.com/news/opinion/commentary/la-oe-goldberg-roadmap-20100720,0,4806100.column

By Ian Cooper, wealthdaily.com, July 13th, 2010

After years of warnings — from our own “waste of time” credit raters —- the seemingly untouchable US AAA rating was just cut by China’s Dagong Global Credit Rating Company to AA. This, after repeated Geithner promises that the US would never lose its credit ratings, despite outrageous budget deficits and our raised $14 trillion debt ceiling.

It’s not as if US credit rating agencies have been credible these past few years. The China firm just did what Moody’s and S&P could never even dream about doing… unless orchestrated by the Fed. How these credit raters still have a job after the housing disaster is beyond me.

Read more at http://www.wealthdaily.com/articles/us-credit-rating-downgraded/2594

The opinions expressed in this article are the opinions of the writer.

Vincent Fernando, CFA, Business Insider, July 12, 2010

Hope they don’t cut the credit line.

Here’s an ugly dose of perspective. America is so dependent on foreign financing for its budget, that things like defense, homeland security, education, and unemployment benefits are pretty much funded by foreign nations such as China.

Why?

According to former Republican senator and committee co-chairman Alan Simpson, federal revenue is, already, completely chewed up by the three nasties: Social Security, Medicare, and Medicaid. “The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans — the whole rest of the discretionary budget is being financed by China and other countries.”

Foreigner creditors truly hold America by the neck these days. They effectively finance everything beyond the three programs above.

Read more at http://www.businessinsider.com/us-debt-disaster-2010-7

By David Goldman, Asia Times blog, July 7th, 2010

Bank preferred debt, I argued on March 1, 2009, would not be allowed to go under after the fashion of Fannie and Freddie preferred, because shutting off payment on bank preferreds would ruin the insurance industry. Credit protection on the insurers was trading at over 1,000 basis points above LIBOR that week, which marked the nadir for the banks.

–SNIP– If municipal debt actually defaulted, the capital position of the banking system would be impacted, bank preferred debt might stop paying, and the holders of bank preferred debt–starting with the insurers–would be in serious trouble. The $800 billion bailout package for Europe’s PIIGS (Portugal, Ireland, Italy, Greece, Spain) in May was in fact a bailout for the banking system, which holds hundreds of billions of dollars worth of such debt. We don’t know quite how much, because European banks don’t have the same reporting requirements as American banks (and American banks’ overseas branches don’t have the same reporting requirements as their domestic branches).

Read more at http://blog.atimes.net/?p=1504

Our State debt isn’t so good either!

Wall Street Journal Review and Outlook, June 26, 2010

Spending our way to prosperity is going out of style.

Today’s G-20 meeting has been advertised as a showdown between the U.S. and Europe over more spending “stimulus,” and so it is. But the larger story is the end of the neo-Keynesian economic moment, and perhaps the start of a healthier policy turn.

For going on three years, the developed world’s economic policy has been dominated by the revival of the old idea that vast amounts of public spending could prevent deflation, cure a recession, and ignite a new era of government-led prosperity. It hasn’t turned out that way.

Now the political and fiscal bills are coming due even as the U.S. and European economies are merely muddling along. The Europeans have had enough and want to swear off the sauce, while the Obama Administration wants to keep running a bar tab. So this would seem to be a good time to examine recent policy history and assess the results.

–SNIP– A better economic policy will have to await a new Congress, which we hope at a minimum can prevent punishing tax increases. But for now the good news is that voters and markets are telling politicians to stop doing what hasn’t worked.

Read more at http://online.wsj.com/article/SB10001424052748703615104575328981319857618.html

Of course its a dead end, WE’RE BROKE!

Michael Snyde, Business Insider, 6/25/2010

The United States government will never have another balanced budget again. Yes, you read that correctly. U.S. government finances have now reached a critical “tipping point” and things are going to spin wildly out of control from this time forward.

Why? Spending on entitlement programs and interest on the national debt are now accelerating. Some time around 2020 they will eat up every single dollar of federal revenue that is brought in before a penny is spent on anything else. Of course the solution to all of this would be to radically cut entitlement programs, but no U.S. politician in his or her right mind would do that.

Click to see 14 reasons the budget is screwed >

After all, do you think elderly people (who vote in droves by the way) would vote for you after you just cut their Social Security checks in half? That is not the way the world works. You see, democracies always get into trouble once the people realize that they can vote for the candidates that promise them the largest gifts out of the public treasury. That is where the United States is at now.

Over 100 million Americans now receive direct payments from the United States government. For millions of Americans, the American Dream now means getting a government check and kicking back and enjoying life. We have become a nation that is chock full of people that can’t take care of themselves and that are totally dependent on the monolithic nanny state that the U.S. government has created.

Now, the truth is that helping the poor and those who cannot help themselves is always a good thing.

Nobody is denying that.

But are there really 100 million Americans that cannot take care of themselves?

Of course not.

The welfare state has gotten wildly out of control and now we are drowning in an ocean of red ink because of it.

In fact, unless the underlying laws for the entitlement programs are rewritten and unless benefits are cut to the bone, it will be mathematically impossible for the U.S. government to balance the federal budget from this time forward.

Read more at http://www.businessinsider.com/why-the-us-will-never-have-a-balanced-budget-again-2010-6

by Gus Lubin, Business Insider, June 23, 2010

airforceoneYesterday we published distressing charts on American government spending, via Heritage Foundation, a conservative think tank.

Politics aside, it’s hard to dispute the trend lines in discretionary spending like poverty and education, not to mention emergency spending — re the bailout — and mandatory spending on entitlement programs. Likewise, most people will agree that government could trim spending on this list of ridiculous budget items, also via Heritage.

Read more at http://www.businessinsider.com/50-suggested-budget-cuts-for-the-us-government-2010-6

Gus Lubin and Kamelia Angelova, Business Insider, June 22, 2010

Even without recent spending, the growing cost of government benefits will result in four decades of rising taxes.Thanks to ten years of rising government costs, the taxation wake-up call will be even more painful.

The Heritage Foundation, a conservative think tank, estimates a $12,636 (inflation-adjusted) tax increase will be needed just to cover entitlement costs.

Wealthy Americans should watch for the tax hikes to begin on January 1, when Obama lets tax cuts expire for people who earn more than 250,000. The rest may spend the rest of their life on the watch for value-added taxes, excise taxes, and more.

Read more at http://www.businessinsider.com/chart-of-the-day-tax-increase-2010-6

***The Following Is An Important Fiscal Health Announcement***

America’s most profligate states do not owe as much, proportionately, as Greece. But their politics are just as problematic

economist.com, 6/17/2010, Washington, D.C.

THE state of Illinois has a rather crude way of coping with its ballooning budget deficit. It stops paying bills. Already, it has failed to pay more than $5 billion-worth. State legislators are paying their own office rent to avoid eviction. Schools and public universities are having their budgets cut.

Illinois owes Shore Community Services, a non-profit agency in suburban Chicago, some $1.6m for services to the mentally disabled. The agency has had to lay off a dozen staff. Jerry Gulley, the executive director, says his outfit’s line of credit could be exhausted soon. The bank will not accept the state’s IOUs as collateral. “That’s how sad it is,” shrugs Mr Gulley.

Comparisons between incontinent American states and Greece are all the rage. Though this is an exaggeration, credit-default-swap spreads, which measure investors’ expectations of default, are wider for some American states than they are for some of the euro zone’s other peripheral economies (see chart).

There are other similarities. Like members of the euro zone, American states may not declare bankruptcy, cannot be sued by creditors and, thanks to America’s federal structure, cannot be forced to behave by a higher level of government. They also do not issue their own currency, so inflating away their debt is not an option. And, like many European governments, state legislatures and governors are reluctant to impose the necessary pain. The Illinois legislature recently passed a budget for the next fiscal year, starting on July 1st, which leaves a $13 billion deficit to be closed.

Read more at http://www.economist.com/node/16379740

by STEPHANIE JONES, journaltimes.com, 6/12/2010

RACINE - Lost your FoodShare card? No problem, here’s another.

Sold it for gas money or to buy alcohol? Sure thing, here’s another FoodShare card.

And another. And another.

It’s a waterfall of FoodShare cards, and Racine County Human Services Fraud Supervisor Susan Keown and other local officials are in search of a lifeboat.

“FoodShare cards are being sold, and anyone can use the card as long as they have a pin number,” Keown said. Local law enforcement officers are investigating this fraudulent behavior, but it’s behavior that would have been harder to pull off in the first place if the law were different.

Under the rules for the federally funded FoodShare program, formerly known as food stamps, people don’t have to show identification to use their food cards, which are a type of debit card, Keown said. And if they “lose” their card, they can easily get replacement cards over the phone as many times as they want, Keown said.

There are factors that contribute to fraudulent behavior that hurts taxpayers and keeps children and families who need the food from getting it, said Jonathan Delagrave, the newly appointed Racine County human services director.

Read more at  http://www.journaltimes.com/news/local/article_3a9a1f66-769e-11df-8239-001cc4c03286.html

Another reason that “We’re Broke”

This is our new monthly award for worst/excessive/wasteful government spending, at any level of the SEVEN levels of government we have. (school, local/municipal, county, regional, state, national, international)

State will count delayed computer work as done on time

By Jason Stein of the Journal Sentinel, May 17, 2010

Madison — A costly state computer project will go at least six months past its latest deadline, but the state won’t track whether that costs taxpayers more money, state officials said.

The project to consolidate back-office computers called servers was supposed to have been finished by June 30. But the effort, which has been in planning since at least 2003, will take until the end of the year to finish, said Carla Vigue, spokeswoman for the state Department of Administration.

But in spite of the longer time frame, the cost estimate for the work won’t change because the state considers the project to be finishing in June and won’t count any extra costs as being part of it, said the state’s chief information officer, Oskar Anderson.

“We’re saying the project is going to end” in June, Anderson said.

Not counting the potential extra costs after June, the project is on track to cost $110 million, or nearly nine times its original estimate of $12.8 million. That includes the cost of running and maintaining the new server system as it ramps up.

Read more at http://www.jsonline.com/news/statepolitics/94026964.html

“Our state budget, introduced by Governor Doyle and amended by majority Democrats in both houses, raised taxes billions of dollars to feed over 6% growth in state government spending.” –Sen. Alberta Darling.

This example shows why “We’re Broke” !

By Lorraine Woellert and John Gittelsohn

June 14 (Bloomberg) — The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.

Read more at  http://www.bloomberg.com/apps/news?pid=20601109&sid=an_hcY9YaJas&pos=10

With a national debt now over $13 trillion, $6.3 trillion in Fannie/Freddie debt and $60 trillion in unfunded obligations for programs such as Social Security, Medicare and Medicaid, the U.S. government has total obligations of over $79.1 trillion or 5.5 times our GDP of $14.2 trillion. It is our belief that the United States for all intents and purposes is bankrupt and Americans need to take steps immediately to protect themselves from the potential loss of the purchasing power of their U.S. Dollars.

Please click on the link below to watch a video on this subject. (youtube, 54:37)

http://www.westallisgop.com/2010/06/the-beginning-of-a-u-s-currency-crisis-and-hyperinflation/

Mike Ramirez, 5/05/2010

See more cartoons on our Funnies page

May 21, 2010

EconomicPolicyJournal.com has learned that 32 states have run out funds to make unemployment benefit payments and that the federal government has been supplying these states with funds so that they can make their payments to the unemployed. In some cases, states have borrowed billions. As of May 20, the total balance outstanding by 32 states (and the Virgin Islands) is $37.8 billion.

The state of California has borrowed $6.9 billion. Michigan has borrowed $3.9 billion, Illinois $2.2 billion.

Below is the full list of the 32 states (and the Virgin Islands) that have borrowed from the federal government to make unemployment payments, and the amounts that remain borrowed as of May 20 . (Numbers in red are billions)

Read more at http://www.economicpolicyjournal.com/2010/05/32-states-have-borrowed-from-treasury.html

By DAVID EINHORN, NY Times, May 26, 2010

Are you worried that we are passing our debt on to future generations? Well, you need not worry.

Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.

According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010. This does not take into account the very large liabilities the government has taken on by socializing losses in the housing market. We have not seen the bills for bailing out Fannie Mae and Freddie Mac and even more so the Federal Housing Administration, which is issuing government-guaranteed loans to non-creditworthy borrowers on terms easier than anything offered during the housing bubble. Government accounting is done on a cash basis, so promises to pay in the future — whether Social Security benefits or loan guarantees — do not count in the budget until the money goes out the door.

–SNIP– Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.

The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money.

Read more at http://www.nytimes.com/2010/05/27/opinion/27einhorn.html

By Dennis Cauchon, USA TODAY, May 17, 2010

Many states and cities coping with hard times are asking residents to open their wallets for the latest fashion in taxation — the temporary tax.

Governments are raising taxes for a specific period of time and promising the hikes will go away when good times return.

Some big temporary taxes:

•Arizona voters decide today whether to approve a three-year sales-tax hike. Republican Gov. Jan Brewer pushed to raise the sales tax from 5.6% to 6.6%, dedicating two-thirds of the new money for schools.

•Kansas hikes its sales tax July 1 from 5.3% to 6.3% for three years. The tax is designed to prevent cuts in education and social programs.

• Mobile, Ala., boosts its sales tax by 1 cent for 16 months starting June 1. The combined state and local rate will be 10%. Goal: avoid laying off police and firefighters.

A half-dozen other states are eyeing temporary taxes. So are many cities and counties, including King County, Wash., which includes Seattle.

Temporary taxes are phenomena seen during recessions, says Curtis Dubay, a tax expert at the conservative Heritage Foundation. “You don’t hear about temporary taxes when money is flowing into the coffers.”

The problem is that these taxes rarely go away, he says. “Once politicians get their hands on revenue, they won’t give it up,” he adds.

Read more at http://www.usatoday.com/news/nation/2010-05-17-temporary-tax-hikes_N.htm

Temporary?? Remember the TEMPORARY sales tax that Wisconsin enacted in the early ’80s? Still with us, 30 years later. Oh, and it went for property tax relief too!

By John Lott, FOXNews.com, May 13, 2010

Why the U.S. should want to bailout Greece is no more obvious than why we were supposed to bailout AIG, Goldman Sachs, or General Motors.

To say that Americans weren’t thrilled by the original government bailout of American financial institutions is an understatement. But if they were upset with that plan, imagine how furious they’re going to be when they start to understand that the Obama administration has begun bailing out banks from Japan, Canada and Europe.

There are two ways that the U.S. is bailing out these countries’ banks. First, the Federal Reserve is providing banks around the world with loans at below market interest rates. It mirrors what the Federal Reserve did last year when it gave American banks loans at near zero interest. The banks then turned around and used these government loans to lend money back to the Federal government by buying U.S. Treasury bonds, on which the banks received higher interest rates. The bottom line is obvious: it is just an outright gift to foreign banks.

With the exception of $30 billion to Canadian banks, the Federal Reserve won’t reveal how much of these subsidized loans they are giving to foreign banks. And why we would want to subsidize Canadian banks is a mystery in the first place. Compared to the U.S. economy, the Canadian economy has done fairly well during the global economic crisis. Meanwhile, here are home, since Obama became president, U.S. unemployment has risen by 2.2 percentage points from 7.7 to 9.9 percent. Canada’s has only gone up by about a third as much, rising by 0.8 percentage points from 7.3 to 8.1 percent.

A second part of the bailout comes from a $54 billion International Monetary Fund loan to Greece and other European countries. Again, we don’t know exactly how much of this loan the U.S. will be responsible for, but that number is likely to be at least $10 billion since we typically contribute 17 percent of the IMF budget.

Why the U.S. should want to bailout Greece is no more obvious than why we were supposed to bailout AIG, Goldman Sachs, or General Motors. After all, the Greek government possesses lots of valuable assets it can sell to pay its debts — for example, it owns land as well as stock in many companies. Indeed, the Greek government is sitting on a range of odd investments: casinos, banks, jumbo jets, and even a lucrative sports-betting organization. The Greeks may not want to sell those assets, but why should American taxpayers subsidize Greek nationalistic pride? To top it off, Greek government truly spends too much — 44 percent of GDP. Why should American taxpayers feel sorry for a country that refuses to cut its government spending?

Read more at  http://www.foxnews.com/opinion/2010/05/13/john-lott-greece-bailout-taxpayers-americans-obama-aig-general-motors-merkel/