Tag Archives: debt ceiling

Five Reasons Senator Heller’s Vote Is No Surprise

Heller 2Senator Dean Heller (R-NV) was one of 18 members of the United States Senate to vote against a bill to end the government shutdown, and to avoid the “fiscal cliff” of default. [roll call 219] This comes as no surprise. Absolutely no surprise.

For all of Senator Heller’s posturing as Mr. Moderate, his voting record has been indicative of a banner representative of Tea Party America.

#1. NO on the bill to avoid default and end the government shutdown. (H.R. 2775)  Roll Call 219.  Why would anyone be  surprised? Senator Heller also voted against the bill to end the 2011 stalemate.  [RGJ 8/11] In the 2011 vote Senator Heller was one of 26 members voting to dive over the edge; in 2013 he was one of 18.

#2.  NO on the TARP bill.  Otherwise known as the Emergency Economic Stabilization Act, and perjoratively called the Bank Bail Out, there were two votes on this measure in the House.  After it failed on the first attempt the stock market tanked. [roll call 674] Thus advised of the economic and financial consequences of a failure to put some props under the financial sector, the House held a second vote.  Once more, then Representative Heller voted against the measure. [roll call 681]   If there has been a bit of campaign material I’ve received from Mr. Heller that has not reminded me that he was “against the bank bailout” I must have missed it.

There was much to despise about the TARP bill, however, the hard sad unavoidable fact was that our credit markets had ground themselves into a solid freeze in October 2008.  While this isn’t a particularly good analogy — think of an engine which has run out of oil — at some point the lack of liquidity creates a seizure.  There was an appalling lack of liquidity, and we were in the midst of an equally appalling seizure in capital markets.  Representative Heller voted not to add any oil to the motor.

#3. Senator Heller has been a consistent proponent of the so-called Balanced Budget Amendment.  Of all the naive and misleading proposals offered to the American public, this ranks among the most egregious.  In 2011 he joined Senator Jim DeMint (R-Heritage Action) to introduce this bit of fiscal insanity. [DB]  A “balanced budget amendment” would do nothing to help state governments, it would do nothing to promote tax equity, and nothing to make the federal government operate like the state governments. [DB] And, NO, this is NOT like your family budget! as explained here, and here.

#4. He co-sponsored S. B. 712 with Senator Jim DeMint which would have summarily  repealed all of the provisions of the financial regulation reform enacted in the Dodd-Frank law. [DB]  Rep. Michele Bachman (R-MN) introduced similar legislation in the House of Representatives.  Under the ubiquitous heading of “gettin’ rid of guv’ment regulation,” Senator Heller would have undone every effort made by the Dodd-Frank Act to rein in corporate greed, require banks to maintain adequate capital, require financial institutions to adopt plans for unwinding failed banks, and protect consumers from mortgage and other financial frauds.

What doesn’t say “Tea Party” better than teaming up with former Senator DeMint and Representative Bachmann?

#5 Senator Heller has taken a consistent position in opposition to the Affordable Care Act.

“Senator Heller would gladly allow the insurance industry to continue to offer those junk  “defined benefits” plans, to exclude infants and children with “pre-existing conditions,” to spend less than 80-85% of the premiums they take in on actual medical treatment and services.   He would repeal the tax cuts available to small businesses which offer health care insurance to their employees, and would allow the infamous “Do-nut Hole” in prescription medication coverage to reopen.”  [DB]

All the benefits of the Affordable Care Act notwithstanding, Senator Heller would happily vote to repeal the ACA.

The titans of the financial sector and the major insurance corporations haven’t been Senator Heller’s only concern, he’s also taken the side of Big Oil, voting in July 2010 to protect BP from oversight in the wake of the Gulf Oil Spill, and voted not once but 8 times to protect tax breaks for the big oil corporations.  [DB] See votes 153, vote 78, vote 80, vote 1140, vote 835, and vote 40.

Still wondering where Senator Heller stands in relation to what remains of the Republican Party?

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What If the GOP produced Coriolanus?

CoriolanusLet’s assume for the sake of Happy Clappy Optimism, that the deal brokered in the U.S. Senate will hold and the United States has avoided pureeing  international markets into glop sauce, what have we learned?

Not all that much about the Democratic Party.  The Affordable Care Act repeal was never negotiable.   Going over the fiscal cliff was never an option.  Shutting down the Federal government was not appealing.  However, we seem to have been treated to a full dress rehearsal of the GOP’s version of Coriolanus.

According to Caius Martius those plebians bellowing in the streets about the lack of bread are not worthy of grain because they haven’t volunteered for military service.  Evidently, Americans who can’t afford health care insurance are unworthy because they are Lazy Takers, although often working two jobs.

We might imagine a production of  this lesser known play as imagined by the current Republican Party?  The Patricians keep upstaging their cohorts, while Coriolanus and his contingent eat the scenery.  Act I, Scene 1: It was about Obamacare! It was NOT about Obamacare?

Rep. Scott Garrett (R-NJ): “They may try to throw the kitchen sink at the debt limit, but I don’t think our conference will be amenable for settling for a collection of things after we’ve fought so hard,” says Representative Scott Garrett (R., N.J.). “If it doesn’t have a full delay or defund of Obamacare, I know I and many others will not be able to support whatever the leadership proposes. If it’s just a repeal of the medical-device tax, or chained CPI, that won’t be enough.” [Dkos]

Rep. Paul Broun (R-GA): “America is going to be destroyed by Obamacare, so whatever deal is put together must at least reschedule the implementation of Obamacare,” he says. “This law is going to destroy America and everything in America, and we need to stop it.” [Dkos]

Enter the Tribunes (and the Chronicles, and the Gazettes, and the Bugles):

“You guys in the media continued reporting that what the conservatives were asking for was the full repeal of Obamacare. That’s absolutely false,” said Rep. Raul Labrador (R-ID), a member of the Republican Study Committee and the point person during the Wednesday briefing. [TPM]

Interesting, since the the Republican Study Committee, of which Rep. Labrador is a member, opened with these lines on the House version of the Continuing Resolution (H.J.Res 59):

“The amendments made in order would make a number of changes to the Senate passed continuing resolution. The House passed continuing resolution that was amended by the Senate was passed on September 20, 2013 and included language that funded the government through December 15, 2013, at current operating levels (discretionary spending of $986.3 billion), permanently defunded the Affordable Care Act, and incorporated a modified version of the Full Faith and Credit Act (H.R. 807)”  [RSC pdf] (emphasis added)

Perhaps this production has too many writers? Directors?  Then there was thenot-s0-helpful amendments from the  choragus maximus of the Tea Party plebians —

“Although he vowed to continue his fight against the Affordable Care Act, Sen. Ted Cruz (R-TX) said Wednesday that he has no intention to block or delay a vote on a proposal to raise the debt limit and reopen the shuttered government.  Cruz told a gaggle of reporters that he has “no objections” to the Senate holding a vote on the proposal Wednesday, and that a delay on such a vote would be moot.”  [TPM]

And, so they troop about the stage, seeking the microphones, missing their cues, and stepping on each others’ lines.

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Heller’s Horrors vs. The Constitution

ConstitutionIt seems there are some “Constitutional conservatives” who haven’t perused that august document, and Senator Dean Heller (R-NV) is one of them?  His response to the shutdown of the Federal government? Enact his “No Budget No Pay” bill. [Heller]  Lovely — there’s just one little problem with not paying members of Congress until the houses pass a budget — it violates the 27th Amendment.  “No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.”  The Amendment was among the original ideas from the Founders, finally enacted in 1992, and it was intended to prevent members of the House and Senate from jacking up their salaries right before elections.

Then there’s the matter of raising the debt ceiling:

“Without a serious discussion about reducing our debt, I have to agree with then Senator Obama, who called an increase in the debt ceiling a ‘sign of leadership failure’ and a move that shifts the ‘burden of bad choices’ to future generations. Our nation cannot afford to continue raising the limit on our nation’s credit card without making the difficult decisions that prevent the country from incurring even more debt,”said Senator Dean Heller.”  [KRNV]

Oh, here we go again! The Think Of The Children Argument.  News Flash for the Junior Senator — raising the debt ceiling has NOTHING to do with incurring debt.  It has everything to do with paying the debts we’ve already racked up.   Senator Heller appears to believe this debt magically increased during the incumbency of President Obama.

“When President Obama came to office, our nation’s debt was more than $10 trillion. Five years later, our debt is nearly $17 trillion and growing fast. Democrats and Republicans must come together and agree on a long-term solution that places our nation on the path to fiscal solvency. Reducing wasteful spending and reforming the tax code are good places to start. As Senator Obama said in 2006, ‘Americans deserve better,’” said Senator Dean Heller.” [KRNV]

There was no magic involved. There is, however, some magical thinking.   First, when the Obama Administration took over in January 2009 it assumed the costs of the military operations in Iraq and Afghanistan.  Since the costs of these efforts are no longer glossed into “supplemental appropriations,” we’re going to have to look at the $800 billion gorilla in the room — the outright cost of operations in Iraq.   Then there’s the not-so-small matter of paying the veterans’ benefits to those who served in Iraq and Afghanistan. The total expense involved in these military efforts is projected to cost about $4 trillion. [Marketwatch]

Secondly, the United States (including Senator Heller) decided it was a dandy idea to cut taxes in war time — a reversal of what had been previously considered fiscally responsible thinking.  Let’s look at the elements driving the current level of debt one more time:

Source of National Debt

Thus, about 50% of the national debt which concerns Senator Heller so profoundly is a result of military operations in Iraq and Afghanistan and the Bush Era tax cuts (supported by Senator Heller.)  The darker blue segment of the graphic indicates the lost revenues from the Recession created by the collapse of the Housing Bubble.

Senator Heller would prefer not to compare the Bush and the Obama Administrations when it comes to policies which “place our nation on a path to fiscal solvency.”  If he did, he’d be highlighting the following information:

Bush Obama SpendingAnd here we have the answer to the question: Whose new policies created more federal spending? Was it Bush’s $5.07 trillion, or was it Obama’s $1.44 trillion?

As for which side of the aisle was more attentive to future spending levels, the staff of the Washington Post analyzed FY 2014 budget proposals and published the results:

Budgets Compared 2014Whose spending levels were lower over the next decade?

None of these analyses will prevent Senator Heller from continuing to bleat out the same talking points the GOP has been promoting with consistent enthusiasm — The Debt Is Rising! The Debt Is THE Problem!  Equally consistent has been the Republican demand that the social safety net (Social Security, Medicare, SNAP, TANF) be the target for cuts — not the Department of Defense; unless of course we’re speaking of increasing educational, housing, and health benefits for members of our military and veterans.

Now the Republicans threaten to shove the nation over the fiscal cliff, to which Senator Harry Reid (D-NV) responded:

“A vote to avert default is simply a vote to pay the bills. It’s not a vote to spend more money, to authorize new programs or to buy new things and more. It’s a vote to pay the bills the federal government has already incurred – bills for roads and bridges we’ve already built and warships we’ve already commissioned, as well as wars we’ve waged with borrowed money and tax breaks we’ve charged on the national credit card. A vote to avert default is a vote to pay the bills for all those things.”

That pretty much sums it up: (1) Pay the bills… (2) Pay the bills… (3) Pay the bills… as the Constitution says in Amendment 14 section 4.

*For the wonks in the audience, there is an excellent summary of debt ceiling legislation from the Congressional Research Service available in PDF.

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Tools in the Kit Singing All The Way Over The Cliff

LemmingsThe Lyrics: Download your Tea Party Toolkit today! If you download the package you can keep score, for example, checking to see if your Congressional Representative is hewing to the T’Party line?  [full “kit” in PDF] Here’s a sample, check for conformance with the Toolkit Talking Points:

#1. Is your Representative or Senator parroting this talking point? “Our nation simply cannot afford Obamacare. The new law adds trillions to our nation’s debt.”   By the way… it doesn’t. It’s the repeal that would costs us about $109 billion. [CBO, cbs]

#2. Is your Representative saying, “Obamacare’s mandates and regulations are already driving up health insurance costs?” If so, he or she is marching to the Tea Party drummers.

#3. Heard this lately in some rephrased form?  “Obamacare gives bureaucrats and other unelected officials in Washington, DC too much power. The law creates more than 150 new agencies, boards, and commissions made up of unelected people who are not accountable to us! Furthermore, the law grants hundreds of new powers and authorities to the Secretary of Health and Human Services.”  This talking point has is the progeny of the Obamacare (ACA) is socialized medicine narrative.  [Debunked here]

And, the talking points continue, forming a jaunty marching song as we head toward the latest fiscal cliff.

The March:  … to the tune of “We have to defund Obamacare and We Don’t Care Who We Scare.”  The people who ought to be terrorized by the inanities coming from the radical right are people who work with money for a living.   The Financial Services Forum members are already alarmed:

“There’s a consensus that we shouldn’t do anything that hurts this recovery,” Blankfein said as he left the White House. “They shouldn’t use the threat of causing the U.S. to fail on its obligations to repay its debt as a cudgel.” [BloombergNews]

Undaunted, the Tea Party enthusiasts march on, creating an interesting collection of economic illiterates who have decided that launching the nation over the fiscal cliff isn’t all that perturbing.  Gee willikers, it’s not going to be any worse than a ride on the Big Twister Rush and Roll at the Six Flags Magic Kingdom Mountain.   Not. So. Fast.

The concoction used by the Default Deniers boils down to prioritization.  We can, they allege, use the money coming in to pay off the bonds, and keep the government rolling merrily along.  Matthew Yglesias makes quick work of this canard. Prioritization is illegal, impossible, ill timed, and doesn’t solve the problem.  [see also: Yglesias/Slate]  This is why the Financial Services Forum is upset, and why the American Banker was moved to post this article:

“Their concern primarily centers on a key fact: Treasury bonds do more than fund the government; they buttress the financial system. Bankers warn that a default on certain Treasuries could put market collateral at risk, harm overnight lending and drain key sources of liquidity from the market.

“All of the consequences of an actual default are just severe and unfathomable and unthinkable,” said Rob Nichols, the president and chief executive officer of the Financial Services Forum. “If we were to default on our debt, that would probably spook investors, which would dry up overnight lending. You would imagine that accompanying that sort of event, we would be downgraded, which probably would lead to a sharp spike in rates, which would have its own drag on the economy.” (emphasis added)

So, why would anyone deliberately spook investors, risk collateral, overnight lending, liquidity, ratings downgrades, and  spiking rates?

The Marchers:  Tea Party adherents include those who are not happy with banks and bankers.  Many come from the “No Bail Out” crowd, to whom Senator Dean “I Voted Against The Bailout” Heller (R-NV) has been known to pander while also voting to diminish the regulatory constraints of the Dodd Frank Act.   The “march” may be seen as a national rendition of what played out in the recent Nevada GOP convention wherein an ultra-conservative kept his chairmanship with the assistance of ultra-conservative rural delegates who were not enamored of the Money Men.

The good news for Democrats could be that the latest version of diving over the fiscal cliff illuminates and further separates the tenuous alliance of social conservatives and Wall Street finance supporters.  The bad news is that the social conservatives don’t care.  They seem perfectly pleased to continue uttering their downloaded talking points, (video) while the moneyed interests fret and fidget over the state of their positions.  Marching blindly also means overlooking the obvious.

Prioritization is Currently Impossible

David Walker, former U.S. comptroller, and long time debt-hawk, explains why “prioritization” isn’t a solution:

In theory you could prioritize your payments.  And in theory, if your accounting system were adequate, you could use whatever cash you have to be able to pay interest on the debt as a top priority,” Walker says. “The problem is that the federal government’s accounting systems are so bad that they don’t have enough transparency to be able to differentiate the payments.” […]
“Unlike the continuing resolution, the debt ceiling is much more significant,” Walker warns. “You would have to suspend payments, you would have to do things that would be felt.” Among the things that would be felt, Walker says, are Social Security disability payments, scheduled for November 1, and retirees’ payments, which are scheduled for November 13. “Not having 35 to 40 million payments go out on time, believe me, that is not an acceptable outcome.” (emphasis added)

And, therein lies the problem — the rarefied theory clutched by the populist anti-bank crowd of talking point march participants doesn’t square with the realities of U.S. accounting processes and financial practice.   Well, just “fix the accounting?”  How fast would do you think we could do that, given that it has taken years to resolve rules regarding such topics as  financial services regulations? Commodity trading? Pay day lending?  Can we get that fixed before Gramma misses two years of Social Security checks?  And, is there the political will in the Congress to spend the kind of money it would take to overhaul the Treasury’s antiquated and often confusing accounting systems?

The Ah Shucks contingent in the march clings to the delusion that the government accounting systems can “turn on a dime,” and the Administration’s just talking scary to frighten people out of shutting down the government and breaking through the debt ceiling in order to “achieve” financial responsibility.   However, it’s not only the Administration and the Financial Services Forum which are “talking scary,” its the International Monetary Fund too:

“The assumption that the U.S. will honor all of its debts—and honor them on time—is the foundation for much of the global financial system, Bell argues. So the fundamental problem with the Republican position is that Treasury makes between 3 million and 5 million financial transactions a day, and if the federal government starts to pick and choose which it will honor, it will land the economy in chaos.

Many of the world’s leading financial experts, who are watching the slow pace of negotiations in Washington with dread, agree.

“The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy,” IMF Director Christine Lagarde said Thursday.

Indeed, while Republicans and the White House might disagree over how to define a default, the world’s markets are likely to see any missed payment as a signal of profound financial weakness in the United States, and react accordingly.”

We can translate “react accordingly” as “will tack on a risk (default) premium.”   But, but, but… We had a default in 1979 and nothing much happened?  Really?  Let’s look at that more closely, as described by Seeking Alpha:

“In fact, the U.S. Government first defaulted on its debt in 1979, when the U.S. Treasury, citing an unprecedented appetite for U.S. debt by small investors, the failure of Congress to act on April’s debt ceiling legislation, and a glitch in the Treasury Department’s word processing equipment resulted in a technical default on T-Bills maturing on April 26th, May 3rd and May 10th.

Moreover, the aftermath of this “momentary default”, in terms of the yield curve, is well known within academic cicles. Though the nominal amount was trivial (about $122 million, non-adjusted) in comparison to what was then the total U.S. Debt, the penalty was severe: A sharp increase of 0.6 percentage points (60 basis points) that triggered a persistent increase in T-bill rates that ultimately cost the American taxpayer an additional $12 billion in interest payments, as older debt was rolled over at higher rates.”

If a “momentary glitch” caused $12 billion in damages, imagine what we could do with a full on, Congressionally approved, default?  And, we haven’t even begun to speak of what could happen to money markets, OTC swaps, repos, and credit default swaps — yes, those are all still around — if we go into default.  All of those depend on Treasuries for Tier One collateral.

So, no we can’t “prioritize” in a couple of weeks, no matter how theoretically appealing that might be. Nor can we dismantle a government sponsored health insurance policy exchange already operational, even as it deals with the usual glitches and gremlins that infest large computerized systems.  Nor can we ignore what the IMF and the Financial Services Forum are trying to explain to us.

However, at the moment nothing appears to be impeding the March of Talking Point Tea Party members, blithely ignoring both the obvious features and the reality of U.S. financial markets, singing along to their lyrics carefully crafted and focus group tested,  and tramping enthusiastically toward the next fiscal cliff.

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Five Quick Reasons the Debt Ceiling Argument is a Farce

Bush Obama Deficit trendsDebt Ceiling fights are truly ridiculous.  Here’s why:

#1. The money has already been spent.  The entire “We Need To Stop Spending” argument isn’t applicable to money already appropriated.  If we want to cut future spending the place to do that is in budget and appropriation bills. Everything else is extraneous.

#2. There are three branches of government.  The President, any President of any party, may only recommend a budget or call for appropriations, and then all the incumbent can do is to pressure the Congress to enact the budget or appropriations.  Arm twisting, log rolling, and other negotiating techniques may be applied, but the final say on all money bills is the province of the House, with the agreement of the Senate.  Thus, the fight about a debt ceiling is essentially a matter of the House arguing that the House should not have appropriated so much funding so the House must (or must not) increase the debt ceiling limit.  If this sounds silly, it’s because it is.

#3.  The failure to increase the debt limit increases the deficit. Telling the world that the U.S. may not pay interest on the Treasury bills it has issued for government operations, then the cost of issuing those securities goes up as investors demand higher yields (read interest rates.)  Higher yields mean more debt service payments, and more debt service payments mean we’re deeper in the hole.  The general rule in life is that when you are in a hole — stop digging.  This rule doesn’t appear to apply to House and Senate Republicans.

#4. The debt ceiling argument is a distraction.  Don’t want to talk about reasonable gun control legislation?  Wave the Debt Flag. Don’t want to talk about comprehensive immigration law reform? Wave the Debt Flag. Don’t want to talk about the reemergence of Wall Street machinations issuing debt instruments the interest on which can be paid off with more debt? Wave the Debt Flag.  Don’t want to talk about infrastructure investment? Wave the Debt Flag. Don’t want to talk about re-authorizing the Violence Against Women Act? Wave the Debt Flag.   Don’t want to talk about enacting the American Jobs Act? Wave the Debt Flag.  It is as if the multi-tasking performed by every other human being on this planet becomes a mystery when a person enters the halls of Congress.  Evidently, the House of Representatives gets mesmerized (with the assistance of a compliant press) by the Debt Flag every time it’s waved.

#5.  The institutions which are crying the loudest for debt management, the investment bankers, may have very personal motives.  Not that profit making is a bad thing — but, they want their cake and the eating of it too.  If they invest in Treasury bills, then they’d like to earn as much interest as possible. If the debt ceiling isn’t raised then interest rates on Treasuries will likely go up –and they’d like that. Who wouldn’t?

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ArchimedesSome members of the chatterati may have taken Archimedes a bit too literally: “Give me a place to stand and with a lever I will move the whole world.”  Often too much emphasis is placed on the fulcrum and not quite enough on the part about the ancient mathematician needing a place to stand.  The word of the week sounds like “leverage” in Washington, D.C. Who has it? Who doesn’t? And, so what? The So What part isn’t all that interesting.

Although the pundit class is thoroughly fascinated at the moment with how much leverage the President and the Republicans may each possess after the self inflicted Fiscal Cliff fiasco, most of their comments can be categorized as post game “analysis” of the variety which is more commonly associated with post game “analysis” of a sporting event.  It’s never quite enough to declare one team or another victorious based on the scoreboard numbers — “we” have to “know” why one team won and the other lost.  In reality, we really don’t.

So, in the parlance of political reporters emulating the post game questions of their sports writer colleagues — can the President win the next game? A game of Debt Ceiling already scheduled by the Republicans and given official status by the post game analysts.

It depends on where you stand.

There are two major elements of the federal debt that deserve serious scrutiny.  First, during the Bush Administration’s policy of credit card conservatism we racked up two wars (off the budget and supported by supplemental appropriations), a major addition to the Medicare program (Medicare Part D, also unpaid for) and one major Recession.  All were guaranteed to increase the national debt.  The first two increased spending and the latter cut into the tax base.

Secondly, we do need to reduce the national debt, but how we do it is important.  This is one of those occasions which calls for a scalpel, not a meat axe.

It is also important to stand on firm ground.

A few facts are in order.  The first part of standing on terra firma before attempting to leverage anything is to dismiss some media mythology about trends in the national budget deficits.  The following chart should provide an illustration of the inaccuracy of the Now That A Democrat Is In The White House The Deficit Is Out Of Control Myth:

Bush Obama Deficit trends

The chart illustrates what happens when two wars, one major Medicare addition, and a nasty Recession contribute to national spending. It also shows the effect of Obama Administration policies mentioned earlier, a point at which we should note that the Bush Administration toted up about $5.1 trillion in expenses, while as of last June the Obama Administration’s policies resulted in about $983 billion in spending.

Bush Obama Spending ComparisonIn short, if we are really serious about deficit reduction then we need to eschew the policies that got us into this mess in the first instance, i.e. unnecessary tax cuts, and two very expensive wars.

OK, so if we don’t get involved in more military operations, we resist the myth that tax cuts somehow cause economic growth (which they never have), and we regulate our financial markets more effectively in order to mitigate the excessive enthusiasm of traders who created the last great mess, then where do we cut?

It’s time for another reality check.

Here’s where the money goes:

Budget Categories

Since Social Security is a self-funding program, which as President Reagan famously cautioned in 1984 doesn’t add to the federal deficit (video), we can take that 20% out of the equation right now.  Anyone who is truly serious about the single issue of Social Security solvency should be clamoring to increase the cap on earnings liable to the payroll tax, currently set at a measly $110,000. We also need to remove the mandatory spending from the discussion because what we cut will have to be from discretionary spending.

The FY 2013 budget calls for spending $666.2 billion by the Department of Defense.  Another $80.6 billion is allocated to the Department of Health and Human Services (Medicare, Medicaid), and the Department of Education (Pell Grants, Title I, student loan guarantees, etc.) is scheduled to spend or entail $67.7 billion while the 4th largest chunk of the budget goes to the Veterans Administration which has $60.4 billion in scheduled spending.

In short, we’ve budgeted for $1,510 billion in discretionary spending in FY 2013.  The Department of Defense is on track to receive 44.12% of ALL the discretionary spending in the national budget.   Yet calls to cut military spending brings on the wailing of voices, the gnashing of teeth, and the rending of garments about “making us less safe” in an uncertain world.  In spite of all the wailing, gnashing, and rending — that one single department consumes 44.12% of the entire pot of discretionary spending is something we ought to be discussing.

Medicare is another matter.  IF we are truly serious about deficit reduction then we need to have more than the simplistic discourse already in evidence.  There is a false choice being presented, as though the only options are to privatize the Medicare program (give Granny a coupon and let her go out and find her own insurance) or to create a Single Payer national health care system.  While I wouldn’t be sorry to see a Single Payer system, this is an argument for another day.  The point is that there are options between these two proposals.

The central focus point should be that nothing which doesn’t have a bearing on health care cost containment is going to make much difference in the spending levels.   Privatization doesn’t address the cost containment issue, and a single payer system without cost containment elements is merely a recipe for increased expenses.

Now that the campaign season is over we can dismiss the Republican rhetoric about “Obama cut $716 out of Medicare,” and consign to the dust bin the notion that the Affordable Care Act somehow impinges on Medicare benefitsBusiness Week explains:

From 2010 to 2019, Obamacare trims payments to providers by $196 billion. They agreed to take a cut because they will get so many new patients, thanks to the individual mandate. Another $210 billion will be generated by raising Medicare taxes on the wealthy (that’s households earning more than $250,000). Another $145 billion comes from phasing out overpayments to Medicare Advantage. About 25 percent of seniors use the program—in which private plans compete for Medicare dollars—instead of traditional fee-for-service Medicare. Under Obamacare, the government has to keep Medicare Advantage costs in line with those of traditional Medicare. More savings come from streamlining administrative costs.

Thus, if we trim payments to providers, phase out over-payments for profitable private health care policies, and put some reins on administrative costs we’ll find about $716 billion in savings for the Medicare program.  Other cost savings may also be the result of more efficient record keeping, especially in the pharmaceutical segment.  Anyone who’s dealt with the medical issues of an elderly parent knows of multiple prescriptions written from several physicians who may or may not consult with one another.  The result can be as minimal as two (or three) prescriptions for the same medication at different dosages; or, as detrimental as two prescription medications which should not be taken together.

However, the bottom line is still the bottom line — unless and until we are ready to discuss health care cost containment we’ll be immersed in the rhetoric of low bludgeon and high dudgeon without much result.

When we discuss funding for the Department of Education it’s important to note that the FY 2013 discretionary requests yield an official number, $69.8 billion — if we include Pell Grants.  Pell Grants constitute about $22.8 billion of the total, a decrease from $23.8 billion in the FY 2011 budget.  Without the Pell Grants the total discretionary spending in the FY 2013 budget is $47 billion.   There are two constituencies with major stakes in arguing about these funds.

Parents.  Unless one is amenable to the elitist argument that kids should have access to only the level of education their parents can afford (which makes social mobility a moot point) parents are going to need assistance paying for their children’s education.  Whether we like it or no, education is a labor intensive business.  We can trim educational spending by continuing what the Obama Administration has started — saving approximately $61 billion by cutting the banks out of their role as middlemen in the student loan program [NYT]– but it really doesn’t do to cut efforts to educate our young people.  It also doesn’t make economic sense since a college degree is worth money in the marketplace.

Educations Pays Local school districts.  Cash strapped and semi-starved local school districts rely on funds for Special Education programs, Title I services, School Lunch programs, to make up budget shortfalls.  While the level of federal involvement at the local level isn’t all that much it does cover expenses local districts would be hard pressed to meet were the monies cut.

Hostage Taking

How we fund, or de-fund, these major activities depends on who is being held hostage and by whom.   Did the President allow the Republicans to gain “leverage” by taking the tax rates off the table in the next Congressionally manufactured debt ceiling debacle. Or, are we going to change hostages?

Will the Republican stance be that all other programs must be cut in order to spare the 44.12% consumed by the Department of Defense?

Will the GOP position be that Medicare must be privatized in order to practice “sound fiscal responsibility?”

Will the GOP position be that Social Security must be “reformed” (read cut) in the interest of “fiscal accountability and deficit reduction” even though it adds not a nickel to the federal debt?

Will the Administration simply say — You manufactured this debt ceiling “crisis” live with it?  Remembering that if the national credit rating is downgraded this will likely mean that the cost of borrowing (yields paid to those who invest in Treasuries) will go up, exacerbating the problem rather than addressing it.

Will the point be made to the American people that while the credit card analogy is handy, the United States of America doesn’t have creditors it has investors.  Our federal government accesses funds by issuing bonds.   And WE own most of those bonds.

Here’s the little chart again:

Who owns US debt

42.2% of the money “borrowed” by the U.S. government is an asset for U.S. individuals and financial institutions.   Today’s yield curve doesn’t indicate a government which is having to pay all that much to get people and institutions to invest in it:

Daily Yield CurveEven 30 year bonds are paying only 3.0% interest.

The amount of leverage always depends on where one stands and places the fulcrum.

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Filed under Congress, Economy, education, Federal budget, Health Care, Medicaid, Medicare, national debt, Obama, privatization, recession