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Late last month, we analytically showed how well President Harry Truman successfully handled the economic transition from a war time economy to a peace time economy after World War II. He understood that minimal government intervention in the free market, non-deficit spending by the government, and minimal tax levels is the best way to create a robust growing economy. We contrasted that with the failed Obama approach to economic management which involves extensive government interference in the free market, record setting deficit spending, and back breaking tax burdens.
How is the Obama approach working out? As we do on a regular basis, let's look at the latest statistics, trends, and opinions of those who work in the economic area of our nation:
- According to data from the Department Of Labor, in the week ending August 25, the estimate for seasonally adjusted unemployment initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised moving average of 368,750. Thus, as the weekly number of claims continues to hover between 360,000 and 380,000 for what seems like forever, there does not appear to be any relief on the way from an unemployment perspective.
- According to a recent New York Times report on the findings from the society of Actuaries, "2011 Risks and Process Of Retirement Survey Report," 35% of Americans don't expect to ever retire, up from 29 percent two years ago. 40% of the survey's so-called pre-retirees say the will not retire simply because they are financially unable to do so since they need either the income or their employer's benefits. The study also found that 51% of those surveyed who had already retired did so before age 60, but just 12% of today's pre-retirees think they will be able retire that early.
How sad are this statistics. Three years into this tepid economic recovery that the Obama administration has managed, the American dream of working towards a comfortable retirement is now looking less and less possible.
- A recent Rasmussen report also contained some bad opinions on what the future might hold, this time relative to the survey respondents' children:
- The survey found that only 16% feel that today’s kids will be better off than their parents.
- This is slightly up from July’s all-time low of 14% and back to the levels found in May and June but probably within the same low, statistical sampling range.
- Since early 2009, the statistics had hovered in the low to mid-20s.
- 64% now say today’s children will not be better off, compared to 47% who felt that way in January 2009.
- Thus, despite the economic recovery, opinions have gotten worse, not better since the Great Recession ended.
Another American dream shaken to its core, the faith that the American dream would become more realistic, more robust, and attainable by our kids.
- According to an August 31, 2012 Moneynews report, between June 2009 and June 2012, the median income for an American family fell nearly 5 percent, to $50,964. That’s an average loss of $2,548.20. This is the period of supposed economic recovery that the Obama administration has presided over. Tough to blame this performance on a former President who has been out of office since January, 2008.
- The Commerce Department recently updated its estimate of economic growth in the second quarter, raising it from 1.5% to 1.7%. Although somewhat good news, certainly a less than robust growth rate, especially a growth rate when coming out of a recession. A growth rate that continues at such a low rate will never be able to make a substantial dent in the country's unemployment rate.
According to an April 2, 2012 article in the Wall Street Journal, the average annual U.S. growth rate over time is about 3.4% so the economic growth rate during the past three years of the Obama administration has been far below the average rate. The article also reviewed the economic recovery statistics during the 1930s when the Great Depression started with major economic recessions in 1930, 1931, and 1933.
In the three following years, the economy rebounded strongly with annual growth rates of 11%, 9% and 13%, respectively. In the 1980s, the economy experienced a double-dip recession, with economic shrinkage in both 1980 and '82. However, economic growth rates in the following two years averaged almost 6%.
Thus, despite a failed economic stimulus program that pumped an unheard of $800 billion into the economy, a Federal Reserve that has pumped TRILLIONs of dollars into the economy and financial system via bailouts and "quantitative easing," record low interest rates for record lengths of time, and the historical trend of strong recessions being followed by strong recoveries, the Obama administration has somehow managed to produce a very, very weak economic recovery of less than 2% GDP growth.
- Getting back to the $800 billion economic stimulus program, let's recall what Obama promised in order to get the program passed: unless he got the program passed, unemployment could go as high as 8%. If it was passed, unemployment would drop down to 5.6%. Despite getting the program passed and the $800 billion spent, the unemployment rate has been above 8% for 42 months despite coming out of the economy three years ago.
Enough bad news for today, too depressing. Unfortunately, we still have a lot of bad economic news to review so we will continue this discussion tomorrow. Makes you wonder, and hope, if we have a Harry Truman of our generation lurking somewhere out there.
You know, the type of person that was never scared to make the tough calls, a person that was never scared to be honest and forthright with the American people, a person that knew how basic economics worked and applied that knowledge to the greatest economic miracle and transition in our history, a person, who knew that minimal government intervention, minimal deficits, and a freely operating free market was the best economic strategy.
Compare that to the current buffoons that have given has the weakest economic recovery every, high unemployment for a record three and a half years, skyrocketing deficits, TRILLIONs of printed money that at some time will unleash terrible inflation.
Term limits for these people currently ruining the economy and American dreams, as outlined in Step 39 of "Love My Country, Loathe My Government," cannot be implemented fast enough.
We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment
As we discussed last week, the U.S. Federal government national debt went over the $16 TRILLION threshold during the Democratic National Convention. This debt level is $5 TRILLION higher than when President Obama took office and will grow anywhere from about $3.4 TRILLION to over $7 TRILLION in the next five years if no fundamental change is made to the size, scope and wasteful spending of the Federal government.
Yesterday, we did some scenario analysis of what might happen if nothing is done to change the current trajectory of government spending. Hyperinflation, the collapse and devaluation of the dollar, widespread unemployment, a shrinking economy, draconian cuts to government programs, etc. were part of our discussion. Truly dire consequences if we do not get government growth and wasteful spending under control soon.
But there may be some hope. The following recommendations are from a post we did earlier this year in support of our United States of Purple President campaign. We proved in that post, and hopefully again in this post, that getting government spending under control is possible, is relatively straight forward, is easy to understand and sell to the American public, and will minimize the economic impact on most American citizens.
Most importantly, the work and analysis on how to do the reduction has already been done by many fine analysis organizations in the U.S. Given that the groundwork as already been laid, we do not have to wait for the political class to get around to doing what has to be done, waiting that will never result in an substantial debt reduction actions.
The data below comes from a wide range of government and non-government sources, representing some heavy analytical work and research into how to make our Federal government more inexpensive, efficient and effective without causing unnecessary harm or hardship to most American citizens. The organizations listed below come from the left to the right side of the political spectrum. Sources for the following government budget cut recommendations include:
•U.S. Public Interest Group
•The National Taxpayer Union
•General Accountability Office
•Congressional Budget Office
•Associated Press
•Senate Reports
•The Cato Institute
•Housing And Urban Development
1) Let's start with the tremendous amount of tax wealth annually lost to waste, inefficiencies, and criminal fraud in the following Federal programs:
•Medicare: $60 - $90 billion
•Medicaid: $30 - $40 billion
•Social Security: $100 billion
•One Federal Unemployment Program: $19 billion
•One Federal Food Stamp Program: $2 - $3 billion
•Total: $172 - $222 billion, midpoint = $197 billion
•Savings over ten years if you eliminated 50% of waste, inefficiencies and fraud - $985,000,000,000
2) Annual uncollected taxes due to the Federal government but not collected from tax evaders: $385 billion
•Savings over ten years if you just reduce the illegal tax evasion by 50% - $1,925,000,000,000 ($1.925 TRILLION)
3) The U.S. has about 84,000 combat troops unnecessarily stationed in Europe, about 30,000 combat troops unnecessarily stationed in South Korea, and about 25,000 combat troops unnecessarily stationed in Japan, serving defense purposes that were obsoleted decades ago. The Obama administration is about to unnecessarily deploy about 2,500 troops in Australia. If 75% of these troops were brought home, the country would save about about $212,000,000,000 over ten years.
4) If we cancel the production of the V-22 Osprey aircraft because it is over budget, likely to under perform, and has been designated as not critical by the Sustainable Defense Task Force, we would save $6.2 billion over the next five years.
5) If we cancel the production of the F-35 jet fighter which, according to the Sustainable Defense Task Force, "may represent all that is wrong with our acquisition process" and "would provide a capability that is not warranted considering emerging threats," we would save $22.5 billion over the next five years.
6) If we cancel the military Space Tracking and Surveillance System, which can be replaced with lower cost and more reliable options, we would save the Pentagon $5 billion over the next five years.
7) If we cancel the outdated, unreliable, and unneeded Expeditionary Fighting Vehicle, because the General Accountability Office has cited the program's history of cost growth, schedule misses (14 years late), and performance failures as reasons for terminating the program, we would save $16.3 billion over the next five years.
8) The General Accountability Office found that the Army, Navy and Air Force are wasting billions of dollars a year by purchasing items that were either never used or were never required. The GAO identified purchasing reform processes that could save $36.9 billion a year or about $369 billion over ten years.
9) Terminating various unneeded corporate welfare programs would produce substantial savings. These programs include the Overseas Private Investment Corporation, the Market Access Program, trade association subsidies for foreign marketing, subsidies to large agriculture business and wealthy farmers, tax credits for the blending of ethanol, the ultra-deepwater natural gas and petroleum research program, public timber sales subsidies, and Southeastern Power Administration. Ending these corporate welfare programs would save about $12 billion a year or about $120 billion over ten years.
10) The Federal government owns more than 55,500 buildings that are either not used or are underused. A detailed analysis suggests that if 50% of these buildings were eliminated over the next five years, not an unrealistic target, savings in the area of $48 billion would be realized.
11) According to government audits of Housing and Urban development, the Federal government wastes about $4.5 billion a year due to bad accounting and billing processes. Fix this problem and save about $45 billion over twelve years.
12) Using conservative estimates, annual earmarks, which are usually nothing more than thinly disguised ways for incumbent politicians to fund their re-election campaign with taxpayer money, cost the Federal government about $16 billion a year in unneeded expenses. Eliminating earmarks would save $160 billion over ten years.
13) According to the General Accountability Office:
•The Federal government has 15 different agencies overseeing food safety laws.
•It has more than 20 programs helping the homeless.
•It has 80 programs to help economic development.
•It has 82 agencies working on improving teacher quality, few of which are working if you see how poorly American kids are being educated vs. the rest of the world.
•It has 47 agencies working on job training.
•It has 18 programs working on food and nutrition assistance.
This type of redundancy results in tremendous waste and unneeded overhead, duplicate responsibilities, and inefficient service. A formal Senate report and analysis of the situation, estimates that between $100 billion and $200 billion a year could be saved by consolidating and downsizing these functions. If we take the midrange of the estimates, we end up with $1,500,000,000,000 ($1.5 TRILLION) in savings over ten years.
14) A Congressional Budget Office (CBO) report identified savings in the area of government spending on Science, Space and Technology - savings over ten years - $25.26 billion
15) The CBO found Agriculture savings over ten years - $3.87 billion. This does not include the termination of unneeded ethanol subsidies and other farm support programs that are no longer needed, given how well the American farming industry is dong today.
16) CBO - Natural Resources and Environment savings over ten years - $32.23 billion. These savings are mostly concentrated in programs that support corporations, not endangering basic government environmental programs.
17) CBO -Commerce and Housing savings over ten years - $5.42 billion. This does not include the savings that could be found by cutting back on the widespread fraud and mismanagement in government housing programs.
18) CBO - Transportation savings over ten years - $141.64 billion
19) CBO - Community and Regional Development savings over ten years - $21.94 billion
20) CBO - Education, Training, Employment, and Social Services savings over ten years - $45.42 billion
21) CBO - Income Security savings over ten years - $68.83 billion
22) CBO - Veterans Benefits and Services savings over ten years - $21.50 billion
23) CBO - Allowances savings over ten years - $2.54 billion
24) CBO - Administrative of Justice savings over ten years - $10.26 billion
25) CBO - Social Security savings over ten years - $388.52 billion. Part of these savings are compatible with the recommendation from "Love My Country, Loathe My Government" which was to raise the retirement age to 70.
Not included the $388 billion is another step from "Love My Country, Loathe My Government," which was to uncap the total amount of earnings subject to Social Security tax. The CBO estimates that raising the cap amount the way they want to would provide an additional revenue of $503.4 billion to the Social Security finances over ten years.
This estimate also does not include the final "Love My Country, Loathe My Government" Social Security recommendation which was to terminate Social Security payments to anyone whose net worth is over $3 million in assets, i.e. people like Donald Trump, Warren Buffet, John Kerry, Barack Obama, and Bill Gates who do not need the checks to live comfortably will not get them.
27) CBO - General Government expense savings over ten years - $5.21 billion
28) Since Obama came into office, the Federal payroll has grown by 231,000 civilian employees despite reduced tax receipts, the lingering impacts of the Great Recession, and the overall dire employment situation throughout the country. Since most of us would agree that we have not seen a corresponding rise in the quality of government service since these people have been hired, getting rid of them, like most efficient businesses would do, would not result in a degradation in Federal government services.
If we conservatively estimate that the weighted taxpayer cost (wages, benefits, and retirement costs) for these newly hired employees is $80,000 a year, than letting them go would result in annual savings of about $18.48 billion a year or $184.8 billion over ten years.
19) In any measure of education attainment, U.S. kids usually fare very poorly when compared to the education received by kids in other countries. Usually, the U.S. is bested by a dozen or more countries when it comes to comparing standardized test results. The Department of Education has been around for about thirty years and has done nothing to change this low performance.
Thus, given its nonperformance, the entire department should be eliminated. Cato suggests that this ill performing government entity be terminated at once, its responsibilities becoming the responsibility of the states to educate their own kids and the American taxpayer can save the annual $107 billion cost of the department. I would put a twist to this termination recommendation.
I would phase out the department over a four year period but would send the department's budget as block grants to the states during that four year phase out. The states could use the block grants to improve the teaching ability of their own state's teachers, improve their technology infrastructure, improve their curriculums, and improve their universities' teacher education curriculum.
At the end of four years, the states would be in a much better position to educate our kids, heaven knows the Federal Department of Education has not done anything worthwhile. 10 year savings - $909.5 billion.
30) Much like the Department of Education, the Federal government's Department of Energy has done nothing to get us to a coherent national energy strategy and policy and has not funded any breakthrough energy technologies. Terminate the entity and let the private market research and development new energy technologies. 10 year savings according to Cato - $382.8 billion.
31) Cato has done similar analyses on just about every other Federal organization, some of which we have already touched on. In order to avoid double counting, I will not go into their agriculture subsidy reductions and military spending reductions, given what we have already identified some of them above.
However, they have identified 10 year savings of $21.2 billion from the Commerce Department and if you conservatively accept only half of their Department of Transportation cuts, you get another 10 year savings of $424.4 billion.
These cuts alone would save the Federal government almost $9 TRILLION in expenses and costs over the next ten years with minimal impacts on needy Americans and ordinary American citizens. The $9 TRILLION does not include additional savings that would come from the following areas:
•More military cuts not listed above. Obama's own deficit reduction commission found that $100 billion a year could be taken out of the Pentagon's annual budget without endangering our national defense. Since the defense cuts suggested above do not add up to $100 billion a year, additional savings in this area are available.
•Reining in Medicare and Medicaid costs beyond the fraud and waste savings listed above.
•Deny Social Security payments in retirement to any American who has a net wealth of over $3 million.
•Savings from interest payments not paid because the Federal government took $9 TRILLION of debt out of play.
•The repeal of Obama Care which would save the country from expending an additional $300 billion over the next ten years, if you believe the recent analysis from the head actuary of the Medicare and Medicaid programs.
•The termination of the Federal Housing Authority, Fannie Mae and Freddie Mac government agencies and the associated hundreds of billions of dollars in taxpayer subsidies they are likely to consume in the next ten years.
•Elegantly privatize some government functions such as what Canada and other European countries have successfully done with their national air traffic control processes and postal systems and allow private contractors do the TSA screening function at all U.S. airports. We know from experience that they can do a far better job for less budget money than government employed TSA screeners.
•Elimination of traditional defined benefit pensions for future Federal government hires since most Americans no longer can receive such pensions. Thus, from a fairness perspective, Americans who cannot get a traditional pension should not be subsidizing pensions for government workers.
•Elimination of life long pensions and benefits for past, current, and future Federal politicians. They are in office to serve their country for a limited amount of time, not create a life long revenue and benefit stream for themselves. Besides, given their horrible performance of nonaccomplishments over the past few decades, they do not deserve such rewards.
People far smarter than me can determine the value of these additional efficiencies in government operations. In fact, Cato has already done all of this work and summarized it at their fabulous website, http://www.downsizinggovernment.com/. Their comprehensive analysis found a way to reduce annual Federal government spending over time by about $1.16 TRILLION a year, creating a ten year debt reduction of $11.6 TRILLION.
This is in the same ball park of our $9 TRILLION in identified savings and the additional unquantified savings in the list above. Two separate analyses, about the same results, indicating that this is doable without raising taxes on any American, rich or poor.
And while many of these cuts are one time spending reductions, e.g. the cancellation of some military hardware programs, the majority of these spending reductions are ongoing, annual spending reductions that will continue on beyond the ten year window. These include improved tax evasion detection, reduction in criminal fraud in government programs, and a smaller Federal workforce.
Thus, implementation of these changes will help insure that government spending reductions continue on into the foreseeable future and help keep the national debt from ever getting so large again.
The above cuts are a great start. However, one of the first acts as President in the United States of Purple would be to convene a commission of smart Americans that have already analyzed the need for drastically reduced government spending, put them in a room, and have them work together to overlay their plans together to come out with one overall plan, based on their expertise and past experiences in this area.
Members of this commission would be drawn from at least the following organizations:
1.President Obama's defunct and severely underutilized Deficit Reduction Commission
2.The Cato Institute
3.The Concord Coalition
4.The General Accountability Office
5.The Congressional Budget Office
6.The Urban Institute
7.The National Taxpayer Union
8.The U.S. Public Interest Group
9.Bipartisan Policy Center
10.Others TBD
There you have it. Almost $9 TRILLION in ten year savings, savings and deficit reduction that are attained without raising taxes and with minimal financial impact on most Americans except criminals that currently rip off the American taxpayer to the tune of hundreds of billions of dollars a year, defense contractors who are building unneeded military hardware, and unnecessary Federal employees.
And there is potential for more savings from the unquantified further steps listed above, e.g. more military reductions. However, it is unlikely to happen as long as we allow our current set of politicians to continually get reelected. Most of them have been in office too long and have not proven they are able, willing, or competent enough to get the job done.
We need leaders, starting with the President, who are willing to wade into the nitty-gritty working of government to wring out the fraud, incompetence, and inefficiencies that have accumulated over the decades within the Federal bureaucracy.
We need leaders, starting with the President, who are more concerned about the future fiscal integrity of the country than enjoying the overblown perks and benefits of being in office such as photo ops with athletic teams, five week vacations, golf rounds, high salaries for low production, etc.
We need leaders who can pull together and consolidate the budget work already done by the many organizations identified above and can make the sale to the American public that these are cuts are necessarily critical to the continuation of our democracy.
Thus, not only do we need to all of the budget reduction steps outlined and identified above, we also need to implement Step 39 from "Love My Country, Loathe My Government," a step which would implement term limits on all Federal political offices. Those currently serving in Washington are the ones that allowed government spending to get so out of control, they are indeed part of the problem and need to be "reduced" along with government spending, i.e. swept out of office with the rest of the unnecessary Federal bureaucracy.
We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment
Last week we dedicated a post to doing some simple math to try and get our hands around how big our $16 TRILLION national debt really is. We calculated how many times we could circle the globe if we laid 16 trillion one dollar bills end-to-end (60,000), how far out into space we could go if we laid those same bills end-to-end (back and forth to Mars about 2,100 times), etc. The other examples and subsequent discussion can be found at:
http://www.loathemygovernment.blogspot.com/2012/09/fun-with-math-making-our-16-trillion.html.
Although having a debt of $16 TRILLION is really, really bad, saddling each American family with about $140,000 each, it could get much worse before it gets better. We started doing that calculation last week when we used Obama's White House budget website, which shows that the $16 TRILLION is expected to grow another $3.4 TRILLION by 2017 under Obama's current budget assumptions. This would bring the total national debt to just under a whopping $20 TRILLION.
However, Obama's budget calls for some unbelievably aggressive growth rates in government tax revenue in each of the next five years, growth rates that have never been sustained over a five year period in the history of the country. Thus, we found the $3.4 TRILLION increase to be unfounded and highly unlikely not to happen. Using the long term average growth rate of the U.S. economy, around 3%, we recalculated the next five years' worth of tax revenue, keeping Obama's government spending assumptions unchanged. This results in another $7 TRILLION being added to our burdensome national debt, not his overly optimistic $3.4 TRILLION increase.
An additional $7 TRILLION in national debt theoretically adds another $61,000 or so to each American household's share of the Federal government debt. This would bring the total household debt responsibility to $200,000, a level that would never be sustained.
But it gets worse. Fortunately, for the political class and the country, the U.S. Treasury is paying record low interest rates to finance this ongoing and growing debt load. This is caused by what I call the "queen of the pigs" theory.
As most people know, many, many countries in Europe are economic basket cases. Greece, Spain, Italy, Portugal, etc. are having severe economic problems and their own outsized national debt difficulties, which has made their sovereign debt riskier. Riskier investments make it harder to get investors to buy your bonds and those that do buy, want higher returns for their risk. This has pushed the interest for some European sovereign bonds up into the 6-7% range.
The Chinese economy is slowing, the Japanese economy is still in a twenty year funk, the U.S. stock market has been volatile and generally providing low returns, and the U.S. housing market is still in the ditch. With so much economic uncertainty in the world, many investors are looking to park their wealth and money somewhere safe in order to not lose their principle.
The best place to do that recently has been with U.S. Treasury bonds. Basic economic theory prevails: high demand for a limited supply keeps your costs down. In this case, the demand is high for T-bills, the supply is limited, which pushes down the interest rates.
Thus, while we do have historically high national debt levels, the cost to service that debt is historically low. If you go to the official White House budget website and its EXCEL spreadsheets, you will find that the interest expected to be paid (about $224 billion) on the expected 2012 year end national debt level (about $16.3 TRILLION) is about 1.4%. Not a bad interest rate to be paying for such a large debt load.
Let's look at Obama's own numbers. By 2017, our national debt should be about $20 TRILLION according to the White House website. The cost of servicing that debt load in 2017, again, according to Obama's numbers, would be about $565 billion. This comes out to an overall interest rate of about 2.9%. Thus, our debt cost under this base case scenario will go from about $224 billion a year at a 1.4% interest rate to $565 billion a year at a 2.9% interest rate. Thus, Obama is planning to more than double the amount of taxpayer wealth diverted solely to interest payments and the interest rate we pay to service that debt in the next five years.
Hang in there, we are almost there from a math perspective. If you take Obama's 2012 expected tax revenue estimate and divide it into his expected interest payment budget line for 2012 you will calculate a number of 9.1%, i.e. about nine percent of Federal tax revenues will be used to pay interest. By 2017, he expects that number to increase by about 50% with about 14.4% of 2017 tax revenues to be used to pay for interest payments. All bad trends.
However, that debt load will have to be constantly serviced over time as the existing bonds are sold and new bonds issued. The very real concern is that at some point in time, the rest of the world's economic opportunities begin to improve. Let's say that somehow Europe struggles through its economic problems and gets itself on solid financial footing. Investors will start to look to Europe to increase their return on their wealth.
Let's assume that China gets out of its doldrums and with its large population starts humming again, from an economic perspective. An improving U.S. housing market and stock market may be better options for investors than getting 1.4% or so on its investment in Treasury bonds.
Thus, as the world's economy improves, including our economy, and the rating agencies, investors, and the rest of the world get more and more antsy about our ever escalating debt load, there is an excellent chance that there will be fewer and fewer investors willing to give the U.S. Treasury Department some of their wealth to invest. This will require that Treasury interest rates increase just to get money for servicing the debt and our deficit spending. Thus, those 1.4% and 2.9%interest rates may very soon be a pipe dream.
Let's assume that we start to look like Greece and Spain by 2017, given our ever rising debt load. Our interest rate would certainly no longer be so low. Let's assume that the 2.9% rate in 2017 is a more Greece-like 6%. Simple math would say that we would no longer be paying $565 billion a year to service our debt. At 6%, a $20 TRILLION debt financing cost would increase to $1.2 TRILLION a year, more than double up from $565 billion.
Under this scenario over 30% of the Federal government's tax revenue would go solely to servicing the $20 TRILLION debt.
If we assume that we are up to about 120 million households by 2017, on average every American household would have to pay $10,000 each just in 2017 just to pay for the debt servicing. Obviously, more taxes would then have to be collected to cover Social Security, Medicare, Medicaid, defense spending, and every other government function. Scary, scary numbers.
But we can make it worse without stretching the bounds of reasonability. We do not believe that Obama's revenue numbers are realistic, they are much too high. Let's assume that government revenue only grows around 3% a year for the next five years. Then, by 2017, the Federal government revenue stream is not $3.92 TRILLION, it is closer to $2.86 TRILLION. In this scenario, about 42% of every Federal tax dollar goes to debt servicing.
The good news, which is really really bad news, is that this may never happen. We may see an economic collapse long before we get to these 2017 numbers. If we get another recession within the next five years, highly likely, we may have such a suppression in government tax revenue that it cannot service the debt, leading to default. In that situation, any saving bonds or Treasury bonds that any American holds could be worthless, leading to economic hardship for many American families but especially elderly Americans who may have counted on those government securities for their retirement.
Going back to Obama's numbers, a 2017 best case scenario says that expected government spending, $4.5 TRILLION would quickly be reduced by $612 billion or 13% in order for actual tax revenue to equal actual expenditures, no more financing spending and deficit spending. Thus, best case in a default is that every government function, every Social Security check, every Medicare payment, every Federal employee salary, etc. would immediately be reduced by 13%. And I believe that the 13% is best case, it would likely be far worse.
There would be no immediate change/improvement in our economic situation after a default since no one would be willing to lend the Federal government any money. We would have to live only on what the government could tax collect with no deficit spending.
And these calculations do not even bring into account the likelihood of high or even runaway inflation. The Federal Reserve has done two rounds of "quantitative easing," which is nothing more than printing money and injecting it into the financial systems in the hope that it will eventually lead to economic growth.
The first two rounds of easing resulting in the printing of $2.3 TRILLION, money that is sitting somewhere in the banking system waiting for the right opportunity to be invested. If the Fed is not careful, if that investing comes all at once, inflation is likely to skyrocket, putting further pressure on the Federal government, raising interest rates dramatically, raising interest rates, and crushing individual household budgets and savings.
Not a pretty sight. But this is the path we are on. You may dispute some of my numbers, assumptions and calculations since I am not a financial or economics expert. I am just doing some simple, logical math with official government statistics and forecasts.
But I doubt anyone would arrive at a substantially different overall conclusion using any other approach. Using Obama's own numbers, we are heading for a fiscal meltdown that could happen within just a few years, taking our economic well being and our democracy with it. Using more realistic numbers than the official Federal government.White House view results in a much worse economic scenario.
Study Germany in the 1920s and Argentina a few decades ago to see what an economic meltdown and default looks like. Observe what happens to Greece and Spain in the next six months or so to see what is in store for us.
But there might still be time to get our outrageous Federal government spending habits under control. Tomorrow we will go through a detailed plan that will remove $9 TRILLION from our debt load. And best of all, it does that without raising taxes and with minimal impact to most American families.
It can be done. The question is whether it can be done by those sitting in the White House and Congress today. Their lack of courage track record says they cannot and thus, they need to all be removed from office on November 6, 2012 if we are to have any chance of avoiding what I have laid out above.
Note: for those of you who want to tinker with the Obama numbers we used above, go to the following web page for the original numbers and forecasts:
http://www.whitehouse.gov/omb/budget/Historicals
We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment
A few weeks ago we did an extensive four day series on how disastrous Obama Care is and how bad it will be for the country if allowed to fully deploy. The legislation never understood the root causes of our escalating health care costs and thus, never put together the right solutions for addressing and resolving those root causes.
Besides this obvious shortcoming, we extensively covered the many other reasons why this is one of the worst written and worst thought out laws in the history of the country. It has and will continue to stifle economic growth, it will raise taxes on every American, it will end up rationing health care, and will reduce individual freedom and liberty for every American.
And worst of all, it will not come close to meeting its fundamental goal since ten years from now, according to the Congressional Budget office, tens of millions of Americans will still not have health care insurance coverage.
It is not a pretty picture with little, if any, redeeming positive aspects. Unfortunately, four posts were not enough to cover all of the bad news. We need today to cover the latest bad, and some good, news of what is going on relative to Obama Care (the bad news) and what is going on relative to lessening government intervention in the industry (the good news):
- Anyone with a basic understanding of economics, marketing, or life knows that the best way to keep prices low and competition sharp in a marketplace is to have lots of vibrant, hungry competitors. Obama Care does the exact opposite.
According to an article from the New York Times that was reprinted in the August 26, 2012 issue of the Tampa Bay Times, the exact opposite effect is going on as a result of this law. The article starts by pointing out that Aetna, one the nation's largest insurance companies, is buying Coventry Health Care, primarily hedging their bets that if Obama gets reelected, Obama Care is unlikely to go away. Coventry is a large provider of Medicaid and Medicare services.
Additionally, Wellpoint is purchasing Amerigroup and Cigna has already bought out HealthSpring. All of these purchases are driven by Obama Care. Thus, rather than increasing competition in the health care business and driving down costs naturally, Obama Care is causing the market to consolidate, giving increased power to fewer companies, which has to restrict competition and drive up costs.
Remember how politicians talked about the five largest banks and how they "were too big to fail?" Same thing is going on in the health care business. Government, politicians, and giant private companies colluding to scratch each others' backs for their own mutual good and to the detriment of lowering costs and helping out Americans.
- One aspect of Medicare that we have not talked about is the Medicare Advantage program. Medicare Advantage allows senior citizens to step up the medical care that get in their elder years by splitting the the cost with the Federal government when they purchase private health insurance.
This allows them to avoid using the traditional single-payer Medicare process and have more flexibility and control over their medical needs and decisions, all of which is a good thing. Seniors shop and compare various insurance options, back to our competition theory from above and how it increases effectiveness while decreasing costs, and chose the plan that best meets their personal needs. Almost 25% of seniors already avail themselves to this choice option for their Medicare coverage, a percentage that has been growing larger over time.
From a private health insurance company's perspective, Medical Advantage provides them additional flexibility in the coverage they offer, which in turn has resulted in better benefits and service over traditional Medicare. A recent Harvard University analysis found that due to these characteristics, Medical Advantage is actually 9% more cost-effective than traditional Medicare.
Everybody wins. Citizens get better and more flexible health care services, insurance companies like the program and compete for it, and the program is cost effective, exactly what the country is trying to do with its high health care costs. Great idea and good implementation.... until Obama Care came along.
In order to keep the apparent costs of Obama Care down and to fund its components, the legislation was written so that it slashed $156 billion from the Medical Advantage program over the next ten years. Obama has apparently argued that Medical Advantage is too expensive, which is nonsense since according to the Harvard researchers, it is more cost effective than regular Medicare.
If anything, Obama should be learning what makes the Medical Advantage program more cost effective and taking those lessons and applying it to the larger Medicare universe, not slashing and burning what is working better today. Idiocy.
Now, the Obama administration tried to hide this insanity by starting a pilot program to cover the decimating of the Medicare Advantage destruction Obama Care had wrought. However, the Government Accountability Office (GAO) recently released a study saying this experimental program is a disaster and should be terminated. The New York Times did an article covering this sham (http://www.nytimes.com/2012/04/23/health/policy/gao-says-medicare-test-project-is-wasting-8-billion.html) on April 22, 2012. The Times article agreed with the GAO's findings, while also citing other authorities, showing how this experimental program does not come close to matching the effectiveness of today's Medicare Advantage plans.
The insanity of this legislation never stops. The one component of Medicare that might actually be working effectively and efficiently and Obama wants to kill it by drying up its budget.
- The Wall Journal Street recognized the economic and reality fallacy of Obama Care fully two years ago when they insightfully and correctly wrote the following passage, before the rest of the world found out how Obama Care was going to take over $700 billion out of Medicare:
"The drastic reductions in Medicare reimbursements under ObamaCare will create havoc and chaos in health care for seniors. Many doctors, surgeons and specialists providing critical care to the elderly—such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease—will cease serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.
Everyone should know by now that Medicare suffers dramatic long-term deficits and unfunded liabilities, and is in need of fundamental, structural reforms. But effectively refusing to pay the doctors and hospitals that provide the medical care the program promises to seniors is no way to solve that problem."
Again, we keep coming back to the fact that Obama Care never understood the myriad of underlying root causes of our escalating health care costs and the implications of the legislation's unintended bad consequences.
- One aspect of the legislation that we failed to cover over the initial four posts is the insanity of exemptions that the Obama administration has granted. Since the law was signed in March, 2010, over 1,500 waivers to the law's components were granted, delaying compliance with the law until a later date.
If you do some simple math you find that since the law was signed, on average, almost 13 exemptions were granted to the law's provisions EVERY WEEK on average from the day it was signed. This comes out to more than two exemptions being granted every BUSINESS DAY since it was signed. No one can make the case that this was a well written law if you have to grant so many exemptions to the law's provisions in such a prolific manner.
- There actually is a little good news on managing health care costs floating around that Obama Care has not yet destroyed. A recent edition of Business Week contained an article regarding some good work New York state is doing with its Medicaid program.
New York, like most states, has had a rough economic over the past few years, putting pressure on the state government to run more leanly and cost effectively. New York has overhauled its Medicaid program, a big, big budget item, so that a lot of its Medicaid effort is via private insurance entities. Unlike many other states, New York has set out a risk/reward program for the private Medicaid providers in its state.
If a private Medicaid insurer in the state does not meet performance criteria over a three year period, they can have their contract with the state terminated. If they exceed performance measures, they get financial rewards. New York currently has 45 state Medicaid programs in operation in the state so the competition for Medicaid program approval and performance is high.
What is the result of promoting competition and actively managing the root causes of health care service? New York's Medicaid programs score higher on a whole range of health care criteria, including primary care, ambulatory care, breast cancer screening, and cholesterol control, than other large population states including Florida, Illinois, and California. New York encourages competition which enhances health care delivery while Obama Care wants to kill competition.
- One last piece to finalize the designation of Obama Care as the worst piece of Washington legislation that was ever written. The following video link contains a face-to-face confrontation between Paul Ryan and President Obama a few years ago where Ryan takes apart the program, highlighting many of the negative aspects of Obama Care that have since unfolded:
http://janmorganmedia.com/2012/08/ryan-faces-obama-and-takes-obamacare-down-in-six-minutes/
Ryan is logical, prepared, and correct, he most eloquently states what we have proven over the past five posts relative to Obama Care: yes, it is Constitutional but it is also a disaster that will not work, will increase taxes, will increase the government bureaucracy, will significantly increase our national debt, will stifle our freedom, will restrict health care service, and will stretch the nation's current health care infrastructure until it breaks.
We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment
