Monday, December 31, 2012

Obama - Over the Cliff We Should Go?

How else to explain his bizarre "news conference".  News conference?  At a news conference the press asks questions.  This was more like a campaign event...something this president is pretty good at as long as He has his prompter, which He didn't have today.  It's not a campaign event.  I mean he's not running for office; But more on that later.  Why would He, as delicate negotiations were being concluded, mock and chide the Republicans?  There are a few goals, not necessarily mutually exclusive, He may be attempting to accomplish:

1. He was trying to sabotage the talks.  This is the most obvious one.  If so, this is not about doing what's right for the country.  This is about taking advantage of His strong political position to further damage the Republican Party.  Krauthammer says this is short-term oriented but I think not.  Going over the cliff and being able to put the blame on the Republicans will come in handy in a couple of years....say November of 2014.  The country could be forced into another recession for which the Republicans would be blamed which could go a long way to getting Democratic control of the House and extending their control of the Senate.  At which point He'll have two years to implement his far left agenda.  Hey, at that point maybe He could get the 22nd Amendment to the Constitution repealed?

2. There was some trouble in the Democratic ranks and Joe Biden needed some help.  So the President came before the people to give us an update on the progress and managed to buck up his side by assuring them that this was just the beginning of the tax increases.  He promised there would be more to offset the sequestration cuts and help offset or reduce the cuts needed from Medicare and/or Social Security.

3.  The news conference with no questions also made life more difficult for Senate Minority Leader McConnell and Speaker Boehner as it revealed to their rank and file that more tax increases were coming.  But with the Republicans reeling from the election loss and the multiple self-inflicted wounds leading up to today what else can they do?  Vote down the legislation and lead the country over the fiscal cliff?  See part 1 above.

Finally, I don't use pejoratives when discussing the President of the United States so I'm not going say that this guy is a real jerk.  I will also refrain from calling Him an arrogant asshole.  But I will say that as long as I've followed politics I've never seen a president act in as unprofessional manner as this guy.  He is, without doubt, the most duplicitous and rude president of my lifetime.  But unlike Bill Clinton, He is faithful to His wife.  And that is a good thing.

Brewing Up Confusion Krugman Dec. 31, 2012

Mr. Krugman, you are officially part of the problem not the solution.  When you say "the president has already cut spending sharply" that is pure fabrication. And when President Obama said on "Meet the Press" that he "cut spending by over a trillion dollars in 2011", that too is pure fabrication.

In fiscal 2010 total federal spending was $3,456,213,000,000.  In fiscal 2011 total federal spending was $3,603,213,000,000.  So, that's $147B MORE.  Mr. Obama is referring to reductions in increases from a budgetary baseline but reductions in increases are not cuts. 

Now as Nobel Laureate Krugman often notes the crucial metric is growth of debt as a ratio to GDP.  Ratios of less than 90% don't appear to have significant impact on growth but once past that threshold "are associated with 1% lower media growth."

Your attack on "Fix the Debt" is unhelpful and illustrates why you are part of the problem.  I guess you include them in the "Prophecy of Doom" cult.  But they are more inclusive of all options required to solve the problem whereas you and your cult are rather one-sided and exclusive in your position.  By this analysis the Krugman Cult is, well, a cult.

But there's one thing on which we can agree.  The Republican call for cuts in entitlement spending goes against the wishes of their constituents.  Polls show unequivocally that cuts to Social Security and Medicare are not popular.  A majority, even of those sympathetic to the Tea Party, are supportive of Social Security and Medicare.  Once these constituents realize the impact the Republican positions will have on them, the Republican Party will disintegrate.

So have no fear Mr. Krugman, you and your ilk will surely win the day.  And eventually we'll all be worse off.

Thursday, December 27, 2012

Why, God? Maureen Dowd Column in NY Times Dec. 26, 2012

Why, God? To paraphrase Hitch when he asked the same question, "the universe screams, why not?". 
I'm not an atheist but I'm close.  I believe in a universal-consciousness but not a universal all-knowing controlling intelligence.
If one observes what happens in the world it seems to happen exactly as one would expect without a universal puppet-master.
The question I ask is why did God create?  If one accepts that "God is all-powerful and all-knowing" as noted by Father Kevin then one has to accept that God is also prescient and that He created evil.  The angels that rebelled were from God and he knew what they were going to do and create on their own before he created them. 
Sts. Augustine and Thomas Aquinas struggled with this question and could not come up with a satisfactory answer except, that it pleased Him to do so.  Well that bespeaks a selfish, cruel intellect that would create such suffering for his personal entertainment. Why, to assuage the boredom of being God?
After reading Christopher Hitchens the doubt that began in 1996 shortly after my mother's untimely death increased. I tried to be an atheist but found it depressing.  My wife introduced me to Eckhart Tolle and his secular spiritualism and I found peace in being or at least attempting to be "present".
After episodes like Newtown and Webster, I'm even more convinced that Mr. Tolle and the Buddists may be onto something.  Life is about learning to live with and reduce pain.

Tuesday, December 25, 2012

Krugman Cult...yea, there's more

Another Commenter to Krugmans “Prophecy of Doom” wrote "We got into this situation because of Bush's tax cuts, two wars unpaid for, and the Great Recession that clobbered revenue and imposed costs for jobless benefits, etc".

The roots of the Great Recession, because it was based on the housing industry and government/market excesses goes back a several decades. So I'm going to set a premise you may or may not agree with; the Great Recession was inevitable plus or minus a couple of years.

That being said adding up all the Bush Administration tax cuts, wars and Medicare Prescription Drug Benefit (something the left would have made even more generous) comes to a cool $2.9T. Serious money so our deficit would now be $13T instead of $16T (including intra-governmental loans)

Question: Would we not still have a serious problem??

Krugman Cult Continued

A Commenter to Paul Krugman’s “When Prophecy Fails” wrote, “2) You didn't really respond to my argument that it is the softness in the economy that is holding interest rates down, not the Fed's actions. Another way to look at this is to ask what has happened to the $3 trillion in cash that the Fed has injected into the economy by buying Treasuries. People are happy to leave them in near-zero interest earning bank deposits. And banks can't find borrowers in the private sector.”

I'll take a stab at responding to point 2. To the extent that the Fed is holding down short-term interest rates DUE to the softness of the economy then yes. So, it is the Fed that determines short-term rates. But, it would be nice to know what interest rates would be had we a truly free market.

The $3T sits primarily in bank accounts doing nothing except perhaps earning a pittance for its owners.

But low interest rates typically signal to the market that long-term investments are a good idea. The problem lies in the ability of the Fed to unwind all the QE programs and take the $3T OUT of the economy before it get used to fund another boom/bust and potentially inflationary cycle.

The Federal Reserve may function based on Keynesian Economics but although it is loath to admit it, it is aware of the Austrian implications.

Klugman Cult

Here's a cult to fear, the Krugman cult and its faith in government control of interest rates. Let's have some clarity about these low interest rates. Short-term interest rates are controlled by our central bank, the Federal Reserve, a quasi-government entity. But not only does the Fed control interest rates, it's also a significant customer since it owns about $1.7T of bills/bonds in varying maturities.
The Fed has less control over long-term rates. So the Treasury seems to be purchasing more short-term bills at lower interest rates when they should be locking in those 30 year 3% long-term rates but that would cost them (us) more now.  Short-term thinking leads to long-term problems.  Want proof; Despite a recent auction in which $32B in 30 Bonds were tendered only $13B were accepted.
So, have no fear, the Federal Reserve is helping out by buying bonds with created money which increases the money supply dollar for dollar. There's nothing to worry about....Have a great Holiday....all is well. The government has everything under control, even the interest rates.

Thursday, December 13, 2012

Dr. Krugman, "We are not having a debt crisis"

"We are not having a debt crisis". Really??

Interest on the debt currently makes up 6% of the federal budget, call it $227B per year on a $3.6T 2011 annual budget that was $1.9T a mere 12 years ago. It should only be about $2.75T assuming a 3% inflation rate.

Currently interest rates are at historical lows, as Dr. Krugman notes, but it will not always be thus. The 10 year bond currently pays about 1.68%. The long-term average is 5.57 or 3.32 times higher. When rates come back just to the historical average the cost of our debt ASSUMING THE DEBT REMAINS THE SAME, will be about $754B per year...a tad more than the entire current annual Defense Budget.

That additional $527B will come out of the defense or discretionary components of the budget (the rest of the budget, known as entitlements are on autopilot).  The discretionary portion is only 18% of the current budget. Assuming defense remains at its current level it would consume just about all of the discretionary spending that "includes such categories as law enforcement, education, homeland security, environmental protection, transportation, disaster relief, medical research and foreign aid" according to the Concord Coalition.

Don't tell me we don't have a debt crisis.

Friday, December 7, 2012

Where the Keynesian Solution Leads

Let's buy into Dr. Krugman's all in Keynesian solution.  The prescription to the problem is to increase debt (while interest rates are so low) to stimulate the economy to the point where economic growth (a new bubble) will eventually increase revenues.  The increased revenues would be used to reduce the deficit (while increasing the debt albeit more slowly).  I don't recall Dr. Krugman's specific position on Social Security and Medicare but I expect reductions in benefits are probably not a priority.  So demographics will continue to add to the debt as we monetize the Social Security trust fund I.O.U.'s.  And Baby Boomers will continue to make more demands on Medicare which will increase the debt much more than Social Security.

So while the debt continues upward the economy will pick up steam according to Dr. Krugman.  What happens next?  As the economy heats up the Fed will need to real in all that money it printed (with Dr. Krugman's blessing) to keep inflation low.  How?  By increasing interest rates of course.  What the consequence of increased rates?  The percentage of the federal budget that goes to paying interest on the debt goes up.  Currently net interest payments along with Social Security, Medicare and other “mandatory” spending make up 62% of annual outlays, so as interest rates rise the percentage of the annual budget for discretionary spending will go down.  Discretionary spending could be maintained or even increased but only at the expense of defense…not a bad thing in my opinion.  But it can’t go to zero.  There are people trying to kill us and all politicians say that protecting the American people is the number one priority of government.  It’s just not going to be the number one priority in the budget anymore.

But even you hardcore, irrational, arithmetically challenged leftists can’t deny where this will lead.  Social Security, Medicare, interest on the debt will become a higher and higher percentage of the federal budget.   Depending on where interest rates have to go to unwind all that Quantitative Easing it could consume 90% or even more.  This will force reductions in entitlements even more draconian that if we had addressed the problem sooner.

The other way out is a move to true free market capitalism coupled with smaller government (reduced entitlements, less defense spending, etc.), changes in corporate structure and a gradual return, perhaps initially, to a hybrid hard money financial system.  But Dr. Krugman would certainly not approve.