Why was it so hard to get a budget passed that kept the federal government open for the remainder of this year? Why did it take the imminent threat of a complete government shutdown to broker a deal that cut $38.5 billion from the 2011 budget? The American people have a right to know the answers to these questions.
To be sure, a government shutdown of the magnitude nearly realized would have been disastrous. For weeks, the entire country was consumed with the possibility that basic government services would have grinded to a complete halt. Finally, after three years of record deficit spending, President Obama engaged and struck a deal with House Republicans to cut spending.
Rather than eliminating spending, however, some of those cuts were actually a rescission of spending authority for projects and programs that the government wasn't going to need anyway. The Census Bureau, for instance, lost $6.2 billion for the remainder of 2011 -- all money approved to conduct the 2010 decennial census. Now that the census is over, the money isn't needed.
Soon after the deal was announced, the Congressional Budget Office ("CBO") released a report that projected the total "real" cuts would equal a meager $352 million. That's roughly 1/1000th of one percent of the federal budget. Essentially, this means that Congress and the White House battled it out over policy matters for weeks on end to fund agencies at basically the same level as last year. Indeed, decades of spending gluttony on the part of both Republicans and Democrats has created a culture in Washington where the real cuts in federal spending are harder than ever.
Nevertheless, the combined $38.5 billion deal of real spending cuts and budget rescissions means the federal government will have less authority to spend taxpayer money this year. In Washington, that's a real victory.
All of this leads to a sobering realization. Uncle Sam is not quite ready for the kind of austerity it will take to bend the spending curve down to a sustainable path. House Republicans approved a 2012 budget last week that promises to cut federal spending by $6 trillion over ten years. True to form, President Obama responded by announcing his goal of cutting spending by $4 trillion over the next 12 years. Of course, the president doesn't really hope to cut spending as much as he wants to reduce the deficit. And the way he wants to reduce it?
By raising taxes.
The president says that spending cuts alone won't eliminate the deficit, but thus far he has refused to offer any substantive proposal to reform entitlements like Medicare and Medicaid, the greatest sources of uncontrollable spending. A report last year from the Medicare trustees revealed that the program will face a $38 trillion shortfall over the next 75 years. Moreover, the CBO estimates that Medicare alone will consume 12 percent of our annual economic output. The President has offered no proposal to tackle these spending crises, and Democrats are already preparing to scare seniors into believing that Republicans want to end rather than fix Medicare.
If the budget battle of 2011 threatened the worst government shutdown in memory in order to squeeze out $352 million in real spending cuts, then it is difficult to imagine what will happen when Congress begins the serious work of tackling entitlements and other discretionary spending. In fact, at the rate we're going -- borrowing more than 40 cents on every dollar that Washington spends (mostly from China) -- we'll have to cut spending by 40 percent annually to balance the budget. We'll have to cut even more if we hope to make a dent in the national debt, which is now fast-approaching the $14.3 trillion ceiling.
At the bottom line, the reason it's so hard to achieve real spending cuts is that the way Congress approves spending is fundamentally flawed. And while this year's prolonged budget battle managed to keep down spending increases across the federal government and make only slight reductions in a handful of programs, the real victory is that House Republicans have changed the conversation.
When you have the president who signed multiple pieces of trillion dollar legislation start announcing a goal to cut spending, you know that a victory for fiscal responsibility is within reach.
Letter to the Editor StumbleUpon| Digg| Reddit| Twitter| Facebook
Rep. Darrell Issa (R-Calif.) is Chairman of the House Committee on Oversight and Government Reform.
Is a victory for fiscal responsibility within reach?
Members of both parties claim that a disaster was avoided but the real disaster is still right ahead, the debt ceiling.
If the debt ceiling is raised with token cuts we are doomed.
The University of Texas just purchased a billion dollars of gold and little wonder. The American dollar is the real disaster as the FED continues to pump out fiat currency with no end in sight.
What's it all add up to for the public? The Congress is incompetent and the budget deal pretty well proves that.
For decades no matter was too small for Congress to wrap their grubby hands around. The Congress has passed many bad laws like the Americans with Disabilities Act which have prevented growth or left American companies open to attack.
Example: Chipolte's was sued by a professional litigant claiming that he couldn't see his food being prepared because he was in a wheelchair and the counter was too high. Although a lower court judge threw the suit out because the judge felt the litigant was a professional litigant who simply looked for opportunities the case was reinstated and the Chipolte's was ordered to lower their counters. If Chipolte's had been a small chain or a mom and pop operation this would probably have driven them out of business.
From a choking regulatory environment to dozens of agencies who oversee every conceivable operation of every business, the business culture has never been under a heavier load and it shows because the business sector is hurting.
Add to that that there are no penalties for faulty government operators and there is a standard of double indemnity working against the public.
A perfect example of that is the incompetent management at the FAA. Don't take this the wrong way but I thought the near miss of the First Lady's plane was quite appropriate. Those how support big government almost getting killed by big government was simply classic.
It highlights the fact that many government agencies are simply incompetent and a trillion a year is wasted on these agencies and what's the point?
Then there is Congress, stalemated over how much wealth they can seize from the public and how to spend it on dubious quests.
There is very little faith that the U.S. Congress is interested in resolving or solving anything and the purchase of a billion in gold by the University of Texas may be a tipping point. If you see gold hit $3,000 an ounce the FED is dead and will be rendered inconsequential.
And there's not much that the government can really do. While Obama goes around bragging about raising taxes on the rich the politically elite already know that's a dead end.
Why is that? Hauser's Law. The law shows clearly that whether the government raise taxes or not the revenue is always around 19.5% of the GDP. That's it.
http://en.wikipedia.org/wiki/Hauser's_Law
The only way out is to cut government spending and neither party has shown the slightest commitment to that.
Two hyperboles.
1. "we are doomed." What does that MEAN? Is the world going to end? Will I not be able to feed my family? Civil War? What?
2. "Neither party has the slightest commitment." Overstatement. True, the Repubs have given a token effort, but I will at least give them the credit that they DO have a "slight commitment."
What it means is that if our currency deflates or fiat currency becomes questionable you are subject to the whims of a political class and your personal integrity will not be a matter of who you are, but who the government determines you are. In effect, you are what you own but that could change and rather quickly if the dollar loses its value as currency. That doesn't sound like a gratifying experience to me.
As far as commitment, a spending increase of 3.3 billion which is heralded by both parties as a 38 billion dollar spending cut indicates there is not the slightest committment to cutting spending. It's simply pretend spending, not even "slight commitment" since there was no spending cut. No spending cuts means no commitment.
The real hyperbole comes from those who claim the FED can continue on their merry way without consequence.
Consequence is not hyperbole and the consequences are manifesting themselves right now. It wouldn't be the first time a government destroyed the currency and destroyed an economy.
In fact, I would bet you have to eat and your food costs are going up right now thanks to a declining dollar.
You can't eat hyperbole but you can pay more to eat the effects of doomed policies.
You're living with the effects created by the Republican led Congress and President Bush - and then you blame the very people that saved us from another Great Depression? All economists said the government needed to increase spending during such a severe downturn to fill the economic void. Even Bush, to his credit, agreed to TARP, the auto bailout, etc. Were mistakes made - sure - but what was the alternative - a Great Depression? Remember what you mother taught you- an ounce of prevention (regulation) is worth a pound of cure (deficit spending ). Get our financial house in order, but anything that eliminates any job, government or private sector should be avoided at this time
Not "all" economists, just those addicted to the Keynesian models. Several companies should have allowed to go bankrupt - GM, Chrysler, Fannie, Freddie, AIG, etc. Yes, jobs would have been lost, and gained later, but we threw their salvation on the backs of the American taxpayer rather than allowing them and their poor business models to affect us down the road.
Letting them fail would have been a more permanent solution. What we are dealing with now is temporary. The problems inherent in several of those companies are still with us. Now, we have to deal with a pending inflation issue AND high unemployment ANYWAY.
The alternative was NOT another Great Depression (which, btw, found its solution NOT in government overspending, but in industrialization and sacrifice); that canard is continually thrown out by Keynesians when their solution DIDN'T work in the 70s, and ours DID work in the 80s.
On one hand you say another Great Depression was not in the offing and on the other hand, the companies in question should have been allowed to fail. Since you can't prove a negative, and in 2008 ALL economists were worried about the same thing, including conservative economists, that stipulation of no Great Depression is false. You don't know for sure. As far as letting the companies fail - I agree except when there were so many with so many workers involved - we're talking millions here - that alone could have pushed us into Depression. The cavalier attitude that the second-guessers have about this is unconscionable. We don't have an inflation issue and unemployment, while still too high, has come done slowly, but steadily since those huge government programs you don't like were put in place.
We've already the experience of the government not doing enough in the 1929-32 time frame to create the Great Depression. I am thankful that cooler heads prevailed so we can confront the issues we have today that are manageable, rather than the tragedy wrought by another Great Depression. Thank you GW Bush and Barack Obama for doing what was right, not what was ideological.
The only people that are cavalier are the Keynesians that blithely ignore the balance sheet consequences of this government largesse and the adverse monetary effects caused by the struggle to finance it. Really, if the economic response is anemic, Krugmann/Keynesian logic dictates increasing the crack dosage to the crack addict.
So what's the problem? Monetary aggregates and interest rates are not linearly proportional. The Fed has mismanaged itself into a corner. Unconscionable.
They must now thread the needle to avoid inflation. Fat chance of that. I defer to Dr. Hussman:
Charles Plosser and the 50% Contraction in the Fed's Balance Sheet
I can't let this stand. As a money manager, I assure you that this man has prolonged what would have otherwise been a very predictable recession. The housing collapse, (helped along by Schumer,Dodd, and Franks) amplified the problems. But taking MORE money out of the system with taxation, (and not so public fees, permits, etc.), does not help us at all. We now have 22 million public sector jobs; and some 11 million in the private sector. Common sense tells you that cant continue, if you actually stop to think about it!!! His ridiculous approach to destroy the private sector started with the banks and our auto companies. He has NO authority to do what he did there. He continues to thumb his nose at his delimited powers from the constitution. As he oversteps his authorized powers, he exercises power he doesnt have in the private sector. No, he has made a recession turn into a full -fledged depression. And then he does his Chicago best to shout down anyone who says otherwise...just ask S&P!!! No, this is on him, and him alone.
Well, obviously I disagree... the seeds of the economic downturn started long before Barack Obama came on the scene, let alone his election as President. I'm glad he and George Bush teamed up to save the banks, auto companies etc. Remember all of that was begun by Bush, listening to all economists at the time what would happen if he didn't support the financial and auto industry. To Obama's authorities - really? from early in the twentieth century the president has exercised authority over private industry to halt strikes, commandeer production facilities, aid the country is bad economic times... that is nothing new. And gladly, so did Bush and Obama. You should get your facts straight though - BTW - this country employs 153 million people of which 22 million are public sector jobs ...leaving some 130 million in the private sector ... So I would cool your jets on that huge error. Look it up: http://www.workforcewv.org/lmi.....tional.pdf
Read Full Article »