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Obama's Budget is a Fantastic Comedy

Monday, February 14, 2011, 11:34 PM

Fantasy or comedy?  I couldn't decide which way to label the Obama budget, so I went with both.

The bottom line is that the Obama administration has brought forth the most unbelievable revenue increase that I have ever seen proposed in a budget, a whopping 65% increase in revenues in just four years, which will - miracle of miracles - drop the deficit as a percent of GDP from nearly 11% to just 3.2% over those same four years.

The only problem with this scenario is that it stands virtually no chance of actually happening. Revenue will be far lower than projected and the deficit correspondingly higher.

One of my abilities is spotting bogus numbers quickly, and another is to make reasonably accurate projections without a staff of hundreds. For example, in 2009 I called for the Social Security fund to soon begin dipping into negative territory when the CBO was clinging to the illusion that 2017 was the 'below zero' date. Turns out I was right, and it wasn't a terribly difficult call to make. A little trend projection here, some assumptions about early retirement there, a higher and more realistic assessment of peak unemployment, and - voila! - a reasonably accurate projection was made.

Let's look at the recently released Obama budget, which is so far off the mark that no special abilities are required beyond the ability to suppress the urge to chuckle:

(Source

The green circles show the rosy deficit-reduction estimates, while the red arrows indicate the incredible 65% increase in federal revenues over a single four year period.  65%! How likely is that? Is it realistic?

Perhaps a little history is in order here. Let's start by asking a question: In any other four-year period, have federal revenues increased by 65% or more?

The answer is yes, but it’s a very qualified yes.

In the first chart below, the red bars show the proposed revenue increases on a rolling four-year basis. That is, each year is compared to the revenue period four years prior. The blue bars are the same, only they represent actual history, not projections while the red bars are the Obama team projections.

The second chart is a comparison to CPI to make a point.

Over the past 60 years, there have only been three other years with a similar or higher rate of revenue growth to the one estimated to occur in 2015: 1979, 1980, and 1981.

There are two things we might note about those prior three years ('79-'81) of rapid federal revenue growth. The first is that those same years represent the second, first, and fourth highest rates of yearly inflation in 50+ years of data, coming in at 11.3%, 13.5%, and 10.4%, respectively.

Does the Obama budget assume similar enormous rates of inflation? Nope. It assumes 2% or less inflation in every year of its projections out through 2015.  So it's not inflation that will be driving the enormous revenue growth.

Another reason we might anticipate extremely strong revenue growth is because of a rapid expansion of GDP.

Here again in 1979, 1980, and 1981, we saw something very unusual in the data: Those years clocked exceptionally robust GDP growth at 11.7%, 8.8%, and 12.1%, respectively.  Out of 65 years of data, those were the 4th, 5th and 17th fastest years of economic expansion.

Could that be the driver behind Obama's optimism? Is his team calling for double-digit GDP growth over the next few years?  Do they envision 'top ten' like performance for a couple of those years?

Not according to their published data.

So we can't really defend the projected increase in revenues on the assumption of massive economic expansion either. The Obama team does predict a pretty decent expansion - but on a relative basis, it's nothing spectacular and is less than half that which drove the revenue expansion in the 1979-81 period. 

So the 65% revenue increase will not be driven by either inflation or GDP expansion.

What if we compare the projected increases historically on an inflation-adjusted basis - would that put them in a better and more believable light? 

In this next chart, we simply chart each year's federal revenues after correcting for CPI (we used the Obama budget CPI assumptions for the years 2011 - 2015 to discount the future so everything is in 2010 dollars).

Are these numbers any less fuzzy? Nope. Even on this basis the proposed revenue increases are the largest on record, bar none.

Conclusion

There is almost no chance of the Obama revenue projections coming to pass, unless massive tax increases are part of the deal, and as far as we know, they aren't.

The only other alternative is that the United States might enjoy some pleasurable combination of quite rapid growth, a fall off in unemployment to match, tidy increases in wages, and a low CPI.  But the probability of all of these coming to pass is very, very low (although I will admit that they must be very appealing to an incumbent. Appealing? Yes. Likely? No.)

Here's my prediction; we'll have sub-par growth in 2011 and relatively weak growth in 2012, with a 50% chance of a double-dip appearing in one of those years. As such, revenue growth will be slightly below average between here and 2015.

Using these assumptions, and generously assuming that things more or less carry on as normal and even more generously that the economy magically grows to $19 trillion as the Obama team has assumed, the actual budget deficit will be no less than 8% of GDP each year between here and 2015.

My estimates translate into a roughly $1.5 trillion cash deficit each and every year -- give or take a little -- digging our national debt hole deeper by another $7.5 trillion by 2015.  

This, however, is merely my starting bid. I can easily envision deficits that are far higher in both aggregate and percent-of-GDP terms, due to some combination of rising energy prices and debt overhang dragging the GDP figure downwards, and rising interest rates driving federal costs higher.

The bottom line is that either this budget is a fantasy, or I am completely wrong and we somehow set historical records for revenue growth during a time of low inflation and below average GDP growth.

It is against this backdrop that you should be especially dismissive of any and all partisan rhetoric that proposes to reduce the deficit by trimming this or that program by a few billion here and there. Until and unless you hear about cuts to the big four - Defense, Medicare, Medicaid, and Social Security - you can be certain you are merely listening to partisan talking points aimed at posturing for the next election, not credible plans for attacking the root of the problem.

The US is facing a deficit pattern (deficits higher than nominal GDP growth) that has ruined many a country before. A failure to legitimately address this condition before being forced to do so by global or market circumstances will lead to a far rougher period of adjustment than necessary.  Such a failure even risks it all: a sudden loss of reserve currency status for the US that leads to a sudden repatriation of some $7 trillion in US-dollar-denominated assets currently held off-shore.

Said simply: The risk is a massive inflationary event that forces the Fed to choose between defending the dollar (by raising interest rates) or defending the US economy. It can't do both at the same time.

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104 Comments

mkrismer's picture
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Re: Obama's Budget is a Fantastic Comedy

Scary stuff!!!

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Re: Obama's Budget is a Fantastic Comedy

And early on, the MSM is reporting the whole thing with a straight face!!  Aren't there any MSM journalists who are pushy, skeptical and want to make a name for themselves!  Isn't that the American way?  Do any of the journalists have a calculator.  Oh well, we can always hope some hard-hitting investigative reporter will EVENTUALLY point out the absurdity of the President's proposal.  Or am I being too optimistic?

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Re: Obama's Budget is a Fantastic Comedy

Scary stuff, indeed.  But surely Obama himself did not do up these figures.  I know he is a smart man, but I dont his specialty is economics.  Who are the responsible parties in his administration who did put this together? 

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Re: Obama's Budget is a Fantastic Comedy

In the UK, they talk of "jam tomorrow" in that "today we've just got bread, but we will have jam tomorrow".  Of course the situation never changes.....

It seems beyond any politician to speak the truth as to what is happening to their country or the world.  I wonder who the politicians/society will find to blame? 

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Re: Obama's Budget is a Fantastic Comedy

Thanks for cutting quickly through the bull... er...fog for us, Chris! 

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Re: Obama's Budget is a Fantastic Comedy

My response to Obama (actually written before his budget based on speculation I read about what it would look like): Dear Mr. President

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Re: Obama's Budget is a Fantastic Comedy

You are absolutely right about the Big 4.  We are not going to be having a meaningful conversation about the budget until these sacred cows are put on the table -- everything else is essentially chump change.

Discretionary spending only accounts for 1/8 of the federal budget.  See http://www.concordcoalition.org/press-releases/2011/0214/concord-coalition-says-presidents-proposed-budget-falls-short-entitlement-a

It seems we are going to have to have another financial calamity before people will start getting serious about this.

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Re: Obama's Budget is a Fantastic Comedy

I'm actually noticing open discussion in the mainstream media that the proposed budget cuts don't go nearly enough;  the information is clear, but the average person doesn't seem to be taking it seriously or taking time to understand it.  Perhaps not enough pain has been felt yet.

"Deficit is biggest as share of economy since 1945

http://finance.yahoo.com/news/US-deficit-is-biggest-share-apf-969622629.html?x=0&sec=topStories&pos=2&asset=&ccode=

GOP Denounces Absence of Entitlements Overhaul

http://online.wsj.com/article/SB10001424052748704081604576144760536073734.html?mod=WSJ_WSJ_US_News_6

Deficit Would Stay High for Years to Come

http://online.wsj.com/article/SB10001424052748703584804576144050996875790.html?mod=WSJ_WSJ_US_News_6

Check out the interactive graphs in the link above.  How does they come up with the sudden rise in revenues the next few years?!?

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Re: Obama's Budget is a Fantastic Comedy

Was the CPI more credible in '79?  Maybe that's where the inflation needed to increase revenues will be hiding.  

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Re: Obama's Budget is a Fantastic Comedy

macro2682 wrote:

Was the CPI more credible in '79?  Maybe that's where the inflation needed to increase revenues will be hiding.  

Well, that certainly has to be part of it.  I recently interviewed John Williams (coming soon) and I really think his CPI numbers are far more accurate.  He's currently sitting around 5% with his alternate assessment of inflation, and I suppose a doubling from there to the levels of the 70's is not out of the question. 

However, a big portion of the 70's-style inflated revenues was due to the wage portion of the wage-price spiral.  This time there's almost no chance of a wage spiral due to a variety of pressures including the fact that we lie to ourselves about inflation and so companies are given cover to deny wage increases.  "Hey, sorry, but inflation is really low and so we are going to hold off on any wage increases right now..."

And as far as the budget cuts, just blur your eyes a bit and take in this chart...and the futility of targeting the non-defense discretionary piece of the spending will be revealed:

To this I would only comment that if interest rates do not behave over the next decade that the black portion, net interest costs, could easily grow to be larger than both the green and the red portions combined.  Chew on that for a minute...and then wash it down with a nice Greek wine.

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Re: Obama's Budget is a Fantastic Comedy

Dragline wrote:
You are absolutely right about the Big 4.  We are not going to be having a meaningful conversation about the budget until these sacred cows are put on the table -- everything else is essentially chump change.

Here is a speech from our ex-governor Gary Johnson at CPAC.  He was really great in our state and is not afraid to tackle the issues. I would love to know what he would say about Peak Oil.  Anyway, it was a speech at CPAC so it does have a strong political Republican oriented tone:

A quote from the speech:

There is no kicking the can down the road anymore, we have to slash government spending. I advocate balancing the federal budget tomorrow.  And that means cutting 1.5 trillion dollars from the budget because that's 43% of the federal budget.   And to do that you've got to start out by talking about Medicaid and Medicare and Social Security and defense.

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Re: Obama's Budget is a Fantastic Comedy

These projections would be quite the trend reversal!

[BUDGET_p1]

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Re: Obama's Budget is a Fantastic Comedy

I probably would have gone with "Comedic Fantasy". Wink

Thanks for making the obvious even more clear for us Chris.

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Re: Obama's Budget is a Fantastic Comedy

cmartenson wrote:

To this I would only comment that if interest rates do not behave over the next decade that the black portion, net interest costs, could easily grow to be larger than both the green and the red portions combined.  Chew on that for a minute...and then wash it down with a nice Greek wine.

Two thoughts:

1.  As far as my eyes can tell, the discretionary green bits don't noticeably shrink YoY on that chart.  So even the "tough cuts" they're making aren't material.

2.  When I think about rising interest rates (the black growing larger than the green + red), Greek wine ain't gonna get the "cheer me up" job done.  Somebody get me some Ouzo.  And a vigorous shoulder massage and some soothing music....like "Bulls on Parade" by RATM.

Viva anyway -- and thanks for the scouting report -- Sager

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Re: Obama's Budget is a Fantastic Comedy

"WASHINGTON -(Dow Jones)- U.S. President Barack Obama's fiscal 2012 budget plan projects that the U.S. Treasury will receive slightly more in payments from the U.S. Federal Reserve in 2011, a remittance that could help cut the budget deficit.

The Fed's income has surged due to a boost in earnings from securities it acquired during the financial crisis and its aftermath.

Budget documents that the Obama administration unveiled Monday note that, in 2010, the Treasury received $75.8 billion from the Fed. The budget plan goes on to project that the Treasury will receive $79.5 billion from the Fed in 2011 and $65.8 billion in remittances from the Fed in 2012."

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Re: Obama's Budget is a Fantastic Comedy

Would there be any growth in manufacturing? Oil production? Natgas? Coal? Other mining? Farm produce? Sustainable energy? Any goods or services sold to other nations? These would result in wealth creation or wealth transfer into the United States. This is where the increases have to be to accommodate high growth. I don't see it in 10 years, let alone 4.

Adding jobs in most any other service sector will never account for a sustainable increase in revenue collections.

The only other way to facilitate this kind of growth in revenue is in inflating the value of the currency - could be what they believe?

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Re: Obama's Budget is a Fantastic Comedy

I am starting to get a kind of funky, depressed resignation when tripe like this budget, substitutes for problem solving. It's like we have just been diagnosed with late stage cancer, and we are planning an audition on American Idol.

At this late stage, even if their was widespread understanding of the problem, and agreement to slash the big 4, I don't think this is fixable.  Even if by some act of God our government decided to eliminate the deficit entirely in 2011, the subsequent economic contraction, rioting in the streets, etc. would offset any gains made to our solvency.  More deficits add to the debt and printing that must follow.

Under these conditions, I think I actually feel sorry for ol' Ben.  What choice does he have?  Any action he takes at this point (that would be responsible), would lead to a catastrophe.  His only real choice is one of timing:  pain now or pain later.  Thanks to Dan Ariely's work, we know the answer to that one.

The writing is on the wall.  There is no set of events that can right the ship at this point.  One way or another, we are going to enter the dark, cold, oily water.

I wonder: how long will I have to wear this life vest before we capsize?  I am tired of explaining it to people.

Less depressingly:  early this week at a gathering of 30 friends, we had a group discussion about what exactly we were going to do with ourselves as a group.  This had NEVER happened before.  I finally have their attention and fielded calls this week ranging from PV systems to food storage.  We are getting organized just in time. . .

Rector

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Re: Obama's Budget is a Fantastic Comedy

The president's budget is, as always, a purely political document.  The executive branch has no responsibility nor authority to create a budget.  That power belongs solely to congress.  Congress, and only congress, decides how much gets spent and on what.  The White House budget is always a political propaganda tool, that, at most, seriously lays out the executive branch's priorities, and, more often, simply aims to be just credible enough to get some good mainstream media commentary.  In this case, Obama is trying to say, "I'm proteting the middle class tax cut, making modest and reasonable cuts or spending freezes, and generally acting like a responsible adult... nothing radical that's going to really hurt."  The whole message is meant to play in the mainstream media.

In reality, what he is saying is, "There's no way I'm getting out in front of cuts to Defense, Medicare, Medicade and Social Security. My mother didn't raise any stupid children!"   He just tossed the ball over the fence to Congress where it belongs, and where it will be yakked and yammered about endlessly while doing almost nothing.  Those guys are politicians, too, and they don't want any part of the Four Horsemen any more than does Obama.  They will gut small discretionary programs (you know, the a lot of ones that actually do some good) like home heating oil assistance and then they will restore them as soon as the media reports on New Englanders freezing to death hit the media, just like they have done before.  This is how our government runs itself now.

You want a reasonably good bet... I think there is an excellent chance that the US does not operate under a budget for any fiscal year before 2014 (the first fiscal year after the next major elections), but instead continues to do as they are now... operate on a series of continuing resolutions, each of which is used by both parties to hammer the other's position.  In short, I expect them to kick the can down the road until a true crisis causes the public to rise up and demand action.  Unfortunately, by then the situation is likely to be so dire that one of two things will happen:  1) any responsible behavior will be considered Draconian and may, even then, be politically impossible, resulting in a continuing or even growing crisis or 2) any meaningful response will generate enormous pain for the nation and the 90% of its citizens who have only a small share of the nation's wealth.

Does anybody really see these fools getting out in front of these issues?  I just don't.

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Re: Obama's Budget is a Fantastic Comedy

bsm20 wrote:

Does anybody really see these fools getting out in front of these issues?  I just don't.

No.This country needs vast quantities of 10 dollar oil, an atmosphere capable of absorbing the pollution, and 4 dollar a day labor to get "in front of these issues".

The entire government structure is made up of non-producers interested in keeping their positions of power, influence, and income. When push comes to shove I believe is when they force draconian measures down the throat of the populace. Those people will do whatever it takes to fulfill their dreams of an easy retirement (which is going to be impossible).

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Re: Obama's Budget is a Fantastic Comedy

cmartenson wrote:

And as far as the budget cuts, just blur your eyes a bit and take in this chart...and the futility of targeting the non-defense discretionary piece of the spending will be revealed:

Here's another chart that depicts President Obama's cuts in a pie chart.  As the saying goes, "If you blink, you'll miss it".

http://www.theblaze.com/stories/shock-graphics-show-severity-of-proposed-obama-budget-cuts/

Richard

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Re: Obama's Budget is a Fantastic Comedy

Rector wrote:

Less depressingly:  early this week at a gathering of 30 friends, we had a group discussion about what exactly we were going to do with ourselves as a group.  This had NEVER happened before.  I finally have their attention and fielded calls this week ranging from PV systems to food storage.  We are getting organized just in time. . .

Rector

I am encouraged to hear that someone is having this experience.  I am still feeling like no one in my world is really taking seriously the coming chaos.  It is a very isolating feeling, since it would be so wonderful to be able to share some of this. 

I do appreciate having conversations like this thread, where policies are being discussed, even though they are not as "hands on" as other topics.  I think it matters and I think keeping a careful eye on the behavior and mindset of the "leaders" will continue to inform us as much as possible about how things will be happening.

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Re: Obama's Budget is a Fantastic Comedy

OK, so using President Obama's Budget predictions, I'm predicting the following phone conversation with my wife...

Me: "Honey, I have great news!  You know that yacht and 65 inch wide-screen entertainment system with surround sound I've been wanting to get!  Well, I just used the credit card to get them!"

Wife, "Are you crazy!  We've talked about this a thousand times!  We can't afford it!  We're already in debt up to our eye-balls... I just can't believe you'd do something this stupid and irresponsible!"

Me, "Don't worry about it.  I know I haven't had a salary increase in 2 years because of our company budget freeze, but President Obama said our economy was going to grow 65% over the next 4 years!  I'm figuring on a 65% raise, so I went ahead and charged it."

Wife, "@$%!@#$!... Click"

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Re: Obama's Budget is a Fantastic Comedy

It is a tragedy that there are no leaders or political groups willing to do something about entitlements and that the special commission's recommendations are being ignored.  Basically, the pain should be shared by everyone across the board.  The Republicans and Tea Party are also to blame.  If they don't want taxes they should try to do more than take away some milk program for the poor.

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Posturing, Posing, Polarizing, Pontificating...

I think the polticians argue over the little things and ignore the Four Big Elephants or talk abou cutting everything else except those Big Four. It's like two doctors arguing about the red spots on the patient's face while the patient is bleeding out.

Even Bachman, Ryan, Boehner, etc. don't DARE talk about cuts to Social Security, Medicare/Medicaid, etc. Few Republicans want to cut Defense either - most want to increase Defense spending. it is a sad fact that too many senior citizens depend solely upon - or depend mostly upon - Social Security and Medicare/Medicaid to survive, rather than saved all their lives on their own.

Congress will posture and pose and pontificate and then they'll decide on the budget they want to pass, which will very much resemble the budget Obama has proposed, and that'll be that. The two sides will blame each other and every year we'll be that much closer to disaster. It is said that in about 5 or so years, Interest Payments on the National Debt will surpass our spending on Defense. In about 15 to 20 years, Interest Payments on the National Debt will surpass everything else except Social Security and Medicare/Medicaid spending.

What's also sad is that financially looming outside of the budget discussions are the Fannie, Freddie, FHA liabilities, Federal Reserve money-printing and financial gifts to Big Banks and Wall Street, the financial gifts that Big Ag (ethanol, farm subsidies), the financial tax loophole gifts given to Multinational Corporations (e.g. Exxon-Mobil, Google)... Not to mention the financial disasters of state and local pension and health care liabilities, the financial disasters of underfunded employer pension and health care liabilities (example: Verizon and AT&T each support more retirees than they do employees - same with the Big Three Auto), and the looming private financial disasters of the citizenry and students.

All are looking to rosier futures to help pay down debt, whereas we're actually looking at peak oil, peak resources, and globalized competition.

Poet

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Re: Obama's Budget is a Fantastic Comedy

r-

Indeed. Folks should be able to depend on the government for subsistence if not an outright lifestyle choice. Making the decision to spend everything (and then some) now is not the fault of each and every individual who has chosen to manage credit rather than save and budget. It's the government's fault for not taking more from the savers and small businesses and giving it to the less frugal sooner.

No one should have to suffer for their bad decisions. Including the bad decisions at the voting booth where voting for the free lunch promises made by the morally bankrupt were expected to produce a wealth effect.

I think we need to blame the people who have been telling us to balance budgets and act responsibly all along. Not only that, but we should punish them for this mess. If they had not been so ridiculous by insisting that everyone, including the government only spend what they have, we never would have had this deficit problem.

Now if we could only get a true leader to get us out of this mess! Someone who is charismatic with a great sense of nationalism and social justice. Maybe someone who is a vegan and never cusses, and understands the true danger of those who save their money and fruits of their labor for a rainy day and those self reliant types. Someone who could put a chicken in every pot and and a car in every driveway!

Yep, a Nationalist Socialist type could really save the day here.

<sarc off>

History rhymes. Sorry if I skipped ahead too far.

Thanks for all you are doing Chris.

It is evident to me that there will be no way to avoid the current economic freeway narrowing into a marginal dirt foot path into the future. Those who get on the path first by preparing for individual and small community sustainability will be the least likely to suffer through the 308 million car pileup that is coming. Or is it a 7 billion car pileup? The current middle east dynamic indicates there could be much wider spread damage as a result of the profligate world reserve currency creation and deficit spending. This budget proposal is just another sign encouraging a higher rate of speed as we round the blind corner into economic and potentially social oblivion.

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Re: Obama's Budget is a Fantastic Comedy

During a recent interview with Jim Puplava, John Williams stated that if the Federal governement used GAAP, and we taxed workers and corporations at 100%, we would still be running deficits.  We have a monumental decline in our living standard ahead of us.

On another note, I recently received notice from the SS office regarding my benefits.  I entered my salary over the course of my lifetime in Excel and multiplied the column by 12.4% (employer and employee contribution). At age 66, I started to withdraw at the stated rate until my statistial death (83).  My rate of return is 1.5%.  And public pensions are penciled in at 7.5% to 8%? 

I wish there were more hours in the day to prepare for what is coming.

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Re: Obama's Hasty Press Conference

The heat surrounding this thing is already quite high, emotions are elevated...it's almost as if "unsustainable" has become something we can actually almost, you know, talk about, sort of.

Obama Vows Changes to Entitlements, Tax Code

WASHINGTON—President Barack Obama pledged Tuesday that he would do more to rein in the federal deficit, a day after offering a $3.7 trillion budget for next year that does little to address the central programs driving up the country's debt.

Mr. Obama said a meaningful effort to rein in the deficit must include changes to Social Security and Medicare, as well as an overhaul of the U.S. tax code.

"My goal is to actually solve the problem. It's not to get a good headline on the first day," Mr. Obama told reporters at a hastily called news conference, in a tacit acknowledgment of the poor reviews his proposed budget has received from people who wanted it to address entitlement spending and other issues.

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Re: Posturing, Posing, Polarizing, Pontificating...

Poet wrote:

it is a sad fact that too many senior citizens depend solely upon - or depend mostly upon - Social Security and Medicare/Medicaid to survive, rather than saved all their lives on their own.

It is a sad fact that too many senior citizens made Social Security and Medicare/Medicaid payments throughout their working lives and were otherwise too poor (and/or too stupid) to be able to save.

Just the other side of the government Ponzi scheme, so please don't blame the victims.

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Re: Obama's Budget is a Fantastic Comedy

Obama ran a little political trickery on the Rs that I found amusing.  Immediately after his budget speech Monday, Boehner hammered on him for not mentioning entitlements.  Today he came back and said that he was happy to hear the Rs finally stepping up to the plate and talking about entitlements.  Maybe there is room for a reasonable compromise.  Particularly if we the people put the pressure on.

Doug

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Re: Obama's Budget is a Fantastic Comedy

Is it possible that the huge increase in projected revenues is due to the planned expiration of the Bush era tax cuts, return of higher capital gains and dividends tax?

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Re: Obama's Budget is a Fantastic Comedy

bsm20, post 18 wrote:

The president's budget is, as always, a purely political document.

Your entire post 18 that I quoted from was excellent.  You put the whole issue in perspective.

Travlin 

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Re: Obama's Budget is a Fantastic Comedy

"Does anybody really see these fools getting out in front of these issues?  I just don't."

I agree wholeheartedly.  But the problem is more with the electorate that they are responding to.  Every day I see and hear so-called  "anti-tax" and "small government"  people who dont want to cut Medicare or Social Security or Defense.  It's a complete oxymoron.  With the accent on moron.  And yes, most of them are baby-boomers who are just waking up.

One of the best things about this site is just educating people that there's no free lunch.

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gene12
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Re: Obama's Budget is a Fantastic Comedy

I have a simple question.  Why do we have to cut Social Security?  I find the statement ridiculous.  The government owes Social Security trillions but I consistently see statements about Social Security contributing to our deficit and busting the budget.   IF people would represent the problem on a reality basis, it's repayment of borrowed money from the Social Security fund.  That's REPAYMENT you know, like you make on any loan when it comes due.  In the LONG term, something has to be done with Social Security but it's not the immediate problem unless, of course, you are advocating the government default on the repayment.  And to me that's exactly what is being advocated all over the place.  This package of lies is being sold to the American public and it's working.  Routinely, I have to tell people that Social Security payments are loan payments.  Statements like "Social Security is paying out more than it's taking in".  True but that is a manipulative half truth.  And it was also planned for.  That's why Social Security ran surpluses for decades. 

The other part of this equation is the military budget which has been out of control for decades and is a major contributor to the present state of affairs.  Once in a while I hear or read some statement but it's rare.  Meantime the Social Security/Medicare rant is at a roar.  I figure the reason little to nothing is being said about the military budget is purely self interest on the part of many.  Military spending is an enormous pork barrel filling the bank accounts of large numbers of Americans.  I know of one instance where an individual spent four yrs in the Army as an enlisted man.  During that time, the government forgave $45,000 in student loans and he got his masters degree at military expense.  Plus he broke a finger playing volley ball so will receive a couple of hundred a month for the rest of his life.  This is not hearsay, I know the guy very well.  Not a whisper of these types of things.  All is quiet!!  Why??   And if you want to get into it, get into the reup bonuses. 

If you are going to have a reality based discussion re the budget, you need to use a reality base to do so.  That is not occuring at the present time.  I do agree the budget is a farce.  But so are all other options I see.  The reality is the required adjustments to cut the deficit won't be made.  Americans simply won't stand for it.  Rarely, in our entire history have we paid our way.  Frankly, all discusssion re the budget are a waste of time.  I'm 70 and have listened to the endless rants for decades.  Nothing changes.  125 million dollar airplanes to chase guys in $15,000 Toyotas and kick our buts in the process. 

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Re: Obama's Budget is a Fantastic Comedy

Chris, for the most part we have always viewed this through a similar lens.  The above depiction of solution might hold more credibility if cuts and claw-backs to nobility and privilege are brought into consideration.  It seems all to convenient to disregard tax increases (ex. financial transaction fee and corporate windfall).  Yes, I agree there is not much political courage or honesty out there.  All the same, authentic discussion should include debt renegotiation/writedowns, and offset the contractionary impact with creative revenues.  I do not want to find myself down the memory hole, where inconvenient facts or solutions simply disappear on the backs of those most powerless.

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Re: Obama's Budget is a Fantastic Comedy

gene12 wrote:
I have a simple question.  Why do we have to cut Social Security?  I find the statement ridiculous.

And if I misread Jager06 correctly you have to be a Nazi to fix Social Security, and I don't want to blame anyone for not being a Nazi...

Cartoon

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Re: Obama's Budget is a Fantastic Comedy

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Re: Obama's Budget is a Fantastic Comedy

The same might apply to the U.S. economy in general, e.g., economic growth consisting mostly of consumer spending in an economy that has gone through four decades of trade deficits.

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Re: Obama's Budget is a. Fantastic Comedy

The government's own data show why entitlement programs need to be cut also.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/tables.pdf

Table S-4 shows a 2011 deficit of $1.267 Trillion based on projections of outlays and receipts.

Total defense and non-defense descretionary spending (basically everything but SS, Medicare, and interest on the national debt) is $1.415 Trillion.

So we would have to cut 90% of descretionary spending to balance the budget and avoid cuts to SS.  Since the government's proejctions are always too rosy, let's round it off to 100%.

There is no SS surplus; the surpluses in the past were spent.  For the Treasury to repay SS it must borrow more and further increase the deficit.  The government's own documents at the Treasury website discuss the SS problem in detail.

Today it's a problem; tomorrow it's a predicament because we didn't deal with the problem.

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Re: Obama's Budget is a Fantastic Comedy

Hello all, I am pretty new here, and have been devouring so much of the information on this site from both Chris and the community at large.  Thank you Chris for all you have done and are doing to change the focus of our Nation, and I thank all of my fellow members for your contributions to this site.  This information and this site have truly changed my life. 

When I was a child I used to sell Worlds Finest Chocolate bars to raise money for various activities and programs; e.g. baseball, football, after school programs etc.  The bars sold for $1.00 and we got them for cost with a coupon on the back that essentially saved the buyer $1.00 on some other good; it was a win-win situation.  The bars came 25 to a box and each kid could preorder up to 4 boxes at a time if memory serves correctly.  The problem was, that me, my brothers and our friends ate the candy ourselves, and we were spending the money we made on the candy we did sell on other stuff.  By the time the fundraiser was over we would have no candy left to sell and little if any money to account for the missing bars.  Unfortunately, my parents told me it was high time I grew up and learned my lesson.  I was on my own and I had to go shovel snow, cut grass, wash cars or whatever I had to do to earn the cash to cover that candy…and FAST.   There was no bailout.  The government has 3 fundraisers currently in operation…Social Security, Medicare and Medicaid, and they just established a fourth…Heath Care.  All debate aside regarding the particulars of heath care, it boils down to nothing more than another fundraising ponzi-scheme that will be misallocated in an attempt to cover the money they owe on the other 3.  At the end of the day the U.S. government is no better with money than a ten year old is with 100 chocolate bars.  I learned my lesson the hard way.  It’s high time the government grew up and did the same.

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Re: Obama's Budget is a Fantastic Comedy

Thomas F. wrote:

........... it boils down to nothing more than another fundraising ponzi-scheme that will be misallocated in an attempt to cover the money they owe on the other 3.  At the end of the day the U.S. government is no better with money than a ten year old is with 100 chocolate bars.  I learned my lesson the hard way.  It’s high time the government grew up and did the same.

That pretty much says all that needs to be said about these programs. The only difference is that 10 year olds haven't developed their super-duper "trust me I've still got the money somewhere around here" accounting tricks yet.

SS

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Re: Obama's Budget is a Fantastic Comedy

Thomas F. wrote:

When I was a child I used to sell Worlds Finest Chocolate bars to raise money for various activities and programs; e.g. baseball, football, after school programs etc.  The bars sold for $1.00 and we got them for cost with a coupon on the back that essentially saved the buyer $1.00 on some other good; it was a win-win situation.  The bars came 25 to a box and each kid could preorder up to 4 boxes at a time if memory serves correctly.  The problem was, that me, my brothers and our friends ate the candy ourselves, and we were spending the money we made on the candy we did sell on other stuff.  By the time the fundraiser was over we would have no candy left to sell and little if any money to account for the missing bars.  Unfortunately, my parents told me it was high time I grew up and learned my lesson.  I was on my own and I had to go shovel snow, cut grass, wash cars or whatever I had to do to earn the cash to cover that candy…and FAST.   There was no bailout.  The government has 3 fundraisers currently in operation…Social Security, Medicare and Medicaid, and they just established a fourth…Heath Care.  All debate aside regarding the particulars of heath care, it boils down to nothing more than another fundraising ponzi-scheme that will be misallocated in an attempt to cover the money they owe on the other 3.  At the end of the day the U.S. government is no better with money than a ten year old is with 100 chocolate bars.  I learned my lesson the hard way.  It’s high time the government grew up and did the same.

Awesome post!

Also, Chris, I'm happy that you have finally started naming Obama by name for some of the insane things he's been attempting.  I know it's hard to stay non-political but the guy is a Socialist and represents a dangerous threat to the free markets.  (If you can even call them free anymore?)

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Re: Obama's Budget is a Fantastic Comedy

I have read that inflation is nothing more than a hidden tax. Is this true? And if so, how does it work? Are the corporations that make the things that we buy taxed and passing this down through higher prices? Is that it?

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Re: Obama's Budget is a Fantastic Comedy

concernedcitizenx5 wrote:

I have read that inflation is nothing more than a hidden tax. Is this true? And if so, how does it work? Are the corporations that make the things that we buy taxed and passing this down through higher prices? Is that it?

Simple enough. If the price of an object rises you have to earn more and spend more to acquire the same benefit. The gov. has increased it's revenue because of the price rise. The government gets to tax the income at a higher level and states get more sales tax.

So in the end the government gets to increase its revenue by being irresponsible.

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Re: Obama's Budget is a Fantastic Comedy

concernedcitizenx5 wrote:

I have read that inflation is nothing more than a hidden tax. Is this true? And if so, how does it work? Are the corporations that make the things that we buy taxed and passing this down through higher prices? Is that it?

Here's one way to think of inflation that I find especially easy and useful.  Suppose you have $1,000 in the bank, earning nothing, and you pull a Rip Van Winkle and fall asleep for 10 years.

While you were asleep the government was busy simply printing money and distributing it for consumptive purposes (healthcare, SS, bombs and the like) which, wonder of wonders, simply caused there to be more money than goods in the world.

Naturally this cause inflation, which we will set at 6.7% per year so that the numbers come out even in the next part of this story.

When you awake after your long slumber you find that you still have $1000 in your bank account, but that it now can buy exactly half as much as it used to.  That is, 50% of your money's purchasing power has been eroded due to the free printing and spending ways of your government.

Here's where the analogy to taxes comes in.  Does it really matter if your government had reached into your bank account and taken half by taxation vs. having printed the money and taken half its purchasing power?  Not really, the impact is the same.

The funny part of this story is that the government could have achieved roughly the same amount of distributive/consumptive behavior  by directly taxing you as by creating inflation it's just that taxes are really obvious and people hate them.  Inflation?  'Not one man in a million can diagnose its cause' according to John Maynard Keynes and therefore it is the (vastly) preferred mechanism of sitting politicians.

This is how inflation is 'the hidden tax.'

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Re: Obama's Budget is a Fantastic Comedy

So basically, it is the banks that finance our government's debt that make out in this form of "hidden tax". Which explains the lack of banking reform and serious efforts at opening the Federal Reserve books. Thanks for confirming this question for me.

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Re: Obama's Budget is a Fantastic Comedy

Thank you TommyHolly for your compliment. 

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Re: Obama's Budget is a Fantastic Comedy

cmartenson wrote:

.......The funny part of this story is that the government could have achieved roughly the same amount of distributive/consumptive behavior  by directly taxing you as by creating inflation it's just that taxes are really obvious and people hate them.  Inflation?  'Not one man in a million can diagnose its cause' according to John Maynard Keynes and therefore it is the (vastly) preferred mechanism of sitting politicians.

This is how inflaiton is 'the hidden tax.'

Bold mine.

Great explanation Chris, although it's not only "that taxes are obvious and people hate them." There is the other fact that when you tax people "open and honestly" you still need to collect from them and that gets to be a real problem as people wake up to the waste, fraud, abuse, and government largesse. As the problem grows (along with the taxes) fewer and fewer people will pay taxes willingly. Inflation, aka taxation by printing money, takes the "willingly" out of the equation. Anyone holding the currency that is being printed has just been stolen from. The beauty for our government, which is actually a tragedy for the world, is that the dollar is the world's reserve currency. Therefore we not only are able to tax our own citizens, but also the citizens of all nations holding dollar denominated debt. Bernanke and his gang may look clean cut and may have brought doublespeak to a new all-time high to cover their tracks, but they are truly criminals in this increasingly Orwellian world we live in.

SS

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Re: Obama's Budget is a Fantastic Comedy

SingleSpeak wrote:

Therefore we not only are able to tax our own citizens, but also the citizens of all nations holding dollar denominated debt. 

SS

This is the genius of the current US system.  Where past empires built themselves on securing the world's resources and brought them to their shores by force, the US has built an Empire of Debt, a far more subtle means of achieving the same end.

That's is the thesis of the book so titled by Bill Bonner which I consider to be a "must read."

Like any empire, though, its continuation depends on something that is unsustainable continuing forever.  We are in the middle to late stages of that breakdown, and this partially explains the anxiety and fear that surface when something as obviously broken as the US fiscal situation is brought up and talked about during a budget cycle.

Quick!  Get this topic off the news ccycle, surely there must be some bread & circuses we can elevate to the top of the pile?

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Re: Obama's Budget is a Fantastic Comedy

Thomas F. wrote:

Hello all, I am pretty new here, and have been devouring so much of the information on this site from both Chris and the community at large.  Thank you Chris for all you have done and are doing to change the focus of our Nation, and I thank all of my fellow members for your contributions to this site.  This information and this site have truly changed my life. 

When I was a child I used to sell Worlds Finest Chocolate bars to raise money for various activities and programs; e.g. baseball, football, after school programs etc.  The bars sold for $1.00 and we got them for cost with a coupon on the back that essentially saved the buyer $1.00 on some other good; it was a win-win situation.  The bars came 25 to a box and each kid could preorder up to 4 boxes at a time if memory serves correctly.  The problem was, that me, my brothers and our friends ate the candy ourselves, and we were spending the money we made on the candy we did sell on other stuff.  By the time the fundraiser was over we would have no candy left to sell and little if any money to account for the missing bars.  Unfortunately, my parents told me it was high time I grew up and learned my lesson.  I was on my own and I had to go shovel snow, cut grass, wash cars or whatever I had to do to earn the cash to cover that candy…and FAST.   There was no bailout.  The government has 3 fundraisers currently in operation…Social Security, Medicare and Medicaid, and they just established a fourth…Heath Care.  All debate aside regarding the particulars of heath care, it boils down to nothing more than another fundraising ponzi-scheme that will be misallocated in an attempt to cover the money they owe on the other 3.  At the end of the day the U.S. government is no better with money than a ten year old is with 100 chocolate bars.  I learned my lesson the hard way.  It’s high time the government grew up and did the same.

Excellent comparison.

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sevenmmm
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Joined: Jan 19 2011
Posts: 108
Re: Obama's Budget is a Fantastic Comedy

cmartenson wrote:

This is the genius of the current US system.  Where past empires built themselves on securing the world's resources and brought them to their shores by force, the US has built and Empire of Debt, a far more subtle means of achieving the same end.

That's is the thesis of the book so titled by Bill Bonner which I consider to be a "must read."

Like any empire, though, its continuation depends on something that is unsustainable continuing forever.  We are in the middle to late stages of that breakdown, and this partially explains the anxiety and fear that surface when something as obviously broken as the US fiscal situation is brought up and talked about during a budget cycle.

Quick!  Get this topic off the news cycle, surely there must be some bread & circuses we can elevate to the top of the pile?

I've read the book.

This discusion always reminds me of the statement by Keynes, "In the long run we are all dead". Well, those past decision makers are (all dead). 

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