James Pethokoukis

Politics and policy from inside Washington

The bull case on the dollar

Oct 13, 2009 11:30 UTC

Scott Grannis, the Calafia Pundit, plots a currency course that does’t turn America into a third-world economy:

Modestly good news, such as an early move by the Fed to raise interest rates even by a little bit, or news which shows the economy is likely to simply avoid a double-dip recession, or news which indicates just the tiniest rightward shift in fiscal policy, might be enough to push the dollar higher.

It’s hard to fight the tape on this, but I continue to believe that the long-run prospects for the dollar are favorable. I think the economy is doing better than most give it credit for, I think the Fed is going to move sooner than most expect, and I think that policies in Washington are going to turn out to be less awful than the market fears. I’m not saying that everything is going to turn rosy, merely that I don’t see things getting worse forever.

Me: Maybe, but this sounds like a 2011 story, not 2009 or 2010.

COMMENT

I disagree, 2011 may be the point the dollar begins to bottom out but not look to a bullish run – interest rates will be just high enough by then to continue unhindered to borrow the vast sums needed to repay the Chinese.

But I can see U/E coupled with underemployment maxxed at 20% through 2011. Greatest fear – rates have to be ratcheted soo high to get investors attention. No “U”, “V” or “W” – this will look like a nasty “L”.

The world has talked about the uncoupling for years, looks like that will include debt. The US will not appreciate the end result. We could barely take 6 months of $4/gal gas; can we stomach an astronomical interest repayment?

Posted by Hank Rearden | Report as abusive

The story of the $1.4 trillion budget deficit for 2009

Oct 12, 2009 14:05 UTC

My pal Don Marron breaks it down:

A few days ago, CBO released its latest snapshot on the federal budget, documenting the remarkable challenges of fiscal 2009, which ended on September 30. The key phrase in the report is “in over 50 years” as in:

1) At $1.4 trillion, the budget deficit was 9.9% of gross domestic product, the largest, relative to the economy, in over 50 years.2) At $3.5 trillion, spending was almost 25% of GDP, the largest, relative to the economy, in over 50 years.

3) At $2.1 trillion, tax revenues were about 15% of GDP, the lowest, relative to the economy, in over 50 years. (I get the sense that this point is less well-known than the other two.)

101209marron

50 examples of U.S. government waste

Oct 8, 2009 17:31 UTC

Ending or fixing this stuff (via Heritage Foundation) is not going to fill a $1.4 trillion budget gap, but they would be nice confidence builders:

1. The federal government made at least $72 billion in improper payments in 2008.
2. Washington spends $92 billion on corporate welfare (excluding TARP) versus $71 billion on homeland security.
3. Washington spends $25 billion annually maintaining unused or vacant federal properties.
4. Government auditors spent the past five years examining all federal programs and found that 22 percent of them–costing taxpayers a total of $123 billion annually–fail to show any positive impact on the populations they serve.
5. The Congressional Budget Office published a “Budget Options” series identifying more than $100 billion in potential spending cuts.
6. Examples from multiple Government Accountability Office (GAO) reports of wasteful duplication include 342 economic development programs; 130 programs serving the disabled; 130 programs serving at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural, and training exchange activities; and 72 safe water programs.
7. Washington will spend $2.6 million training Chinese prostitutes to drink more responsibly on the job.
8. A GAO audit classified nearly half of all purchases on government credit cards as improper, fraudulent, or embezzled. Examples of taxpayer-funded purchases include gambling, mortgage payments, liquor, lingerie, iPods, Xboxes, jewelry, Internet dating services, and Hawaiian vacations. In one extraordinary example, the Postal Service spent $13,500 on one dinner at a Ruth’s Chris Steakhouse, including “over 200 appetizers and over $3,000 of alcohol, including more than 40 bottles of wine costing more than $50 each and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold.” The 81 guests consumed an average of $167 worth of food and drink apiece.
9. Federal agencies are delinquent on nearly 20 percent of employee travel charge cards, costing taxpayers hundreds of millions of dollars annually.
10. The Securities and Exchange Commission spent $3.9 million rearranging desks and offices at its Washington, D.C., headquarters.
11. The Pentagon recently spent $998,798 shipping two 19-cent washers from South Carolina to Texas and $293,451 sending an 89-cent washer from South Carolina to Florida.
12. Over half of all farm subsidies go to commercial farms, which report average household incomes of $200,000.
13. Health care fraud is estimated to cost taxpayers more than $60 billion annually.
14. A GAO audit found that 95 Pentagon weapons systems suffered from a combined $295 billion in cost overruns.
15. The refusal of many federal employees to fly coach costs taxpayers $146 million annually in flight upgrades.
16. Washington will spend $126 million in 2009 to enhance the Kennedy family legacy in Massachusetts. Additionally, Senator John Kerry (D-MA) diverted $20 million from the 2010 defense budget to subsidize a new Edward M. Kennedy Institute.
17. Federal investigators have launched more than 20 criminal fraud investigations related to the TARP financial bailout.
18. Despite trillion-dollar deficits, last year’s 10,160 earmarks included $200,000 for a tattoo removal program in Mission Hills, California; $190,000 for the Buffalo Bill Historical Center in Cody, Wyoming; and $75,000 for the Totally Teen Zone in Albany, Georgia.
19. The federal government owns more than 50,000 vacant homes.
20. The Federal Communications Commission spent $350,000 to sponsor NASCAR driver David Gilliland.
21. Members of Congress have spent hundreds of thousands of taxpayer dollars supplying their offices with popcorn machines, plasma televisions, DVD equipment, ionic air fresheners, camcorders, and signature machines–plus $24,730 leasing a Lexus, $1,434 on a digital camera, and $84,000 on personalized calendars.
22. More than $13 billion in Iraq aid has been classified as wasted or stolen. Another $7.8 billion cannot be accounted for.
23. Fraud related to Hurricane Katrina spending is estimated to top $2 billion. In addition, debit cards provided to hurricane victims were used to pay for Caribbean vacations, NFL tickets, Dom Perignon champagne, “Girls Gone Wild” videos, and at least one sex change operation.
24. Auditors discovered that 900,000 of the 2.5 million recipients of emergency Katrina assistance provided false names, addresses, or Social Security numbers or submitted multiple applications.
25. Congress recently gave Alaska Airlines $500,000 to paint a Chinook salmon on a Boeing 737.
26. The Transportation Department will subsidize up to $2,000 per flight for direct flights between Washington, D.C., and the small hometown of Congressman Hal Rogers (R-KY)–but only on Monday mornings and Friday evenings, when lawmakers, staff, and lobbyists usually fly. Rogers is a member of the Appropriations Committee, which writes the Transportation Department’s budget.
27. Washington has spent $3 billion re-sanding beaches–even as this new sand washes back into the ocean.
28. A Department of Agriculture report concedes that much of the $2.5 billion in “stimulus” funding for broadband Internet will be wasted.
29. The Defense Department wasted $100 million on unused flight tickets and never bothered to collect refunds even though the tickets were refundable.
30. Washington spends $60,000 per hour shooting Air Force One photo-ops in front of national landmarks.
31. Over one recent 18-month period, Air Force and Navy personnel used government-funded credit cards to charge at least $102,400 on admission to entertainment events, $48,250 on gambling, $69,300 on cruises, and $73,950 on exotic dance clubs and prostitutes.
32. Members of Congress are set to pay themselves $90 million to increase their franked mailings for the 2010 election year.
33. Congress has ignored efficiency recommendations from the Department of Health and Human Services that would save $9 billion annually.
34. Taxpayers are funding paintings of high-ranking government officials at a cost of up to $50,000 apiece.
35. The state of Washington sent $1 food stamp checks to 250,000 households in order to raise state caseload figures and trigger $43 million in additional federal funds.
36. Suburban families are receiving large farm subsidies for the grass in their backyards–subsidies that many of these families never requested and do not want.
37. Congress appropriated $20 million for “commemoration of success” celebrations related to Iraq and Afghanistan.
38. Homeland Security employee purchases include 63-inch plasma TVs, iPods, and $230 for a beer brewing kit.
39. Two drafting errors in the 2005 Deficit Reduction Act resulted in a $2 billion taxpayer cost.
40. North Ridgeville, Ohio, received $800,000 in “stimulus” funds for a project that its mayor described as “a long way from the top priority.”
41. The National Institutes of Health spends $1.3 million per month to rent a lab that it cannot use.
42. Congress recently spent $2.4 billion on 10 new jets that the Pentagon insists it does not need and will not use.
43. Lawmakers diverted $13 million from Hurricane Katrina relief spending to build a museum celebrating the Army Corps of Engineers–the agency partially responsible for the failed levees that flooded New Orleans.
44. Medicare officials recently mailed $50 million in erroneous refunds to 230,000 Medicare recipients.
45. Audits showed $34 billion worth of Department of Homeland Security contracts contained significant waste, fraud, and abuse.
46. Washington recently spent $1.8 million to help build a private golf course in Atlanta, Georgia.
47. The Advanced Technology Program spends $150 million annually subsidizing private businesses; 40 percent of this funding goes to Fortune 500 companies.
48. Congressional investigators were able to receive $55,000 in federal student loan funding for a fictional college they created to test the Department of Education.
49. The Conservation Reserve program pays farmers $2 billion annually not to farm their land.
50. The Commerce Department has lost 1,137 computers since 2001, many containing Americans’ personal data.

COMMENT

Nice piece

Posted by Camron Barth | Report as abusive

Why the cost of healthcare reform will rise

Oct 8, 2009 16:51 UTC

A great analysis of the Baucus healthcare bill by Jim Capretta. Read the whole thing, but this is a key graph:

Congressional Democrats are already racing ahead with amendments to demonstrate their commitment to insurance “affordability” for the middle class.  It would be only a matter of time before Congress responded to the inevitable political pressure and expanded the entitlement, perhaps in steps, to larger and larger numbers of Americans.

CBO: Baucus healthcare bill saves $81 billion over ten years

Oct 7, 2009 20:39 UTC

From the Congressional Budget Office:

According to CBO and JCT’s assessment, enacting the Chairman’s mark, as amended, would result in a net reduction in federal budget deficits of $81 billion over the 2010–2019 period. The estimate includes a projected net cost of $518 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources. The net cost of the coverage expansions would be more than offset by the combination of other spending changes that CBO estimates would save $404 billion over the 10 years and other provisions that JCT and CBO estimate would increase federal revenues by $196 billion over the same period. In subsequent years, the collective effect of those provisions would probably be continued reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent. Roughly 23 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people either purchasing individual coverage outside the exchanges or obtaining coverage through employers would decline by several million.Although CBO does not generally provide cost estimates beyond the 10 year budget projection period (2010 through 2019 currently), Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great.

All told, the proposal would reduce the federal deficit by $12 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.

COMMENT

And there you have it. Money over human beings. Healing your injuries was nothing more than a means to a payment end. Money is a lifeless construct. It takes different forms but in the end it does nothing for you.

Money needs to be put in its place. And that means using it for its intended purpose which is to facilitate the exchange resources and nothing more. Profit motive and interest distort the purpose of money and elevate it above human beings in importance.

VAT Attack! Greenspan: Raise taxes with a value-added tax

Oct 2, 2009 15:13 UTC

At the Atlantic magazine symposium I am attending, former Federal Reserve chairman again said he thinks taxes are going up and that a value-added tax would be the “least worst” way of doing it.  This dovetails nicely with what I wrote yesterday:

Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. Connect the dots:

1) The joint statement from the just-concluded G20 Summit in Pittsburgh called for balanced global growth — which means Americans must spend less and save more and reduce its budget deficit.

2) That same weekend, John Podesta, co-chairman of Obama’s presidential transition team and an outside White House adviser, tells a Bloomberg reporter that a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A VAT is a kind of consumption tax.

3) Yesterday, the Center for American Progress, the liberal think tank with close White House ties, holds a conference on the rising national debt. While speaker after speaker — Paul Krugman, Roger Altman, CAP President Podesta (again), Laura Tyson — admits entitlement spending must be reduced, they also agree that taxes must be raised. Altman suggests $400 billion in new tax revenue is needed almost immediately to calm financial market fears, and a VAT would be a great way of doing it. That’s $400 billion a year, by the way, not over ten years.

4) Also, yesterday was the first meeting of President Obama’s tax reform panel led by former Federal Reserve Chairman Paul Volcker. In a two-part interview with Charlie Rose airing yesterday and today, Volcker says that if Washington can’t get spending under control, either a VAT or a carbon tax would be effective revenue raisers. “Those are two big ones,” he says.

5) As they used to say in the Soviet Union, “It’s no coincidence.” This is also the conclusion of one Washington insider with ties to the White House economic team: “Does this all add up to a trial balloon? Of course, it’s a trial balloon. And I expect the administration will propose major tax reform, including a VAT.”

Why the US budget deficit is worse than you think

Sep 25, 2009 14:40 UTC

The great Dan Clifton of the Strategas Research finds this gem:

Douglas Elmendorf, director of the Congressional Budget Office, told the National Economists Club that today’s deficits are more troublesome than in the early 1980’s. Projected deficits are twice the deficit in the early 1980’s but more importantly there is a growing disconnect between current law and provisions set to expire which will eventually be extended. Most notably there is (and will be) growing pressure to extend the expiring stimulus provisions in addition to the usual expiring provisions.

Me: See, while tax cuts get sunsetted, spending programs never die. And this is why the $800 billion stimulus is going to cost a lot more than $800 billion.

COMMENT

The budget deficit is the most significant issue at the federal level.

Posted by Camron Barth | Report as abusive

Social Security may be in worse trouble than we think

Sep 22, 2009 18:00 UTC

Over at Hot Air, Ed Morrissey has gotten hold of an internal CBO report distributed to Congress that  predicts Social Security will start running a cash deficit next year as opposed to 2019. And even that, apparently , is based on some pretty rosy revenue projections.  Indeed, over the span of  2017, 2018, 2019, SS will run a $126 billion deficit, according to the CBO. Gee, and you wonder why the Chinese are getting skittish about the dollar?

COMMENT

When people talk about debt and ar aghast at the $1.7 trillion deficit this year and national debt of $11 trillion now, just think how horrified/terrified they would be if they knew the whole picture! If you inlude gov’t pledges and underfunded liabilities – fancy naming gimmickery for what is plain old DEBT – the total is closer to $70 trillion, or roughly 375-400% GDP. When the Social Security ‘situation’ finally really comes to public attention there will be some scared people, and most of them foreign investors. I don’t like to be a doom and gloomer, but I don’t see lots of happy numbers to change my mind…

Posted by the Shah | Report as abusive

America’s addiction to deficit spending

Sep 18, 2009 17:02 UTC

Bruce Bartlett makes the case that a) either taxes need to be raised or spending cut to bring America back to fiscal solvency, b) there is little historical evidence that spending can be cut, and thus c) taxes are headed higher. Certainly Congress has show itself willing to raises taxes (1982, 1991, 1993) by large amounts and not cut spending. Both the 2005 effort by the Bush administration to fix Social Security and the current effort to reign in healthcare costs are further evidence. Yet you certainly wouldn’t want to close the hole purely by raising taxes, would you? I think they would have to rise by 50 percent, IIRC.  We would definitely be on the wrong side of the Laffer curve then. Spending is really Obama’s Nixon-to-China opportunity …

COMMENT

Would you mind viewing the following videos about the laffer curve? Care to comment for all to see on your blog? your opinion is greatly appreciated.

http://www.freedomandprosperity.org/vide os/laffercurve1-3/laffercurve1-3.shtml

Posted by Orphe | Report as abusive

How BaucusCare is like eating pie

Sep 16, 2009 20:32 UTC

From Greg Mankiw:

In other words, the plan would reduce the deficit if it were carried out as written, but there is good reason based on historical experience to be skeptical that it would be.

Let me try to put CBO’s point in a more familiar setting:

Your friend Joe, who says he want to lose weight, asks you for an extra slice of pie after dinner. Naturally, you are doubtful about the wisdom of the request.

“Ahem, Joe,” you whisper, “Aren’t there a lot of calories in that?”

“Yes,” he says, “but the pie is part of a larger plan. I am committed not only to eating that slice of pie but also to going to the gym every day for the next week and spending at least half a hour on the treadmill. That exercise will more than work off those extra calories.”

“But that’s what you said last week, when you asked for piece of cake. And you didn’t go.”

“Yes, I know” he replies ruefully, “but this time I really mean it….Can you please pass the pie?”

COMMENT

What a joke, a moron interviewing a moron, talking about spending a trillion dollars, comparing it to cheesecake. How did either of these jerks get a job?

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