Can The Budget Be Cut?
The market was much more lively today. Stocks fell 101 points, and bond interest rates fell as the Dollar gained new ground against the Euro. The Euro fell on rumors that Chancellor Merkel of Germany was resigning – and this was later denied.
Gold fell on the same news of Dollar strength.
Oil and gasoline fell also, and it’s swell to see the price of oil coming down – let’s hope it continues.
In the news today…..
Obama Stimulus – has saved 1.5m to 2.0m jobs according to the Obama Administration. What’s interesting is that it is impossible to say that the stimulus saved these jobs, or any jobs. It is speculative at the best – this according to lead economists. So, Obama is spinning the numbers – just plucking them out of the air – so let’s laugh because this is really funny – he is showing some desperation. The projection is based on how the rate of job losses occuring when the stimulus was started – compared to that number now. The cumulative effect would be about the 1.5m to 2.0m range. However, and this is a big however, the US economy would come out of recessions, and lessen the job loss rate EVEN IF there were NO stimulus. So, laugh at these politically motivated and totally meaningless numbers. The truth is that the US economy has lost a horrendous number of jobs.
CPI – rose 0.1% in December – ho hum. More importantly, the CPI rose 2.7% for all of 2009. (CPI rose 0.1% in 2008, and was the smallest gain in 50 years.) This number is far higher than I thought it would be for the year, and I find startling. In 2009 there was a dramatic reduction in food prices (down 0.5% – the largest fall since 1961) that was counterbalanced by a large rise (up 18.2%, and gasoline itself rose 53.8%) in energy prices. So, I will get on my soap box, and ask you, “What percentage did YOUR personal spending rise of necessary items – energy, food, housing, etc.”
Tonight’s Dinner Conversation…..
Here is part of an article by Pat Buchannan. It provides some thought provoking, and should stimulate good dinner conversation. The topic is the budget deficit and what Obama can do about it. Remember the budget is the difference between spending and income (taxes) – and the article focuses on the spending side – by considering the options for cutting spending:
Consider. The five largest elements in the budget are Social Security, Medicare, Medicaid, defense and interest on the debt.
With interest rates near record lows, and certain to rise, and back-to-back $1.4 trillion deficits, this budget item has to grow and has to be paid if the U.S. government is to continue to borrow.
Second, with seniors on fire against Medicare cuts in health-care reform, it would be fatal for the Obama Democrats to curtail Social Security or Medicare benefits any further this year. Next year, they will not only lack the congressional strength but any desire to do so, after their anticipated shellacking this fall.
The same holds true for Medicaid. The Party of Government is not going to cut health benefits for its most loyal supporters. Indeed, federal costs may rise as state governments, constitutionally required to balance their budgets, cut social benefits and beg the feds to pick up the slack.
This leaves defense. But the president is deepening the U.S. involvement in Afghanistan to 100,000 troops, and the military needs to replace weaponry and machines depreciated in a decade of war.
Where, then, are the spending cuts to come from?
Can the administration cut Homeland Security, the FBI or CIA after the near disaster in Detroit? Will Obama cut the spending for education he promised to increase? Will he cut funding for food stamps, unemployment insurance or the Earned Income Tax Credit in a recession? For the near term, the entitlements are untouchables.
Is this Democratic Congress, which increased the budgets of all the departments by an average of 10 percent, going to take a knife to federal agencies or federal salaries, when federal bureaucrats and beneficiaries of federal programs are the most reliable voting blocs in their coalition?
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,610 (down 101)
10 Year Treasury Bond – 3.68% (down 0.08%)
Euro – $1.4386 (down 1.2 cents)
Gold – $1130 (down $13)
Oil – $77.95 (down $1.44)
Gasoline – $2.05 (down $0.03)
Stimulus saved jobs? Sure…whatever they want to say. Remember when Obama took office and said his plan would cap unemployment at 8%. Clueless politicians.
The budget deficit will be impossible to cut. In fact, mainstream economists will probably want the USG to spend more. Krugman has been saying for months that we need to spend like drunken sailors, that’s the only way to prevent problems.
Here’s a plan to end the budget deficit. Have the USG issue “debt free” currency. That’s right, the government will issue currency as needed but instead of being borrowed into existing, it is just printed into existence. Sounds nice, I bet there are a host of problems with that model too.
Since our economy is supported by the amount of money (base and credit) in the system, the only option available for economic growth is to keep the money supply growing. With consumer debt failing (for the first time ever), the government has to compensate which it is doing. So, will the budget deficit shrink. Not likely, the math only works for it to grow.
There is one scenario which has the possibility of reversing the madness of Congress that is going on, and will continue (as you are saying). If enough Republicans can get elected into office, Congress can stop the spending, and then shrink government – that is a long term effort – but necessary if we are to avoid the hyperinflation that will come otherwise.
Tom