Sunday, September 16, 2012

An Artificial Precipice About To Do Real Damage

The federal budget is making the news again and now it's about the inevitable path a dysfunctional Congress will follow as a result of Budget Control Act 0f 2011. Remember the super committee that was supposed to come up with a plan to reduce the deficit by at least $1,500,000,000,000 over the period of fiscal years 2012 to 2021? The plan was not approved by the committee. But the Budget Control Act also contained a provision that presumably would have motivated our legislators to agree on a budget. Sequestration, as it's called, results in automatic cuts across the board for all federal agencies. It's a devastating scenario that our legislators claim they don't want to see happen all the while riding on the bus that's heading for a cliff of the occupants own making.

If you can identify wasteful government spending, you can responsibly target it. But if you arbitrarily cut government spending across the board, you irresponsibly create turmoil. It's like deciding someone must lose 10 pounds by a certain date, and if they don't, then they will have their right leg cut off at the knee to meet the weight loss requirement. They may weigh less, but are they better off for it now?

Although Jan 2, 2013, is when sequestration takes effect, the turmoil and uncertainty has already started. Government agencies are responsibly planning ahead for sequestration. With an automatic budget reduction coming up, they have to because all of the government functions and services we rely on will be affected.

For example, in a letter to 45 Illinois bar associations, Chief Judge James Holderman, Northern District of Illinois, is asking for feedback on his proposal to close the court every Wednesday from January through September of 2013. Sequestration will affect all 95 US District Courts in this manner. What would you do if you knew you would lose personnel and funds but keep the same, if not increasing, workload? This affects funds for paying juries, providing federal defenders, supervising offenders, and the timely prosecution and administration of criminal and civil cases.

Now apply that to getting a passport, border control, disease prevention, law enforcement, criminal investigations, disaster response and relief, consumer protection, and more. Chopping each agency off at one knee may fulfill the reduction requirement, but what good is the agency after that?

Again, this is a disaster of our legislators own making. The unwavering anti-tax stance by the House Republicans continues. The Bush tax cuts, the greatest contributor to our country's deficit, are set to expire this December and they don't want that to happen. Our legislators built the cliff and they drive the bus that's headed over it.

Enjoy the ride.


CohoMike said...

Hank, by keeping interest rates essentially at zero ("financial repression"), Ben Bernanke is enabling the fiscal dysfunction we find in Washington, D.C. Today's budget squeeze will look like a schoolyard picnic when interest rates go back to something approaching normal. Low rates, meanwhile, are essentially transferring money from savers to the government.

Anonymous said...

I guess we can all THANK GOD that Obama never lied about his marathon running time.

But, he did tell a couple lies in his 2008 campaign that are relevant now.

Obama lied about taxes, and let's focus on his lie about raising the capital gains tax, a tax on wealth. I realize we're all supposed to be supply-siders now, and not raise taxes in a struggling economy. But let's think a moment.

The wealthy are not reinvesting capital. Automated trading in the bubble-tastic stock market while gaming the spreads is not investment. It's a casino environment.

The stock market, taken at face value, would seem to predict a political solution to the fiscal cliff. But what if the market isn't thinking, but gaming? Doesn't the run-up in paper value of stocks have the odor of 2008 derivative high-rollers?

What if Obama hadn't lied, and had instead increased the capital gains tax in 2009 (when Democrats held both houses), restructured the tax code, and captured value. What if we had paid for a government spending program giving cash value to lowest economic actors--ie, those who would spend it, not banks that have stashed it or "investor" automatons which are only taking us higher up the cliff. Or conversely, what if we had rewarded real investment over gaming speculation.

Obama's Big Lie on regulatory frameworks--his failure to restructure trade and divide banking functions--also raises the stakes. We have little structural framework to compartmentalize damage not only from a failed domestic fiscal deal, but few means to buffer domestic damage from potential fallout from risky monetary and fiscal policy in Asia and Europe. The unfair trade deals means little potential for low-level churning of value from increased wages.

And, btw, note that Obama also lied about raising the federal minimum wage, which would have had significant stimulative effect right about now.

With Bernanke putting the dollar into the pot and saying "all in" on behalf of average Americans, we have a game of bluff poker, but one in which the house can see all the cards. If the house always wins, who is the house in this game? Well, who isn't at the table? International finance, the super wealthy, the untaxed class. They are placing bets on fixing the game, not on any player.

While it's certainly true that the Bush tax cuts had a role in pushing the US economy to a cliff, so too did Bush's spending. And, so too did Clinton's deregulation of the banks and his trade deals.

In 2008, Americans voted for saner policy when they voted for Obama and Democratic promises to reconfigure trade, raise taxes on the wealthy, and restructure government spending in stimulative ways. Obama's lies kneecapped us.

It's a marathon game of poker, and average Americans are again running low on chips.

Anonymous said...

We could start by taxing speech fees charged by former Presidents who pretend to be philanthropists.

100% would be a fair rate.

Unless the speech is to Goldman Sachs, in which case 1000%

What's that you say? No, not Bill Clinton! Say it isn't so!