Friday, September 25, 2009

How Bad is the Deficit?

Are we simply at the precipice before it all is so much easier?

There has been a lot of worry about the deficit, and this is a problem because it adds to the National Debt. The interest on the National Debt is one of the largest items in recent Federal budgets. Just as this is a problem when it's true in a family budget, it's true at the National level. This is something we must deal with or soon it will be the only thing in the budget....

But, there have been some really frightening estimates and proclamations of the catastrophic results of current spending. We wish to allay those fears based on data analyzed by the Congressional Budget Office.

The deficit is dependent on the government's income. This is dependent on taxes. When millions of people are falling off the tax roles and onto the unemployment compensation roles, it makes the deficit bigger and bigger every day. This is not because spending is increasing every day, but because the income is decreasing. This is not the current administration's fault but because the economy exploded in 2008.

It is, however, something this administration must live with, and we have done this before. When Bush took office, the deficit was a surplus of $431 billion each of the prior 3 years before W. This was achieved because Clinton had to live with a pay-as-you-go law passed by Congress. In the past, administrations assumed that this was the way to run a government, but that had been forgotten in the 1980's. This Congress has remembered, in part, because things got so our of control in the last 8 years after the law had lapsed.

According to the Congressional Budget Office, Bush's deficit in 2008 was $459 billion. Now, since this is a budget deficit, and the wars were never in the budget, doesn't that mean that his deficit was even greater?

From the AP
"The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy ..."

Obama put the wars in the budget. And, when that was written by the AP, they didn't know that the economy would take such a serious and debilitating dive. However, in spite of all this, there is hope in our future.

From the CBO

"CBO estimates that, as the economy recovers, if current
laws and policies remained in place, the deficit would
shrink but remain above $500 billion per year, or more
than 3 percent of GDP....As the economy improves and spending related to the financial rescue and the economic stimulus package tails off, the deficit is projected to gradually diminish; by 2013, it would amount to 3.2 percent of GDP (about the same level as in 2008), under the assumption that various tax provisions expire as scheduled and that discretionary spending rises at the rate of inflation. Between 2013 and 2019, deficits are projected to range from 3.1 percent to 3.4 percent of GDP, well above the 2.4 percent of GDP that they have averaged over the past 40 years."
CBO Summary of Budget 2009, page 6.

According to CBO estimates above, in 4 years, the deficit is going to be at about the same as it was in 2008, 3% of the GDP. Isn't that what even Republicans said was good?

I don't think that is good enough, and neither does Obama, which is why this Democratic Congress passed the pay-as-you-go bill in April. As the economy recovers, this will put us in a position to begin to pay down the National Debt.

We can keep the pressure on our representatives. There is no reason that the Public Option, if a buy in to Medicare, can't support the costs of the seniors even better than private for-profit insurance supports those members who are using their health benefits with those who don't need to use theirs but are continuing to pay premiums.

This could be a win-win!

Monday, September 21, 2009

The National Debt and TARP - Your Money?

Back to serious matters. There have been so many questions about the banks and the bailout money and the Federal Deficit -- your money?

First, since there is such attack on Obama and Democrats right now, I'd like to talk about the national debt in graphic form. If you look right now at the graph of the National Debt from 1940 to the present, you'll see a modest increase during WWII, and then it's almost flat until the Viet Nam War. From 1975 to 1980, it begins to go up. This is the period of Gerald Ford to Jimmy Carter. Gerald Ford came into office during double digit inflation (topping 12% in 1974), high oil prices, and low confidence in government as a result of post Viet Nam, and post Watergate and Richard Nixon's resignation. By March of 1980, inflation and interest rates were topping 18%. Even so, the debt went up moderately, and if you look at the other chart comparing it to GDP, the debt continued a down trend through Carter's presidency.

Then, came Reaganomics, and top-down Supply Side Economics, and huge tax cuts for the rich. Look at the two big rises in National Debt as compared against GDP. Both rises were during the big tax cuts of Reagan and both Bush's. Clinton took back some of the giveaway and reduced the budget still constrained by pay-as-you-go, and the National Debt was greatly curbed. Compared against GDP, it was reduced.

At the beginning of Reagan's term, the National Debt was about $1 trillion. By the time a Democrat was back in the White House, it had climbed to over $3 trillion. Clinton kept it below $6 trillion, tapering off significantly during his last 4 years. Bush lowered taxes again, raising the National Debt to $10.6 trillion by the time he left office.

Now, let's look at the National Debt as compared to GDP, and you'll see that the differences are even more pronounced. National Debt goes down during Democratic control, and up during Reaganomics and the Bush eras.

Finally, the graph from Emmanuel Saez (below) showing the income share of the top .01% of earners, that Paul Krugman published in August of this year. As Thom Hartman keeps saying, tax breaks for the rich result in bubbles which inevitably pop. The dot-com bubble caused by the excitment of a new industry increased incomes across the board, but also created some tremendously wealthy entrepreneurs. The stock market decrease approaching 2000, the end of Clinton's term, lowered the top income from 5% to 3% of total income share and lower than it was in 1986 when Reagan lowered the income tax for the top incomes from 50% to 28% and raised the lower level taxes from 11% to 15%.

George Bush came into office and again lowered taxes every chance he got until we have another serious recession, bordering on depression, and the highest spread of income ever -- at 6%. The peak in 1928-29 resulted in the Great Depression. A peak in 1986 was followed in 1987 by Black Monday and a stock market crash. Again, as Thom Hartmann points out, tax reductions for the rich results in a bubble that pops. This was repeated in 2000 when the stock market crashed again after the .com bubble.

And, this has come to that: The Bank Bailout

There's a list of recipient banks here: at CNN
which shows that about $200 billion was borrowed and about $70 billion has been paid back so far.

Now, where did the money come from in the first place? It was called the Capital Purchase Program and the effort was to prop up capital and make available additional money for lending. It didn't come from the taxpayer. It was part of TARP.

The TARP (Troubled Asset Relief Program) allowed the US Treasury Department to buy preferred (non-voting) shares of hundreds of banks. The US taxpayer was told that there would be a modest return including a 5% quarterly dividend. To date, we've seen better than expected profits of 15% or a total of $334 million in profit from the large banks who have repaid their debts and an additional $35 million from 14 smaller banks.

However, to stay realistic, Citigroup and Bank of America are still troubled, and neither is going to repay their bailout money soon. Their stocks have surged this summer, but they are both still sitting on mortgages that don't look good.

Will the Paybacks happen soon enough?

The US Treasury is subject to a Congressional debt limit. In February it was raised to $12.1 trillion. It currently stands at $11.7 trillion and was scheduled to hit the limit in mid-October. There are steps it can take short term to free up cash but none of them are long term solutions. Some of them are an avoidance of investing in Federal employees pension or G fund, or in the Civil Service Retirement and Disability Fund. Payments to this fund are normally $5.63 billion every month.

The Fed has been one of the biggest buyers of US Treasury's and government backed mortgage debt. What does this mean? The regional banks comprising the Federal Reserve System have agreed to buy the debt of their weaker brothers. In the second quarter, the Fed bought $164 billion of the $339 billion in new Treasurys. The Fed has been buying upward of 80% of the bonds issued by Freddie Mac and Fannie Mae. This has propped up the Real Estate market, but in October the Fed is scheduled to stop buying those bonds.

Luckily, US Households have been buying US Treasurys at an unusual rate. Is this because they are unsure about their local banks? This week, the government is auctioning a record $112 billion in debt. If the US citizen continues to buy our national debt, we can at least keep our debt out of foreign hands.

US Debt of George Bush: From $5.6 trillion to $10.6 trillion 1/20/09.

US Debt during year 2009: From $10.6 trillion to $11.8 trillion.

Obama has returned to pay-as-you-go which created the dip in National Debt that we saw during the Clinton years. Please support this practice as it seems to be the only way to constrain the lawmakers. Additionally, the top tax rates are now below what they were during the 1950's and the Eisenhower presidency. This is not helpful. A return even to the Reagan tax rates would greatly reduce the National Debt.

There is a myth being perpetrated that Republicans handle the Nation's money better. Not so. It would seem that they handle their money and our money better while the Nation goes deeper into debt!

Thursday, September 3, 2009

People of Walmart

It's a holiday weekend, so we're going to set you up with the funniest web sites. Be the first, or 100,000th on your block depending on where you live, to visit these sites. The first is People of Walmart.

People of Walmart
is not easy to get in to, but it is well worth the try. This is one of the hottest, and newest sites (with an Alexa rating of 59,037 in it's first month.) Three friends set it up, Andrew, his brother Adam and their friend Luke. In their own words:

People of Walmart was founded in August of 2009 by three friends and roommates after an international trip to Walmart. Let’s face it; we all have seen the people who obviously don’t have mirrors and/or family and friends to lock them in a basement, and they all seem to congregate at Walmart. It’s not everywhere that you can shop for milk at 10 a.m. next to a 400lb mother of 6 wearing a pink tube top, leopard tights, and hooker heels.”

You can find the site here:
Race Day: Get there early to get a good seat!

Photos are up by date, and you are allowed to browse the previous day for the best in hairdo's, outfits, cars and pets! It's a "don't miss" from Mindbridge Trends!

They are asking for photos, so grab your camera on your next trip to Walmart if you haven't got anything better to do! Oh, one thing, there is a disclaimer:

"We would also like to stress that we are in no way liable if you get your ass beat by Bubba when he catches you taking his picture. Be discrete, have fun, and Enjoy!"

Once a Flower Child, Always A Flower Child....

Ha. Good heads up. Maybe you should avoid weekends....