Saturday, February 27, 2010

So President Obama and the Democrats Are Going to Use the Reconciliation Route to Pass Health Care ‘Reform’ (sic)?

Are there any odds in Las Vegas on this yet?

If so, you might want to place some money down on it…it would be a humdinger of a Super Bowl contest of wills, patience and parliamentary maneuvering unlike any we may have ever seen before.

Here is something we just don't quite fully comprehend:  The Democrats have already 'won' the silver medal.  The House can pass the Senate version of the health care bill today and have it signed into law by the President in no time flat. That is 'two/thirds-bad' or 'three quarters-good', depending on where you sit. They could go home today knowing they have already passed most of what they wanted to get in the first place.

Perhaps they sense that this might be their one and only chance to pass such a major expansion of federal control over the health care system in their lifetimes so they are willing to risk it all to get the 'gold-plated' platinum medal in terms of health care reform bills, at least in their eyes.

If that is the case, let’s close our eyes and try to imagine what this ‘budget reconciliation’ (BR) process really looks, acts and feels like. Imagine you are the BR Bill itself. You have been conceived and birthed by 60 US Democrat Senators, 255 House Democrats and a President in the White House and nurtured and fostered by a dizzying array of labor unions and other nannies along the way.

So your collective DNA has a lot of complexities to begin with.

You are mad and frustrated that Thomas Jefferson and the other Founders set up the procedures of the US Senate so that the rights of the minority party can not ever be completely trampled underfoot no matter what the other party has won in the last election. In fact, it used to be that only 1 single Senator could hold up the proceedings of the Senate as long as he would stay on his feet and ‘filibuster’ a bill 'til Kingdom Come. (see Jimmy Stewart in “Mr. Smith Goes to Washington’)

That is the concept of ‘unanimous consent’ which fosters and breeds compromise and collegial negotiation and comes from the days of the Roman Republic itself. ‘SPQR’ or ‘Senatus Populusque Romanus’ meaning "The Senate and the People of Rome" which shows you how much the Senate back then thought of their special relationship with the public.

In fact, we submit that going back to the full filibuster rules might actually yield more compromise, not less, than under current 60-vote cloture rules but that is a thought-bomb for another place and another time.

Anyway, you now look at the gauntlet of Senate rules and parliamentary procedures between you and your utopian Olympian dream: being passed into law as President Obama’s signature piece of legislation. It could go down in history as one of the greatest works of legislation in the history of the American Republic or be infamous as the undoing of the first African-American President the United States has ever had.

“This is so unfair!” you think as the BR bill. “Why should I, the brainchild of the smartest people in the country right now have to subject myself to these demeaning rules?”

Because Mr. Jefferson and Madison and the other geniuses back then wanted you to be subject to those rules today and forever here in the United States of America. That is why they made it so difficult to pass legislation in the Senate in the first place…it is supposed to be the place where the hot cup of soup of legislation passed by the House is ‘cooled off’ in the saucer beneath it when it spills.

So here is what you are up against in the gauntlet:

- Any knife that will cut out a thick piece of your skin if you dare exceed the budget rules and parameters.

- A hatchet that will cut off any finger that seeks to bring in any extraneous legislation that is not ‘germane’ to the issue at hand, namely budget and tax issues relating solely to health care, nothing else.

- A tomahawk to your scalp if you even dare violate any of the so-called ‘Byrd Rule’, named after the senior Senator from West Virginia, Senator Robert Byrd himself who is still serving (Something to watch for: if he votes for any waivers from his own Byrd Rules, then you will know that the goose is cooked, the cards are stacked and someone from Chicago has gotten to him and made him an ‘offer he can’t refuse!”)

- Hot coals under your bare feet as you run down the Senate hallway to the Senate chamber to vote.

- Various other atrocities committed to your physical person as you try to skirt the reconciliation rules and procedures and increase the deficit, all intended to keep the debate focused on tax and budget issues in the health care debate, not on broader issues of policy.

‘War is hell!”, said William Tecumseh Sherman and 'budget reconciliation' is just ‘war by other means’ (Baron von Clauswitz)

Take some time to read this fantastic, easy-to-read summary of the entire budget reconciliation process by a Senate expert, Keith Hennessey.  All of it, both sections (it was written last August but is still germane)…don’t skip a word cause there will be a test on it later.

Let it all sink in and then you will know just how difficult it really and truly is to get everything the Democrats want in the gold-plated platinum health care bill through the budget reconciliation 'nuclear option'. (President Truman used the real 'nuclear option' and to equate this debate with that ominous decision is ludicrous)

We remain persuaded that win-or-lose, we are going to have to start over again next year and keep pushing this rock up the health care reform hill time and time again like Sisyphus…another great story for which we have great affinity.


picture courtesy of fourthandverylong.wordpress.com/

Wednesday, February 24, 2010

When Higher Interest Rates are a ‘Good Thing’...Honest!

Amidst all of the excitement about the Vancouver Olympics and consternation over the still-lingering jobless recovery, there was a flickering, glimmering light that sparked in the ashes of this nasty recession about a week ago and hardly anyone noticed.

The Fed announced a 'teeny-tiny' rate hike on the money they loan the largest banks.

“What a minute! How in the world can higher interest rates be good for anything? I thought the lower the rates the better’.

(When you think about it, we have had darn near zero and close to negative real interest rates when you factor in any inflation over the past several years.  How much lower could we go anyway?)

It is a complicated saga but bear with us for a moment.

When the world seemed to be imploding in 2008 and Wall Street was crashing like so many alpine skiers seem to do every day in Vancouver, we called one of our friends who works at the Federal Reserve in Washington for some insight into what the heck was really going on at the moment.

This is one of the true public servants you never read about, one of the faceless, unsung people who do their job diligently day-in and day-out without ever having their name in the paper or becoming a pretentious chatterhead on one of those insanely contentious and ultimately self-defeating ‘talk shows’ on cable tv. He is one of the legion of 80% of federal public servants who are good at what they do and we are fortunate to have serve our public interest.

Anyway, as we were asking a lot of questions about incipient inflation due to the Fed ‘printing’ more money to bail these banks out, etc., this gentleman calmly interrupted and said, quietly, in his best former high school coach voice: “We have it all under control.”

When we asked how in the world could that possibly be when the tectonic plates of the world's economy seemed to be shifting all around, he said: “Mr. Bernanke knows precisely what he is doing. He has been training for this moment his entire life and he is the exact right person to be in the exact right place to navigate our way through these troubled waters.”

He went on to explain: “There will be no explosive inflation coming out of this recession for one very simple reason. All of this support we are giving to the banks right now is not from running the printing presses to print massive amounts of new currency til they melt down. In fact, we are telling the banks not to ever use any of this 'money' we are extending them for lending purposes no matter what. It is simply a matter of extending credit to the banks from the newly expanded Fed balance sheet via debits and credits on the books of the banks and the Fed concurrently. The purpose is to shore up the bank reserves to meet their reserve requirements and hold them there until the economy recovers enough that the banks can meet the reserve requirements on their own.”

“And when will that moment be, Sir Deep Throat of the Fed?” we asked.

‘When we see enough economic activity to justify it, we will start to raise interest rates ever so slightly to start siphoning that credit back to the Fed from the banks. Eventually, we will have to recover all of that extended credit which we will then de-leverage off the Fed’s balance sheet by simply destroying it.”

Meaning 'make it disappear' just as quickly as they made it appear when they ‘expanded’ the Fed balance sheet in 2008 and 2009. Just think of a video game where you shoot down space aliens or something and they just disintegrate on-screen.  That is what will happen to these trillions of 'dollars' on the computer screens with the expanded Fed balance sheets on them when they are 'returned' to the Fed from the banks in the form of higher interest rates.

Now that might not be the fancy-dancy theoretical economic politispeak you might hear in congressional testimony from Alan Greenspan or read in some advanced economic publication such as the Financial Times or the Wall Street Journal. But he seemed to be saying: “Whatever the Fed can create out of thin air to help us through this crisis, the Fed can make disappear the same way.”

And with its disappearance, significantly reduce the possibility of explosive interest rates due to a massive expansion of the money supply the 'old way'...printing up trillions of new greenbacks on paper.

We hope he is right. And we hope our limited knowledge of high finance allowed us to hear Deep Throat’s words and comprehend them with understanding.

‘That is our story and we are sticking to it’ as the great country song declares. At least it is one small flicker of positive hope….isn’t that good enough nowadays?

ski crash courtesy of www.sportingnews.com/blog/zamboni77/225492

Friday, February 19, 2010

The Lost Tension in the Spending Versus Tax Debate

You know, we have been writing for close to a year now on federal budget, taxes and health care issues. Not normally your most exciting or intriguing political issues to discuss coming out of Washington when compared to such issues of gravity as Sarah Palin’s eyeglasses; President Obama’s generous use of the teleprompter and whether Glenn Beck is the new national leader of the Tea Party Movement or not…you know, the important things in life.

But it occurred to us like a bolt of lightning from above that despite all of this talk and writing about fiscal issues, there is one critical issue missing in the whole national debate, one that would accelerate the decision-making process on the part of Congress and most importantly, the American public towards some sort of fiscal sanity once again.

That critical missing link is ‘fear’.

There is zero ‘fear’ by any of the affected parties right now that anything different will happen to them if we don’t take any action to solve these enormous, bone-crushing deficits and build-up of national debt. Nobody is afraid of the consequences of their inaction…so consequently, they do nothing. It is a vicious, insipid and ultimately completely stupid circle.

Let’s go to the videotape:

Democrats won’t cut spending, unless it is in defense, in which case they will reduce spending with abandon. They will raise taxes, but only if it is all borne by the upper 1% of the income-earners in America. What they incorrectly presume with impunity is that these wealthy people will part with their hard-earned money without a fight or the advice of expensive tax accountants and lawyers. The Democrats also incorrectly presume that amount of money they can confiscate from the highest 1% of Americans will make any difference at all in balancing our budgets. (it won’t..we can confiscate all of Bill Gates and Warren Buffett’s $75 billion in assets and that will run the US government for less than 70 hours)

Republicans always want to cut taxes at the drop of a hat, but they do not want to cut spending with the same abandon which would at least honor their ‘limited government’ heritage bequeathed to someone by Jefferson. (No one believes that anymore apparently) That is why the GOP so unceremoniously let the only thing that has ever worked on budget discipline, PAYGO, die an ignominious death around 2003-2004 without even giving it a proper burial. In fact, between 2001-20006, Republicans spent more money than even the most liberal of all liberals, Speaker of the House, Tip O’Neill could have ever imagined spending during his reign in office.

So, there you have it….all of the easy avenues have been used forever with impunity….raise spending; cut taxes, spend freely and never stop adding on additional debt for your kids to pay back…one day…after we are all dead and gone.

Here’s what is missing and what we would like to support as a ‘new way’ out of this conundrum: Think of enormous debt being far worse than lower spending or higher taxation could ever be on this economy and your future. ‘No New Debt! No New Debt!’ Can’t you just hear the roar of the crowds at the Democrat, Republican and Tea Party Conventions next time around? (ok, maybe not yet...but you should)

Why is this true? No republic we can find in history has ever succumbed due to low taxation alone. Or higher spending alone. But thousands of them have succumbed to the killer of humongous national debt caused by an excessive spending/taxation imbalance and the attendant interest that has got to be paid on the principle each and every year.

When those payments can’t be made to bondholders, especially foreign credit holders, that is when things start to go sour for any spendthrift national government. Just ask the president and parliament of Greece right now….we bet they wish they had paid attention to balanced budgets 10 years ago.

Here’s what we suggest any political leader should say to the American public so we can all see the consequences of not taking action on this enormous budget deficit dilemma: “I am going to attack this budget deficit by voting for every spending reduction first and foremost that is presented, especially from the great CBO Budget Options books (see Vol. 1 and Vol. 2). However, if you don’t agree with that approach, and we don’t get to balance by spending reductions first, I am going to support taxes across the entire population, not just the super-wealthy, so we can generate enough revenues to cover the spending you say you don’t want to reduce.

Because I am simply not going to vote for any more debt to be laid on our children in any fashion and I will only vote for any debt ceiling increase if we are on a rapidly-declining glidepath to balance in the next 10 years.”

And if you don’t like that, send someone else up there to Washington to fill that seat. Because I am not going to be a part of the strangulation of the American economy by this idiotic and totally insane national debt.”

That should lay out the options in a much more clear way for the American public to understand what is really at stake here. If you don’t support Congress as they cut spending; you are saying you want to pay higher taxes. And so they should give it to you.

It is your choice.
 
glasses courtesy of http://celebritystyleblog.wordpress.com/tag/sarah-palin-glasses/

Friday, February 12, 2010

Check Out What the Greeks Are Having to Do Regarding Raising Their Retirement Age...by Force

No sooner had we posted our last observation about the critical need for the FY 2011 Obama Budget to include a rapid increase in the eligibility age for Social Security and Medicare than the news came on CNBC that Germany was forcing the Greek government to its knees to raise its retirement age in return for any financial bailout assistance to help stabilize the euro. (see “Greek Debt”.)

They are taking the ‘radical’ step of raising their retirement age to 63…from 61!

Good Grief!  Imagine what sort of peace and prosperity the world would experience if America and the EU nations jointly raised their retirement ages to 70!  The fears about every industrialized nation’s burgeoning debt would diminish, if not evaporate overnight and at least one major financial sword of Damocles would be put to rest.

And then we found the following article about Spain taking pre-emptive action to raise the retirement age of its citizens to 67. (see Spain)

What in the name of Sam Hill is going on here?

We are of the opinion, without being too apocalyptical about it or alarmist in a very pessimistic way, that we are now in the time period where policy-makers 30, 20 even 10 years ago always warned about when the ‘chickens will come home to roost’. (interesting derivation here….maybe pigeons would have been more appropriate)

We remember sitting in untold numbers of House Budget Committee hearings from 1991-1994 and Entitlement Commission meetings from 1993-94 where expert economist after expert economist all said the same thing: “We can run deficits up to a point but whatever that point is, we will have to pay higher taxes and/or dramatically reduce our federal spending to come back into balance and reduce this enormous debt we have been building up since 1970…(pick any year since whatever the debt level was at the time was considered 'way too large’ at the time as well)

And they would all conclude by saying, in essence: “And besides by (1990/2000/2010… whatever was 10-15 years out in the future), the American people will have wizened up by that time and the people in Congress will have already taken care of the long-term structural problems.  The American people are not that dumb to allow it to happen forever.”

Uh, sorry about that, sirs and madams….but we have not ‘taken care of it just yet’…and we are showing zero signs of taking this seriously and doing so now in 2010.

That is why you need to pay very close attention to how Germany and the European Union deals with the profligacy of the Greek government and society right now, today.  They are going to force some ‘painful’ reforms on the Greek people that they are incapable of forcing on themselves apparently.  What an embarrassment that the birthplace of democracy, Greece itself, is now having to be forced by outside creditors and guarantors to make the hard decisions they should have been making through their own legislative process for the past 30 years.

Sound familiar?  It should because we have followed the exact same course as the Greeks: “We want it all, we want it now and we don’t want to pay for it out of our pockets so we’ll just borrow it from the Germans and future Greek children with loads of debt and live and and dance like Zorba the Greek”.

Greek budget deficits now run about 13% of GDP.  US budget deficits run about 10% of GDP.  Greece’s GDP is $357 billion per year. Greece would be the 13th largest state in the US ranked by GDP just behind Michigan and just ahead of Massachusetts.

Presumably, if Greece were a US state, they would be running to Washington asking for a bailout of their finances just like California ($1.85 trillion GDP) and the others have already done.

The party is over for the Greeks and the contagion is about to spread throughout the EU.

Why don’t we just do the right thing now, bite the bullet, cut back on all of these excessive spending programs, reform and scale back on these entitlement commitments and return to a life of economic growth and prosperity?

That would be a lot more fun than the last 2 years, which might become 10 years if we don’t watch out…wouldn’t it?

courtesy of www.greek-islands.us

Monday, February 8, 2010

What One Policy Change Should Be In President Obama’s Budget...But Isn't?

Last week, we saluted President Obama for saying just three little, but important words in his SOTU (State of the Union) speech:  ‘budget’, ‘freeze’ and ‘PAYGO’.  All in the same paragraph if you can believe that.

Even though the ‘budget freeze’ part would only apply to less than 1/6th of the overall budget in precisely all the non-defense, non-entitlement programs that are not causing all of this explosive growth in deficits and debt in the first place, it was still newsworthy.  First time in a decade that those 3 words had come out of a U.S. President's mouth.

We won’t go into a line-by-line critique of the Obama budget because that would only obscure the following most important fact:  It spends too muchWay too much.  Plain and simple.  How much more simple can it be stated to a supposedly advanced, educated western civilized democracy?

The ‘mini-ice age freeze’ in Washington today is nothing compared to what needs to be done to the whole budget if we are ever going to get a handle on it. Maybe if we can just keep Congress out of session due to 3 feet of snow for the next 7 years or so, (it would take at least that long) we will be able to balance the budget again when the economy finally recovers.

Contrary to popular (mis)belief, the growth in the federal budget is not caused by 1) international aid; 2) welfare mothers; 3) bank bailouts or even 4) the wars in Iraq and Afghanistan.  We could take all of those out of the budget right now completely and there still would be an unimaginable amount of unsolved deficit-spending and national debt staring us in the face for decades.

The explosion in overall spending is due to the following factors: 1) increased life expectancies of Americans due to generally better health conditions and medical miracle advances; 2) the vast expansion of Social Security, Medicare and Medicaid programs to cover all of the wonderful new medical 'breakthroughs' which are expensive; 3) entitlement coverage for not only the ‘truly needy’ but in many cases, middle-to-higher and even upper-income families in some cases; and 4) the failure of our elected officials to have the guts to correct these monumental imbalances before we got this far down the road. (see Robert Samuelson's great summary today)

Oh, and yes, the AARP.  Without a doubt, when history is written 100 years from now about the United States, that is, if there is still some vestige remnant of the United States around someplace, there will be a large chapter on the intransigence of the AARP lobby in Washington that frustrated every single serious proposal ever presented to reform entitlement programs with a complete disregard for the long-term future consequences of their actions.

So if you haven’t done so yet, burn your AARP card today to stay warm and resign your membership in that august body.  Unless getting a 15% discount on movie tickets means more to you than saving the Republic for your children, that is.


Here is one little legislative nugget to put in your head that you won't see in President Obama's budget but you need to think about and talk about over the dinner table this week.  It is one absolutely solid, tangible way you can do something for your country and your children that will help unwind us out of this sticky wicket (what does that mean anyway?) we now find ourselves in:
  • Work a little bit longer, like 3 months, for each successive year past the magical age-65 threshold for Medicare and 66 for Social Security until the official age is 70 years old.
You are gonna have to work longer anyway to recover from this nasty recession and have the funds you need to retire so why not?

If you don’t want to do anything like this option, the only recourse is to raise your income taxes by an average of about $5000 and keep them there on an indexed basis for the next 30 years.  We do not want to see any more dodging of the tough issues of higher taxation versus lower spending because that leads to more national Debt and that starts with ‘D’ and that rhymes with ‘T’ that stands for ‘Trouble’ down the road.

‘Debt is for political cowards, not political leaders’.  Make a bumper sticker out of that one.

Would you be willing to do such a selfless act for your country if you thought it was going to help: 1)reduce this burdensome debt on your children; 2) balance the budget in your lifetime; 3) allow your favorite social/defense spending programs to stay intact; 4) lower the need to pay much higher taxes and 5) Save the Republic…all in one fell swoop?

We think everyone would be willing to do this, given that you are physically able to do so. Hey, we are still Americans, aren't we? All for one and one for all; win one for the Gipper and all that.....

There is a new proposal out that we are going to call the ‘Ryan Budget’ because he is the leader of the Republican side on the House Budget Committee.  They have included this age adjustment feature to their proposal that you can take a look at: 'Roadmap'.  We think his whole schedule of implementation should be accelerated considerably but it is at least a good faith effort to start with from the Republican side of the aisle.

And here’s the truly great thing:  Not one single senior citizen now over the age of 65 for Medicare or 66 for SS today would lose one penny of their benefits.  Not one. 

So if you have made it over the finish line and are now grandfathered (why do they never say ‘grandmothered’?) in to both programs, you can turn off your hearing aids and ignore this complete debate.

This is one for the Boomers and their kids to settle, not you.

picture courtesy Bloomberg News