If there is one thing upon this earth that mankind love and admire better than another, it is a brave man, -- it is the man who dares to look the devil in the face and tell him he is a devil.
James A. Garfield
S&P Downgrades Long-Term US Debt Rating From AAA to AA+
Obama's accomplishments are going to be a topic during the Presidential debates 13 or 14 months from now. If I'm the GOP nominee, there are two major points I'll be making be making. First, over two years into a recovery, we have had the shallowest, most anemic growth, jobless recovery in decades. This is despite massive, unprecedented so-called stimulus spending and unprecedented liquidity via quantitative easing by the Federal Reserve. Second, Obama has now presided over the first S&P downgrade in US history. The Obama Administration has reacted in predictable fashion: the smoke and mirrors department is working overtime, just like it did in the discussion of ObamaCare, fraudulently claiming ObamaCare would actually cut the deficit, this time insisting that S&P made a $2T mistake in its computations.
Let me discuss some relevant S&P statements in today's release:
[The debt-ceiling compromise] envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.Filling in the gaps: we don't see any serious attempt to address $50T in unfunded liabilities, which are becoming more critical than ever given the retirement tsunami of the Baby Boomers, which has only started to begin. We still don't see any agreement on big ticket items like Medicaid and social security. Whereas some have discussed means testing of certain benefits, making benefit increases more realistic and sustainable, and phasing in more restrictive eligibility criteria, let's point out almost nobody is discussing the fact that Medicare savings are being double-counted for ObamaCare, these savings are LONG TERM (i.e., barely moves the needle on chronic, massive short-term deficits) and are dubious and narrowly focused (essentially the federal government is attempting to cap prices below market rates, which is utterly futile): we need to stop kicking the can down the road and address trillions versus mere billions in short-term budget savings and to look at going towards more of a high deductible, scaled-back benefits business model with increase cost sharing by seniors (e.g., premium increases) and higher payroll contributions in tune with expected lifetime benefits reflecting actuarial factors.
We now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.Even under the most aggressive $4T plans in cuts over the coming decade, at minimum we are adding hundreds of billions to the national debt each year, with the ratio of debt service continuing to increase relative to federal revenues. Obama and the Democrats continue to fight any and all austerity measures on ideological grounds, clinging to their Saul Alinsky, John Maynard Keynes, and San Francisco values.
It appears that for now, new revenues have dropped down on the menu of policy options.The Democrats simply have no credibility, on least on the federal level, when it comes to fiscal discipline. Remember how Senate Majority Leader Harry Reid was discussing pay-as-you-go, while discretionary spending went up by 24% (not counting the massive stimulus bill)? Remember how the Democrats negotiated with Reagan, promising $3 in cuts for every $1 in new taxes? Remember how a Democratic Congress finally got a reluctant GHW Bush to agree to a modest tax increase for a budget deal, then Bill Clinton exploited Bush's violation of his 'no new taxes' pledge and pushed his own tax cut plan during the campaign, only then deciding to push for a tax increase once in office?
I think the GOP finds itself boxed in. It knows that 60% of the federal budget is in sacred cow territory of entitlements, with Democrats willing to demagogue, at the drop of a hat, the GOP balancing the budget on the backs of the poor and senior citizens. Military conservatives automatically attack anyone looking at defense's 20% of the budget, even though we spend probably about half of global military spending.
So when the GOP itself essentially gives 80% of the federal budget a pass without any serious spending constraints, you have to ask, how do you pay for it? Note that I'm definitely not giving the Democrats a pass here. They want to lock in huge discretionary funding increases during the previous 2 Congresses, and if they really were interested in deficit reduction, they would call for expiration of ALL the Bush tax cuts for EVERYBODY. I think the primary motive for class warfare tax windfalls is mostly looked at as funding sources for NEW spending proposals for Democratic initiatives, not to pay down massive current deficits. We wouldn't see these disingenuous arguments that the 25% of Bush cuts going to the people whom already pay the most disproportionate amount of the tax burden is "less equal" than the 75% going to the middle class.
I am well aware of the economic effect of lower tax rates, but we need to get rid of convoluted aspects of crony capitalism in the tax code, and we need a more broad-based source of revenues, including the 50% of workers whom effectively don't pay any federal income tax. Of course, the Democrats are being hypocritical in wanting to see a broad-based approach when it comes to business revenues or transactions but not to individuals. I have noticed a bias to consumption in contrast to savings and investment, which are supportive of business growth. Even Republicans back away from deductibility of mortgage interest. At minimum, we need to make the hypocrisy of Obama and his Democratic cronies by offering tax increases coupled with a freeze on domestic spending. Does anyone want to bet that Obama will find 101 excuses not to go along with that?
Bottom line: we need to get the deficit down by at least 80% in the short term. That will require a combination of spending cuts and revenue increases. I'm more concerned about increases to the debt than being firm on a suboptimal revenue mix.
Political Humor
"It’s President Obama’s birthday. I can’t believe it’s been 50 years since his mother forged his birth certificate." - Jimmy Kimmel
[President Obama's 50th birthday. Or as he tells his supporters, the fiftieth anniversary of his first personal involvement with labor.]
"Fox News will host the next Republican primary debate on Aug. 11 in Iowa. Yeah, Fox News will ask some tough questions, like “How much better are you than Obama,” “Why is Obama such a bad president,” and “Man, can you believe we elected that guy?" - Jimmy Fallon
[This GOP celebration of Obama's 50th birthday includes the rousing party game of "Pin the Blame on the Donkey".]
Musical Interlude: My Favorite Groups
The Eagles, "New Kid in Town"
