Archive for category Fiscal Policy
Marco Rubio’s Letter to Obama on Debt Limit
Posted by Tom in Budgets, Deficit, Fiscal Policy, National Debt, Presidency on January 12, 2012
January 6, 2012 
President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, D.C. 20500
Dear Mr. President
Any day now, news reports suggest you will ask Congress to approve yet another increase in the debt ceiling. The expected request is another $1.2 trillion, adding to a three year debt binge that has totaled $4.5 trillion on your watch and that has enabled our overall debt to surpass $15 trillion. Your latest request will push the federal debt limit well above $16 trillion.
This pending request will be the sixth time during your Presidency that Congress is being asked to keep allowing government and spending to grow at rates that are unsustainable. In other words, you have made it a routine part of your job to ask for more room to spend without any plan to reduce our debt.
Instead of making debt ceiling increases a routine Washington exercise, we need to make it routine to actually spend no more than we take in. Until then, I will oppose your request to continue borrowing and spending recklessly.
As I wrote in The Wall Street Journal in March 2011, I will oppose a debt ceiling increase unless such an authorization is accompanied by a real plan to tackle our debt. Ideally, such a plan would feature both pro-growth elements and spending restraints, including fundamental tax reform, regulatory reform, meaningful cuts to discretionary spending, a balanced-budget amendment, and reforms to save Social Security and Medicare.
If we had done this in mid-2011 when we last debated the debt ceiling, we could have set America on a path to economic growth and prosperity. This would have led to more jobs and, in turn, to more duly employed taxpayers generating more growth-driven revenue to help us pay down our debt. Instead, you failed to lead, punted the tough decisions and, in doing so, our credit rating was downgraded for the first time in our history. It’s a tragic reality but, on your watch, more and more people have come to believe that America is becoming a deadbeat nation inevitably heading toward a European-style debt crisis.
When you served in the Senate in 2006, you called raising the debt limit “a sign of leadership failure.” Using your own standard, this request will mark your sixth “sign of leadership failure” on the debt ceiling issue alone. Throughout our history, Americans have revered courageous leaders and celebrated them as profiles in courage. Unfortunately, the first three years of your presidency have been a profile in leadership failure. While you may choose to run your reelection campaign against a “Do-Nothing Congress,” your insistence on doing nothing to meaningfully tackle our debt poses a direct threat to America’s exceptional character and is leading us towards a diminished future.
America deserves leaders who will stand front and center, level with the American people about our challenges and offer real solutions to solve them. Instead of simply asking for another debt ceiling increase, I urge you to come forward with a real plan to tackle our debt in 2012.
Sincerely,
Marco Rubio
United States Senator
Debt Limit? What debt limit?
Posted by Tom in Budgets, Fiscal Policy, National Debt on January 8, 2012
We will soon see a new Obama sponsored debt limit increase. Look for another replay of the last fiasco. Kyle Meintzer alerts us to this close to home video on debt limits:
For the U.S. cutting expenses is the only answer. Real cuts are necessary, not mere reductions in the rates of increasing government spending.
Time For Debate on the Role of Government
Posted by Tom in Deficit, Democrats, Entitlements, Fiscal Policy, National Character, National Debt, Politics, Republicans on January 3, 2012
Considering our current state of affairs, I’m beginning to think that the only course of action is to force a national debate on the role of government. As the current president and his party are for big government, maximum entitlements and dependency, and generation choking deficits, the opposing candidate should present the exact opposite. The Republicans or Independents should nominate a pure candidate that presents clear issues and choice. A brokered Republican convention or third party candidate may provide a way to offer that debate. A centrist candidate will not offer the clear choice we need.
Consider the WSJ editorial, The Spenders Won in 2011. Republicans controlled the House yet failed to get any significant reduction in spending. Deficits generated by a Democrat controlled Congress were $2.98 Trillion in 2008, $3.52 Trillion in 2009, $3.45 Trillion in 2010; and even with a Republican House are $3.59 Trillion in 2011 and projected to be $3.65 Trillion in 2012. We are over $15 Trillion in national debt. This is debt that we will pass onto our children and grandchildren. How moral is that? We take handouts that our grandchildren will pay for!
There must be a debate on the role of government. It does everything as Obama, Pelosi and Reid propose. Or is is limited as our constitution suggests. If the nation opts for the “free lunch,” our nation will become another Greece. If the nation chooses the moral course of eliminating the “free lunch” our children and grandchildren will have a chance to live productive lives in this country.
Short of a moral decision in an election on that all-encompassing issue, those of us who want a better future for our children are left with only two options: revolution or individual expatriation! The only alternative is to continue on the current unsustainable path with either party in control or gridlocked by the other. This is Friedrich Hayek’s Road to Serfdom!
The centrist position, the middle ground, is what constantly gets us into trouble. In essence, Republicans equal Democrats; neither party can say no; neither can cut spending. We need to get off the treadmill. We are stealing from our grandchildren. This is immorality near its height.
The World’s Policeman Has Become the World’s Enabler
Posted by Tom in Defense, Deficit, Democrats, Entitlements, Europe, Fed, Financial Policy, Fiscal Policy, Foreign Policy, Military Policy, Statism on January 1, 2012
It can’t continue. It has got to stop. Since the end of WWII we have been the western world’s policeman, unpaid despite the sacrifice of our blood and treasure. We rebuilt Europe and Japan following the war then we paid for and continue to pay for their defense. As a consequence we have enabled the socialistic welfare states of Europe to increase their welfare. Now, to the point where the weaker ones are bankrupt. To top that off our president is taking the country in the same welfare state direction and the Fed is attempting to continue helping Europe kick the can down the street supporting the zombie European nations.
I was impressed with Ed Crane’s comment in a WSJ op-ed on Ron Paul that the U.S. spends more than the rest of the world on defense–in essence defense of the western world! ”…an overreaching military presence around the world is inconsistent with small, constitutional government at home. The massive cost of these interventions, in treasure and blood, highlights what a mistake they are, as sensible people on the left and right recognized from the beginning. Of course we want a strong military capable of defending the United States, but our current expenditures equal what the rest of the world spends, which makes little sense. It is futile to try to be the world’s policeman…”
My point is that to the extent we overspend on defense, Europe doesn’t need to spend. Their taxes to the extent paid go to increase statist expansions and welfare in countries like Greece, Portugal, Italy and Spain.
To top that off, our Fed seems to think it legitimate to help finance Europe’s profligate ways. Jerry O’Driscoll exposes Bernanke’s covert effort to bail out the ECB in his recent WSJ op-ed highlighted in our blog. This is clearly ultra vires, beyond the legal power of the Fed and against what its chairman has publicly stated.
In effect we have given Europe the leeway to expand its welfare state beyond its capacity to pay for that expansion. Our president who has no concept of economics admires the European model and seeks to expand our own welfare state beyond its capacity to pay for the expansion. His statist stimulus expenditures were nothing more than payments to increase the size and scope of government. His Obamacare takeover of medicine is nothing more than an unsustainable entitlement addition to the already unsustainable entitlements of Medicare, Medicaid, and Social Security.
We have enabled Europe’s welfare/statist addiction at a time when we can’t afford our own addiction. That latter addiction is theft from our grandchildren. Immorality par excellence! It must stop!
O’Driscoll Post: End of Euro?
Posted by Tom in Europe, Financial Crisis, Financial Policy, Fiscal Policy, Monetary Policy, National Debt on November 9, 2011
Jerry O’Driscoll”s post on the Cato blog today will get your attention; it follows verbatim:
“Global equity markets are falling, with the Dow Jones Industrial Average down around 250pts. A benchmark 10-year Italian government bond is yielding 7.4%. Every country whose sovereign debt went over the 7%-mark has required a bailout. I was in Italy a month ago, and the yield was under 6% (still pricey for a developed country).
A bailout of a country Italy’s size would be a gargantuan task — probably a larger effort than heretofore. It is beyond the capacity of the EU. Italy’s debt is just too large. I doubt China would purchase any real assets until labor-market reforms and pension reforms were enacted. China actually wants a return on its investments.
If the IMF gets involved, it would require massive new funds for which the US taxpayer would be on the hook for around 18%. I wonder how that would go over in the US House or even the Senate? That doesn’t mean the Obama administration won’t try to organize a rescue. The Fed has been backstopping the EU banks for some time.
Will the Euro survive? Will the global financial system survive?”
Jerry’s email answer to the last two questions was: “probably and possibly!” I’m not sure of the order he intended.
But see Italy Bond Attack Breaches Euro Defenses today on Bloomberg.com. The simple answer is that monetary governance without fiscal governance does not work. The sooner that is realized, the sooner sovereign bailouts will stop, and the sooner the European nations can begin a healthy recovery.
Supply Side Analysis of Obama’s Latest Stimulus Plan
Posted by Tom in Congress, Deficit, Democrats, Economics, Employment, Fiscal Policy, Politics, Welfare on November 4, 2011
Obama’s incessant campaign call for the past months had been to demand the “Republican Congress” PASS IT NOW. The “It” is, of course, another stimulus plan, excuse me, “jobs bill;” you see the word “stimulus” has, by fiat, been stricken from the Democrat’s lexicon–must be something to do with the pejorative connotation generated by the last stimulus! Anyway, the new stimulus consist of: 1. Temporary payroll tax cuts, 2. Temporary extension of unemployment benefits to two years, 3. Additional debt to finance public sector jobs, and 4. Higher taxes on “the rich.” That this is an insincere reelection effort on his part can be of little doubt, since he knows it would not pass even his Democratic controlled Senate, much less the House.
Stimulus by whatever name it is called should, nonetheless, be subjected to economic analysis and Art Laffer, that infamous supply-sider, has obliged in the current issue of National Review. Laffer calls it a “four point plan for failure.” His article is worth a summary here, with full attribution:
Payroll tax: This is broad-based but effects only the moderately paid workers; it stops at a bit over $100,000 of annual compensation. Broad-based, low-rate taxes are generally good since there is little incentive to avoid them, so a reduction in these taxes presents little incentive to work or not to work, to hire or not to hire. Laffer points out that a reduction in this tax will not effect the decision makers typically earning over the $100K limit and much of that in dividends and capital gains. Laffers point is that cutting the payroll tax, temporarily, will not effect hiring or seeking employment. In other words, it doesn’t effect any job creation.
Extending unemployment benefits to almost two years: Laffer uses a time tested analogy to the Department of Agriculture payments: pay farmers to grow and they grow; pay them not to grow and they don’t grow. Simple: people respond to economic incentives. Obama wants to pay people not to work for almost two years. Obviously, they will take the money. And, by the way, not look very hard for that next job. In short, this is a big negative to job creation.
More deficit stimulus spending: Here we get in to the so-called Keynesian multiplier: the recipients of the extra federal dollar will spend a portion of it thereby creating new jobs which induce more spending thus more new new jobs. This “marginal propensity to consume” gives us the “multiplier;” or $1 divided by $1 minus that marginal propensity to consume. So if the marginal propensity to consume is only 50 cents, the multiplier effect is $2 for ever $1 borrowed! Thus the Keynesians have magically created money!
Wow! What’s missing here? Well, to get that dollar of federal largess, the federal government must take that dollar from someone else. In this case it must take not only that dollar, but it must run that dollar through the federal bureaucracy, then it must pay interest on that dollar because it borrowed the dollar. In short, the economic effect is to rob Peter, waste part of the loot on bureaucracy and interest, and pay Paul the balance. The economic effect is not neutral but is NEGATIVE. It destroys jobs, the jobs that would otherwise be created by Peter via his spending or investment! Look no further for proof than Obama’s last stimulus expenditures.
To cap off the point Laffer offers the “Slutsky equation:” This aggregates the deficit financed stimulus, both debits and credits. “By taking resources from those who produce and giving resources to those who don’t produce, government reduces the incentives to work for both parties. Output, employment, and production will fall.”
Higher taxes on “the rich:” It’s hard to tell if Obama wants to raise revenue or merely redistribute income with this effort. If raising income is the goal, increasing tax rates at the highest brackets will have the opposite effect; lowering tax rates on that bracket however will raise revenue. The simple reason is that those earners in the highest tax brackets have the ability to minimise marginal taxes by converting income to capital gains, deferring income, and shifting income; and they have access to tax accountants, investment advisors and attorneys to help in this process. If, on the other hand, he merely wants to redistribute income or wealth, he succeeds in his election tactic of creating class warfare but he fails in his so-called job creation purpose. And this for the same reason suggested by the “Slutsky equation.” Taking money from the producers and giving it to the non-producers has a negative effect on both; it’s a double disincentive!
In sum, our President is a campaigner who has a negative record on which to run. He has created a straw man with his rants against the “Republican Congress” failing to mention the Democrat controlled Senate which is fully one-half of that Congress. And he has come up with a sure-to-fail stimulus plan which he will use to deflect voter attention away from his abysmal record.
Sinking With Europe?
Posted by Tom in Economics, Europe, Fed, Financial Policy, Fiscal Policy, Foreign Policy, Monetary Policy, Welfare on November 2, 2011
The following is a republication of Jerry O’Driscoll’s op-ed in today’s WSJ, Why We Can’t Escape the Eurocrisis. The article also had lead position in today’s Real Clear Politics.
Why We Can’t Escape the Eurocrisis
EU and U.S. debt are interlinked through the banking system.
By GERALD P. O’DRISCOLL JR.
When is a bailout not a bailout? When the bailor is short of funds. The recently announced debt plan in the European Union comes up short in almost all respects.
The debt crisis is not just an EU problem, but a trans-Atlantic financial crisis. The overwhelming debt problems on either side of the pond are interlinked through the banking system.
First to the EU. The underlying dilemma is that governments have promised their citizens more social programs than can be financed with the tax revenue generated by the private sector. High tax rates choke off the economic growth needed to finance the promises. Economic activity gets driven into the underground economy, where it often escapes taxation.
Nowhere is this truer than in Greece, which has a long history of sovereign defaults in the 19th and 20th centuries. There is a bloated public sector, and competitive private enterprise is hobbled by regulation and government barriers to entry. Successive Greek governments ran chronic budget deficits, and the Greek banks lent to the government. Banks in other EU countries, such as France, lent to the Greek banks.
In Greece and elsewhere in the EU, the banks support the government by purchasing its bonds, and the government guarantees the banks. It is a Ponzi scheme not even Bernie Madoff could have concocted. The banks can no longer afford to fund budget deficits, yet they cannot afford to see governments default. Governments cannot make good on their guarantees of the banks.
Getty Images
Details differ by country. In Ireland, problems began with an overheated property sector that brought down the banks. The economy went into depression, which threw the government’s budget into deficit. Further aggravating the deficit was the government’s decision to guarantee bank deposits, converting private, financial-sector debt into public-sector debt. The details differ from Greece, but the linkage between the government and the banks is the common factor.
France’s growth is weak to nonexistent. Germany’s economy has performed well since the recession, but concerns are growing regarding its banks’ exposure to greater EU risk. And U.S. banks and financial institutions are exposed to EU banks through funding operations, issuance of credit default swaps and unknown exposure in derivatives markets.
The Federal Reserve has engaged in currency swaps with the European Central Bank to support the dollar needs of EU banks. The ECB deposits euros (or euro-denominated assets) with the Fed and receives dollars in return. It promises to repay dollars plus interest.
The Fed maintains they cannot lose money because the ECB promises to repay the swaps in dollars. And yet, with the world awash in greenbacks, it is unclear why the Fed and the ECB even needed to engage in these transactions—except that it suggests funding problems at some EU banks. And if neither EU banks nor the ECB can secure enough needed dollars in global markets, there is a serious counterparty risk to the Fed. The ECB can print euros but not dollars. Sen. Richard Shelby (R., Ala.), ranking member of the Senate Banking Committee, was correct to raise concerns about the Fed’s policy last week. Losses on the Fed’s balance sheet hit the U.S taxpayer, not EU citizens.
The sad fact is that there is not enough money in the EU to pay off the public debts incurred by the governments. Most countries have long since squeezed as much tax revenue from their citizens as they can. That is why they have toyed with a tax on financial transactions, the one remaining untaxed activity in all of Europe.
Greece is the first of other sovereign defaults to come. With last week’s bailout, the EU leaders might have bought time, perhaps a year. But at some point, the ECB will cave and monetize the debt, leading to euro-zone inflation.
The debt calculus changed dramatically this week with the announcement of a Greek referendum on the bailout agreement next January. If voters reject the agreement, the ultimate outcome is unpredictable.
Americans must not be smug about the suffering of Europeans—our financial system is thoroughly integrated with theirs. Moreover, the International Monetary Fund will most likely be involved in the event of future bailouts and will likely need large funds from its members, which ultimately means the taxpayers.
And, of course, the U.S. has its own large and growing public debt burden. We have not gone as far down the road to entitlements, but we are catching up. If you want to know how the debt crisis will play out here, watch the downward spiral in the EU.
Meanwhile, expect more volatility in financial markets. U.S. traders in particular simply have not grasped the enormity of the EU debt crisis.
Mr. O’Driscoll, a senior fellow at the Cato Institute, is a former vice president of the Federal Reserve Bank of Dallas and later Citibank.
Marco Rubio On Fire
Posted by Tom in Budgets, Congress, Deficit, Democrats, Entitlements, Fiscal Policy, Welfare on August 1, 2011
Ron Tomsic sent this. We need more Rubios is leadership positions.
“Stimulus” Obfuscation…or spinning to the dummies!
Posted by Tom in Economics, Fiscal Policy, Stimulus/Bailout on July 18, 2011
Thanks to Jim Clark who has penned a follow-up to Tom Cargill’s recent post, set out in full here:
In last week’s Bonanza Jeff Quinn wrote in a column titled: “Economic Advisors’ Bafflegab” that the just released Council of Economic Advisors report on the effect of the American Recovery and Reinvestment Act of 2009 (the “Stimulus” bill) stated that it: “raised employment relative to what it otherwise would have been between 2.4 and 3.6 million jobs . . .” Huh?? Jeff, ever the canny CPA, calculated that this would work out to a cost of just about $300,000 per “job”. Except there are no jobs. There are instead 2.4 million less people employed today than when Obama took office.
Two years ago UC Berkeley Economist Christina Romer chaired the Council of Economic Advisors and famously advised President Obama that unless a huge stimulus bill was passed unemployment would rise above 8%. She further advised that each dollar of government stimulus spending would produce a $1.60 increase in gross domestic product. When unemployment rose to nearly 10% she departed for her ivory tower in Berkeley. It has taken almost two years to discover her second big mistake which is where UNR Economics Professor Thomas Cargill comes in.
Writing in the July 13 Reno Gazette Journal Cargill points out that at the time the stimulus package was under consideration: “there was no empirical consensus on the size of the multiplier.” (that which would supposedly create $1.60 in economic activity for every $1.00 in federal spending). “Estimates ranged from a zero multiplier to $1.60 and higher.” But, he wrote, the “stimulus efforts lacked scientific support.” This “lack of a scientific consensus suggest(s) politicians have exaggerated the ability of government spending to stimulate the economy, especially in Japan and the US,” Cargill continued. “Politicians often rationalize any lack of success to the fact government spending was not large enough or that without government spending the economy would be in worse shape” An interesting observation because Cargill wrote this before release of the current Council of Economic Advisors “bafflegab” report cited above in which they do precisely that.
“The real issue” Cargill continued “is whether an alternative policy, such as cutting marginal tax rates and simplifying the tax code, would have produced different results. Some politicians continue to argue for more government spending to stimulate the economy. Perhaps they should do their homework before committing more taxpayer funds and further increasing the size of the deficit and debt” Cargill concluded.
Yeah but in this case the politicians (all of them Democrats . . . not a single Republican voted for Obamulus) had U.C. Berkeley Whiz Christina Romer telling them everything would be wonderful if they would just borrow all that money from the Chinese and spend it.
Had the politicians “done their homework” they could have ignored Romer and simply looked at history. In 1929, when the stock market crash that triggered the Great Depression, unemployment was 3.14%. By 1934, after the original Keynesian stimulator, Franklin Roosevelt, had been in office for a year unemployment was 21.6%; by 1938, after 4 years of stimulus spending to create jobs unemployment was 18.9%. In 1942, as the US industry shifted to wartime production, unemployment fell to 4.7%. These statistics could lead reasonable people to conclude that government spending does not stimulate the economy. But who ever said politicians are reasonable.
The Council of Economic Advisors’ obfuscation still persists, we are up to our neck in debt and the current red hot battle in Washington is whether we should raise the debt ceiling to borrow more money to pay the interest on the money we previously borrowed to finance the stimulus that didn’t work.
Oh well, maybe we’ll get bailed out by a world war again.
Jim Clark is President of Republican Advocates, a member of the Washoe County and Nevada GOP Central Committees; he can be reached at tahoesbjc@aol.com
Rubio on Obama’s Leadership….or lack thereof!
Posted by Tom in Fiscal Policy, National Character, Politics on July 18, 2011