April 14, 2011
The $38 billion spending cut deal reached by Washington last Friday night, and approved today by the House, would indeed be the biggest in history -- if they were giving out awards in the category for “flimflam & swindle." The package fairly oozes with cynicism, gimmicks and voodoo accounting. For example, the negotiators know full well they didn’t “save” $4.9 billion from the victims of crime fund -- because that’s six times the $750 million annual cap already in place and more than the cumulative outlays from this fund for the entire past decade!
In the same vein, even the somnolent old bulls that run the appropriations committees have doubtless noticed that the periodic census was completed last year, so their $6.2 billion “cut” from this year’s continuing resolution will save exactly zero dollars. Then there is $3.3 billion “saved” owing to recessions of “unobligated balances." This is budgetspeak for the equivalent of un-cashed checks -- old spending authority that never got used.
Likewise, there is also a good explanation for Congress’ uncharacteristic willingness to whack $3.1 billion from the highway pork barrel: This amount exceeds an existing statutory ceiling and could not be spent anyway. And then there is $3.3 billion in cuts from entities such as the farm credit insurance fund, the rural housing fund, the community development fund, the clean water and drinking water revolving fund, and several more. No sweat here, either. All of these are revolving loan funds which are replenished from repayments of principal and interest, and are controlled via annual limits on new loan disbursements. By contrast, the appropriations for these programs are pure book-keeping entries -- so the proposed “cuts” will have virtually no impact on actual cash outlays.
The $6.2 billion “cut” for military construction is yet another exercise that turns out to be an air ball. The tip-off here is that it’s only scored as a $1.3 billion cut from the Pentagon’s actual budget for FY 2011. What this means is that DOD requested a $5 billion lower amount this year compared to FY 2010 and is most likely spending at that reduced rate. So, with the year already half over, it couldn’t possibly catch up to last year’s level anyway.
That gets us to $31 billion in “cuts” without
having saved a dime of actual cash outlays.
Finally, there is the case of the dog that didn’t bark. The compromise plan takes credit for $3.5 billion in cuts from a health care program for the children of low-income families. Yet no liberals are screaming because they’ve been clued in on the scam: There will be no curtailment whatsoever of activity levels in this mandatory spending program because this “cut” simply represents the cancellation of unspent prior year book-keeping authority.
Well, that gets us to $31 billion in “cuts” without having saved a dime of actual cash outlays. Indeed, it is virtually impossible that this noisily trumpeted “down payment” on fiscal discipline will save even $6 billion in cash outlays through the September 30 end of the current fiscal year.
Indeed, much of the balance of the $39 billion in cuts consists of long-lead construction programs, such as the $2.9 billion cut for high-speed rail and an additional $3 billion for construction by the Army Corps of Engineers, Veterans Administration, government office buildings, and the like, which would take two to five years to turn into actual cash outlays. And even that prospect of future year savings rests on the dubious assumption that the spending authority cut from these big projects today will not be stealthily restored in emergency “supplemental” bills down the road.
This allegedly largest spending cut in history will
not eliminate one day’s worth of new national debt.
The giant swindle being perpetrated by Washington officialdom, then, boils down to the following pathetic truth: The US government is currently borrowing 43 cents on every dollar it spends, meaning that it is issuing about $6 billion of new Treasury debt every single business day. During the balance of FY 2011, this allegedly largest spending cut in history will not eliminate one day’s worth of new national debt!
So welcome all you Tea Party newbies to the real world of appropriations committee slime and deception. The honest fact of life is that we have run out of suckers to buy Uncle Sam’s debt, but the nation’s fiscal machinery is so broken that you won’t even get an honest chance to vote on anything that will make a real difference.
This exercise started out as a pledge to cut $100 billion from domestic discretionary programs, and there was absolutely nothing wrong with that -- notwithstanding all of the misplaced editorial-page hand-wringing about shortchanging vital infrastructure and education programs.
The fact is, outlays for domestic discretionary programs were $300 billion when Bill Clinton left office, and would be $400 billion today if they had been fully funded for the 30% CPI increase since 2000. But the current spending level is much higher: at $600 billion, domestic discretionary spending is up by 50% in constant dollars. Thus, there was ample room to cut -- up to $200 billion, in fact -- without impinging on anything vital, unless you believe Bill Clinton left the nation’s public sector destitute and impoverished.
Today we spend $1 trillion per year on education at all levels -- double the $500 billion in constant dollars spent on education in 1990. The problem is a shortage of effective schools, not dollars.
The newbies have no choice except to vote no,
and shut down the government because they --
and the voters who elected them -- have been betrayed....
We also have the highest constant dollar spending for highways and other infrastructure in modern history and don’t need to spend a dime on white-elephant high-speed rail. Moreover, if you want to reduce dependence on foreign energy, put a stiff tax on imported oil which will generate a huge amount of “alternative energy," and permit us to stop wasting billions subsidizing the same 57 varieties of green energy that Jimmy Carter’s bureaucrats first failed to figure out 30 years ago.
As it now stands, the pending spending resolution will honestly cut maybe $6 billion or a mere 1% from the current bloated $600 billion budget for domestic discretionary programs. If it passes, it will signal that the Tea Party ended with a whimper, not a bang.
So the newbies have no choice except to vote no, and shut down the government because they -- and the voters who elected them -- have been betrayed and mocked by the unspeakable cynicism of their business-as-usual GOP leaders. The disruption of a shutdown won't matter that much, either, because events in the global bond market will soon force a thundering conflagration in Washington anyway.
The trillions in new bonds issued by Uncle Sam ... have been absorbed by the Fed and its chain of monetary roach motels.
The trillions in new bonds issued by Uncle Sam in recent years have not been financed honestly out of the peoples’ savings -- either here or abroad. Instead, they have been absorbed by the Fed and its chain of monetary roach motels: foreign central banks where the bonds go in, but never come out. In fact, upwards of $4.5 trillion, or 50%, of all the publicly held debt every issued by the US treasury is now held by central banks and has been bought and paid for with printing-press money.
But very soon the Mighty Bid of the central banks will be gone, causing bond prices to crater and yields to head skyward. Japan will need to begin cashing in its US Treasury debt as it deals with the wrath of nature, while China will likely also reduce its bond buying as it deals with the wrath of economic law; that is, as it reduces its currency pegging and related Treasury purchases in order to suppress the rip-roaring imported inflation and speculative bubbles that are now engulfing its domestic economy. And surely here at home, our monetary three stooges -- Bernank, B-Dud and the J-Yell -- will be out of the bond buying business when QE2 ends in June.
At the end of the day, the really important thing that happened over the weekend is not the pitiful swindle announced by the politicians Friday night. Rather, it was the prescient discovery by the outlaws at Zero Hedge that the world’s largest bond fund was not only out of Treasury securities completely, but that Pimco is now actively selling Uncle Sam’s paper short. So the world’s monetary roach motels are closed and the fast money is effectively saying to Washington, “Bring it on!” The Tea Party should do no less.
But alas, they didn't.
U.S. Is in Race to the Fiscal Bottom (The Fiscal Times)
Majority of Experts Predict Government Shutdown (The Fiscal Times)