Dow Jones plummets as Cisco cuts 4000 jobs + Wal-Mart sales disappoint + Unrest in Egypt grows … World markets follow

Captain Rick: The Dow Jones plummeted 2.4% during the past month, attributed in part by the news of Cisco cutting 4000 jobs and Wal-Mart sales falling short of expectation. This combined with the growing violence in Egypt caused major world markets to follow the Dow’s decline.

The above chart shows the significant, recent decline of the Down Jones, down 2.4% in the past month. It is the largest dive in values in 2 months and one of the top 5 declines since the market crash of 2008. I break down the issues affecting this loss…

Cisco, the worlds largest network company providing services to most of the largest companies and government entities announced it is cutting 4000 jobs.  Cisco touches all parts of the networking process, and the company’s success is largely tied to sentiment about the world’s economy. Many large businesses and government agencies are Cisco customers, and they’re unlikely to buy up networking equipment when they’re worried about the economic situation. I see this as a major signal that the world economy is in much more dire shape than what we are being led to believe from the typical ‘show business hype’ on the evening news. World markets are echoing the concern.

Wal-Mart, the world’s largest retailer, reported lower than expected sales for the second quarter. When the world cuts back on purchases at Wal-Mart, it raises a red flag for me.  It makes me wonder how healthy the recovery from the Great Recession really is.

Disturbance in Egypt has caused over 400 deaths and 3500 injured. While most of financial market ‘gurus’ did not mention this as one of the causes of the recent market plummet, I believe it played a role.

The major economies of the world continue to tread on very shaky ground. There has been lots of news about our ‘improving economy’. I suggest that much of this is based on unfounded news ‘hype’. Our world’s economy is like a train riding on fragile rail, heading for the edge of the ‘Global Fiscal Cliff’.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Associated ATRIDIM NEWS JOURNAL Report Categories:

Dow Jones & World Market News

Captain Rick’s FISCAL CLIFF 101 Course

Captain Ricks INVESTMENT 101 Course

Stock and Bond Market News

U.S. Tax Revenue + Spending at record high … How to balance America’s budget using the common sense rule of 20% of GDP

Captain Rick: The U.S. Legislature has failed to balance America’s budget almost forever. If it compromised by using the economic common sense rule of 20% of GDP for both revenue and spending, its budget crisis would end and a much brighter future would await the children of our world.

Record Tax Revenue: I am glad to see we have hit a new record of $2.7T in revenues, just a tick above the previous record of $2.6T in 2007. As population grows, we better hope our tax revenue keeps going up every year. Things went far astray during the ‘Bush War and Tax Cut’ era, the Great Recession that followed and ‘Obamas Record Spending Spree’ to try to fix it, including a reckless 2 point payroll tax cut. Thankfully, it and some other irresponsible tax cuts vanished on Jan 1 as a result of the Fiscal Cliff and helped bring us closer to sanity. Unfortunately this new revenue record leaves America with a very anemic tax revenue of only 16.9% of GDP. The 40 year average is 18%. A healthy economy achieves revenue equal to 20% of GDP…so America is still far short of needed revenue…and part of the reason why America’s finances are in such terrible shape.

Record Spending: The other part of the reason America’s finances are in such terrible shape is because America’s spending is too high. America is currently spending $3.55T or 22.2% of GDP. That percentage is higher than almost every year since 1986. A healthy economy limits  spending equal to 20% of GDP…so America is still far over the limit for spending…the other part of the reason why America’s finances are in such terrible shape.

Republicans, Democrats, Conservatives and Liberals debate: Republicans and conservatives argue that taxes are too high and do not agree to any further increases. They say the entire answer lies in cutting spending. Democrats and liberals argue that spending levels should be held. They say the entire answer lies in tax increases. Its easy for me to see why our legislature is in gridlock. Both sides are stubborn and illogical. Neither side possesses the the solution. The solution resides in compromise. 

Captain Rick’s proposal of compromise: I propose that the U.S. Legislature uses the economical common sense guideline of 20% of GDP as a target for revenue and spending to achieve a balanced budget. 20% has proven to be workable figure for successful governments in the past. The figure can be argued…19 v 21…but 20% is a good starting point. Diminishing America’s national debt is a story for another day. It would require the balance to shift to more revenue and less spending…perhaps 21% of GDP revenue and 19% of GDP spending. Real compromise needs to begin soon … in order to protect the future of our children.  

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

China: World’s 2nd largest Economy in decline … as GDP and industrial production drop + a real estate bubble ready to explode

Captain Rick: Gross domestic product in China grew 7.7% over the previous year during the first quarter. That is great by U.S. standards, which are hovering near 0%, but a significant loss from the 10% annual GDP that China has averaged during the past three decades, which propelled it to become the the world’s second largest economy. Reports on industrial production and retail sales disappointed. Economists are worried about a rapid expansion in credit and a red-hot housing market.

Fitch ratings agency warned China of excessive debt levels and issued rare local currency downgrade
The ratings agency said it issued the rare downgrade because of three factors: Structural weaknesses in China’s economy, an expansion of easy credit and the rise of an opaque shadow banking system.
Credit in China has expanded quickly in the wake of the global financial crisis, with much of it issued to local governments and used to finance infrastructure projects.
Fitch believes local government debt levels are now so high that Beijing will, at some point, be forced to assume some of the burden.

In response to the global financial crisis in 2008, China moved to stimulate its economy by increasing the amount of available credit.
Banks and other lenders responded, with credit in China growing since 2009 at a quicker pace than gross domestic product. Only one country — Qatar — was issuing credit at a faster rate.
By the end of 2012, credit issued by Chinese banks to the private sector reached 136% of GDP, the third-highest level of any emerging market country rated by Fitch.
Much of the credit was issued to local governments, and used to finance infrastructure projects that helped China sustain rapid economic growth in the wake of the financial crisis.

Beijing has tried to get a handle on credit issuance in recent years, moving to cool the housing market and cut back on local government debt.
But when combined with low wages, Fitch said the persistent nature of the trends has created growing risks for China’s financial stability.

Real Estate Bubble heating up and ripe for explosion

The housing market is heating up, leading some analysts to worry about the development — and possible deflation — of a housing bubble.
China’s central government is already stepping up efforts to cool prices, and Beijing has directed local governments to institute control measures of their own.
Several cities, including Beijing and Shanghai, have responded by announcing higher taxes and fresh restrictions on property purchases.
20% capitol gains tax has been added on home sales as well as higher interest rates and down payments for anyone buying a second home in cities where real estate prices are sharply on the rise.

China is the second largest holder of U.S. debt (Japan is the largest)
China held about $1.15 trillion in U.S. bonds through August, the most recent reading available from the Treasury Department.
China had been buying U.S. Treasuries as a way to keep its currency, the yuan, pegged to the U.S. dollar. That helped lower the value of the yuan and made China’s exports more competitive in markets such as the United States.

Captain Rick’s Words of Caution: Notice I said China ‘had been buying U.S. Treasuries.’ Latest indication is that that has stopped. This could have grave consequences on Americas gigantic thirst for deficit spending. Japan remains the only major purchaser of American debt and those days could be numbered as well due to economic conditions in Japan not being anything to ‘write home about’. Our world is skating on very thin ‘fiscal ice’. Countries of our world, including China, depend on America to be a leader of fiscal responsibility. America has not been setting a very good example with its legislative gridlock on solving its monumental thirst for deficit spending. The world can only hope that America will wake up from its deep sleep and do what is necessary, before its speeding train goes over the ultimate ‘fiscal cliff’ and takes the world with it.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

China: https://atridim.wordpress.com/category/china/

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

BAMOPOLY … a game we are already playing … but can’t win

Captain Rick: The object of this game is to try and save American capitalism before the government takes over everything. To date, there is no known player who has won. The government wins every time. 

The game board looks interesting. It reminds me of the fun times I had as a kid playing Monopoly for hours and even days before finally taking over everything…or loosing everything.

I don’t think Bamopoly would be very much fun to play…because no one likes to loose all of the time. It also reminds me very much of real life in America. Its people play this game every day to try and get ahead and promote capitalism… but it seems like big government is always there to take over everything.

I have a strong feeling that one of these days, the government is going to loose this game…because of the way it has been cheating its players…the citizens of America. Unfortunately when it looses the game, there will be no winners.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

U.S. GDP crawls out of ‘recession zone’ to post 2nd worst % since end of Great Recession

Captain Rick: The U.S. managed to crawl out of the GDP recession zone in its ‘final’ report for Q4 2012 to post a dismal 0.4% GDP, second worst since the end of the Great Recession in 2009. The first estimate in January reported –0.1% GDP, in the recession zone. 

GDP (Gross National Product) is the broadest means of quantifying the health of an economy.

In my previous GDP report, I stated: “If Congress gets tough and addresses the debt crisis head on, I suspect it will present a deeper, temporary plunge into negative growth territory. If Congress continues to ‘kick the can down the road’, I suspect we will see less of a dive in GDP early on…but will set the stage for a much deeper dive in a year or two…possibly as deep or deeper than the ‘Great Recession’ of 2008-2009”.

The U.S. Congress passed and President Obama signed legislation to “kick the debt can down the road” AGAIN as reported in my previous post. While these actions have no effect on GDP for Q4 2012, they will effect GDP for Q1 2013 and beyond.

The red line in the chart above indicates the 3% level that the U.S. GDP must maintain to keep up with population growth. GDP has been far short of that for many years. In spite of the positive hype we are hearing in the mainstream news media, America is traversing extremely dangerous economic waters. Hype does not fix problems… credible action does. Unfortunately the world is seeing ‘zero’ credible action out of the politicians who represent the citizens of the United States of America.

Prognosis for the future…where are we headed?

I see several troubling economic factors that parallel the times leading up to the ‘Great Recession’. The world stock markets have reached a new high, passing those reached just prior to the stock market crash of 2008. Like then, I see no justifiable reason for the market rise. Today’s market reminds me of a bunch of gamblers in Vegas looking for a place to throw all of their dollars to bet it all. The market is again inflating into a balloon ripe for explosion. Real estate prices have been climbing at a fast pace, as is real estate speculation…similar to that witnessed prior to the bursting of the real estate bubble, prior to the Great Recession. I can not predict how much farther things can go before a repeat of 2008 occurs…or perhaps worse, but I feel that a down slide is coming soon. Much will have to do with congress’s handling of the debt crisis (very dismal at this point). It will be further complicated by the multi-trillion dollar cost of Obamacare (the worlds greatest socialized, welfare medical program). In addition, we must remember that multi millions of baby boomers are beginning to collect Social Security from a trust fund that has been totally robbed of funds to finance the U.S. Government and its politician’s thirst for deficit spending. It will all play out in a very ugly scene before the world’s eyes during the next few years.

I welcome your comments, likes and shares!

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

U.S. lawmakers kick the ‘debt can’ down the road again to satisfy their thirst for deficit spending … when will this farce end?

Captain Rick: The March 27 deadline for the U.S. government shutdown has been averted by yet another stunt by U.S. lawmakers to kick the U.S ‘debt can’ down the road AGAIN until the end of the fiscal year in September … when it will all come back to haunt us AGAIN.

U.S lawmakers finally brought the 2013 budget fight to an end on March 21 by approving a bill that ended the threat of a U.S. government shutdown on March 27. It funds the government through the end of the current fiscal year in September. The measure now set to become law reduces the impact of the $85 billion in forced cuts — called sequestration — to only $59 billion.

It establishes stop-gap budgets for targeted departments and programs. It resets priorities and helps better manage the draconian formula as set forth by the sequestration spending cuts. Overall, the legislation locks in $984 billion in non-entitlement program spending — a tiny drop from the $1.043 trillion initially approved before the forced sequestration cuts took effect.

I believe I speak for most Americans and many people around the world when I say … we have had enough of the “U.S. Capital Circus”. Its time for America’s president and lawmakers to unite and figure out a real solution to get America off of the deficit spending binge and balance the budget, followed by a way to pay back America’s monumental national debt of $1.7 trillion, which now exceeds America’s GDP. This is an extremely serious world economic issue … the world’s largest! Nothing else comes close in magnitude. Time is running short. Without real, credible action soon, America will fall over the real ‘Fiscal Cliff’ … a point of ‘no return’. It will take much of the world along for the fall.

I welcome your comments, likes and shares!

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

U.S. Government Shutdown … looms March 27

Captain Rick: That “debt can” that President Obama kicked down the road on January 1 by signing of the American Taxpayer Relief Act of 2012, in an effort to avoid the Fiscal Cliff, revisits on March 27, 2013 when the federal government again faces a shutdown because it has again reached the debt ceiling, now set at $16.4 trillion.

Funding for the U.S. government expires on March 27, 2013 unless Congress acts. If they fail, the federal government will shut down on March 28. All government operations would cease, except for essential services.

Since lawmakers will not agree to a real budget by this date, they will have to agree on temporarily funding the government for a few weeks or a few months … again. The Republicans are presenting a plan on Thursday to extending funding to the end of the fiscal years which ends is September, but it includes a $7 billion restoration of defense funds in exchange for cuts elsewhere. A big question remains…will Democrats go along with this? It will all unfold in coming days.

Boehner’s comments on NBC’s “Meet the Press”

It is evident that the Republicans will allow no more tax increases…made very clear by House Speaker John A. Boehner (R-Ohio) who said on NBC’s “Meet the Press” that he discussed the need to avoid a shutdown with President Obama at a meeting Friday between the president and congressional leaders.

Boehner said the House will vote this week to keep the federal government operating through September, when the fiscal year ends, and avoid a potentially politically damaging shutdown.

The move would be the second time since the election that Boehner has avoided a fight, desired by some House conservatives, in order to keep the GOP from possible blame. He led House Republicans to raise the debt ceiling in January to fend off a repeat of the 2011 conflict that led to the sequester.

“The president this morning agreed that we should not have any talk of a government shutdown,” Boehner said. “So I’m hopeful that the House and Senate will be able to work through this.”

“I’m going to say it one more time,” Boehner said. “The president got his tax hikes on January the first. The issue here is spending. Spending is out of control. There are smarter ways to cut spending than this silly sequester that the president demanded. And so, we need to address the long-term spending problem. But we can’t cut our way to prosperity.”

“We had a very pleasant meeting, but it was also a very frank meeting,” Boehner said. “I made it clear to the president that again, a trillion dollars worth of tax hikes in Obamacare. And you have another $650 billion worth of tax hikes on January the first. You can’t tax our way out of this problem. We’ve got to deal with the spending side, just like every American family has to.”

Listen, every American knows Washington has a spending problem. Every American, in these tough economic times, has to find a way to balance their budget.”

Boehner said Republicans were done raising taxes after agreeing to the “fiscal cliff” deal in January that raised more than $600 billion in revenue. Any new revenue gained from closing tax loopholes, he said, should be put into lowering tax rates.

“The president got $650 billion of higher taxes on the American people on January the 1st,” Boehner said. “How much more does he want? When is the president going to address the spending side of this?”

Captain Rick’s closing thoughts …  will Washington avert shutdown again”?

I think most Americans are with me in expecting that Washington will pull off a circus act just prior to the closing curtain as it always manages to do. However, this showdown is not a done deal…especially concerning the defense appropriations. I think the Defense Department should endure the same cuts as as all others. I don’t think it needs special treatment. I believe many Americans believe the U.S. Defense Department could easily be cut without sacrificing America’s safety. I think many will agree that it is time for America to stop playing “Police of the World” …at American taxpayer expense.

I welcome your comments, likes and shares!

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Fiscal Cliff Cartoon Break: the Sequester

Captain Rick: Its time to take a breather from America’s fiscal calamities to enjoy a Fiscal Cliff…Sequester  “Cartoon Break”.

I welcome your comments, likes and shares!

On the serious side … info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Sequester Cuts … tiny in comparison to America’s giant thirst for debt spending

Captain Rick: The U.S. Federal Budget has grown 40% larger since Obama became president. America’s thirst for deficit spending has has quadrupled since. Deficit spending has grown from under 6% of the Federal Budget in 2007 to a whopping almost 24% in 2013. At the rate President Obama is increasing the U.S. National Debt, deficit spending will consume nearly 50% of the Federal Budget by the time he leaves office. It is obvious he is leading America on a suicide journey to the edge of the Fiscal Cliff.

The Sequester Cuts, that begin to go into effect today, represent only a tiny reduction of America’s deficit spending as demonstrated by the pie crumbs left after a nearly quarter-sized hunk of pie was removed. The Sequester cuts represent only 2% of the Federal Budget and less than 10% of deficit spending.

The Sequester Cuts are tiny contribution to begin to harness President Obama’s debt spending binge. Actually, the cuts will achieve little if deficit spending keep increasing during the next year at the same rate as the past four. A year from now deficit spending will have gone up by a much larger percentage than the tiny reduction realized from the Sequester Cuts. America is in serious fiscal trouble. The Sequester cuts are a start. Far more needs to be done to save America from fiscal destruction in a few short years.

It would have been better if Congress and the President could have agreed on which cuts should be made, but they could not, thus the previously agreed Sequester, signed by President Obama, went into effect today. I believe I speak for many Americans when I say that President Obama’s choice to free thousands of illegal aliens under the guise of Sequester cuts was politically motivated and used very poor judgment.

When will the Washington Circus end?

Americans are getting sick and tired of it … but then they are the ones responsible for electing the incompetents representing us in Washington. Perhaps the real problem lies on the shoulders of our voters … but then again … we often face ‘crappy’ choices at the poll. Intelligent voters in America are becoming a minority. I am doing my very best to help reverse that trend! I hope you will follow my blog and share it with your friends via the many social network buttons I have provided for you below. And please…don’t be bashful…share your comment with ANJ’s rapidly growing audience across America and around the world. Your voice is important!

I welcome your comments, likes and shares … below!

More info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Obama signed the 2011 Budget Control Act … March 1, 2013 he becomes responsible for its consequences … the “Sequester”

Captain Rick: On March 1, 2013 President Obama becomes the owner of the “Sequester”. He will shoulder the blame for this travesty of American government breakdown as a result of the Budget Control Act he signed into law on August 2, 2011.

The U.S. Senate failed to pass both Republican and Democratic alternatives to head off across-the-board spending cuts, further ensuring Washington will blow past a Friday deadline to avoid or replace $85 billion in cuts that threaten economic growth, military readiness and jobs.

The Democratic alternative would have replaced the cuts, known as the sequester, through 2013 with a combination of a minimum 30% tax on millionaires and cuts to defense and farm programs. It failed 51-49.

The Republican alternative would have transferred sweeping authority to President Obama to force him to determine how to implement $85 billion in cuts instead of the across-the-board spending cut affecting most reaches of the federal government. The sequester exempts military personnel accounts and the social safety net including Social Security and Medicare. The GOP measure also failed, 38-62.

Both proposals needed a 60-vote super majority to pass, but either vehicle was dead from the start. The GOP-controlled House opposes the Senate Democrats’ proposal because it raises taxes. GOP lawmakers do not support using new taxes to turn off the sequester; rather they are seeking alternative spending cuts and entitlement reforms.

After a two-month sequester delay agreed to in a January tax deal, the cuts are scheduled to start kicking in March 1. There is about $85 billion in cuts scheduled through Sept. 30, the end of the federal fiscal year. In total, the sequester will trim $1.2 trillion in spending across the federal government over the next decade if left untouched.

The cutting mechanism is an unpopular budget tool that was included as a fail-safe in a 2011 budget law that required Congress to find $1.2 trillion in deficit reduction on their own. When they failed to do so in December 2011, they started a one-year countdown to the automatic cuts. In the past year, Congress and the White House have been unable to come up with an alternative to the sequester, or reach a long-term budget deal that would allow them to turn it off.

The president and congressional leaders will make a final attempt at a pre-deadline compromise at a White House meeting Friday morning, but top lawmakers conceded the prospects were dim for a deal in the short-term.

Captain Rick’s closing thoughts

I believe I speak for most Americans by saying … our government in Washington is totally broken. I welcome your comments below.  

More info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Obamaquester strikes U.S. on March 1, 2013

Captain Rick: Republicans are calling it the “Obamaquester” … $1.2 trillion in spending cuts over 10 years. $85 billion in 2013. Defense will be cut 13%. Everything else 9%. Officially called the “sequester”, its part of the “Fiscal Cliff” that was postponed on January 1, 2013.

The forced budget cuts were created during the 2011 debt ceiling debacle, passed by Congress and signed by the Whitehouse. It was a worst-case scenario, so bad that it would force lawmakers to make a deal. But, no deal was ever made and thus its become a poison pill that Americans will most likely have to swallow on March 1, 2013. The sequester was put in place 18 months ago to be a hammer, not a policy. On March 1, that hammer slams down.

Sequester Spending Cuts taking effect after March 1 (partial list)

Head Start programs will be scaled back

Fewer meat inspections

Homeland Security cuts will mean longer lines at airports and scaled back cyber security

Furloughs and layoffs would effect civilian workers in the defense industry

IRS cuts will mean fewer tax return reviews and longer waits for tax refunds

Emergency housing for the homeless will be scaled back

Extended benefits for unemployed will be scaled back

National Parks may close campgrounds or reduce open periods

Little hope of compromise by March 1

Washington continues to play the “blame game.” Democrats are blaming Republicans for proposing devastating spending cuts.  Republicans blame the Democrats for getting used to being bailed out for their own lack of fiscal responsibility.

Optimism for a last-minute deal averting massive spending cuts is scarce. The buzz in Washington is that both sides actually want to let the sequester happen. Washington seems to be mainly squabbling over who will be to blame for the “meat cleaver” budget slashing set to take effect on March 1.

The latest national poles show America is leaning slightly towards letting the sequester happen…that it is time America stops “kicking its debt can down the road”.

The sequester is only a tiny contribution to reduce deficit spending. Those reading my earlier reports know that America must come to grips with its gigantic thirst for wild deficit spending beyond its means in order to save America from future financial ruin.

More info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

U.S. Fiscal Cliff $85 billion Sequester takes effect on March 1 + How it affects America

Captain Rick: Congress kicked America’s ‘debt can’ down the road for 60 days. Having done nothing since to address America’s monumental debt crisis, the Fiscal Cliff Sequester will take effect on March 1, 2013.

Congress could prevent the sequester from happening by agreeing on a better fix for America’s affixation for deficit spending beyond its means, but it’s not likely to do so before the deadline. In the mean time, the previously agreed sequester will automatically take effect on March 1…and rightly should. Those reading my earlier reports know that the sequester is only a tiny first step in fixing America’s gigantic thirst for spending money it does not have. Much more needs to be done.

What is the sequester and how will it affect America?

It’s just a fancy word for automatic, across-the-board cuts in funding as a result of a previous congressional agreement.

How much will be cut? The sequester would slash how much federal agencies are allowed to spend by $85 billion over seven months.

The White House estimates that funding for nondefense programs would be cut by 9%, while defense programs would be cut by 13%, for the seven months remaining in fiscal year 2013, which ends Sept. 30.

The funding reductions would come primarily from what’s known as discretionary spending.
Discretionary spending supports a vast array of programs, agencies and services from the FBI to the FDA to support for the Corporation for Public Broadcasting.

There would also be some cuts in mandatory spending, which unlike discretionary spending isn’t subject to annual review by Congress.
But popular entitlements such as Medicare and Social Security would be largely protected. So would safety-net programs such as Medicaid and food stamps.

Also exempt: military personnel and Veterans Affairs, although veterans may be hit in other ways, especially since they’re a big part of the Defense Department’s civilian workforce.
Indeed, the cuts on non-exempt areas will be broadly felt. Food inspections, border security, weather monitoring, medical research, disaster response, education programs and Meals on Wheels for seniors would be compromised.

Federal workers at different agencies would face furloughs. They may be told not to come to work one or two days every week or every pay period until September. And they won’t be paid for those furloughed days.

Anticipation of the sequester has already caused federal agencies to slow or freeze hiring and to limit the contracts they issue for future services and products. They’ve also reduced travel and training costs.

Is there a chance the sequester could be replaced?

Yes, increasingly policy observers expect Congress will at least try to replace it by March 27, although there are no guarantees. March 27 is the day funding for the government expires. To prevent a government shutdown on March 28, lawmakers must pass another funding bill — if not for the rest of the year, then at least for a few weeks or months.

The sequester was never intended to go into effect. The mere threat that it might was supposed to prod lawmakers to find a smarter, more gradual way to reduce deficits. But Democrats and Republicans still can’t agree on how, despite knowing this day would come for over a year.

House Republicans have proposed replacing the defense cuts with more nondefense reductions. Senate Democrats want to replace all the cuts with a mix of targeted spending cuts and tax increases. Each side rejects the other’s solution.

Imagine if your household budget was controlled by the U.S. Federal Government … You would be in serious financial trouble! https://atridim.wordpress.com/2013/02/18/imagine-if-your-household-budget-was-controlled-by-the-u-s-federal-government-you-would-be-in-serious-financial-trouble/

Imagine if your household budget was controlled by the U.S. Federal Government … You would be in serious financial trouble!

Captain Rick: If the U.S. Federal Government was in control of your household budget, you would be in serious financial trouble!  I have prepared this simple comparison to show you why:

Annual Financial Statement of the United States of America:

U.S. Tax revenue: $ 2,170,000,000,000

Federal budget: $ 3,820,000,000,000

New debt: $ 1,650,000,000,000

National debt: $ 16,571,000,000,000

Interest on the National debt: $ 222,800,000,000

Recent budget cuts: $ 38,500,000,000

Let’s now remove 8 zeros and pretend it’s an annual household budget:

Annual family income: $ 21,700

Money the family spent: $ 38,200

New debt on the credit card: $ 16,500

Outstanding balance on the credit card: $ 165,710

Interest on the credit card: $ 2,228

Total budget cuts so far: $ 385

What would happen if the bank froze your credit card, preventing more debt?

Can you imagine how bad your budget would be if you were spending $16,500 more each year than you received in income? The interest on your credit card balance would be $2,228 this year and would be added to your massive balance of $165,710. Each year your debt is growing larger at a rapid rate.

Now, suppose your bank lost faith in your ability to pay your balance. Its easy to guess that your bank will freeze your credit card, allowing no further debt. How will you pay the $16,500 in expenditures that were beyond your budget?  How will you make your loan payments, or even pay the $2,228 in interest on your credit balance? You would probably be left with one choice…declare bankruptcy. Luckily, you would have the U.S. Federal Government (Uncle Sam) to excuse your debt and allow you a new financial start.

What would happen if the bank froze Uncle Sam’s credit card, preventing more debt?

The situation with Uncle Sam’s budget is identical to yours, only exponentially larger. However, there is a large difference in who controls the credit. Uncle Sam’s debt is not held by a bank. It is held by a large number of investors, investing firms and countries all around the world. Japan and China hold a large portion of America’s debt. It is highly unlikely that all of the creditors would freeze Uncle Sam’s credit all at once. But, supposing one day China or Japan lost faith in Uncle Sam’s ability to repay their investment…or even the interest on it? Its easy to guess that they would stop further investments in the U.S. federal government.

When a large enough source of new investment is stopped, how will Uncle Sam finance America’s programs which count on $1.65 trillion of borrowed money each year? How will it repay its debt to investors…or even pay the $223 billion in interest on the balance? Unfortunately bankruptcy is not an alternative for Uncle Sam. There is no bigger entity to bail it out or give it a fresh financial start. Its only remaining option will be to reduce payments to various programs so that it stays within the limits of new debt which can be sourced. It could also mean that the U.S. would have to default on its debt owed. This in return would most certainly stop most, if not all of America’s creditors from making further investments. This would worsen the situation and virtually force America to live within its budget, drastically slashing its programs by $1.65 trillion per year. Programs like Social Security, Medicare, Medicaid and Defense would most certainly be significantly affected, as they are the largest budget items. Such massive cuts would most certainly cast America into a deep recession, probably far worse than the Great Recession a few years ago.

Captain Rick’s Solution Scenarios

Maintain Current Course of Deficit Spending with only small, token reductions:

This is not an acceptable solution. It will lead to failure of America’s financial system within a few years. The cost of America’s entitlement programs like Social Security, Medicare and Medicaid are growing in size at an astronomical rate. In a very short time these three programs will consume 100% of all Federal Tax Income, leaving nothing to support the entire balance of the government without deficit spending. With this course, its not a matter of IF the world’s creditors will cut off America’s credit…but WHEN.

Balance the U.S. budget within 10 years:

This is the course America must take if it is to survive. The Fiscal Cliff had a goal of cutting half of the deficit spending 10 years. That was a good start, but congress cant even achieve it. Congress continues kicking America’s debt can down the road, agreeing on allowing only token spending reductions and tax increases. America must do better…soon!

It will require major spending reductions affecting all programs and tax revenue increases across the board. It will also require significant entitlement and grant program reform. The days of Uncle Sam handing out money with a blindfold on must end soon.

Does America have the ‘guts’ to make these sacrifices? Time will tell…but time is running out quickly. I hope for our children’s sake that America gets its act together soon or our kids will likely find themselves living one day in a third world country.

I welcome your comment and hope you will share this with your friends via one of the means I have provided. Together, our voice can make a difference.

More Info:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

Obama & Congress kick the ‘Fiscal Cliff’ can down the road for 60 days

Captain Rick: World stock markets jubilated as America was prevented from dropping over the ‘Fiscal Cliff. It was a political stunt pulled off by President Obama and Congress to kick the ‘Fiscal Cliff’ can down the road for 60 days.

The global stock market rally (which came short of a rebound to recent highs) will be short lived. In just 60 days the U.S. Congress will be forced to address the ‘Fiscal Cliff Sequester’ of automatic spending cuts and raising of the U.S. debt ceiling because of America’s supreme thirst for spending money it does not have.

So, for those who have not studied Captain Rick’s Fiscal Cliff Course 101 … have a glass of champagne and celebrate America’s continued fixation for spending money that has no revenue for support.

Fiscal Cliff: Cartoon Break

Captain Rick: All remains quiet in Washington DC with no signs of any actions to prevent America from going over the ‘Fiscal Cliff’ on January 1, 2013. Those who have studied Captain Rick’s Fiscal Cliff Course 101 understand why going over the cliff is a good thing. I have heard reports of the President and Congress returning Sunday, December 30, 2012 to do some last minute political grandstanding in an effort to impress Americans that they really care about us. The worst thing they can do is to play a game of ‘give and take’ (we will give up this … if you give up that). Such a stunt would only weaken the good that the ‘Fiscal Cliff’ will accomplish. The best thing they can do is nothing, which I actually believe is what they intend. It would be nice if they just skip the political rhetoric and grandstanding in the process. Americans are getting very sick of it. One thing is sure about our “Washington Circus”. We will not know what the last act might present until its over.

And so, while we wait, I present a couple ‘Fiscal Cliff’ cartoons for your enjoyment:

If you have not yet taken the course, you can now. CLICK: Captain Rick’s Fiscal Cliff Course 101 … The course starts at the very bottom.