Posts Tagged ‘balanced budget’

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.

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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/

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

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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/

Captain Rick: The Eurozone suffered its third consecutive quarter of decline at the end of 2012 as exports from leading economies Germany and France sank, deepening a regional recession that has driven unemployment to record highs.

Gross domestic product in the 17-nation Eurozone fell by 0.6% in the fourth quarter, leaving its economy 0.5% smaller than it was at the start of the year. The region saw a contraction of 0.1% in the third quarter.
Performances in all four of the region’s biggest economies — Germany, France, Italy and Spain — deteriorated compared to the third quarter of 2012. Output is likely to shrink in 2013 for a second year running, according to the latest forecast from the International Monetary Fund.

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17 Member Eurozone

Germany, the Eurozone’s biggest economy, which accounts for about 30% of Eurozone GDP, suffered a contraction of 0.6%. The decline in GDP was was mainly due to the comparably weak German foreign trade. Exports of goods went down much more than imports of goods.

France, the second biggest economy, suffered a 0.3% contraction. France also suffered a sharp fall in exports in the fourth quarter, down 0.6% after growth of 0.7% in the third.

Weaker growth will make it harder for Eurozone governments to meet their debt-cutting targets and intensify the debate about the impact of a strong euro on the region’s recovery prospects.

With fiscal policy tightening, and the ECB in a holding pattern, exports offer one of the few opportunities for the recession-ravaged region to return to growth.

A stronger euro threatens to cancel out some of the hard-won gains in competitiveness brought about by wage cuts in indebted European states.
 
Many of the 17 Eurozone countries are in the middle of austerity programs that are reducing demand, and prompting households and businesses to defer spending and investment.

While policymakers have signaled a willingness to give states more time to bring their budget deficits into line with European Union targets, if the economy continues to deteriorate, there is no sign of a major change in approach.

Wider 27 Member European Union

The economy of the of 27 states of the EU went into reverse in the fourth quarter, shrinking by 0.5%.

The U.K. contracted by 0.3% in the fourth quarter of 2012, bringing it to the brink of a third recession in five years. The Bank of England trimmed its forecasts for U.K. growth in 2013 Wednesday while raising them for inflation.

EU Leaders hope for U.S. Trade Pact to boost Economy

EU leaders are hoping efforts to remove trade barriers with the U.S. could provide a shot in the arm for growth. President Obama promoted this trade pact in his State of the Union Address on Tuesday evening.
Both sides said this week they wanted to move quickly to start formal talks on a trans-Atlantic free trade agreement. 

Captain Rick’s Vision

There are many benefits that could be gained by both economies with such an agreement, especially in the area of regulation…like agricultural, medical and automotive safety standards. Considering the complexities involved, it will require a multi-year approval process…perhaps a decade or more. After all, genetically modified crops, which are commonplace in the U.S., are known as ‘Frankenfoods’ by many in the EU.

A trans-Atlantic free trade agreement will not solve either the EU’s or U.S.’s monumental debt and financial problems. While it could be a tool to help both economies, the EU and the U.S. need to face the realism that their economies are in need of much larger repair…that continual deficit spending of money that does not exist must end. The course that both nations are currently on will not achieve success…more probably, eventual failure. Both nations will need a significant influx of politicians with some ‘serious spine’ to ‘right our ships’. That kind of courage is so rare that I fear for both of our nation’s ‘ships’. Both ‘ships’ are leaning heavily on the port ‘left-welfare’ side. The question that remains is whether our ships are leaning too heavily to prevent the inevitable ‘titanic’ maneuver.

I welcome your comments.

Captain Rick: The January Jobs Report shows a continuing drop in new jobs created and a reality that job creation in America is stuck in neutral … or possibly reverse. 150,000 new jobs are needed to be created every month just to keep pace with population growth as represented by my red line in the chart below. Overall, the U.S. economy lost 8.8 million jobs during the Great Recession, and is still down about 3.2 million jobs from the labor market’s height in January 2008. The 5.6 million jobs that were created since the Great Recession also had to provide for the 9 million new job seekers entering the market since January 2008, due to population growth. Realistically, another 8.8 million jobs would have been needed to be added during the past few years to equal the American job scene of January 2008. At the current pace, those jobs will not be returning any time soon. Making things even worse is the fact that many of the jobs being added are relatively low paying in comparison to the jobs that were lost.

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The U.S. economy added 157,000 jobs in January. That’s slower growth than in December, when employers hired 196,000 workers. Some call it “Groundhog Day in the labor market” and say “We’ve been waking up to this same story for four years.”

The biggest job sector gainers
In January, businesses added 166,000 jobs while federal, state and local governments cut 9,000. The government continued to cut jobs for the fourth month in a row.

Retail added 33,000 jobs, with about a third of those gains at clothing stores.

Construction firms added 28,000 jobs, reflecting a stronger housing market and rebuilding efforts after Superstorm Sandy.

Health care added 23,000 jobs. Most of those jobs were in ambulatory health care services, a category that includes doctors’ offices and outpatient care centers.

Manufacturers added only 4,000 jobs. The Labor Department noted that employment in this sector has changed little since July. Manufacturing once was the job sector that built and sustained America as a great country. America’s manufacturing jobs have mostly been lost to places like China because of lower wages and NO unions!

Unemployment Rate
The unemployment rate increased to 7.9% in January, as 12.3 million people were counted as unemployed.
The number of jobless Americans out of work at least six months was roughly unchanged at 4.7 million and that group represents only 38% of the unemployed.

A broader measure of the job market’s health called the underemployment rate — it includes the unemployed, discouraged Americans who have stopped looking for work and part-time workers who want full-time jobs — was unchanged last month at 14.4%.

Outlook for 2013 and beyond
Economists are expecting job growth to remain stalled during 2013.  Political uncertainty that is still hanging over employers, as they wait for Congress to hash out a budget deal. Amid an impasse between Democrats and Republicans, chances are growing that automatic spending cuts, which aim to reduce deficits by $1.2 trillion over a decade, could take effect starting in March. All of this will likely have significant negative impact on the job scene.

The best hope we have of seeing an improving job scene in the next few years is for the U.S. Congress to pass legislation to permanently solve the U.S. Debt Crisis, including working towards balancing the budget. Our nation can not continue living on deficit spending … money it does not have. That is a recipe for eventual total economic failure. While it’s continuing practice of ‘kicking the can down the road’ might prevent further erosion of jobs short term, it will most assuredly will set our nation up for a much larger recession and loss of jobs in a few years.

View prior reports on Jobs: https://atridim.wordpress.com/category/jobs/

Captain Rick: Many economists were shocked by the magnitude of this drop in economic growth. I was surprised, but not shocked. Those following my reports know I have been forecasting a coming recession for some time. I caution that this is only the first of three GDP reports for the 4th quarter of 2012.  It won’t be until the end of March until the third and final GDP figure for the fourth quarter of 2012 is released. The final figure could be slightly higher or lower. Regardless of the final figure, the economic trend is not favorable. How Congress handles the very serious looming U.S. debt crisis, especially the portion of the Fiscal Cliff that was ‘kicked like a can down the road’ will play a roll in future economic growth. 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.

I see several troubling economic factors that parallel the times leading up to the ‘Great Recession’. The world stock markets are within 2% of the all time highs reached just prior to the stock market crash of 2008. Like then, I see no justifiable reason for the recent market rise. It looks to me like a bunch of gamblers in Vegas betting 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…but I feel that a down slide is coming at some point soon. Much will have to do with congress’s handling of the debt crisis. The best thing they can do is ‘bite the bullet’ and suffer the consequences of balancing the budget early on. While that will most likely allow our GDP figures to become even worse than they are now, action soon might stave off an economic catastrophe a few years from now. I wish I could offer a more wholesome outlook for the American economy, but the fact remains…America is facing the most serious financial crisis in its history, one which has the potential to reduce America to a third world nation if not handled properly and soon.

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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:

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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.

Captain Rick: Here we go again. Treasury Secretary Tim Geithner warned Congress in a letter that U.S. borrowing will hit the debt ceiling on Monday, and that Treasury will begin using ‘extraordinary measures’ to prevent government spending from exceeding the legal limit of $16.394 trillion. On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling. That allows for spending over $13 billion a day through next Monday. It makes my head spin thinking about how fast the U.S. spends money and that over $1 trillion of what it spends each year is borrowed money (deficit spending) that adds to the U.S. National Debt.

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The extraordinary measures include suspending the reinvestment of federal workers’ retirement account contributions in short-term government bonds. All told, the extraordinary measures can create about $200 billion of headroom under the limit — normally about two months worth of borrowing.

If America begins going over the ‘Fiscal Cliff’ on Tuesday, January 1, as all indications point to now, $600 billion in annual spending cuts and tax revenue increases will kick in and slow the generation of debt to half speed. This would double the period of time to 4 months remaining before extraordinary measures would be exhausted.

After the extraordinary measures run out, Treasury won’t be able to pay all the country’s bills in full and on time. At that point, the United States will run the very real risk that it could default on some of its obligations, such as making interest payments on America’s National Debt which total a staggering $260 billion per year. This would have a severe negative impact on America’s credit rating which would have a ripple effect of making it more costly for the U.S. Treasury to borrow money. At some point foreign governments, like Japan and China, which hold large sums of American debt, would slow lending or even curtail it. The American economy would grind to a halt and be thrust into a deep recession, dragging all world economies along with it.

Other solutions could be to default on Social Security, Medicare, Medicaid and other government program payments. We all can comprehend the immediate, massive, destructive effect that would have on society.

Thus, we can conclude that default of any kind  is not an acceptable solution. The only immediate solution will be to increase the national debt again. Those who have studied Captain Rick’s FISCAL CLIFF Course 101, know that its just a matter of time before raising the national debt ceiling will no longer be a workable option. This is why it is so important that the ‘Fiscal Cliff’ spending cuts and tax revenue increases take effect on January 1.

Captain Rick’s Dream for America

I find the manner in which the President and Republicans and Democrats in Congress are trading off fiscal ‘trinkets’, in an effort to fool America that they can come up with a better solution than the ‘Fiscal Cliff’ to solve America’s serious problem of thirst for debt … almost laughable.

The President and Congress should stop playing fiscal games. The current members of Congress should stay home on vacation for the rest of the year. A new slate of legislators will be sworn in on January 3, hopefully with a work ethic that is void of politics (I am holding my breath), and work towards raising the debt ceiling along with the creation of Fiscal Cliff 2 … another painful round of spending cuts and tax revenue increases that would finally balance America’s budget and eliminate deficit spending. Ideally, it would start on January 1, 2014, when the next raise of the national debt ceiling will most likely be required. Hopefully that would be the last need to raise the America’s National Debt Ceiling.

Perhaps Fiscal Cliff 3 could kick in on January 1, 2015 with another round of spending cuts and tax increases that would begin reducing America’s National Debt and its interest on the debt which will be well over $300 billion per year by then.

If America were to follow this painful fiscal road, our children and grandchildren could have a realistic chance to make a descent living and recapture some of the Great American Dream that kids growing up in America back in the 1950’s and 1960’s once had. I was one of them. They were great times that are ‘long gone’, but can be rekindled if we, the generations who helped create America’s fiscal ‘nightmare’, accept some sacrifices. I urge everyone in America to accept the ‘Fiscal Cliff’ with a ‘grain of salt’ as it becomes effective on January 1, 2013 and urge your legislative representatives to work towards achieving Fiscal Cliff 2.

View Captain Rick’s entire FISCAL CLIFF Course 101: https://atridim.wordpress.com/category/fiscal-cliff-course-101/