It’s the Spending, Stupid
If for some reason, the ad agency that produces those MasterCard “Priceless” commercials ever wrote a commercial that critiqued government spending, it would sound something like this:
- Annual salary and benefits of Bell, California’s former city manager: over $1.5 million.
- New 4,200 K-12 school complex in Los Angeles for 4,200 students: $578 million.
- One earmark for a “near-zero emissions coal power plant in Illinois that the (U.S.) Dept. of Energy (had previously) defunded because the project was inefficient”: $2 billion.
- Spending appetite of government at all levels: bottomless.
The above recitation illustrates that as bad as the Bell and L.A. examples are, it’s the federal government that can waste money like no other entity ever seen on Planet Earth. Fiscal restraint has of course been a problem for decades, but the spending that has occurred under congresses controlled by Democrats since 2007 has taken this country to the edge of a fiscal and economic precipice.
A little-known fact is that federal spending rose by only 2.8% during fiscal 2007 under the final budget passed by a Republican Congress. I know, zero percent would have been preferable, and it was way too little and too late for a bunch that had let spending grow way too quickly during the previous five years.
Then came the Democrats. Spending during the fiscal year that ended in September 2008, the first full budget year under the control of Nancy Pelosi and Harry Reid, increased by 9.1% to almost $3 trillion. That percentage increase was greater than any Republican Congress under George W. Bush.
They were just warming up. Fiscal 2009 brought the beginning of the $787 billion (before interest) “economic stimulus plan.” All but those in serious denial acknowledge that it has failed to revive the economy, which economist David Rosenberg described on August 25 as already being in a depression. Despite representations to the contrary, the stimulus plan had 9,000 earmarks, including that $2 billion Illinois energy debacle. More generally, entitlement and other spending went into overdrive. Fiscal 2009 ended with a reported deficit of $1.416 trillion.
Recently, the Congressional Budget Office estimated that the deficit for fiscal 2010 will be a bit lower, predicting a figure of $1.342 trillion (see page three at this large-PDF report) after the dust settles. Wowee zowee.
The problem is that both last year’s and this year’s numbers are fudged. Even before considering the off-budget baloney and the Fed’s massive “quantitative easing,” each of which would require at least an additional column to treat properly, Uncle Sam’s real 2009 deficit was $115 billion lower than reported, while the 2010 deficit, assuming no additional non-cash adjustments, will be higher by the same amount.
This situation is not the CBO’s fault, as it follows the accounting rules implemented by the administration. The problem is with one of those accounting rules.
Beginning in April 2009, the Treasury Department began reporting its “investments” under the Troubled Asset Relief Program (TARP) using what is known as “net present value” accounting. As I noted in a May 2009 column, this was a major departure from the cash-in, cash-out reporting people had come to previously expect, and which most believe still occurs.
Here in capsule form is how it works, and what occurred that has distorted reported results:
- The government no longer treats the money “invested” in propping up banks, other financial institutions, car companies, and other businesses as “outlays.” Similarly, it doesn’t recognize principal repayments as receipts.
- If (more like when) it becomes clear that the government isn’t going to get all of its money back, Treasury estimates how much those losses will be, and includes that estimate in “outlays.” This is a highly judgmental calculation that is vulnerable to political manipulation. During fiscal 2009, Treasury write-downs amounted to hundreds of billions of dollars.
- But in March 2010 (shazam!), Treasury decided that it had overestimated its fiscal 2009 TARP losses. It arbitrarily revalued its TARP investments upward by $115 billion, thereby reducing reported 2010 “outlays” by the same amount.
Here was my plain-English summary of that $115 billion adjustment when it occurred:
… the administration pushed as much “bad news” (asset writedowns) as it could into last year’s financial reporting, since last year was going to be a disaster no matter what. But since they overdid it with the writedowns last year (“Gosh, how did that happen?”), they can make this year look better than it really has been.
After adjusting for the $115 billion non-cash item just noted (and wryly noting that TARP somehow is treated as “mandatory spending”), and assuming that there are no more surprise TARP writedowns or writeups before the end of the current year, here’s how things really turned out last year, and how they will end up this year if the CBO’s estimates are otherwise accurate (all figures are in billions; numbers that changed from CBO’s original are highlighted):
Well, well. While the administration and CBO will claim that spending and the deficit started to head downward in fiscal 2010, the reality is that fiscal 2010 will be significantly worse on both fronts.
One look at Table 3 in the July 2010 monthly Treasury statement confirms that there has been no letup in spending in most areas of the government. There’s a lot of competition for the most offensive increase, but my nominee would be the Department of Education, which through July had spent almost $81 billion compared to “only” $42 billion as of the same time last year. It would be nice to think that nearly doubling federal spending and building Taj Mahal schools with local tax dollars have made American students twice as smart. Dream on.
The administration’s accounting shift cleverly masks what it has really been up to during its nineteen months in office: creating a permanently high spending structure that will become ever more difficult to reduce to a decent size when (or if) sanity finally prevails. A year ago, Victor Davis Hanson called this the “Gorge the Beast” strategy. Its aim is to justify tax increases and enhance the power of the ruling class over everyone else.
It must be stopped. A massive change in congressional leadership in Washington is a prerequisite, but it will only be a start.
“… creating a permanently high spending structure that will become ever more difficult to reduce to a decent size when (or if) sanity finally prevails.”
Why is that? I don’t agree at all.
All we need is a president and Congress who will zero-out any and all departments in the federal budget. The problem is in the will to do it and the will to face the consequences of the MSM. Ang Gov. Cristie NJ comes to mind.
As far as I’m concerned the government only needs one department: Defense. No State, no HUD, no HHS, no DOJ, no Education, no EPA, no Commerce, no IRS and the myriad of other bureaucracies that exist.
Rebuild our industrial base, close tax exemptions for charities (only way to stop the lefty 527s), tax legal awards, create a wealth tax (again to stop the uber progressive wealthy), reduce corporate taxes; while hurtful in the immediate but beneficial in the long run-reduce our trade deficits with China, and drill and use our own energy supplies.
Uhh ……….. screw the fixation on “tax this, tax that” — IF you need to tax for your government programs that THE PEOPLE want, then the tax shall be CONSUMPTION-based.
Don’t consume, avoid taxation.
But, noooooooooooooooo …. that doesn’t comport with your desire to CONTROL MY LIFE.
I am ashamed to call you “fellow citizen.”
How can there be “nominal spending”? That is, “spending in name only”? Writers, please pay attention to etymology, this is an example of one where it can be figured out by inspection. Same root as “nominate”; get into the habit.
TARP means buying grossly, hyper-inflated assets, mostly crappy real-estate, at taxpayer expense, from banking pigmen who knowingly lie about their value, and then attempt to stick a grossly overpriced value on the asset using government sanctioned accounting fraud so the taxpayer will not easily discover they’ve been ripped off. It means moving the loss away from the people who should rightfully eat it to a long-term, tax-subsidized balance sheet of government “assets”–and all of them lies in one shape or another: the actual value of the asset is a lie, the way it was purchased a lie, the terms of the sale a lie, the current value a lie, and the eventual sale will be bullshit as well, along with the profit the treasury dept will find a way to lie about as it crows in the media how it made the poor taxpayer a “profit” on its “investment.” The biggest scam in American history, and not even a sniff of justice about any of it.
Man, you do know that the majority of TARP has been paid back, with interest. Your description is much more applicable to the Stimulus. So not sure what you are talking about here.
When the CBO said that an early version of healthcare reform legislation would increase the deficit, Sean Hannity said, “The CBO is the non-partisan gold standard for analyzing the economic impact of political policy.”
Now they’re not? Help please.
No, it’s not just the spending, stupid. It’s way more than just the spending.
As an exercise, pretend for a moment that they spend with honorable motives. Pretend that they somehow are unaware of the economic history of the world and the overwhelmning evidence in the US that spending never blunts economic downturns. Pretend that they somehow believe that bankrupting multiple future generations will somehow save the economy. Pretend that they really do think that crushing the private sector and bloating the public sector is a way to “stimulate” wealth creation. In other words, pretend that you are 13 again.
Even with those magical beliefs, you still aren’t at the heart of the matter.
Because it doesn’t even touch the criminality of the regime. There hasn’t been anything even close to them in US history. We all know the litany. The fantasy ends always justify the means. Chrysler, unaccountable czars, the Black Panthers, Arizona, health care cram-down, executive orders. Read Limbaughs book. There are hundreds of unprecedented criminal activities. It’s a dozen leagues beyond Nixon. No comparison to Clinton. Closer to Venezuala than to the United States.
But even that doesn’t cover it all.
They are Marxists, intent on destroying our country.
But even that doesn’t cover it. Even Marxists can get their way in our country. Stupid as it sounds, that’s how the country works.
No, to really get at the heart of it, you have to realize that they are governing, by force, against the will of 70% of the country.
Wrong in substance; criminal in action; alien in philosophy; ruling against the most sacred principle of all…the will of the people.
It’s way WAY more than the spending.
What you said.
In addition, there is one other (and related) overlooked issue that goes beyond the problem of enormous budgets: The government(s) is/are trying to do too much. There are sections of both state and federal gov’ts that are understaffed and underfunded for the tasks they’ve been mandated to do. How does that make any sense when the budgets are so huge? It’s because the government gives itself unfunded and underfunded mandates just like it does to everyone else. For instance, if the federal government alone was to try to fully fund all its activities, the FY 2011 budget would be well over $4 trillion, and not just the already staggering $3.8 trillion earmarked now.
One thing that has to happen is that entire functions have to be eliminated.
“As an exercise, pretend for a moment that they spend with honorable motives. Pretend that they somehow are unaware of the economic history of the world and the overwhelmning evidence in the US that spending never blunts economic downturns.”
How about pretend for a moment that a president facing a major recession inherits increased federal spending as a % of GDP from his predecessor and then raises spending as a % of GDP in his first two budget years. Spending goes up so high that it sets a post World War II record as a % of GDP. Eventually, in the president’s third year in office the economy starts to recover and add private sector jobs after shedding jobs in his second year. What would you say about a big spending president like that? Note that the big spending did blunt the economic downturn in that case. Who was that big spender? Why President Reagan of course.
On the other hand, President Obama has managed to have private sector job growth in the first seven months of his second year, in spite of Congress not allowing him to increase spending to further support the recovery.
Homework for the author and everyone on this page:
1. Find the private sector jobs added/lost by month since January 2007. Graph them versus the timing of TARP and the ARRA stimulus and then try to make a case that they didn’t reverse the loss of over 500,000 private sector jobs per month.
lol.
You forgot a little detail…the biggest tax cuts the country has ever had. But actually, tax cuts understates the situation. Reagan’s tax changes are more properly called a restructuring of the entire tax code to stop the punishment of achievers and to incentive investment. That’s why the economy went on a 25 year tear that it took 3 president’s and a mob of marxists to unravel.
And Obama’s destructive spending increases massively dwarf anything that anybody ever did before. And of course, the budget surplus was coming down under Bush, and would have been about zero in 2008 except for Tarp and his own smaller stimulas in March 2008, both Ruling Class, “bi-partisan” mistakes.
And let’s not forget that Obama “adding private sector” jobs is a farce. New jobs haven’t even kept pace with normal growth in the national workforce. And of course there is the nasty little detail that every public sector job requires 4 to 5 private sector jobs to support, because public sector jobs never create anything…they count stuff, and enforce job-killing regulations. It will take years to overcome that bloating of the bureaucracy.
But it isn’t necessary to get picky about the details. The evidence is overwhelming and univerally agreed upon that Obama’s “recovery” is, to put the best possible spin on it, “anemic”. Why do you think Rohmer resigned? She couldn’t act as the regime’s designated liar anymore and maintain her self esteem.
On the other hand, I don’t view Obama’s performance on the economy as a failure in the least. He’s not an idiot. The economy is doing what he wants it to do, which is destroy the middle class. He is certainly disappointed that it isn’t doing so faster.
When decades of economic history say going east will create jobs, and you go west, there can be no doubt whatsoever that it’s deliberate.
He will go down in history as the worst fool to ever occupy the White House. History will never admit the obvious truth about the charlatan. He’s not a fool or an idiot, he came to destroy the country.
The country is deluded in so many ways.
They think that electing republicans will do something about this problem when in reality all the republicans will do is slow the Rate Of Growth. The only thing that will save us is massive cuts, not slowing the rate of growth, and it ain’t a gonna happen.
The country looks at US gov’t debt about the same way they looked at mortgage debt a few years ago. In other words, they think if they can pay the interest and can refi, they’re a-ok. Right now, people think that just because the fed gov’t can pay the interest and roll over (refi) it’s debt, everything will be ok. (why else would we have rates this low?)
But, the reality is, there is no way the gov’t can pay back it’s debts w/o debasing the currency, and when people wake up to that fact, there will be hell to pay, and it will be a biatch.
No, we think electing the Republicans will put a stop to this insane government spending. When we go to the polls, neither candidate will be worth a hoot, but one of them guarantees putting a stop to this madness and to Obama. I don’t think people care aside from sending a message to DC that this stupidity has to stop. I think we may play congressional ping pong fpor the next few cycles until these morons figure out that we want them to help the country, not pander to special interests. Neither party has gotten it right yet, only this administration has gotten it really wrong, really fast.
You know, if you right wingers slash conservatives stuck to your traditional strong points of fiscal responsibility and drop all of that recent and highly bizarre fundamentalist, anti-science, ideological crap, you guys wouldn’t seem nearly as scary and or mockable.
fundamentalist: islam, black liberation theology, anti-semitism
anti-science – global warming, truthers, Keynsian economics
idealogical – marxism, racism, sharia, unilateral disarmament, living constitution
You know, if you left wing nuts would drop your bizarre magical adoloscent belief system, you guys wouldn’t seem nearly as scary and or mockable.
Ouch…that’s going to leave a mark.
Congratulations bc; I didn’t think it was possible in the English language to do so–but you are the only person to ever successfully produce the most accurate phonetic spelling of a 15-second long fart.
That’s impressive.
There’s a new Youtube video on this subject that needs to go viral. It’s a professionally done 46 minute expose. OVERDOSE:The Next Financial Crisis
http://www.youtube.com/watch?v=4ECi6WJpbzE&feature=sub
anybody who knows anything about corporate accounting knows that CFO’s focus like laser beams on cash with their constituent companies. And for a good reason. Cash doesn’t lie – or at least you go to jail if you fudge it. Profit and Loss accounting, as in the net present value described above – is all subject to manipulation by creative accounting.
Both parties and from D.C. to local school districts engaged in an orgy of logrolling, backscratching and pork barreling for decades now. So long as they could push up revenue, issue bonds or engage in fraud accounting, all this could be ‘paid for’. They enlarged the pie for themselves at the expense of taxpayers. No matter that citizens have been screaming for less government, less intrusion and less tax.
And now they all sing the same refrain “we must have more revenue”. Bull pucky!
We asked you to govern, you opted for all politics all the time and virtually no leadership or government. Get out of the way!
Robert Fuller,
Hopewell, NJ
Robert, I’ll vote for you. This is exaclty right. We are tired of every level of elcted representation taking for granted the folks that put them there.
I will not vote for s single incumbent in Nov, I don’t care what party they come from.
Here’s how much federal government we can afford annually: 2.5 Trillion.
That is the amount of revenue the feds are able to collect. $2.5 trillion buys a lot of gov’t. Specifically, it buys big government. What we have now is collossal government. “Big” may not be desirable to many of us, but it is a big step back down from what we have now, and is a very good start.
If we lived within our $2.5 trillion means, something interesting would happen: The economy would almost certainly soar, and, as a result, federal revenues would go up and we’d end up with surpluses. If surpluses become persistent, then it would make sense to cut taxes even more.
Stand your ground! This “gorge the beast” strategy only works if they can force tax hikes through. If they fail, we will have starved the beast while it expends all its energy running after food it can’t catch. They will have no choice but to impose austerity.
Unfortunately, DR, as you see above, we’ve only collected or will collect about $2.1 trillion during each of the past two years. I think we have to figure out a way to get back to that, if not lower. We should be able to. Spending in fiscal 2003 was less than that. Spending in fiscal 2001 was on $1.86 trillion.
But we did collect $2.5 trillion in fiscal 2007 and 2008:
http://fms.treas.gov/mts/mts0908.txt
Actually, 2008 was more like $2.6 trillion because $90 billion in direct stimulus payments through the IRS should have been treated as outlays.
Tom:
Thanks for the corrections on the numbers; I think my main point still stands, but with lower dollar numbers. Because we can quantify the goal, it makes it easier to reach. “Easier” is a relative term, of course.
“This is how much govenment we can afford, so this is how much government we’ll have” sounds like a good campaign slogan to me.
If there’s any valid reason the Federal government should spend more than a few billion for salaries and facilities for the courts and Congress, and another $100 billion or so for the military, I can’t think what that reason might be. All the rest is overpayment for the purpose of violating our Constitutional rights, and there’s no reason to pay for that.
Unfortunately the Repubs will have to spend alot of energy crippling legislation already in the pipe and the veto pen. Obama will no doubt be the last man standing for his brand of Ideology. Meanwhile back on the deck of the Titanic, do we have enough lifeboats? This coming crash is like looking at the mountain before the impact.
there is really only one solution. revolution via anarchy. but not from the left, from the right. what if every self-employed person/entity in the USA just stopped paying quarterly estimated taxes? 10 million filers, just stopped paying. think we’d get their attention? how would they go about prosecuting 10 million cases. politicians are low, vile, self-interested scum. until the money/power/influence is totally removed from politics, and the job returned to policy wonks and political nerds, we will see the escalation of narcissistic money grabbing, corruption, arrogance we see now. only one solution. revolt.
The United States spends over 35% MORE than it earns. CONGRESS and the executive branch of government have simply lost control over their spending and as such are powerless to reign it in. Nothing short of Complete Economic Collapse ala Argentina 2001, “Hunger Games” societal meltdown or the literal nuking of Washington ~ 20 megatones or higher will bring the beast to heel.
The United States of Mexico – it’s change your getting, bend over.
The massive corrupt spending and debt that the Democrats are piling onto the American people will never end until the American people go to the polls and fire every last Democrat on the ballot! They will tell you anything they think you want to hear to get elected, but a vote for any Democrat in Nov is a vote for Nancy Pelosi and Harry Reid, and a vote to continue the insanity! Vote to stop it before its too late!
I recognize the question can only be seen as rhetorical, but gonna ask it anyway: Since there is apparently no entity (Congress? CBO? Executive? ) actually HELD responsible for spending decisions, is there actually any remedy available to us as a nation to stop this? What’s happening is Economic Treason as far as I’m concerned….somebody or a group of somebodies needs to be sent to prison.
Why is it that they get by with this? …and if I were to steal $50 out of the cash register at the local convenience store, I’d be arrested and put in jail? I don’t mean to be asking stupid questions….but there is something terribly wrong. We truly have become a 3rd world soft tyranny where the ruling class is grabbing the money and running. Once some of these thugs are voted out in office in NOvember, do their passports have to be confiscated to prevent them from leaving the country while their doings are investigated?
There’s a lot we don’t know. But there is one thing I do know: it’s worse than we know. A whole lot worse. National arson is what they’ve committed. And I’m not just talking about democrats. I’m talking about the fool republicans who’ve gone along to get along. There should be about 150 perp walks in the next 18 months, ending with one that begins in the Oval Office.
To all the Democrats, free spending Republicans, Liberals out there, here is a real life example of what the current economic and fiscal policies have resulted in.
I am in the top 5% of American Taxpayers. I am almost 10 years from retirement, at my peak earning years. I have amassed sufficient savings to fund my retirement. I have been paying Income Taxes, etc. for over 40 years.
Here is the real world example of middle America adjusting to Obamanomics:
– I tapped my savings to pay off my mortgage. I now own my house, not the bank or Washington – no more mortgages or equity loans ever!! Thats $450K of leverage gone.
– I’ve voluntarily reduced my work hours 50% to get below the current & forthcoming tax hits. Do the math, after 1 Jan working a full week vs. 20 hrs means that I am only feeding the DC money beast.
– I’ve radically reduced my spending – no new car, appliances, electronics, cell phone, nothing. No purchases unless something breaks and I absolutely need it to live.
– I’ve moved all my savings (7 figures) into cash in insured accounts. I’m willing to take a hit on growth to preserve my capital – isn’t that what Wall Street and Main Street businesses are doing.
Bottom Line – I’ve hunkered down to weather this economic hurricane. Only questions is the duration of the storm. My purpose is to minimize further harm to my family and to minimize the money I must send to these idiots in DC.
This is a 2011 legislative agenda that would energize all of America and immediately tell the financial world that we are dead serious about getting our fiscal house in order:
1. Rescind all un-expended 2008 thru 2010 federal appropriations except for Military operations, Social Security payments to retirees and Medicare payments to retirees.
2. Reset the federal budget authorization level back to the 2007 budget – wipe out these Trillion dollar deficits. All non-discretionary funding must be debt & deficit neutral.
3. Rescind, or un-fund, all aspects of Obamacare.
4. Rescind the Financial Reform Act. Address the root cause of this current economic problem by seriously addressing Fannie Mae and Freddie Mac.
– Sell off their good assets
– Have the market re-capitalize the mortgage market under the pre-1990 rules where you had to be a low-moderate risk (i.e, good credit, low debt, a salary, etc.)to get a mortgage.
– Criminal investigations into lawmakers, Freddie & Fannie officials, and Wall Street.
5. Pass a Congressional rule or law – whatever it takes to make the following stick:
– Any and all laws passed by Congress applicable to American citizens are applicable to all members of Congress – make it retroactive to 1 Jan 2010
– Any and all laws passed by Congress that are applicable only to Congress are applicable to all American citizens – make it retroactive to 1 Jan 2010.
Radarnav: I am an unemployed teacher living with my brother and his family. I have no money and no job prospects. I have no savings for my retirement.
You said nothing that will help me or Americans like me. Everything you said was to help YOUR financial house stay solvent. You said nothing that will help the average American. Because you want big government. You like big government.
The ONLY way to restore America is to cut the government to a quarter of its size. Eliminate many, many departments. Zero out these departments and failed progressive programs. Then we need to rebuild out industrial base-steel plants, textile industries, etc, lower corp. taxes, remove EPA regulations, restrict the ability of trial lawyers and class action law suits that have killed our industry and so on or tax their awards at 99%.
If you do not reduce the size of government you will never achieve what you desire.
I watched an amazing confrontation last year between a town hall attender and the congressman. The congressman wanted the audience to tell him what they wanted from Washington. When the attendees said they wanted less spending the congressman treated them like they were not playing fair. He saw his role as going out and taking something away from someone for them but when they said they wanted him to quit taking he was angry. He stayed angry.
1. When did ANY republican President with either party in control EVER balance a budget in the last 40 years—answer—NEVER
2. When did giving a tax credit or break to a company that moves American jobs out of the country EVER become smart and getting rid of it become a tax increase—answer–NEVER
3. When did ANY republican President EVER create more jobs than any democrat President in the last 40 years—answer–NEVER
4. When did any democrat President create more jobs in 18 months than the last republican President did in the last 8 years—answer–NOW and when following EVERY republican President.
5. When do people who complain about taxes being too high forget or refuse to see that taxes–RIGHT NOW–are lower than anytime since WWII—-answer—NOW
6. Finally when do people use a false premise in which they extrapolate with Social Security shortfall figures that they claim are going to lead to 100 trillion deficit by using the trick of telling us they can see 100 years from now and make up what they say the deficit will be, then add those 100 years together to get this fake number—answer—of course is NOW with the ones who want to get rid of Social Security.
Some here start out using some CBO numbers then use talking points made up by right-wing so-called think tanks. The constant attack on the middle class by these folks ARE ruining this country.