As We Kick the Can (updated 3apr2011)

George Rebane

Busy week ahead and spending cuts are on everyone’s mind these days.  Many Americans understand that our country’s fiscal course is taking us to a certified fundamental transformation – national ruin.  There are also a lot of people who see nothing of the sort happening, they believe the current debt and deficits are totally manageable.  We just need to increase taxes on corporations and the ‘rich’.

Most Democrats in Washington don’t perceive any fiscal crisis that requires spending cuts of more than, say, forty or fifty billion dollars.  And enough Republicans seem to agree, if we just watch their walk and don’t pay much attention to their talk.  This talk admits a national debt and near-term obligations of over $50,000,000,000,000 (that’s fifty Trillion for short), and annual deficits way north of $1T.  Consequently the federal budget must suffer big cuts to the Big Three Entitlements – Social Security, Medicare, Medicaid.  Nicking a couple of billion here and there from discretionary spending will do nothing except buy near-term votes from the clueless.

But the current Republican talk hints at a big secret deal in the works with the Dems, a deal that will really ‘make a difference’.  This pending agreement is what motivated enough Repubs – including our Congressman Tom McClintock – to kick the continuing resolutions can down the road a couple of weeks ago.  The next kick is scheduled for next Friday 8 April when another CR or something is needed since we have no federal budget for this year – the Dems decided to kick that garbage can down the road last October.  Now the real rubber meets the road in a month when the current national debt limit is reached, and we can no longer borrow from the Chinese and friends, or even the prescient bond giant PIMCO.

Today the can-kicking Repubs are telling us that the debt limit is where they’ll draw the line and make their stand; be patient until then.  Our patience will be rewarded by the Repubs calling on a mysterious power that will make the Dems bow to massive spending cuts in the order of hundreds of billions.  We just have to wait for it, … and believe.

Others like Senator Marco Rubio (R-FL) hope to inspire colleagues by declaring early, “I will vote to defeat an increase in the debt limit unless it is the last one we ever authorize and is accompanied by a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.”  Some may even place faith in that forthcoming agreement since it was Barack Obama himself who declared, “Raising America’s debt limit is a sign of leadership failure.”  Too bad the last time he said that was in 2006.

While all this is going on, the feds are doing literally every dumb thing to keep growing the debt instead of the economy.  For example, in order to stifle the return of the job heavy housing market, they have put additional restrictions and regulations on private mortgage lenders while keeping Fannie, Freddie, and the FHA exempt and alive – remember who were the funny farmers issuing the overwhelming volume of mortgage securitizations that first got us into this mess?

And speaking of exemptions - that growing line in front of the White House ‘Save Us from Obamacare’ window is now over a thousand organizations long, and includes every union that can spell ‘opt out’.  These people know the burden nationalized healthcare will put on their backs.  Who rolled out the bullpucky, “The more they find out what’s in it, the more they’ll like it”?

In the middle of all this, President Obama is beginning his re-election campaign with his first political ad put together with a little help from the Republicans.

Finally, the far left have formed their own militant version of the tea party called US UNCUT, patterned after the British UK UNCUT.  These people, “inspired by recent events in Egypt and Wisconsin” (not kidding), are convinced that if we just tax the bejeezus out of corporations, we can then maintain the federal spending spree on “essential programs and services”. 

A local unit of these pilgrims demonstrated last week in front of Nevada City’s BofA branch demanding that “banks and other mega-corporations” pay directly for their list of entitlements.

So, as we wait to hit the debt limit, no one should take comfort that such groups are just made up of harmless and silly folks who believe that Social Security is “fully funded”, corporations actually pay taxes, and flowers grow better if you sing to them.

[3apr2011 update]  Rep Paul Ryan gave an outstanding interview on Fox News' Sunday program with Chris Wallace where he outline the Republican plan to cut over $4T of spending cuts.  The plan, to be released Tuesday, sounds like some people are beginning to understand the magnitude of our impending fiscal disaster.  For more details visit the WSJ (summary of Ryan plan here) and Fox News (read the interview with Ryan).  Maybe this is the secret all the Repubs have been talking about.

There is no guarantee that the Dems will go for anything like this, but at least the debate is being elevated to the next and more realistic level.  We need permanent cuts in the trillions, not in the tens of billions that the Dems seem to think are sufficient.  Until more in Congress than the conservatives understand this, shorting bonds should remain about the best investment out there.  Let's see what happens this coming week.