No Runny Eggs

OK, admittedly, this is more like talking to 10 year olds than 4 year olds but the issue is the same.

The Shoelets, Thing 1 and Thing 2, are good students.  They like school and are good natured about taking on new challenges such as multiplication, division or sentence structure.  Part of the reason they are good students is that Mrs. Shoe and I take their education seriously.  We make sure that it is a priority for them.

When the Shoelets come home, after greeting them, reminding them to take their shoes off and to hang up their jackets, the next thing they get hit with is “Do you have any homework?”  Homework is a priority in our house.  Homework gets done before they get to play with their friends, play video games or do anything else that is on their “fun list.”  In our house we try to instill an attitude where we take care of what we have to do before we get to do what we want to do.  Interestingly, we hear constantly from Thing 1 and Thing 2’s teachers how well prepared they are for class and how much of a challenge that issue is with many of the other kids in their classes.

In the past week, President Obama has had time to fill out his March Madness brackets and make appearances about it .  Obama has also had time to campaign in California and appear on the Tonight show.  It’s an amazing recovery for Obama.  Just 10 days ago, Obama was too tired to provide a proper reception for the British Prime Minister!

While President Obama was out doing the thing he wanted to do, the things he needed to dowere ignored.  The Treasury still has 17 lead positions unfilled.  This is the department whose head, Timothy Geithner, is still unable to deliver a promised toxic asset plan.  It is also the understaffed Treasury that not only approved of the original AIG compensation agreements, but is now unable to concoct a comprehensive string of lies that would allow them to cry “Buuuuuuuuush!”  President Obama has no plan or timeline for dealing with the Treasury vacancies.  No plan for the department that is arguably the most important given the challenges of the current economy.

In a related note, President Obama announced on the Tonight Show yesterday, that he does have a date when the First Family will be getting the First Dog.  Yup, he’ll have that task taken care of by early April!  That is, he’ll have a first dog by early April if he can get one to pass the background check and agree to have its name forever sullied by being a part of the sinking ship called the Obama administration!

Remember this from Barack Obama’s infamous “Speech on Race?”

Given my background, my politics, and my professed values and ideals, there will no doubt be those for whom my statements of condemnation are not enough. Why associate myself with Rev. Wright in the first place, they may ask? Why not join another church?
…
But the truth is, that isn’t all that I know of the man. The man I met more than 20 years ago is a man who helped introduce me to my Christian faith, a man who spoke to me about our obligations to love one another; to care for the sick and lift up the poor.
…
I can no more disown him than I can disown the black community. I can no more disown him than I can my white grandmother — a woman who helped raise me, a woman who sacrificed again and again for me, a woman who loves me as much as she loves anything in this world, but a woman who once confessed her fear of black men who passed by her on the street, and who on more than one occasion has uttered racial or ethnic stereotypes that made me cringe.

These words were spoken by Barack Obama as he tried to explain his continuing loyalty to Reverend Wright after Wright’s hate filled and bigoted sermons finally received coverage by the MSM.  While the issue had been brewing for several months, Obama finally felt that he needed to address the issue directly and deflect the distaste for Wright back onto the folks who were calling him out by attempting to make them appear racist.

Of course, we all remember how Obama’s “family reunion” ended.  On April 29th, less than 6 weeks later, Obama threw Wright under the bus saying he is “outraged” by Wright’s “divisive and destructive” comments and their relationship has been permanently damaged.

Today, Barack Obama took up the defense of Secretary of Treasury, Timothy Geithner:

“He is making all the right moves in terms of playing a bad hand,” Obama told reporters at the White House before leaving on a two-day trip to Southern California. “I have complete confidence in Tim Geithner and my entire economic team.”

Like his comments on Wright, Obama feels compelled to publicly support Geithner because he has become an albatross for Obama’s plans.  Geithner’sinability to complete a toxic asset plan, even though promised repeatedly for the past six weeks, along with his involvementwith AIG, leaves him looking like the weak member, soon to be left behind, so that the rest of the herd may go on to survive.

In perhaps the greatest irony of Obama’s support for Geithner is that his comments come on the one year anniversary of his comments supporting Wright.  It looks like history is lining up to repeat itself.  The only question left is whether Obama will wait six weeks to finish Geithner.  My bet?  Timmy ought to be polishing his resume, soon!

Come and hop in the “Wayback Machine” with me.  We’re going to set the dial for less than a week ago, March 12, 2009 to be exact.  Remember, all the events are exactly as they happened except “You are there!”

We’re in Washington D.C..  We’re witnessing President Barack Obama give his public address about the $410 billion omnibus spending bill.  We hear President Obama tell us that “nearly 99 percent of this legislation,” is not earmarks.

We hop back in the “Wayback Machine” and set the date for a few days earlier, March 2, 2009.  Here we’re at Robert Gibbs press briefing.  At this briefing, Gibbs tells us that Obama is not responsible for anything that started before he became President.  If it was in the works, he is obligated to allow the action to proceed to its logical conclusion:

Q . A quick follow on the omnibus. Last week it was pointed out that a couple of Cabinet secretaries, LaHood and Mrs. Solis, have earmarks in this omnibus from last year, leftover funding. Now it’s also been learned that Vice President Biden has — I think it’s $750,000 for the University of Delaware satellite station, and Rahm Emanuel $900,000 for the Chicago Planetarium.

Since the President talked so much about earmarks in the campaign, and as President, about keeping them out of the stimulus — I know this is leftover business from last year — but as something that he is either going to sign or veto, why not have earmarks that come from his administration essentially at least taken out to set — send a signal, number one? And number two, is he — is there any chance he’ll veto this bill and send it back and say, get these earmarks out; there’s over 9,000 of them?

MR. GIBBS: Well, I think you saw remarks this weekend by the chief of staff and the budget director about the legislation. Obviously the President is concerned, despite the progress that has been made in this town, about the size and the scope of earmarks that we’ve seen over the past few years. I think even the most cynical among us would have to at least acknowledge that the number of overall earmarks has been cut.

I think it’s important to recognize that a piece of legislation probably twice the size of the piece of legislation that you’re asking me about was passed through Congress at the President’s direction without earmarks. This is the finishing up of last year’s appropriations legislation.

And I think what’s most important and what the President would tell you is important here is that though he doesn’t control everything that happened before he became President of the United States, that dozens and dozens and dozens of appropriations bills will go through Congress and come to his desk over the course of the next four years. (emphasis mine)

We hop back into the “Wayback Machine” and return to the present.

Over the weekend it was announced that AIG would be paying out $165 million in “bonuses:

Troubled insurer American International Group (AIG: 0.7801, 0.2986, 62.01%), which is 79.9%-owned by the federal government, will pay $165 million in retention bonuses on Sunday to those at the division that has drawn most of the heat for the company’s near-collapse.

President Obama responded to this news by saying:

“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165-million in extra pay,” Mr. Obama complained at the White House. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Outrage to taxpayers?

Just last week, President Obama said that $8 billion was no big deal for taxpayers to bear.  Just last week, President Obama said that 2% is below the threshold for concern for taxpayers.  If I do my math correctly, $165 million is a fraction of $8 billion and it is less than one tenth of a percent of the $170 Billion dollars that AIG has been given to stay afloat.

A little more than a week ago, Robert Gibbs told the world that President Obama could not be responsible for things that began during the Bush administration.  This week Obama is indignant about bonuses, the contracts of which were crafted last May, even before Obama was PEBO.

It sends a thrill up my leg to see President Obama looking out for the plight of the American taxpayer.  Too bad he doesn’t carry that same indignation when he’s making payments to his political homies!

In early January, then-PEBO had his staff deliver a white paper to provide economic justification for the stimulus bill.   As you might remember, one of the key issues for putting the stimulus in place was that it was going to dramatically reduce job loss.   In fact, the argument was that the stimulus would not only reduce job loss but quickly put us into the position of lowering the unemployment rate.   PEBO’s staff put together the following chart to show how unemployment with the stimulus would compare to unemployment if we just left things alone:

What you can see here is that in early January, PEBO believed that without the stimulus package, unemployment would peak at a bit over 9% and then recede.   However, with the humungous, pork laden, we’ll pay for it forever stimulus package, unemployment would peak around 8% and make a rapid descent.

Today, American Pravda notes that 4 states have hit double digit unemployment rates.   That’s not good.   However, that’s not the important part of the article.   Here’s the money line from the article:

Some economists now predict the U.S. unemployment rate will hit 10 percent by year-end, and peak at 11 percent or higher by the middle of 2010.

Barely two months ago, Obama and his ilk saw unemployment capping at 9% if they did nothing.   Now that they’ve done a major something, they’ve pushed unemployment to a potential of 11%!  

Obama had better hope that these economists are wrong.   If not, the growing skepticism from all sides of the political spectrum, will quickly turn into a full scale rout!

Geithner is finally going after the plan I suggested here. With the time stamp, perhaps I could get the $420 Billion?

H/T Greg Mankiw

First, from Rasmussen Reports:

Thirty-one percent (31%) Strongly Disapprove to give Obama a Presidential Approval Index rating of +8.

That’s the lowest approval rating yet for President Obama.   Also noteworthy is that on the day of his inauguration, 40% of the population was “in the middle.”   Today, that number has dropped to 30%.   I can tell you that folks aren’t moving to the “Strongly Approve” category!

Then, there’s this, also from Rasmussen Reports:

Investor confidence has fallen to a new all-time low as expectations of future economic performance continue to decline.

while:

The assessment of current economic conditions fell 28 points between the collapse of Lehman Brothers and the inauguration (from 89.6 to 61.7). It has fallen another nine points since then to 52.3.

Seventy-five percent (75%) of investors now say the economy is getting worse. That’s an increase from 58% since Lehman Brothers collapsed last September to begin the financial industry meltdown. On the day that President Obama was inaugurated, 63% of investors thought the economy was getting worse.

So the current assessment has dropped by 9 points but the despondency over the look into the future has increased 12%.   Somebody want to argue again how at least in investors eyes, President Obama isn’t making matters worse?

And finally,  you know it’s bad when  American Pravda begins to question who owns what part of the problem:

Although the administration likes to say it “inherited” the recession and trillion-dollar deficits, the economic wreckage has worsened on Obama’s still-young watch.

Every day, the economy is becoming more and more an Obama economy.

Yes, yes it is.  

As Allan Sinai, chief global economist for Decision Economics, a Boston-area consulting firm notes in the AP article, we clearly have the right President and administration to handle our economic challenges:

At this stage, there is no easy answer, no easy way out. It’s a question of how we fumble through.

It would be hard to identify a single action the Obama administration has taken that has improved the lives of the people they were elected to serve.   However, if excellence in fumbling will determine how we will come through the economic turmoil than I for one, will rest easy.   Nobody knows how to run the fumblerooski better than Obama!

Update 9:08 AM – Hmmmm, I won’t take one day as a given however, President Obama’s approval rating acheived a new low in this mornings Rasmussen daily tracking poll. Any one day is subject to a myriad of issues. A high one day could be a low the next and vice versa. However, the trend is not PEBO’s friend at this time.

At a graduation ceremony for police recruits in Columbus Ohio, President Obama reinforced his commitment to creating or saving jobs with his stimulus bill.   The 25 graduates are the first, and only jobs that Obama has connected to his stimulus spending.

In the midst of continuing, dramatic job losses there is a ray of hope.   Take a look at this information pulled from the Bureau of Labor Statistics site:

Yup, that’s right.   While  jobs across the spectrum continue to shrink,  there are two groups that continue to break the trend.   Government employment along with Education and Health Services have increased their ranks in each and every month of the past 6.

While President Obama argued that less than 20% of his “job creation and saving” would occur in government, the 25 he has identified so far are all in government.   25 out of 25 looks like 100% to me.   The BLS statistics look to support that analysis.

All animals are created equal but some animals are more equal than others!

The industry term for them is “trailers” but I’m old enough (no, none of my movie experiences included silent films) to remember when the previews of movies were called “Future Attractions.”   Future attractions were put together to give people enough of an insight on the coming movie to decide whether they wanted to see, or “participate,” in the movie experience.   Today, we have a “Future Attraction” of what the United States will be showing.

Venezuela’s dictator, Hugo Chavez, has announced that he will be nationalizing a rice production plant owned by Cargill:

“Prepare the decree, we are going to expropriate Cargill. We are not going to tolerate this,” Chavez said.

Just another rant of a Tyrant you say?   An irrational act that is based on thuggery and emotion.   An act that is devoid of rational thought or law?   Au contraire!   Chavez has a perfectly legal reason for his expropriation:

Chavez said he ordered the takeover because Cargill — one of the largest privately owned U.S. companies — avoids producing basic rice that is subject to government price controls.

Chavez set the rules that he thought would get the outcome he wanted.   Cargill looked at the rules and said “we can’t make any money doing that,” so they  looked at the rules, set by Chavez, and found a way to stay within them and make money.   The problem is that Cargill’s “outcome” is not the “outcome” that Chavez envisioned.   Thus, Chavez is crying foul and is threatening to take the plan over so that he can not only dictate the terms but dictate the outcome.

Huh, that’s funny.   Not “ha ha” funny but “isn’t that ironic” funny.

In October the TARP plan was put into place.   It was an “EMERGENCY” so one of the largest government interventions ever, was put into place with legislation that boiled down to “whatever the Secretary of Treasury says.”   Nearly immediately following the implementation, there was citing of banks who had received TARP funds doing things that their new “investors” didn’t like.   Annual recognition trips, purchasing of foreign banks, payment of “performance” bonuses, were some of the activities over which “foul” was cried.   Of course, the problem, as with Chavez’s is that the rules didn’t preclude these activities so little other than shaming them, was able to be done.

Shortly after TARP, the auto industry knocked on Congress’ door asking for alms.   Congress, having learned that providing money with no rules left them looking foolish, responded by providing a set of rules to go with the automaker loans.   These new rules ran to the opposite side of the balance.   The new rules boil down to “you will have a bunch of rules that we will have the right to change whenever and in whatever manner we choose to.   You will have no input to these rules.   The rules will not be based on any real business objectives but will be based on what we feel would be best for us.”  

There’s no doubt that Congress’ new approach to dictating outcomes will have no greater success than their original approach.   The issue isn’t whether Congress gets the rules right.   The issue is that government never, ever, ever is able to dictate economic outcomes, the best they can do is provide a framework that allows capitalism to best work.  

There’s one other lesson from this exercise.   Government is never, ever, ever a benevolent overseer.   Government in all forms, is far too susceptible to removing rational thought and believing that “because they say so” is a good enough reason for something to occur.   The result is that the more Government is involved, the less likely the outcome will be one that is able to be accomplished without significant distortion or disruption of an economic enterprise.   Also, Government’s response to not getting the right outcome is to further restrict economic options, even to the point, as with Hugo Chavez, of taking over companies who don’t comply with their vision.

Hugo Chavez’s Venezuela, scenes of America’s Future Attractions.

Revisions/extensions (6:03 pm 3/5/2009, steveegg, who is slacking in his copy editing duties) – Fausta has more background on the Venezuelan end of this story. I’m shocked, SHOCKED that neo-Communists would have the same food-shortage problem the old-line Communists had.

Also, R.S. McCain has pretty much the same conclusion, as he takes a look at the exit of capital from the markets.

R&E part 2 (6:13 pm 3/5/2009, steveegg) – There’s a couple of updates in the Reuters story that bear mentioning:

– The Cargill plant that is causing Chavez to nationalize Cargill’s rice business is designed to specifically make parboiled rice and not the “basic” white rice Chavez wants made.

– Venezuelan nationalizations used to be paid for by cash, but are now paid for by debt. It seems Chavez is writing checks his treasury can’t cash.

Within a couple of minutes, in the same press conference with British Prime Minister Gordon Brown, President Obama said:

"What you’re now seeing is, profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long term perspective on it."

And followed it up with:

“What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

In his first comment, Obama  spoke as if he had  some inside knowledge and wanted to convey it.   It was almost as if he was saying, “OK, I’ve done what I need to do and things will settle from here.”

In his second statement, Obama dispelled the notion that he has inside knowledge, or if he had, ever cared about the stock market value.   “I don’t care what happens to the stock market, I”m moving forward, I know best,” was the implied statement.

Is it possible for Obama to utter the two statements and be consistent?   Can he reconcile an attitude for the complete disregard of the major indexes and a bullish call for stocks?   Yes he can!

I think we can safely put aside the nonsensical talk that occurred around Obama’s election, that speculated, perhaps hoped, that he would “govern from the center.”   There is no doubt that Obama is implementing what previous to November of 2008, would have been completely unthinkable.   Take overs of the major banking institutions and the auto industry, increasing debt by multiple trillions and by virtue of a “stimulus bill” and his budget, inserting government involvement deeper and wider than ever before seen.   Obama is from far, far away Leftville and is intent on reshaping America to reflect his view of what America as Leftville, should look like.

The next question than is “What does Leftville look like?”   Here again, we can quit with any nonsense of what some want Obama to say and go directly to his words.   In nearly every major speech since his election, Obama has included the phrase “Shared sacrifice.”   “Shared sacrifice” in the New Obama Dictionary, means that all should be equally dependent upon the government.   The problem that Obama has is that in the 234+ years of the country, that hasn’t been the plan.   The result is that there is a large class of folks who have accumulated levels of wealth that allow them not to be dependent on the government.   When I say “wealth,” I don not mean people with millions of dollars.   I’m referring to people who have saved, paid their bills on time and when they retire, will be able to do so not taking world tours each year but by continuing to pay their bills and perhaps, if they’re lucky, leave a small monetary remembrance to their heirs.   At one time these people were considered “successful” but no more.   With a desire for “shared sacrifice,” Obama needs to find a way to quickly remove the means that the “successful” have that allows them to be independent of the government.   How to do it.

Here again, Obama and the folks around him have given us his exact plan.   In the words of Rahm Emanuel, “never allow a crisis to go to waste.”   Obama is continuing to exacerbate and fan a crisis to acheive his vision.   Let’s go back and look at his comments from today in reverse order:

“What I’m looking at is not the day-to-day gyrations of the stock market, but the long-term ability for the United States and the entire world economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Of course he’s looking at the stock market.   Does anyone really believe that there is a day of 3%, 4% or greater drops in the market that he and his staff are not aware of it?   Baloney!   The only truth in Obama’s statement is that if he worried about it, he would get his long term strategy wrong.   If your strategy is to erase wealth from a broad section of the population than you purposely ignore the market.   You also  sow fear, confusion and mistrust so that the market is unable to find footing.   Do this long enough and you will erase huge amounts of 401Ks and other investments.

OK, so if you’re intent on erasing wealth why would you come out and tell people:

"What you’re now seeing is, profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long term perspective on it."

Simple.   At the end of December, 74% of the markets value was sitting on the sidelines in cash.   I would guess that that number has increased as the market as continued to drop.   It’s hard to quickly erase wealth in the stock market if the money isn’t in the stock market.   How do you fix that?   As President you tell people that it’s OK to get back in the market.   You do that while continuing to push forward with all the policies and plans that market has told you have no value.

Obama is the master of saying one thing and acting in a manner that is completely contrary.   Remember, this is the man who said he agreed with the Supreme Court’s decision on DC handguns and is now trying to move gun restriction legislation forward.   This is the man who said he was not supportive of late term abortions but has nominated the person singularly responsible for keeping “Tiller the Killer” in business.   Believing Obama’s words without any evidence of action supporting those words is naive and ignorant.  

The only thing we can say about Obama is that while his lips may be saying “yes” his actions almost always, will say something else.

One role I had was in marketing for a major wireless provider.   My job was to identify trends and come up with pricing and promotion ideas to increase sales.   There were times were I would trial a concept, see a couple of preliminary successes and make a recommendation to roll the program out market wide.   On more than one occasion as I tried to explain the trend I believed was forming, I would hear from our General Manager something along the lines of “2 points does not a trend make.”

Reports out that TCF bank has decided that the restrictions that come with TARP are more impairing than the loans are beneficial.   Thus, they are looking to pay back their $361.2 million to the Treasury.  

And with that, here  are the lessons to be learned:

Government programs, no matter how well intentioned,  never, ever, ever, ever help businesses run more efficiently.   Don’t believe me?   Ask anyone who has ever had an SBA loan.

and

Government programs, no matter how well thought through, will always, always, always  have unintended consequences that for some period of time, will disrupt and distort the very function they were created to aid.   Again, don’t believe me?   Just ask anyone who receives farm supports.

I know that 2 points don’t make a trend but I’m guessing that three certainly does the trick!

President Barack Obama has pledged that his administration would be the most ethical and transparent that the US had ever seen.   Key to his pledge of transparency was the legislative and budgeting process.   In fact, David Axelrod and other Obama spokespeople have been touting the candidness of the President’s budget with comments such as:

“The president is determined to treat the American people as adults and be straight-up about what we’re facing and what we need to do to move forward,” said David Axelrod, senior advisor to the president.

As a blogger, I suppose I should be happy when political types make absolute statements about issues that aren’t absolute.   It becomes easy fodder for the next post.   However, as a citizen, it annoys me greatly because it leaves me trying to decide if the person saying it is either stupid enough to believe or think that I will be stupid enough to believe.   Oh, whatever.

You can see the detail of the “most transparent budget ever” here.

A quick and by that I mean no more than 15 minutes, review of the transparent budget reveals a few issues:

• Contrary to Obama’s claims that there would be no tax increases until the Bush tax cuts expire, you will see on page 123 that the increase of the capital gains rate of “rich people” will begin in FY 2010.   For those of you unfamiliar with a fiscal year, it would mean that those tax rates could go into effect on 10/1/09.   I suspect for implementation reasons they will actually go into effect on 1/1/10 but that is still a year earlier than the tax cuts are due to expire.
• While President Obama is lauding himself for reducing deficits to “merely” $500 billion by the end of his first term, he’s not telling you the whole story.   On page 133 you can see what is happening to debt.   In 2013 when Obama says his “transparent” deficit is on $500 B, his total debt increase is $925 B!   In fact, he proposed 10 year budget shows that debt will increase at a rate close to $1 Trillion each year past Obama’s first term!
• Page 114 shows the projected total debt and projected GDP.   As I told you here, the GDP figures have as much reality as unicorns and mermaids, they’re too high.    On the flip side,  if Obama spends all he says he will, the debt is likely under forecast.   Rater than nitpicking, let’s take the “transparent” numbers at face value.   If debt comes to be as Obama’s forecast has it, we will for the first time since WWII have debt that is greater than our annual GDP.    In  FY 2008 our debt was 70% of GDP.    Obama’s plan shows us increasing debt as a % of GDP every year of his forecast reaching 101% of GDP by 2019!    This after increasing revenues (taxes and such) 76% during that same time frame!  
• Finally, US debt is only partially held by the public.   At the end of FY 2008, $5.8 T of debt was held by the public.   Approximately $3 T of that amount is held by foreign entities.   Somehow the Obama administration has concluded that while GDP will increase just 60% they will convince foreign entities to increase their purchasing to support a 230% increase in debt.   If that’s not miraculous enough, they’ve added the extra difficulty of financing all of that debt with rates that are below the historical norm!   The Obama budget assumes that the long term rate for the 10 yr. Treasury is 4%.   A look at this table shows that since 1960, the 10 yr treasury has only averaged 4% or less 3 times.   While not statistically accurate, a simple average of the rates for the past 48 years is nearly 7%.   I don’t care who’s doing the rounding, that doesn’t get close to 4%!

It looks like we will continue with the redefinition of  words for the New Obama English.   From now on, “Transparent,” when used by someone in the Obama administration will mean:

“Truth”, not based in reality but if not questioned and sprinkled with lots of hope, could fool that portion of the populace for whom “it feels right.”

Between,  his Tuesday night address to Congress and a speech today, President Obama has revealed his budget proposals not only for the coming fiscal year but in large part, for the length of his Presidency.

First, let’s deal with the issue that is budget proposals are somehow different than those provided by previous administrations.   They aren’t.   While there have been different methods of presenting the budget such as continuing operations versus special appropriations for Iraq, there has been one constant comparable in all of them; the increase in debt required to service them.   Put in other words, each of the fiscal years, regardless of how the budget was compiled, can be compared based upon the year end debt that they created.

When President Bush took office, the US debt was approximately $5.7 Trillion.   At the end of Bush’s first term, total debt was $7.4 T, an average increase of $350 Billion per year.   During Bush’s second term debt ended around $10.6 T with $1.6 T of that coming in the last year alone.   If you take out the last year the average increase was $500 billion per year and that was while paying for the Iraq war.

Enter President Obama.

I won’t pick apart what he’s done to the deficit this year, except to say that while Obama is quick to talk about what he “inherited,” he’s not so ready to discuss that he is just as responsible for the $1.75 T projected deficit of this year as Bush is.   After all, wasn’t it than   Senator Barack Obama who assured us that he was “just a phone call away” working to persuade Congress to pass the $700 B TARP.   And wasn’t PEBO who was consulted on the auto bailout?   Wasn’t it also PEBO who made the ultimate decision on requesting the second tranche for Tarp?   Finally, as President Obama wasn’t it he who led the way to the stimulus package, the largest single expenditure ever in the US?   The only people who believe that this deficit was “inherited” are those who worship at the altar of Obama or simply chose to be ignorant.

Moving past ’09, President Obama’s budget plan will optimistically, increase the US debt by a minimum of $1T in the first two years and $500 B in the second two years of his administration, a total of a $3 T increase in debt in only 4 years!   Enormous deficits especially when you consider that  Obama will no longer have a war to finance, he will not have to spend to “reclaim the economy” after this year and the previous CBO budget had projected that the deficits during this same time frame would be “merely” $1.7 T!

I noted that the deficits that Obama is projecting are optimistic.   In fact, the deficits are likely not even nearly achievable.   Why do I say that?   After all, isn’t part of Obama’s plan to increase taxes on “the rich,” close loopholes and find other ways to raise tax revenue?   Yes he is.   However, Obama has overlooked one very basic economic fundamental.

Back in June of last year I introduced you to Hauser’s Law.   Hauser’s Law, simply put, says that no matter what you do to tax rates, how you open or close tax loopholes, whether you increase one type of rate and decrease another, tax income tends to equalize around 19.5% of GDP.   Nobody can explain for certain why this happens but, when you see a trend that holds over nearly 60 years, across numerous administrations, spending and taxing philosophies, if it isn’t a law, it should be made one.  

What’s Hauser’s Law got to do with Obama’s deficits?   Simple.

Obama is banking on a rapid return of income that he can tax.   Obama’s budget assumes that growth will be negative 1.2% this year returning to a robust 3.2% next year.   The CBO which is in line with many private economists, believes growth will be negative 2.2% this year and positive 1.5% next year.   Doesn’t sound like much until you realize that Hauser’s Law says that each percentage point equates to about $28 B of missed tax revenue and that it compounds over the time frame.   If Obama is off by just 1% in each of the years that translates to a deficit understatement of over $130 B (remember when a Billion used to be a big number?).   If the CBO is right and Obama wrong, the first two years alone will translate to over $130 B with additional shortages in the last two years because of a lower GDP run rate.  

As an aside, isn’t it ironic that Obama’s budget is highly optimistic in projecting revenue when he’s been telling us for months that this is the worst economic downturn since the Great Depression?   If you look at what happened to GDP the years following the depression Obama is not just optimistic, he’s delusional!

On top of the overly optimistic growth rates is another problem for Obama’s tax revenue.   Obama has committed to significantly increasing a number of taxes to increase the revenue.   He has even proposed a new tax, a carbon tax to generate significant amounts of new revenue.   Economists of all persuasions will tell you that increasing taxes will reduce overall GDP.   Increasing taxes on something will always cause less of that something to be consumed or created.   Don’t believe me?   Just take one look at what is happening to cigarette consumption as taxes continue to be increased on them…it’s not going up!   Now we can discuss what the elasticity of that change is i.e. do you have to double the taxes before GDP is impacted or will a 1% increase in taxes impact GDP.   However, Hauser’s law says that the elasticity discussion is moot.   Hauser’s Law will say that the very fact that less GDP is generated will result in less tax revenue being generated regardless of what the actual rates are.

Everything Obama does is for the optics or in how the action supports his ideology.   It’s too bad that he doesn’t approach issues from an actual intelectual honesty and curiousity.   If he had in the case of his budget, he may have learned the core fact from Hauser’s Law:

Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

Contrary to Obama and Gibb’s protestations that this is the first budget with “full disclosure,” this is a budget that is built on more optimism than all the “Hope” in Obamaland.   The budget will fail on any measure of fiscal integrity and responsibility.   My hope is that the country doesn’t fail economically along with it.

What’s that I hear?   it’s the big sucking sound created by the Federal Government mucking around in things they know nothing about.   First on the list:

AIG Needs More Help After $60 Billion Loss

AIG, as you may remember, was the first “too big to fail,” after the Feds got nervous after Lehman hit the dust.   After two bites at the apple, AIG got a total of $150B government support.   Reports are that after several sales of profitable pieces of their company, AIG has gotten their outstanding balance down to $35B.   It’s believed that AIG will report the largest loss ever by a US company tomorrow at $60B.   Please note that we (and by we I mean the Federal Government) owns 80% of AIG so there should be no surprise when money is “shovel ready” to keep them afloat.

Next:

U.S. Eyes Large Stake in Citi

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock.

Here again, the Fed is already into Citi for $45B.   This little ditty has a twist from the others.   Citi is spinning this saying “it won’t cost the taxpayers a dime!”   Oh lucky us, not exactly.

You see, nearly all accounting and investing rules will tell you that at 40% ownership you effectively control the company.   Once you own the company, you are responsible for it.   Once you’re responsible for it, if the company should need additional capital, you as the major shareholder will be put in the position of either putting up that capital or diluting your ownership.   For an entity that can just run an inkjet to get the additional capital, the answer is easy.

Oh, and the part about not costing the taxpayers anything, not so much.   The preferred stock that we currently have gets periodic interest payments.   It is also in a senior position to common shareholders should the company go bankrupt.   By converting to common stock the interest payments will go away.   Thus, at the very least it will cost the taxpayer something short term and if the company ultimately fails or needs more money, it will definitely cost more.

Finally thought on this one; even though the Obama administration’s spokes person said just 3 days ago:

“This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government”

Don’t “bank that!”   Remember, all Obama positions have expiration dates.

Bringing it all together:

Remember that the automakers are back talking about plans for their future support.   If any of you believe that just one more government infusion will get the automakers back to a point where they’ll be able to function on their own please take note of what’s happening in the financial industry.   When it comes to government “help,” it’s fair to say:

In for a penny, in for a pound!

As is apparent to anyone who has paid any attention lately, the economy is challenged.   The situation is so difficult that the latest forecast  from the Congressional Budget Office (CBO), issued prior to the Stimulus bill, indicates that the deficit for the current year would be nearly $1.2 Trillion.   The CBO’s estimate of the impact Stimulus bill is to increase the deficit by another $185 Billion for a new total $1.4 Trillion.

This weekend in his weekly radio address, President Obama spoke about the need to get the deficit under control.   With a deficit of at least $1.4 Trillion this year, President Obama set out a goal of reducing the deficit to a mere $533 Billion by the end of his first term.    Simply amazing, or maybe not.

According to that same CBO forecast, the projected budget deficit for the last year of Obama’s first term, FY 2013, was projected to be $257 Billion.   Yeah, yeah, I know.   That nasty stimulus bill really jacked the future deficit up right?   According to the CBO’s analysis, the increase is $28 billion in 2013 for a total of $285 Billion.

Well, that’s odd!   Yes, but that’s not all.

In the same CBO forecast, they gave the estimated change to the deficit  for a variety of other actions.

You may remember that Obama has promised to remove troops from Iraq within 16 months?   You may also remember that Obama promised to make Bin Laden “Job #1”.   I think it’s safe to say he’ll have that solved in the same 16 month period and because Bin Laden is the only trouble maker in the region, we should be able to pull the troops out of Afghanistan, certainly by 2013.   The CBO forecast shows an alternative benefit of $30 billion if the total number of troops in Iraq and Afghanistan are reduced to 30,000 by 2013.   He shouldn’t need that many but I suppose a token force is OK.

The CBO forecast assumes that the “Bush tax cuts” are allowed to expire, something that Obama has promised, so you don’t need an adjustment there.

The AMT gets fixed each year so that new folks aren’t pulled into it.   While I doubt Obama will continue this because of his need to trap the few taxpayers left into higher brackets, I’ll be generous and take the $45 Billion, including interest, impact against the deficit.

That leaves us at a projected 2013 deficit of $290 Billion.   That looks to be more than 45% less, $243 billion below, the audacious target President Obama has set for himself.   Huh?   The CBO tells us that discretionary spending, that which Congress can control without changing things like Medicare, Social Security etc., will be $1.220 Trillion in 2013.   For the budget deficit to grow $243 Billion over the latest, adjusted for the Stimulus plan, forecast  by the CBO, Congress will need to increase their discretionary spending by 20% over the assumed increases for inflation, growth and GDP adjustments.   In the CBO’s forecast, discretionary spending is only expected to increase by $36 Billion over Obama’s term.   If discretionary spending does increase by $243 Billion over the rate that the CBO has projected, it will grow at a rate that is 675% higher than that projected rate.  

In November of 2008, while yet simply PEBO, Obama stated:

We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way.

I guess this is yet another Obama promise that came with an expiration date.

On the plus side, a couple of additional announcements like this and Obama’s planned increase in the capital gains rate won’t be very news worthy.   What capital gains will be left to tax?