Archive for the ‘The Debt and Deficit’ Category
House subcommittee: Obamacare’s $300 billion Medicare Advantage raid will hurt seniors next year
Obamacare took $700 billion from Medicare and $300 billion from Medicare Advantage alone for its own funding, according to the subcommittee. The cuts to Medicare Advantage beneficiaries will “begin to be fully realized in the next year,” according to the subcommittee.
“There was a promise made to seniors as well. The promise was that we’re going to use your Medicare dollars as a piggy bank to fund the Affordable Care Act, and in doing that we’ll improve Medicare and allow seniors to keep their doctors if they liked. So, do you have an opinion as to whether or not this is another broken promise?” subcommittee vice chairman Rep. Michael Burgess said in a statement.
“Those most hurt by the cuts are low-income seniors in rural areas without other options for supplemental Medicare coverage. Additional scheduled cuts in the future will broaden the damage to Medicare Advantage,” said American Action Forum president Doug Holtz-Eakin.
Twenty-eight percent of Medicare beneficiaries were enrolled in Medicare Advantage plans in 2013.
Food stamp spending is at historic highs—it has doubled twice since 2000. Now some on Capitol Hill say the House is trying to make major cuts to the program, but they’re really making some much-needed policy reforms that would achieve modest savings.
The House bill proposes a small 5 percent reduction, while the Senate proposes a mere one-half of 1 percent. Even if the House’s reforms are accepted, food stamp spending is projected to be nearly double 2008 levels. It is also projected to remain at or near historical highs into the foreseeable future.
The House’s savings come from closing loopholes and ending policies that are currently undermining the integrity of the program. These policies have allowed states to artificially boost food stamp levels and expand the program beyond its intended population. While the House takes steps in the right direction to reform food stamps, the Senate does hardly anything.
Food stamps should be reformed to ensure that the program is serving those it is intended to serve. It should also be reformed to promote self-sufficiency through work, thus helping those who are able by encouraging self-sufficiency.
Without A Legal Debt Limit, Government Borrows At Historic Pace
by Ben Bullard
As Congress naps between fights over whether (or, rather, when and by how much) to raise the Federal debt limit, we’re technically without a legal cap on how much money the government can owe.
And it shows. According to the Treasury Department’s Oct. 31 statement, the Federal debt jumped in October by the second-largest margin in the Nation’s history. Last month, the Federal debt increased by nearly $409 billion, surpassing the $17 trillion mark for the first time.
That’s the largest single-month increase in history, behind only another Obama-era month: October 2008, when Congress passed the TARP bailout and the debt limit climbed by $545 billion.
From CNS News:
At the close of business on Sept. 30, 2013, the last day of fiscal 2013, the federal debt subject to limit stood at $16,699,396,000,000. At the close of business on Oct. 31, 2013, the first month of fiscal 2014, the debt subject to limit stood at approximately $17,108,378,000,000.
Thus, during October, the debt increased $408,982,000,000 — or about $3,567 for each of the 114,663,000 households the Census Bureau estimates there are in the United States.
Much of the $409 billion increase came all at once, as the temporary end of the Congressional debt limit fight opened the way for an immediate infusion of borrowed Federal money. The government hiked the debt by $328 billion in a single day as soon as the government shutdown ended.
“The giant jump comes because the government was replenishing its stock of “extraordinary measures” — the Federal funds it borrowed from over the past five months as it tried to avoid bumping into the debt ceiling,” The Washington Times wrote at the time. “Under the law, that replenishing happens as soon as there is new debt space.”
Until Feb. 7, the government exists in a no-man’s land of legal exemption that affords President Barack Obama to set the de facto debt limit because Congress chose to set a deadline — and not a dollar cap — on spending under its so-called “clean” continuing spending resolution. As the Times story reports, “[T]hat means debt can rise as much as Mr. Obama and Congress want it to, until the Feb. 7 deadline.”
The release of today’s Congressional Budget Office (CBO) report on the long-term budget outlook sends one message loud and clear: The U.S. spending and debt crisis is only getting worse.
U.S. public debt doubled since before the recession and stands at a 50-year high today. The American public has not seen public debt levels this high since around World War II. While President Obama’s favorite talking point on the deficit is that it “has been cut in half since 2009,” he makes no mention of the real record-breaker under his term. According to the CBO:
Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar. Federal debt held by the public is now about 73 percent of the economy’s annual output, or gross domestic product (GDP). That percentage is higher than at any point in U.S. history except a brief period around World War II, and it is twice the percentage at the end of 2007 (emphasis added).
Even though there is a short-term reduction in the deficit as a percentage of GDP through 2015, this reduction is fleeting. Spending growth is projected to accelerate as Obamacare takes off and more and more baby boomers begin drawing benefits from Social Security, Medicare, and Medicaid.
Already 45 percent of all federal spending goes toward those three major entitlements, up from 25 percent a little over a decade ago. By 2023, half of all spending will be automatically directed toward these entitlements. Moreover, the cost of servicing the debt is expected to rise sharply.
The CBO lists these drivers of increasing spending over the next decade:
CBO expects interest rates to rebound in coming years from their current unusually low levels, sharply raising the government’s cost of borrowing. In addition, the pressures of an aging population, rising health care costs, and an expansion of federal subsidies for health insurance would cause spending for some of the largest federal programs to increase relative to GDP.
Yet President Obama doesn’t seem to think that resolving the worsening spending and debt crisis is urgent at all. He has said so many times.
Before his re-election, Obama told David Letterman that “we don’t have to worry about [the debt] short term.”
During fiscal cliff negotiations in December, the President got annoyed with hearing about the spending crisis, and the following exchange happened with House Speaker John Boehner (R–OH):
Boehner: “Clearly we have a health-care problem, which is about to get worse with ObamaCare. But, Mr. President, we have a very serious spending problem.”
Obama: “I’m getting tired of hearing you say that.”
Then again, just last March, just 2 months before hitting the $16.7 trillion debt limit on May 19, President Obama repeated the sentiment on the show Good Morning America. “We don’t have an immediate crisis in terms of debt.”
Most recently at an August town hall event, President Obama said the same thing: “We don’t have an urgent deficit crisis. The only crisis we have is the one that is manufactured in Washington and it’s ideological.”
Given President Obama’s expressed interest in even more federal spending, it is no surprise the President has denied the urgency of the debt crisis. But for the rest of the country, CBO’s facts about the budget outlook speak louder. Congress needs to cut spending and reform entitlement programs—and do so now.
Federal Reserve: We Don’t Know How To Do Anything But Pump, Pump, Pump
by Sam Rolley
Despite widespread belief that the Federal Reserve would begin tapering off stimulus for the U.S. economy, the central bank announced Wednesday it will continue with $85 billion per month in bond purchase because it believes the economy still needs a crutch.
The central bank is set to continue purchasing agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month in order to “maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
“Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Fed said in a statement.
The Federal Reserve also voted to keep short-term interest rates near zero until the jobless rate hits 6.5 percent or inflation rises above 2.5 percent.
The central bank also lowered its forecast for economic growth over the next year. It projects an increase in gross domestic product between 2 percent and 2.3 percent this year, down from 2.3 percent to 2.6 percent. For unemployment, the Fed expects a rate of 7.1 percent to 7.3 percent this year, falling to between 6.4 percent and 6.8 percent next year.
The Federal Reserve’s holdings of government debt have surpassed $2.8 trillion.
Following the central bank announcements Wednesday, both the Dow Jones industrial average and the Standard & Poor’s 500 index jumped to record highs, while the dollar fell to a seven-month low against the euro. The news also caused gold prices to rally, leading some gold watchers to say the precious metal has a chance to target $1,400 an ounce in coming months.
As the Fed continues to dally on changing its long-standing easy money economic policy, it remains unclear who will succeed current Chairman Ben Bernanke when his term ends in January. Lawrence Summers, who was considered the leading candidate, withdrew from his name from consideration following resistance from critics. The current frontrunner is Fed member Janet Yellen.
What Bernanke promised one year ago today… and what we got…
It’s Friday the 13th… but our luck ran out well before the stroke of midnight last night.
One year ago today, Fed chief Ben Bernanke strode before the microphones to justify the Fed’s launch of “QE3.”
He was explicit about the aim. “We do think that these policies can bring interest rates down — not just Treasury rates, but a whole range of rates, including mortgage rates and rates for corporate bonds and other types of important interest rates.”
One year later, here’s a chart of the 10-year Treasury note…
OK, and what about mortgage rates?
Corporate bonds? Here’s a chart of LQD, the big corporate bond ETF. Recalling that bond prices move inversely to their rates, Bernanke’s logic dictates LQD should be racing up…
We can hardly wait to hear what spills from Mr. Bernanke’s lips next Thursday after the Fed makes its oh-so-anticipated announcement about whether it will begin “tapering” from QE3.
Then again, fawning reporters will likely be too busy asking him how awesome he was five years ago in the teeth of the financial crisis.
Who needs a committee to save the world when you’ve got someone
who can do it single-handedly?
This coming Sunday is the fifth anniversary of the day Lehman went under, Merrill Lynch was improbably rescued by Bank of America and AIG began circling the bowl.
“The jerks got away with it!” sums up a retrospective by David Dayen at Salon.
“The financial crisis featured a group of self-styled innovators who thought they devised perfect financial instruments that would only yield big returns and never any losses (in reality they did devise that, only it’s called ‘the United States government’).”
“You know the routine,” our own Chris Mayer elaborates. “Mobsters shake down, say, a restaurant owner. They drink all the booze and eat all they want and pay nothing. They rob the cash register. They even go out and borrow money against the place and spend it. When they’ve finally bled the thing dry and the business is about to collapse, they burn the place down and collect the insurance money.
“That’s pretty much what Goldman Sachs did to AIG. The taxpayer footed the bill.”
The Fed became the proverbial “lender of last resort” — an idea promulgated by the British writer and businessman Walter Bagehot in the 1870s. The “Bagehot rule,” as it’s come to be known, says that in times of crisis, central banks should lend freely…
- to solvent institutions
- against good collateral
- at penalty rates of interest.
The Fed and Treasury didn’t just break the Bagehot rule; they ran it through a buzz saw, doused the remnants with kerosene and set them alight. The Fed’s alphabet-soup rescue programs funneled billions to dead-ass broke banks, which put up garbage for collateral (if anything at all), and paid a pittance for interest.
Institutions deemed “too big to fail” emerged on the other side even bigger. For ordinary Americans, median household income adjusted for inflation is still 10% lower than it was in 2008.
“Five years after Lehman weekend,” observes 5 Min. PRO guardian Dan Amoss — who recommended put options on Lehman good for 462% gains — “economic planners still labor in vain to spark a sustainable recovery.
“They’re failing because they use faulty Keynesian borrowing and printing programs. Those arguing that the recovery is OK are ignoring the risky and reckless spending and printing that has funded recent rebounds in sectors like housing and autos. Take away the deficit spending and printing and that activity would dry up.”
Federal Reserve Holdings Of U.S. Treasury Securities Quadruples Since 2008, Surpasses $2 Trillion
by Ben Bullard
The Federal Reserve’s monetary policy of quantitative easing, ostensibly intended to steady the U.S. economy, has more than quadrupled the amount of Treasury securities owned by the Fed since Chairman Ben Bernanke hatched the strategy in 2009.
As of last week, the Fed holds $2,001,093,000,000 (that’s $2 trillion) in U.S. Treasury securities. In late 2008, before the Fed began its four-year run, it held $475.9 billion — less than one-quarter the amount of U.S. debt it now holds.
The Fed’s Aug. 14 report represents the first time its holdings of government debt have surpassed the $2 trillion mark.
The Federal Reserve owns more American debt than any other entity. China is a not-too-distant second, holding more than $1.2 trillion in U.S. Treasury securities. Foreign entities, including China, own $5.6 trillion in U.S. debt.
In all, the United States owes a cumulative $16.9 trillion to creditors worldwide, although one economist has estimated the government’s real obligations are closer to $70 trillion if built-in, consequential costs of current debts and anticipated fiscal stresses are factored in.
According to professor James Hamilton of the University of California-San Diego, the Federal government has intentionally been keeping U.S. debt off the balance sheet by omitting unfunded liabilities such as government loan guarantees and deposit insurance, as well as postsecondary education government loans.
“The biggest off-balance-sheet liabilities come from recognition of the fiscal stress that will come in the form of an aging population and rising medical expenditures,” Hamilton told FOX News last week. “It is worth noting that there are many historical episodes in which off-balance sheet liabilities ended up having quite significant on-balance sheet implications.”
Conservative economists continue to warn that forestalling an economic collapse by the endless printing of fiat currency only will exacerbate the scale of an inevitable economic doomsday, when creditors finally lose faith in the government’s abilities to meet its obligations.