It’s back! Senator Tom Coburn’s annual compendium of some of the zaniest ways that the U.S. federal government burns through all the money it taxes and borrows in the name of spending: the 2014 Wastebook!
This year’s edition features over $25 billion worth of examples of bad decisions made by U.S. politicians and bureaucrats. Here are some highlights that caught our attention as we reviewed the 2014 Wastebook’s table of contents (and their cost), which we may explore more in upcoming articles:
Until then, we encourage you to go through the 2014 Wastebook’s very well researched examples of where Uncle Sam’s team of politicians and bureaucrats makes bad decisions and spent money as if in a drunken stupor. If only there were a federally funded program to send them texts to convince them to not drink ($194,090) so much from the fountain of government spending in the first place!
Coburn, Tom. 2014 Wastebook: What Washington Doesn’t Want You to Read. 2014 Wastebook. 21 October 2014.
Opponents of California’s so-called “bullet train” went to court contending that the funding plan for $68 billion high-speed rail project violated the ballot measure voters approved in 2008. A Sacramento court agreed, but the Third District Court of Appeal overturned the ruling. Now, as the Sacramento Bee recently reported, the California Supreme Court let the appeal stand, and that has high-speed rail bosses feeling good about themselves. Dan Richard, chairman of the board of the California High-Speed Rail Authority, said they would move “aggressively” to build “a modern high-speed rail system that connects the state, creates jobs and complies with the law.” Stuart Flashman, attorney for opponents of the project, told reporters the decision was “bad news for California’s voters and for the state’s financial future.” He’s right about that.
Dan Richard said the train is supposed to “connect the state,” specifically Los Angeles and the San Francisco Bay Area. The first section of the project, however, is out near Fresno. This confirms that a primary purpose is to connect California congressmen with money, so they can show that they are bringing home the bacon for their districts. As we noted, the project is also a soft landing spot for washed-up politicians such as board member Lynn Schenck, a former congresswoman and chief of staff for California governor Gray Davis. And of course Governor Jerry Brown sees the bullet train as one of his legacy projects.
Suppose the bullet train did connect Los Angeles and San Francisco. It remains dubious whether it could make that trip in two hours and 40 minutes, as ballot measure 1A stipulated. In the style of Obamacare, you have to spend the money and build it before you find out how fast it goes. As it happens, two hours and 40 minutes is more than twice as long as it takes to fly between the two cities, but by all indications the bullet train will be more expensive than air travel as well. And if anybody thinks the final cost of construction will be $68 billion, the state has a bridge to sell you.
Who were the major holders of debt issued by the U.S. federal government as of the end of its 2014 fiscal year?
The preliminary answer of who owns the $17.860 trillion in debt as of 30 September 2014 is presented graphically below:
The data for foreign holdings will be revised over the next six months. We anticipate that the holdings indicated for Belgium will be shifted to other foreign entities, given that nation’s role as an international banking center.
Since the end of the U.S. government’s 2013 fiscal year on 30 September 2013, the total public debt outstanding for the U.S. government has increased by $1.086 trillion (or to agree with the units shown on our chart, $1,086 billion). That would mark the sixth time in the past seven years that the national debt of the United States has expanded by more than $1 trillion dollars per year—double the typical half trillion a year increases that were viewed as a major problem prior to Barack Obama’s presidency.
The $1.086 trillion increase in the total national debt for Fiscal Year 2014 is all the more remarkable because the U.S. Treasury Department just bragged that the federal government’s budget deficit for FY2014 was $483 billion.
Oct 15 (Reuters) — The U.S. budget deficit fell by nearly a third to $483 billion in fiscal 2014, the lowest level since 2008, as a quickening economic recovery boosted tax collections and spending grew only modestly, the Treasury Department said.
The deficit, down from $680 billion last year, was the lowest since a $459 billion budget gap in fiscal 2008, which was followed by four straight years of $1 trillion-plus deficits in the wake of the financial crisis.
U.S. Treasury Secretary Jack Lew and White House Budget Director Shaun Donovan hailed the data on Wednesday as a “return to fiscal normalcy” as the 2014 deficit fell to 2.8 percent of gross domestic product. That was the lowest since 2007 and a smaller share of the economy than the annual average for the last 40 years.
Somehow, the U.S. federal government managed to borrow and spend an additional $603 billion, above and beyond the official budget deficit of $483 billion claimed by the Obama administration, in order to cause the national debt to increase by more than one trillion dollars in one year.
Part of the answer lies in the debt-ceiling debate during 2013, which ultimately led to the partial federal government shutdown for the first 17 days of the 2014 fiscal year, from 1 October 2014 through 17 October 2014.
Here, U.S. Treasury Secretary Jack Lew artificially kept the U.S.’s total public debt outstanding from increasing above the statutory debt ceiling by shifting around the portion of debt held by U.S. government entities, such as Social Security’s Trust Fund and the U.S. Civil Service Retirement Fund—giving them I.O.U.s as he redirected funds intended for them to instead allow the U.S. Treasury to continue rolling over the debt it owes to the public.
The reason the U.S. government had to go through a partial shutdown is because those trust funds didn’t have enough money to keep the shell game going until the debt ceiling was increased. When it finally was, the U.S. government “owed” some $328 billion to “itself”. Which it promptly rushed out to borrow in Fiscal Year 2014.
That’s also why the increase in the national debt for FY2013 seems so low. $328 billion of the debt that should have been recorded in that year was actually recorded in FY2014.
That means that the U.S. national debt increased by $758 billion in FY2014, $275 billion more than the official amount of the U.S. Treasury’s claimed $483 billion budget deficit.
We’re still waiting for the official explanation of that fiscal discrepancy.
Federal Reserve Statistical Release. H.4.1. Factors Affecting Reserve Balances. 1 October 2014. [Online Document]. Accessed 17 October 2014.
U.S. Treasury. Major Foreign Holders of Treasury Securities. Accessed 17 October 2014.
U.S. Treasury. Monthly Treasury Statement of Receipts and Outlays of the United States Government for Fiscal Year 2014 Through September 30, 2014. [PDF Document].
[Cross-posted at Political Calculations]
As we have noted, Covered California, the Golden State’s wholly owned subsidiary of Obamacare, is massively dysfunctional and wasted $1.3 million on an absurd promotional video featuring flabby exercise guru Richard Simmons. The California health exchange also stonewalls consumers and serves as a lucrative landing spot for washed-up government officials such as former state finance director Ana Matosantos. But the problems don’t stop there.
As Jim Miller notes in the Sacramento Bee, consumer groups are pressing Attorney General Kamala Harris to investigate $184 million in Covered California contracts without competitive bidding. These reportedly include “millions of dollars in contracts to firms or people that had professional ties to Covered California executive director Peter Lee.” A reported $4.2 million in contracts went to The Tori Group, “a consulting firm whose founder had once worked with Lee. Other contracts went to the subsidiary of a firm Lee once led,” according to a report from Consumer Watchdog. Covered California bosses claimed they needed no-bid contracts to meet tight deadlines, but Watchdog president Jamie Court said, “This isn’t about speed. This is about being opaque,” and the no-bid deal was “the antithesis of open government and good government.” That is true, but not the end of it.
Covered California and Obamacare are the antithesis of good health care. The cardinal rule of anything medical is: first, do no harm. Obamacare violated that rule by taking away the health plans people wanted, and by taking away the people’s right to choose the care they believe best meets their needs. Now they get only the care government bosses want the people to have, administered by a system that is dysfunctional, wasteful, and unaccountable. That may be good for ruling-class insiders, but for everybody else it remains a highly unhealthy situation.
We couldn’t let the ultimate metaphor of our time pass without notice....
Although having his personal credit card rejected in an attempted transaction is just a single embarrassing event for the President, it is not unexpected. Barack Obama has never been a smart man when it comes to money, which is something that has been known since before he was elected to be the President of the United States of America, thanks to the information we have about how he came to buy his home in Chicago:
There is no question that Barack Obama knew the property was overvalued. We recognize this in that his first bid for the house was for just $1.3 million, which as we saw yesterday, would put it right in line with the other properties that have recently sold that are very comparable to the house on paper!
His second bid, $1.5 million, as compared to the true value of $1.43 million, was high, but not outrageously so. His third, “successful” bid of $1.65 million more than vaults over that line.
More disturbing, if we accept that the only thing keeping him from spending the $1.95 million the previous owners were originally asking was his inability to get that much money, what could the United States be in for should Senator Obama become President Obama? Remember, the amount of money he could get was the only constraint he had in the transaction! Ethical constraints, as recognized by his reliance upon favors done for him by shady political associates, were absent from the beginning.
Discounting that apparent reliance upon receiving favors from political associates for his personal benefit, we find that the price that Barack Obama paid for his house reveals a serious lack of fiscal discipline, all the more remarkable for it being on display in the largest single financial transaction of his life to that date. Rather than carefully steward his own money, he instead sought to fulfill his vision of “a fitting home for a new senator.”
He might be President. What price will America be compelled to pay to fulfill his grandiose ambitions? And how much will it cost to fix the certain damage?
With a little more than two years left to go in his presidency, we know one thing for sure: the costs of repairing the damage will be massive. The nation is still totaling up the price.
What waits at the end of the line for a nation that has borrowed and spent its way into a hole that it can no longer climb out? Not even after imposing extremely high income taxes on its most successful people?
France is about to find out. Bloomberg‘s Helene Fouquet and Mark Deen report:
The glory days of France’s welfare model may be behind it.
The country’s Socialist government led by Prime Minister Manuel Valls is chipping away at a system that dispenses 52 billion euros ($66 billion) annually just in family benefits, and is among the most generous in the world. A hemorrhaging public deficit and debt on track to reach about 100 percent of gross domestic product within two years have left the government with little choice but to attack what in France has been a way of life for almost a century.
In fact, France has not balanced its budget since 1974. And even with the cuts it is now being forced to consider to remain solvent, it won’t this year or the next either. Here’s CNBC’s brief description of what France’s Socialist government has put on the table:
The French government presented its 2015 budget on Wednesday, unveiling a 50 billion euro ($63 billion) savings program cutting deep into the country’s beloved welfare system.
The cuts unveiled on Monday by Marisol Touraine, minister of social affairs, health and women’s rights, include a decrease in childcare benefit for higher earners, less parental leave and a cut to the existing child birth benefit.
Previously, families could receive up to 923.08 euros ($1,164) at the birth of every child but will now receive up to 308 euros ($388.5) for the second and following children.
These particular cuts are aimed at an 84-year-old French Social Security program that has helped France sustain one of the highest fertility rates in Europe by providing incentives to have children, which have been very successful in that France is one of the very few European nations with a fertility rate high enough to sustain its current population level. In a very real sense, the cumulative debt run up by all French politicians and bureaucrats over the last 40 years is now forcing them to directly steal the future from French children before they are even born.
Here’s how one spokesman from France’s Socialist government justified doing that:
“It’s not the end of a generous system,” government spokesman Stephane Le Foll said yesterday. “It’s the end of spending that wasn’t useful—and that’s in order to preserve a system that is a costly one.”
To translate: “The needs of the state in France outweighs the needs of the French people.” And apparently, even the state’s need for French people, who are clearly getting the message.
Like death row, being on debt row is not a pleasant place to be.
TAX BILL: OPEN IMMEDIATELY. Thus reads the envelope of the property tax bills now showing up in mailboxes. Note the imperative mood, the tone of “let’s hand over the wallet, Jack.” While embattled taxpayers deal with this bill, Robert Gutierrez of the California Taxpayers Association offers a few points to ponder.
“Californians are paying more than $1.9 billion per year in parcel taxes,” he explains, “yet this form of property taxation continues to fly under the radar, with little transparency or accountability for how the money is spent.” The California Taxpayers Association wanted to know how many local governments impose parcel taxes, a form of property tax based on characteristics of a “parcel,” rather than on actual assessed value of property. Politicians use it to get around the voter-approved Proposition 13, which limits property tax increases.
“We quickly discovered that local governments are not eager to share information about the parcel taxes they impose,” Gutierrez writes. Government stonewalling forced the association to file hundreds of public records requests. Some local governments never responded at all and others “gave only partial information,” claiming that documents the association wanted were “unavailable.” Even so, the association learned that the rates vary dramatically, that the formulas are hard to understand, and that “about 26 percent of the parcel taxes in California do not have a sunset date, so they will be imposed indefinitely—and many of these are increased annually for inflation, so they keep going up, up, up.”
In their report, Piecing Together California’s Parcel Taxes, the California Taxpayers Association calls for more transparency, consistency, and fairness. With an election at hand, taxpayers might want to grill their candidates on the parcel tax issue. Would they perhaps favor a measure that eliminates parcel taxes? For taxpayers, the overall lesson should be clear. No ruse is off limits to a parasitic ruling class, which wants your money by any means necessary. Taxpayers should expect continued assaults on Proposition 13, one of the few measures that limit how much government can take. Meanwhile, property taxes are higher this year, without any increase in government services. And don’t forget, the tax is due on December 10. Happy Holidays, everybody!
As we recently noted, the vaunted United States Secret Service has been maintaining something of an open-door policy at the White House, residence of the President of the United Sates, by some accounts the most powerful person in the world. In September, an armed man walked right in and got a lot farther than they said he did. In an earlier case someone fired shots at the White House, but Secret Service bosses claimed this was a car backfiring. A housekeeper found evidence of the attack before anybody at the Secret Service, whose obviously incompetent boss, Julia Pierson, was not fired. She resigned, which is a different thing. She will keep her lavish federal benefits and doubtless hook up at another bureaucracy. But some say she was only part of the problem.
According to Brian Naylor of National Public Radio, “Low morale could be partly to blame for the recent spate of security lapses at the Secret Service.” The agency supposedly ranks in the bottom third in job satisfaction within the federal government, and “the root of that discontent could be bureaucratic.” A former agent attributes the problem to the takeover by the Department of Homeland Security. They had to fight for funding and resources, the agent claimed, but the 2014 budget of the Secret Service is $1.80 billion. So money and gear are not the problem. As congressional investigators pointed out, a simple ADT alarm would have done a better job keeping an armed intruder out of the White House. And simple observation would have found evidence of the rifle attack, but the incompetence does not stop there.
Don’t forget how the Secret Service let a fake interpreter with a history of violence get within steps of the president. And check out Carol Leonnig and David Nakamura of the Washington Post on the 2012 Secret Service prostitution scandal. Read how government officials withheld information and protected cronies and White House staff. Janet Napolitano, Department of Homeland Security boss at the time, is now president of the University of California. What a cozy world.
Taxpayers foot the bill for all this waste and incompetence. Taxpayers, not the Secret Service, have a morale problem rooted in bureaucracy.
Steen Jakobsen is the chief economist and chief investment officer of Saxo Bank, a Denmark-based investment bank, who is also one of the more bearish analysts in the market today. He caught our attention recently in a CNBC interview, where he specifically identified rising national debt as a major contributor to both lackluster economic growth and an increased risk of a severe market crash.
Unsustainable debt will be the cause of the crash, according to Jakobsen, and will occur when the cash returns on assets become insufficient to service the debt taken on to acquire those assets in the first place. He gives no timeframe for his thesis but says that the problem of huge debts has been swept under the carpet by central bankers and policymakers and will come back as low inflation or even deflation....
Jakobsen calls debt the “elephant in the room” and uses a simple equation on the U.S. economy to put across his point. He argues that U.S. productivity growth is low when if you consider that any shortfall in growth is being made up by increased debt.
“The move onto the internet has ironically made us bigger consumers and less productive. Had we remained at pre-1970s productivity, the U.S. GDP (gross domestic product) would have been 55 percent higher and the outstanding debt to GDP would be easily fundable,” he claims in his note.
“No serious policymaker or central banker is talking about the truth told by simple maths and hoping that things turn out well. Hope is not good policy and it belongs in church, not in the real economy.
The interview followed Jakobsen’s research note from September 26, 2014. We’ve excerpted the U.S.-specific content below, in which Jakobsen introduces the concept of a “Minsky moment” to describe the potential danger that would result from such an event:
Mads Koefoed, Saxo Bank’s macro economist, projects US growth at around 2.0% for all of 2014. That will be the sixth year with US growth near 2.0%, so despite lower unemployment and a record high S&P500, the economy has a hard time escaping that 2.0% level.
Any talk of higher interest rates is hard to take seriously when US growth is going nowhere and world growth is considerable weaker than was expected back in January (or as recently as July, for that matter). It seems everyone has forgotten that even the US is a part of the global economy....
In the US, interest on US government debt cost over 6% of budget outlays in 2013. This is relatively down from its worst levels when interest rates were much higher, but only because the Federal Open Market Committee has so drastically lowered the costs for the US government to issue debt with a zero interest rate policy.
And now the debt load is vastly larger than it was before the financial crisis, at 80% of GDP (net debt according to IMF) versus 45% of GDP a mere 10 years ago.
So are we actually to believe that the Federal Reserve can lift the entire front-end of the curve from 0-1% (current rates out to three years) to 2-4% over the next two years without adding massive further stress onto the deficit, and only adding to the debt?
Servicing 2% interest when growth is 2% means you are doing worse than standing in place if you also have a budget deficit.
Whatever the timing, the US, China and Europe are all headed for another Minsky moment: the point in debt inflation where the cash generated by assets is insufficient to service the debt taken on to acquire the asset. Productivity growth in the US last year was +0.36%. The real growth per capita was about 1.5%.
Anything which is not productivity is consumption of capital. So, the only way to grow an economy without productivity growth is to do so temporarily through the use of debt—about 75% debt and 25% productivity growth, in this case.
Since the 1970s, US productivity growth rates have fallen by 81%—the move onto the internet has ironically made us bigger consumers and less productive. Had we remained at pre-1970s productivity, the US GDP would have been 55% higher and the outstanding debt to GDP would be easily fundable.
The debt load that Jakobsen cites refers to the percentage of the publicly held portion of the U.S. national debt with respect to the nation’s Gross Domestic Product (or national income). If the U.S. government’s total public debt outstanding is taken into account, the debt load is really much closer to 100% today.
So it’s quite possible that Jakobsen is actually understating the potential risks for the United States.
It is taking an increasing amount of “creative” accounting—or, really, outright fraud—to make a number of troubled public-employee pension funds look solvent when they are nowhere close to having the money needed to pay retiring government employees for the extremely generous pensions they’ve been promised. And when the fraud is found out, taxpayers are being increasingly stuck with the bill.
The latest example of fraud committed by politicians and government bureaucrats comes from the state of Illinois, where it would seem that government at all levels cannot exist without it! Jean Lotus of the Forest Park Review shows how one municipality’s accounting shell game came crashing down with a large tax hike being imposed its wake:
Forest Park’s police and fire pension systems took a hit this year because a simple actuarial change recalculated how long safety personnel can be expected to live. Actuary Timothy W. Sharpe, of west suburban Geneva, changed one element of his calculations last year, revealing a $104,000 shortfall in the police pension fund and a $94,000 shortfall in the fire pension fund.
That money was added to the village’s tax appropriation levy in July, boosting property taxes in town by about $200,000.
The change came when Sharpe switched last year from a 1971 mortality table to a new table that more accurately reflected the lifespans of police officers and firefighters living in 2000.
For more than a decade, Sharpe had been using a group annuity mortality table called the GAM-1971. As its name implies the table was created in 1971 using mortality data from police officers and firefighters collected between 1964 and 1968. Life expectancies on the tables tracked public safety workers who, at age 50, would have been born between 1914 and 1918.
The difference, of course, is that the lifespans of retirement age Americans has increased quite a bit since the 1960s.
The accounting fraud in this case enabled Forest Park’s politicians to claim that their pension fund was being adequately funded to meet its projected liabilities, when in reality, it was far short. That deception then allowed the politicians to spend the tax revenue for other priorities, as the public-employee pension fund was being drawn down over time.
When the fraud was ended, the government was faced with a choice: either hike taxes on residents to make up the shortfall and continue paying public-employees their generous pensions in full, or reduce the pensions to match the returns from the funding that had actually been set aside. As happens all too often in these cases, the politicians sided with the interests of government employees against the public.
And thus, no politicians or bureaucrats were harmed in the production of this long running episode of public malfeasance.