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The Future for the Deficit and Debt


Saturday January 10th, 2015   •   Posted by Craig Eyermann at 12:16pm PST   •  

At the end of 2014, the Committee for a Responsible Federal Budget (CRFB) put together 14 charts to describe the budget of the U.S. government. We’re just going to look at the first two, in reverse order, since they tell the big story about the consequences of federal overspending the way it needs to be told.

The first chart shows each of the federal government’s annual budget deficits from 2002 through 2014, with projections to 2025:

annualdeficitgraph

In just 10 years time, even if there are no major fiscal crises or recessions that could unpredictably inflate the federal government’s annual budget deficits above projected levels, it is very likely that they will increase to exceed the all-time record deficit recorded during 2009.

As you might expect, those deficits will add up each year, with the result having major consequences for the growth of the national debt.

ltbo_wwii_debt

The nice thing about the way the CFRB visualizes the Congressional Budget Office’s projected data is that it shows both the CBO’s “extended baseline” projection, which is based on how the federal government would spend money under the law as it currently stands (the way U.S. politicians have “promised” they will), and the “alternative fiscal scenario”, which represents how much the federal government’s annual deficits and the growth of the national debt will be if U.S. politicians actually spend money they way they actually do.

And that doesn’t even include new spending, such as President Obama’s proposal to make the first two years’ worth of community-college class tuition “free” to high school graduates. That particular proposal carries a price tag of at least $60 billion and amounts to little more than a bailout of failed K-12 government education programs, since the typical classes that a community college student takes in his or her first two years amounts to little more than a remedial education program of subjects that they failed to learn in high school but were allowed to graduate anyway.

In the end, it’s the sort of poorly considered spending by politicians seeking to boost their personal popularity that will only crank up the nation’s budget deficits and national debt with very little benefit to show in return.

Which coincidentally, is how we got the growing problems of annual federal budget deficits and national debt that we have in the first place!

Bridge Still Full of Troubled Water


Wednesday January 7th, 2015   •   Posted by K. Lloyd Billingsley at 5:29am PST   •  

ct_logo_200Water is supposed to flow under a bridge, not into it, but as we noted last year, that is not the case for the stylish new eastern span of the San FranciscoOakland Bay Bridge, which cost $6.4 billion, $5 billion more than the original estimate, and came in ten years late. All that time and money could not prevent hundreds of leaks during the first winter storm. The leaks occurred in a supposedly watertight steel chamber supporting the bridge’s roadbed, and possibly in guardrail holes for lights and service panels. Caltrans bosses had no answer and no solution, and as investigative journalist Charles Piller points out in the Sacramento Bee, that is still the case.

Holes in the bridge “continued to leak water inside the structure during recent storms.” Andrew Fremier of the Bay Area Toll Authority told Piller that efforts to caulk about 900 bolt holes for guard rails had been only partly successful and water was again collecting inside the splay chambers, the supposedly sealed rooms where the main bridge cable is secured to the new span. Fremier said that these chambers are supposed to be bone dry to prevent corrosion in the main cables and anchor rods. Piller cited independent experts who last year found corrosion and rust on strands of the main cable and anchor rods, which were also coated with salt. The experts warned that rust could make the rods and cable strands vulnerable to cracking, particularly the strands, which vibrate thousands of times a day from trucks passing over the bridge. Fremier blamed a “design error” but described the problem as a “nuisance.” Caltrans engineer Ken Brown declined to speak with Piller, but there’s more to it than rust.

Problems with the bridge’s welds and bolts prompted governor Jerry Brown to say, “I mean, look, shit happens.” Whistleblowers also thought so, and in Sacramento hearings called for a criminal investigation. That never took place, and Caltrans bosses testified that the bridge was more than twice as safe as the old span. With water still inside the bridge, not just under it, that might well be doubted. But it does remain clear that $5 billion in cost overruns and a ten-year delay cannot guarantee safety. As we noted, UC Berkeley structural engineering professor Abolhassan Astaneh-Asi believes the bridge is unsafe and declines to use it.

How Serious Is $18 Trillion in Debt?


Tuesday January 6th, 2015   •   Posted by Craig Eyermann at 5:59am PST   •  

US-debt-problemWe took a stab at answering the following question at Quora:

How serious of a problem is the US debt of over 18 trillion dollars and what do economists say about this?

Here’s how we responded:

Having the U.S. national debt be so large is a serious problem for three main reasons:

1. With interest rates currently at all time lows, because of how the U.S. national debt is structured, with over 72% maturing in less than five-years time, that means that if interest rates rise as projected over the next five years, the amount of interest that the U.S. government will have to pay to its creditors will dramatically rise because virtually all of that debt will be rolled over.

Rising Interest Rates and the National Debt

That massive amount of debt will be rolled over because the U.S. government’s spending and revenues are such that it cannot meaningfully pay down its liabilities. Instead, rising payments on just the interest owed by the U.S. government will force the U.S. government to significantly restrain its other spending (it is actually projected to be the fastest rising component of government spending during the next 10 years). Since that other spending represents how elected officials would rather spend money, it has the potential to dramatically increase political tensions within the U.S.

CBO Updates Budget and Economic Outlook: 2014 to 2024

2. The second reason is because having already run up such a large amount of debt, especially in such a very short period of time (it’s gone from roughly $10 trillion to over $18 trillion in just 6-7 years), the very large U.S. national debt will limit the ability of the U.S. government to respond to a future crisis, or given how the world works, future crises. Kind of like how depleting an emergency reservoir to put out a fire renders it useless for putting out new fires.

The Emergency Reservoir

3. There’s a third aspect of the U.S. national debt situation that has international ramifications. Because many foreign banks and institutions perceive U.S. government-issued debt as a safe asset, they will often seek to loan money to the U.S. government when the risks of lending or investing in their own nations are high. That “flight to safety” creates increased demand for U.S. government-issued debt, which helps to drive down the interest rates that the U.S. government has to pay on the money it borrows. That in turn creates a perverse incentive for the U.S. government to increase instability in other parts of the world, which might perhaps go a long way toward explaining American foreign policy under President Barack Obama.

How Obama’s destabilizing the world

Since each of these things makes things worse for ordinary people, having such a large national debt in the U.S. really does represent a serious problem—and not just for Americans.

Stimulus Ad Copy Surge


Monday January 5th, 2015   •   Posted by K. Lloyd Billingsley at 5:22am PST   •  

DOE_Logo_200“Program That Backed Solyndra Now Showing Successes,” proclaims a December 29 article by Henry C. Jackson of the Associated Press. He finds an example of success in Hugoton, Kansas, site of a new cellulosic ethanol refinery funded in part by a loan guarantee from the U.S. Department of Energy. The same program, Mr. Jackson notes, “funded high-profile flops like Solyndra.” In May, 2010, President Obama claimed Solyndra would make enough solar panels each year to generate 500 megawatts of electricity. The next year Solyndra went bankrupt.

Besides Solyndra, Mr. Jackson explains, “three other subsidized companies went bust at a cost of $780 million.” The others include Evergreen Solar Inc. and SpectraWatt. Mr. Jackson does not name them, but taxpayers can get details of their bankruptcy, and Solyndra’s, from Matt Hopkins and William Lazonick of the UMass Center for Industrial Competitiveness. They note that Solyndra “was the poster child of the Obama administration’s American Recovery and Reinvestment Act (ARRA),” and the first company to receive federal loan guarantees under the Energy Policy Act of 2005.

The cellulosic ethanol refinery in Hugoton, meanwhile, was built by the Spanish company Abengoa and cost $500 million. U.S. federal loan guarantees kicked in $132 million of the cost. The plant has a workforce of 75 and an annual payroll of $5 million, producing up to 25 million gallons of ethanol from non-edible waste. Champions of the plant include Senator Pat Roberts and former Senator Sam Brownback, both Republicans who voted against the stimulus.

Mr. Jackson describes development in Hugoton as “booming,” with grocery stores and motels going up, and many new people in town. He cites the Cogentrix plant in Colorado as another success and recycles Department of Energy claims that the loan program “has created or saved roughly 35,000 permanent jobs” and overall will generate “a profit of between $5 billion and $6 billion over the next 20 to 25 years.”

Based on Solyndra, which wound up as fodder for an art exhibit in Berkeley, California, taxpayers have good reason to wonder. In August 2012, a year after Solyndra shut down, its website still proclaimed: “Solyndra’s power solutions offer strong return on investment and make great business sense.”

The Next Detroit


Friday January 2nd, 2015   •   Posted by Craig Eyermann at 12:10pm PST   •  

26613918_SWhat’s wrong with giving government employees every single dollar they ask for in pensions and benefits?

After having seen the role of out-of-control public employee pensions in helping drive the city of Detroit into bankruptcy, which the city was only just able to exit in November 2014 after the city’s public pensioners finally agreed to cut their overly generous pensions and benefits to levels that are more affordable for the city’s taxpayers, we wondered which local government in the U.S. is most like Detroit in the disconnect it has between the size of its debts and its ability to make good on those liabilities.

We didn’t have to spend much time researching the topic. America’s next Detroit is Illinois. At least, according to The Economist, which being international in scope, directly compares the fiscal state of Illinois with its most similarly dysfunctional European equivalent: Greece....

Illinois is like Greece in one obvious way: it overpromised and underdelivered on pensions and has little appetite for dealing with the problem, says Hal Weitzman of the University of Chicago Booth School of Business. This large Midwestern state, with a population of 13m (Greece has 11m, though a far smaller GDP than Illinois), has the most underfunded retirement system of any state and the largest pension burden relative to state revenue. It also has the highest number of public-pension funds close to insolvency, such as the one looking after Chicago’s police and firemen. According to the Civic Federation, a budget watchdog, Illinois has piled up a whopping $111 billion in unfunded pension liabilities (see chart), in addition to $56 billion in debt for health benefits for pensioners. The state devotes one in four of its tax dollars to pensions, which is more than it spends on primary and secondary education.

Mainly as a result of this gargantuan pension debt, Illinois’s bond rating is the lowest of all the states, which means dramatically higher borrowing costs. When the state government failed to address pension underfunding in its budget for 2014, two credit-rating agencies, Fitch and Moody’s, cut the state’s bond rating, which in Moody’s case put Illinois on a par with Botswana. (An incensed editorial in the Chicago Tribune asked what Botswana had done to be so insulted.)

The main reason for the pension debacle is decades of underfunding. “Everything was always done with a short-term view,” says Laurence Msall, head of the Civic Federation. “Unique to Illinois is the idea that you don’t have to pay for pensions and you don’t have to follow actuarial recommendations.”

Unlike Detroit, however, Illinois has an extra barrier that is preventing desperately needed reforms for making its public employee pensions sustainable by reducing promised pension payments and benefits to affordable levels: the State of Illinois’ Constitution.

Here, the state’s top law prevents lawmakers from even being able to address its worsening public employee pension crisis by diminishing or impairing pension benefits to retired government employees at all. The state’s only way out is a “long shot” attempt to amend its Constitution, but that would require that the people responsible for creating the crisis in the first place, public employee unions and the large number of officials they helped put into power, go against their own greedy interests in favor of the public’s best interest.

Unfortunately, with such a stacked deck, it’s in their greedy interest to push Illinois to the very edge of insolvency. And all indications are that they will fight reform rather than give up their guaranteed gravy train.

That’s the sort of thing that doesn’t even fly in communist China, which has implemented real public employee pension reforms to meet the public’s interest! If only Illinois’ elected officials would show similar public spirit.

Unaccountable, That’s What You Are


Wednesday December 31st, 2014   •   Posted by K. Lloyd Billingsley at 5:44am PST   •  

CA_St_Capitol_200This column alerts taxpayers to government waste, fraud and abuse, which abound at all levels. On those rare occasions when government bodies do the same, it’s certainly worth a look.

As Jon Ortiz notes in the Sacramento Bee, “Nearly two-thirds of California state government data systems checked by auditors over two years contained unreliable information or were impossible to scrutinize for accuracy.” That comes in a report by California’s State Auditor Elaine Howle that cites areas “where important data are not always reliable.” In fact, 17 of 53 systems were “not sufficiently reliable.” These include a State Water Resources Control Board database, which government staffers claimed was “out of date” and clogged with data entries. The financial program of the California State University System, auditors found, declined to trace data back to individual transactions on the ground that this would be “cost-prohibitive.” Another CSU system lacked any hard copy, so these were among 17 systems with “undetermined reliability.” All told, that is a dismal record, but no reform measures were announced, and nobody held to account, demoted, or dismissed. So the state auditor doesn’t really want to know what’s going on.

For other government lapses, consider the plight of Bay Area state senator Ellen Corbett. She was pulling down $97,315 a year as Senate Majority Leader before being termed out of the legislature in November. Not to worry, however, because as Josh Richman notes in the San Jose Mercury News, the Hayward Unified School District created a special position, just for Ellen Corbett. She is now the district’s “executive director of institutional advancement, communications and government relations,” at salary of $167,822, an increase of more than 66 percent.

Just so you know, this is a sinecure. California’s government K-12 school system does a poor job educating students, but the system works well as posh safety net for politicians. Education bureaucrats are always screaming for more money, but there’s always enough funds to feather the bed of a termed-out legislator. The ruling class is number one. Taxpayers aren’t even number two, and that won’t change in 2015. So Happy New Year, everybody.

Restarting the Clock on Old National Debts


Tuesday December 30th, 2014   •   Posted by Craig Eyermann at 5:26am PST   •  

clockmoneyHow long does it take to pay off a nation’s debt?

It would seem that once a nation racks up loads of national debt, it can take hundreds of years to actually pay off and settle the bonds it issued when it originally racked up the debt!

Or rather, it can take hundreds of years for a government to finally get interest rates low enough to make it worthwhile to close out those old debts by rolling them over into newly minted government-issued debt, restarting the clock. The New York Times explains:

Now, prompted by record low interest rates, the British government is planning to pay off some of the debts it racked up over hundreds of years, dating as far back as the South Sea Bubble.

George Osborne, the chancellor of the Exchequer, said this month that in 2015 Britain would repay part of the country’s debt from World War I, and that he wanted to pay off other bonds for debt incurred in the 18th and 19th centuries.

That includes borrowing that may have been used to compensate slave owners when slavery was abolished, to relieve the famine in 19th-century Ireland and to bail out the infamous South Sea Company, which caused the bubble in 1720.

It’s funny that the reasons why governments accumulate such large national debts today are so little changed from what they were centuries ago. If Britain’s example is any indication, the United States will be refinancing the massive increase in national debt that it has incurred since 2008 trying to bail out its infamously failed government-sponsored enterprises (Fannie Mae, Freddie Mac) while greatly expanding its welfare programs (Obamacare, food stamps) for untold decades to come.

The Cancelation Inherent in the System


Monday December 29th, 2014   •   Posted by K. Lloyd Billingsley at 5:45am PST   •  

Covered-California-logo-Best_200Covered California is the wholly owned subsidiary of the federal Affordable Care Act, also known as Obamacare. As we noted, Covered California offers tax credits to those who enroll, but when those people reach 65 and go on Medicare they are no longer eligible for the tax credits. Trouble is, they find it practically impossible to cancel their Covered California plan and therefore get hammered with penalties. As Emily Bazar of the Center for Health Reporting observes, this does not mean Covered California fails to cancel coverage in other situations.

Obamacare tax credits are based on income, which does not remain constant. Freelancer Maryann Hammers, 59, had a good year and duly updated her income, with the help of Covered California’s “customer service.” But then, Hammers told Emily Bazar, “I found out that Covered California instead told Anthem Blue Cross to CANCEL my current coverage when my income was updated.” It took Hammers more than three months to get insured again, shortly after she endured surgery and chemotherapy.

Hammers is hardly alone, and Bazar’s quest to find answers is revealing. It is not possible simply to call Covered California or go to its website, report the change, and have the plan updated. Rather, when someone reports an income change Covered California terminates that person from their plan. The reason, as Bazar learned, is “Covered California’s nearly half-a-billion-dollar computer system apparently can’t handle that kind of complexity.” So as with the refusal to cancel, nobody is to blame and it’s all a computer glitch. With no answers in the system, Bazar recommends declining some or all of the tax credits, increasing the amount of taxes withheld from paychecks, boosting quarterly tax estimates, and having medical procedures done quickly, before Covered California can cancel. Do all that, says Bazar, “and keep your fingers crossed.”

How’s that for a ringing endorsement of the system? Here’s the deal: Obamacare is a wasteful, inefficient system based on lies and designed to take away Americans’ freedom to choose and subject them to the sort of abuse Emily Bazar regularly describes. So have a happy new year in 2015, but don’t forget to cross your fingers, knock on wood, and grab that four-leaf clover.

Closed For and After Christmas


Friday December 26th, 2014   •   Posted by Craig Eyermann at 5:34am PST   •  

22501470_SThe federal government’s bureaucrats are getting the rush delivery of a new and fully paid holiday from Santa this year! President Barack Obama signed an executive order back on December 5, 2014 giving all federal government employees an extra paid holiday this year on Friday, December 26, 2014.

Federal employees will be delighted to receive a Christmas present, of sorts. President Obama has signed an executive order Friday giving federal employees the day after Christmas off....

This means that most federal offices and agencies will be closed on December 26th. Since Christmas is on a Thursday this year, the executive order means that federal workers will have an extra paid holiday on Friday, December 26th.

That is in addition to the other 10 Federal Holidays for which federal employees were compensated for not working that were actually approved by the U.S. Congress. The Washington Post reports more about the bonus holiday for federal workers:

Most federal employees who will get a bonus day off on Dec. 26 due to an order from President Obama will be paid as if they had worked a normal schedule that day, and those who had already scheduled annual leave for that day won’t have to burn a vacation day.

President Obama’s executive order follows an online petition that claimed that one major benefit of awarding the additional paid holiday to the federal government’s very handsomely compensated bureaucrats would be to boost their morale:

“Federal Employees have dealt with pay freezes and furloughs over the past few years. Giving federal employees an extra holiday on Dec. 26th, 2014 would be a good gesture to improve morale of the federal workforce.”

In 2013, all federal government employees whose work was determined to be nonessential and who were temporarily furloughed as part of the partial federal government shutdown in October of that year were fully compensated for not working on any of the 16 days during which the federal government was partially closed, making the event something of a two-and-a-half week long paid vacation for those federal employees.

The perks of being a federal government bureaucrat just keep on rolling out!

Social Security Scrooge Abuses Children


Wednesday December 24th, 2014   •   Posted by K. Lloyd Billingsley at 5:37am PST   •  

socialsecurityadmin-seal_200As we have noted, the federal Social Security Administration has not been hesitant to hand out money to old Nazis, or to the dead. But as Mark Fisher of the Washington Post confirms, Social Security bosses are now mounting a surge to grab money “from the children of people who were allegedly overpaid benefits decades ago.”

Fisher is aware that the Obama administration said in April that it would stop this practice. Indeed, after the Washington Post reported the story, acting Social Security boss Carolyn Colvin said the practice would stop immediately. That turned out to be false.

“Some people whose refunds were seized were reimbursed in recent months,” writes Fisher, but “some of those same taxpayers have since received new demands from Social Security, asserting that the debts remain and seeking repayment.” These include Mary Grice, 58, who “received a new bill from Social Security, seeking the same $2,997 that the agency had refunded to her four months earlier.” And in her case, Social Security wasn’t even sure which member of Grice’s family had been overpaid. She was 4 years old in 1960, when her father died and her mother began receiving survivor’s benefits.

Fisher charts the case of Daniel Asmus of California, whose father died when he was 9. He sent letters reminding Social Security of Colvin’s announced freeze. But then “the agency pushed ahead with its effort to collect a $2,094 debt that it says stems from overpayments of survivor’s benefits to Asmus’s long-deceased mother in the 1970s.” And Social Security is after Jessica Vela “for $16,888 that the government claims she owes for overpayments made to her mother in child support benefits when Vela was 1.”

Robert Vogel, an attorney for taxpayers whose refunds were seized, told the Post, “Deep down, they believe it’s the right thing to go after children.” Social Security is pressing the courts “to force a child to pay a debt incurred by the parents. It’s really quite disgusting.” That is putting it mildly.

This is government agency indulging in child abuse to cover its own mistakes. But remember, government cares for you, bureaucrats and politicians always tells the truth, and of course it’s all for the children. Happy holidays, everybody.

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