Thoughts on the Proposed Debt Limit Deal

We now have a proposed “bipartisan” debt deal hammered out by the people who have put us in the position of having unsustainable spending levels and unsustainable debt in the first place, and foisted upon the American people and Congressional rank-and-file sight unseen:
Spending levels are economically unsustainable now, and will be unsustainable after this debt deal.

The debt level is economically unsustainable now, and will be worse after this deal.

While raising the debt limit will allow the treasury to borrow money to continue the present unsustainable level of spending, it will not preserve the US’ AAA bond rating.

The US will not default on its debt obligations whether or not the debt deal passes.

The debt deal permits immediate access to the first tranche of borrowing, and will permit the entire amount to be borrowed in less than a year, yet the spending “cuts” are spread out over ten years. This gives Barak Obama a blank check for two years, and handcuffs the replacement President for the next eight.

The spending “cuts” are reductions in the baseline growth over government spending over the ten years, not actual cuts to the existing budget.  This deal actually cuts nothing, it only slows the growth of spending, and not even at a rate below inflation.

The deal exempts cuts to the greatest sources of budget busting in the future: Social Security, Medicare, and Obamacare.

The debt deal will permit the balance of the fiscal year to be spent as set forth in the continuing budget resolution (remember, the Democrats have not passed a actual federal budget in more than 800 days).

If a budget deal is not passed, the US will not be able to borrow additional sums of money. It would be, therefore, a “poor man’s” balanced budget amendment, or better yet, a spending cannot exceed revenues cap. It is a back-door way to forced fiscal responsibility in spending.

If the US is not in the market for loanable funds, the demand for investment funds is therefore decreased, which has the effect of lowering interest rates on such investments.

Given all this, what is the benefit of this debt deal?

If a budget deal is not passed, the US’ bond rating will certainly be downgraded.

If the US’ bond rating is downgraded, interest rates might rise from 0.1 to 0.5 points, and they are already at near historical lows, however, this will be offset by the decrease in interest rates on investment funds. Given the Fed’s qualitative easing over the last several months, an small interest rate increase is likely in any event.

If a budget deal is not passed, the Obama administration would pick and choose which programs get paid and which programs will become prorated or impounded, that is, which are short-paid and which are not paid at all. In any event, there is adequate revenues coming into the Treasury to service all US debt and continue Defense, FAA, Social Security, and Medicare payments if Obama so chose. Senator Pat Toomey has proposed legislation directing the priority of payments, and Congress can certainly direct the Administration by law if it so chose.

If a budget deal is not passed, non-essential government workers would likely be furloughed. Thus, we will get to see how many people are on the government payroll that are not doing anything essential for taxpayers. One wonders why we have non-essential government workers in the first place. In years past, when this happens, the government workers get paid for the furloughed days anyway, which just provides these government workers yet another paid holiday at taxpayer expense.

Politically, Obama will blame Republicans and the Tea Party for a government shutdown. But, as all elements of government are held in extremely low regard by the people, what difference would it make? Since none of the GOP’s leading candidates for president in 2012 are involved in this budget and debt limit mess, but Obama is, a shutdown will hurt Obama’s reelection chances as much as anyone’s.

Lastly, it bears mentioning that every budgetary and economic government action has unforeseen economic consequences. These can be good or bad, and they are certainly hard to predict. So, the budget deal at least alleviates uncertainty, even as it simply postpones a real date of reckoning.

So, is it worth it to the taxpayers and for the rank-and-file of each party in Congress to accept this budget deal to possibly avoid a bond rating downgrade, in fact avoid forced government belt-tightening, and the political ramifications of a partial government shutdown?

Krugman: So Utterly Wrong, Again

Former Enron advisor and liberal "economist" Paul Krugman opines the following today in his New York Times column:

"And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."

I would offer this statement as Exhibit A in his involuntary commitment hearing.

The primary, secondary, and tertiary cause of the present economic condition is too much GOVERNMENT POLICY. World wide, we are suffering from too much government, too much spending, too much government economic regulation, and too much government-enforced wealth transfer, and too many government schemes designed to try to legislate around the market.

The real fix to the present economic condition is not just less government spending, but less government period.

Until liberals like Krugman come to understand the truth that governments are a net drain on the economy, they will continue to visit this government-approved pox of malaise upon humanity. Governments produce nothing and generate no profit. Every tax dollar to the government is both a market distortion and a violation individual economic rights.

More importantly to the current condition, every dollar provided to the government is worth less to the economy than a dollar left in the hands of the person that earned it.

More government, more spending, and more stealing of the wealth of the future generations is not just bad policy, it is criminal. Paul Krugman should be ashamed for suggesting otherwise. But we all know that liberals have no shame whatsoever.

Why Americans Prefer Conservatives

Ronald Reagan: "Well I've said it before and I'll say it again — America's best days are yet to come. Our proudest moments are yet to be. Our most glorious achievements are just ahead."

Timothy Geithner: "US can no longer drive global growth. The world cannot depend as much on the US as it did in the past."

UPDATE: Joe Biden: "[T]here's no possibility to restore 8 million jobs lost..."

Obama's Redistribution Plan Is Working As Designed

Private pay is down, government handouts of taxpayer money is up. Just like Obama told Joe the Plumber in a rare moment of honesty. Of course, tax revenues are down and the taxable base of private workers is shrinking, just like Greece.

White House approved media story at the link "Private Pay Shrinks To Historic Lows" cannot hide the facts.

http://tinyurl.com/2wushl6

Conor Clarke Does Not Understand English

Conor Clarke, confirmed eco-Statist and blog poster on Andrew Sullivan's Daily Dish banner, has a disingenuous headline today regarding Sarah Palin's critique of the Obama energy policy and the Mandate, Cap, and Tax bill.

Clarke's disingenuous headline reads "Sarah Palin Does Not Understand Cap and Trade". From an eco-Statist like Clarke, that really means "Sarah Palin Understands the Cap and Trade Bill Perfectly", but I digress.

As evidence of Palin's ignorance, Clarke holds up the following Palin quote: There is no denying that as the world becomes more industrialized, we need to reform our energy policy and become less dependent on foreign energy sources."

To which Clarke responds: "I don't think cap and trade has many supporters who think it's the best way to become 'less dependent on foreign energy sources.'"

Of course, that was not Palin's point, and anyone who can read plain English can understand that. Fact will not get in the way of eco-Statists like Conor Clarke trying to smear Sarah Palin.

I have posted a considerable amount about the damage Mandate, Cap, and Tax will visit upon the economy of the United States, and it has been made clear by the EPA that Mandate, Cap, and Tax will not change their projected air temperatures one degree. Mandate, Cap, and Tax is about government control of the economy and nothing else. Communists, Socialists, Fascists, and Statists support Mandate, Cap, and Tax. Anyone who values freedom, ordered liberty, and a strong economy must opposed this bill at all costs.

More Bad News in Obama's Economy - Misery

The unemployment rate today jumped to 9.4%, up half a percentage point from just last month. This means nearly three quarter million jobs were lost just last month under the Obama/Geithner/Bernake recession. Timmah!!

As a result of this news (which the White House and the MSM is spinning as "good"), interest rates have jumped up 1/4 point ahead of the market open, and oil prices increased by $7 per barrel.

This is what happens when governments overspend in a recession -- the recession continues unabated, and the government's printing money adds inflation to the mix.

Jimmy Carter is back at the helm of the nation's economy. Jimmy Carter's favorite index, the Misery Index, is back in play, although the MSM is religiously avoiding the topic.

The Misery Index is the sum of the unemployment rate plus the interest rate. The Misery Index now stands at 13.4 - higher now than at any point since 1982.

Along with the economic misery associated with the Misery Index, comes crime. There is a definite correlation between increases in the Misery Index and crime rates. Anecdotally, I have seen an increase in bank robberies and theft in my region of the country. I am certain this is a national trend, and will continue.

If the Obama "economic" team continues to follow Carter's imprudent path, the next step will be a soak-the-rich tax plan that will destroy wealth in the United States. Of course, Jimmy Carter never tried to add a Mandate, Cap, and Tax scheme on top of the economy, or a "Health Reform" plan that needs to increase taxes to fund cuts in spending (I'm still trying to get my head around that line of "reasoning".)

Objectively looking at the imprudent economic policies being implemented by the Obama/Geithner/Bernake economic team, my prediction is a full-blown depression. Citizens would do well to husband their economic resources and, to the extent I could invest, I intend to invest in commodities that closely track increases in inflation. Certainly lock down any loans into a fixed interest rate. When interest rates are back at double digits, single digit fixed rate loans will look brilliant.

Obama Admits: We're Broke

In an interview with C-SPAN broadcast timed for the news blackout that that is Memorial Day weekend, B. Hussein Obama said “We are out of money now. We are operating in deep deficits.”

Obama has thus admitting that the Tea Party protestors are absolutely right. He has spent more than the Treasury can or will take in.

Naturally, he will use this crisis to further erode free markets and impose Statism. One thing about Communists, they know how to make the same mistakes over and over and over and over.

One Fed President Has Keen Sense of the Obvious

Federal Reserve Bank of Philadelphia President Charles Plosser said inflation may rise at a rate much higher than the central bankers’ desired range. He notes that the Federal Reserve only has one tool in their control to fight inflation – increased interest rates.

“The economy may be at greater risk of inflation than the conventional wisdom indicates,” Plosser said May 21. However, Plosser cautioned that “the economy is probably not strong enough and not ready for increasing” interest rates.

Charles Plosser has indeed identified the Catch 22 in the liberal’s method to address a down economy by spending far more than budgets allow. Printing money we don’t have devalues the dollar, which means more dollars will be required to purchase the same item (inflation). Meanwhile, in a down economy with high unemployment, household disposable income drops, lowering a family’s standard of living as they have fewer dollars to spend on more expensive goods. As a result, the households tend to cut back on spending money on non-essentials, which worsens the economy as a whole. It becomes a death spiral such as we saw during the presidency of Jimmy Carter.

But Charles Plosser also knows that the Obama administration plans to continue to overspend as no two presidents combined have ever overspent before. This will be a further inflationary pressure. Add to this the economic disaster that would be the twin Statist plans of Obamacare and the Obama/Waxman/Markey Mandate, Cap, and Tax bill, and we have a perfect storm of negative economic actions.

There is no way to sugar-coat the economic results of the Obama plan. They are as foreseeable and predictable as the moon and the tides. As night follows day, economic disaster follows Obama’s Statism.

Undeniable Economic Truths and Waxman/Markley

The “cap” in B. Hussein Obama's Mandate, Cap, and Tax scheme is a cap on American economic growth.

The fact is that burning carbon-laden fuel sources feeds our economy. It is the very lifeblood of the American way of life. It is the lifeblood, capital is the food, transportation is the circulatory system, the free market is the brain, and labor is the hands and feet.

You can rail against carbon-based energy, spit on it, regret it, curse it -- it still remains a fact. It is also a fact that the same eco-Orwellians opposed to carbon-based energy also march on down the street to the No Nukes protest. Later, a fair number of them bust out the windows as the Starbucks and McDonalds to protest "globalism." What they oppose is human achievement and success. But I digress (only a little).

The Obama/Waxman/Markey Mandate, Cap, and Tax scheme will destroy our economy, and a reasonable understanding of economic truths will bear out my analysis.

The first undeniable economic truth is if you want to have less of something, tax it. Cap and tax will cause energy production will drop, because energy production in this country is primarily carbon-based. If you liked the “energy crises” of the 1970s, you will love Cap and Tax. Welcome back, Carter! Let’s keep an eye on the misery index.

The second undeniable economic truth is that corporations do not pay taxes – people do. To corporations, a tax is merely a cost to be passed along to its consumers. Want proof? Look at your phone bill or cable bill. They don’t even bury the various taxes in their rates; they just add tax line items. The full cost of these carbon “credits” will be passed on to consumers. The average family will see their power and natural gas bills skyrocket (between 45 to 90%, depending on the production mix in your area). Add to that the 70% or so increase in cost for your gas or diesel fuel. American families start losing real money to an ever-growing federal government far faster than their wages will ever match. Domestic consumption will sink like a stone.

Which leads me to my first undeniable law of government; government lies to you. There is not going to be an carbon tax rebate to consumers, in the same way there is not going to be a payback of the recent automobile industry “loans” or a return on the bank rescue “investments” made on the behalf of taxpayers. The LAST thing this government wants to do is put money back in the hands of taxpaying consumers because we are too stupid to spend it correctly.

The third undeniable economic truth is that increases in basic costs compound down the supply chain. Put another way, not only will your power bill increase, but so will everything else you buy, because the costs to the producers of everything else you buy are going up, and those costs will be passed on to you, the consumer. This is the indirect taxation effect, and

The fourth undeniable economic truth is that the more money the federal government takes from the economy, the less capital exists to fund jobs. The Cap and Tax will deprive consumers of disposable income, causing massive decline in demand (and job losses related to) in the manufacturing and luxury services sectors, particularly durable goods. Declines in demand for durable goods ripples through the markets for basic materials, mining, milling, and transportation. Conservatively speaking, our Gross Domestic Production (GDP) will drop between 13-19%. Unemployment skyrockets, and hello, Great Depression II.

The dramatic costs increases (both direct and indirect) will lower the standard of living for every American. Let that sink in. The Tax and Cap Plan will lower our standard of living. In what Alice Goes to Wonderland world is Congress living in when they intentionally hobble the economy and lower our standard of living even more than the $1,900,000,000,000,000.00 budget deficit they just hung on the nation?

Those are the costs of the federal government plan. What are the benefits? Even if you fully accepting the argument that CO2 emissions related to energy product contribute to “global warming”, the best tree-hugger estimated net result would be a difference of less than 0.01°C over the next century.

So, the Obama Waxman Markey Mandate, Cap, and Tax plan will cripple our economy, reduce our standard of living, put millions out of work, and cause a decades-long depression to change the air temperature less than a human can differentiate with his natural senses.

That is one horrible cost/benefit analysis, unless you wish to tear the United States asunder.

An $8,000,000,000+ Fleecing of Taxpayers

Candidate Barak Obama said in his convention speech "Our government should work for us, not against us. It should help us, not hurt us." He was lying when he said this, and he knew it.

President B. Hussein Obama now says that the $8 Billion in loans provided by American taxpayers to Chrysler should be discharged in bankruptcy, effectively becoming a gift to the UAW and Italy's Fiat Group.

Candidate Barak Obama also said "Our government should ... ensure opportunity not just for those with the most money and influence, but for every American..."

Apparently, the UAW's money and influence over Barak Obama was a temptation too great for the "messiah" to resist.

The Obama Presidency is a continuing disaster to American taxpayers. It cannot end soon enough.

Here Comes Cap and Tax

Over the weekend, the fruits, nuts, watermelons, Socialists, and good old fashioned Statists masquerading as the “environmental” movement issued a new lexicon of marketing words to try to convince a wary American public that their plans will not destroy the economy in the midst of a recession. They need these new marketing works because the existing marketing words were not adequate to convince the American public to drink the toxic plans the Statists have for driving the American economy back to the pre-industrial revolution.

Believing the current terms like “global warming” and “cap and trade” engender honest images of shaggy tree-huggers, bad science, and high societal costs on flimsy evidence, the eco-Statists believe they need a marketing makeover, beginning with new buzz words.

The new Orwellian eco-terms for the economy crushing cap and trade scheme are “cap and cash back” or “pollution reduction refund.” These terms are so entirely laughable that I hope these eco-communists proceed with this farce.

The correct revised term for cap and trade is “cap and tax.” The cap and trade legislation before Congress now will increase costs dramatically for power producers, and this will generate a tax on all consumers of power, not only at the power meter, but also increased consumer prices due to increased power costs to manufacturers and food producers. The fact that the proposal includes tax credits to low income persons (who don’t pay taxes anyway) indicates that they know for a fact that they know it will increase prices nationwide on everything.

However, these scheming eco-Orewellians have a powerful friend in the radical leftist Barak Obama, and what Obama wants, Obama will demand he gets. In Obama’s effort to destroy and “remake” the United States, all vestiges of free markets must be destroyed via government control. In the midst of the bank and car industry crises, Obama even sent Timothy “Timmah!” Geithner up to Congress with a budget document proposing their Cap and Tax scheme.

Beware America. The anti-success, anti-wealth eco-campaigners have a bevy of proposals to lower your standard of living and increase the expense of everything you need.

The Feds Begin Their Move to Socialize US Banks

Bloomberg news services is reporting that not less than six of the twenty largest U.S. banks require additional capital as indicated by the Treasury Department's fictitious stress tests. As predicted in my post yesterday, both Citi and BoA are in the group requiring "additional capital."

This information is attributed to persons who have been briefed on the matter.

The Treasury Department intentionally set up the stress test to favor the conversion of preferred shares to common voting shares of stock so that it can move to take a controlling interest in these large banks. What makes the matter laughable is that the conversion of the shares provides not one additional dollar to the banks. How this conversion provides "additional" capital in any real sense of the word requires a sincere act of faith in the US messiah President.

In short, converting the preferred shares to common voting stock is an objective, not a solution.

A church might call this a mystery, but I call it Socialism. President Barak Hussein Obama is a committed Socialist, and he is seeking to destroy the capitalist system in the United States.

Capitalism's Destruction Imminent

Redwarning was established to warn the American public of the coming wave of Socialist/Statist policies which were sure to come from the presidential election of 2008. I am not surprised with the speed and scope that Barak Hussein Obama has moved to place a stunning amount of the United States economy effectively under government control. I am surprised at how deluded the American public remains about Obama’s actual plans.

Barak Hussein Obama is a sociopathic narcissist who believes he was put in the White House to transform the nation. Transformation is not a modification; Obama is not content to be a good keeper of the nation. To transform the nation into his image, he must start with destroying the existing national order. The existing national order was republican form of government and a capitalist economy. Obama is methodically setting out to destroy the capitalist economy first. Can the over attacks on the republican form of government be far behind?

This past week, the Barak Hussein Obama has made it most dramatic grab for the control and destruction of capitalism. Barak Hussein Obama wishes to convert the preferred stock the Bush administration forced banks to issue in exchange for TARP funding for voting, controlling common shares. To kill capitalism, Obama must control the capital. To do this, he must control the banks. To control the banks, he must control the voting shares of the banks. To obtain the voting shares, he must trump up a reason to do so.

There is a reason by which the federal government may take control of a bank, namely, during a bank failure when the bank is insured by the FDIC or a similar program, and the government cannot find another health bank to buy or assume the failing bank. This is only in the case of an actual bank failure. Of course, in such an event where no merger partner can be found, the federal government undertakes to pay off the depositors and wind up the bank. At the end of the process, the federal government does not control and run a commercial bank.

What Obama is suggesting is different. The large, meaningful banks that have received TARP money are not failing. Many seek to repay TARP now to redeem the preferred shares and get the government out of the boardroom and back to a regulatory scheme.

Obama and Treasury Secretary Timmah! Geithner are afraid to lose control over the banks. Obama and Geithner have now invented a series of heretofore unknown and unpublished “stress tests” to determine, based on their own unpublished standards, whether banks are “sustainable” without a continued infusion of TARP money. The stress tests are a fiction designed to make the banks fail.

When the large commercial banks “fail” these stress tests, Obama and Geithner will declare that they need more capital, and will force the banks to take more TARP money in exchange for turning over control and ownership of the bank to the US Government through the conversion of the preferred stock to common voting stock.

I predict Bank of America and Citigroup will both be told that they are undercapitalized as a result of these “stress tests.”

Not even notorious Enron advisor and left wing economist Paul Krugman can see a benefit to the taxpayers of changing the preferred stock to common stock. In his April 20th blog post, Krugman writes “[C]onverting preferred into common does nothing: it’s just a swap among the junior stuff, with no impact further up the line. It’s certainly not a fresh infusion of capital in any meaningful sense. So who is supposed to be fooled by this?”

At least Krugman has the intellectual honestly to admit that there is no benefit the taxpayers or the banks to the conversion of the preferred stock. What the leftist Krugman takes pains in his blog to NOT point out, is that common stock is voting stock that permits the government to own and control – Socialize -- the banks.

Obama is on a long march to Socialist centralized control of the US economy. The banks and auto manufacturers are first. The medical industry is next, and no one is safe from the march of the reds in Washington. The Tea Party patriots better man up for a fight.

The Statists' Next Targets

Still in his first 100 days as president, B. Hussein Obama has moved to Socialize first the banks, then the entire financial industry, and now the automobile manufacturers and their warranties. What is next for this Statist agent of “Change”?

My prediction is that Obama will next move to nationalize two items: health care and private pensions. Obama will use the nationalization of the auto industry to do this.

The single biggest reason GM, Chrysler, and Ford are not profitable is the unreasonable employee expenses the manufacturers are saddled with by the United Auto Workers. The two most expensive components of this expense are the long term obligations associated with health care obligations (including for retirees) and their pension plans.

As part of Obama’s effort to make the US autoworkers lead the world in producing “clean cars” instead of cars consumers want to buy (see, for example, the F150), Obama will propose to “relieve” the auto manufacturers of these pension and health care obligations and nationalize the same. This will be the springboard to nationalize health care and pension plans for all citizens.

Hillary Clinton, who has had a weak performance as Secretary of State, will likely be named the first National Health Care Czar, a job she plainly would relish.

The Statists are on the (Long) March. Make no mistake in believing that the Transformative One will settle for nationalizing only the financial and car industries.