Tuesday, December 15, 2009

Raising federal debt limit

Democrats are arranging to allow the government's debt to distend by nearly $2 trillion to pay for the wars in Afghanistan and Iraq. The effort has nervous moderate Democrats maneuvering to win different deficit-cutting tools as a charge for their votes, sparking battles between the House and the Senate and with influential interest groups on both the right and the left.

The whole strategy is precarious because of brinksmanship involving moderate and blue-dog democrats who are insisting a bipartisan deficit reduction task force with exclusive powers to propose spending cuts or tax increases that would assure House and Senate votes.

Playing tit-for-tat, moderate House democrats have that their votes for any debt limit increase depend on securing a "pay-as-you-go" budget law ensuring that new tax cuts or new spending programs do not add to deficits.

Under a pay-as-you-go rule, if compensated cuts or revenue hikes are not found to pay for new policies, across-the-board spending cuts would hit targeted programs such as farm subsidies and Medicare.

Minority republicans are outright refusing to offer any support for raising the debt ceiling.

Rep. Todd Tiahrt (R-KS) said, "Instead of reducing the size of government and controlling spending, Democrats are planning to raise the debt limit by $1.8 trillion, putting American taxpayers in even deeper debt to countries like China".

Vice President Joe Biden, Majority Leader Steny Hoyer, (D-MD.), blue-dog leaders and Senate Budget Committee Chairman Kent Conrad, (D-ND), were engaged in numerous sets of negotiations in an effort to shatter the impasse between House and Senate dems.

But that bill passed the House only because of a quirky rule that automatically passes debt limit legislation - without an up-or-down vote - when Congress ratifies its annual budget blueprint.

The debt limit problem comes as Congress is wrapping up its annual appropriations bills, including a $1.1 trillion omnibus measure pending in the Senate. A vote to cut off a GOP filibuster of that measure was scheduled for this past weekend.

As with raising the federal debt limit, the omnibus appropriations bill is opposed by most republicans.

The omnibus bill is in addition to an infusion of cash to domestic agencies in Q1 economic stimulus bill and a $410 billion measure back in March that also conferred budget increases well above inflation.

Candidate Obama decried the reckless spending of his predecessor, and promised a new era of fiscal responsibility, President Obama now finds himself partnered with a democrat controlled Congress on the biggest spending spree in American history. Just as with most of Candidate Obama’s criticisms, President Obama has found it much harder to quarterback from the Oval Office than from the campaign trail.

-- Killswitch Politick

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Monday, November 23, 2009

Uncovering Recovery.gov

The Obama administration has been talking recovery in the private sector, pointing to signs of anecdotal economic upturns, but last week, ABC News uncovered a shocking slight-of-numbers on the government’s own website, Recovery.gov, finding stimulus success statistics to being completely false. Some of the examples were: the 15th congressional district in Arizona claimed 30 jobs have been saved or created with $761,420 and $19 million in Oklahoma to create 15 jobs, and 39 jobs created in Iowa with $10.6 million tax-payer dollars. There’s just one problem with these facts – none of these congressional districts actually exist.

Now, aside from the indisputable fact that these are egregious errors, if the figures were accurate, the price-tag for each job created or saved would have cost the American people $361,445.47 per job. And in Arkansas, Recovery.gov lists 50 jobs were created through the purchase of a single $1,000 lawnmower.

And the list goes on…

Connecticut's non-existent 42nd district claims 25 jobs created with $0 stimulus dollars

$34 million spent for the Navajo Housing Authority in Arizona’s 86th district, which is actually located in Arizona’s 1st congressional district

$148.9 million spent on 40.3 jobs in the US Virgin Island’s 1st and 99th congressional districts – neither of which exists

In the Northern Mariana Islands, $1.5 million created 3 jobs in the nonexistent 69th district

142 jobs produced from $35 million in the phantom 99th district of the Northern Mariana Islands

In Puerto Rico’s 99th fictional congressional district, $47.7 million was spent to produce 291 jobs

Recover Board Communications Director Ed Pound said, "We report what the recipients submit to us." He went on to explain that the board receives declarations from the recipients, be they state governments, other federal agencies, or universities, "Some recipients clearly don't know what congressional district they live in, so they appear to be just throwing in any number. We expected all along that recipients would make mistakes on their congressional districts, on jobs numbers, on award amounts, and so on. Human beings make mistakes."

But we-thought-so excuses aren’t being had by Congress, Chairman of the House Appropriations Committee, David Obey (D-WI) fumed, "The inaccuracies on recovery.gov that have come to light are outrageous and the Administration owes itself, the Congress, and every American a commitment to work night and day to correct the ludicrous mistakes."

-- Killswitch Politick

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Monday, November 16, 2009

Raising the federal debt limit amidst spending induced economic turmoil

Shadows of 1995’s government shutdown loom, but are likely to be dispersed by year’s end. The Obama administration had asked Congress to approve a debt ceiling increase by at least $1 trillion dollars or up to $1.5 trillion.

Record high budget deficits caused in-part by two ineffective stimulus spending packages, are driving the national debt closer to its $12.1 trillion statutory limit. The administration’s proposed expansion has already passed in the House of Representatives and would get the government through the November 2010 midterm congressional elections without requiring another raise.

Preceding a 2006 Senate vote to extend the debt limit, then Senator Obama said in a floor speech, “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership.”

And now that Senator Obama is President Obama, those critiques no longer apply. Having already spent $787 billion on a stimulus package that has yet to produce any marked results, the President continues to champion a $1 trillion health care reform plan and has talked about passing another stimulus. In August, United States Treasury Secretary Timothy Geithner sent a letter to congressional leaders asking them to promptly raise the existing $12.1 trillion debt limit, cautioning then the debt could have hit its ceiling as early as October.

The national debt ceiling already has been hiked three times in the past two years (Congress last upped the debt limit in February when it passed the $787 billion stimulus package) and passage in the House thereafter will raise the ceiling to $13 trillion. The fiscal year deficit for 2009 came in at a record $1.42 trillion, which is more than three times the record set just last year.

With polls consistently showing Congressional approval ratings in the tank and the Senate’s Majority Leader in jeopardy of losing his reelection bid and unemployment over 10%, the American people aren’t likely to react favorably, so Hill democrats are trying to add the ceiling increase to a Defense Authorization Bill.

Candidate Obama decried the reckless spending of his predecessor, and promised a new era of fiscal responsibility, President Obama now finds himself partnered with a democrat controlled Congress on the biggest spending spree in American history. Just as with most of Candidate Obama’s criticisms, President Obama has found it much harder to quarterback from the Oval Office than from the campaign trail.

-- Killswitch Politick

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Monday, November 9, 2009

A possible FHA bailout and the stimulus’ effect on the jobless rate

The Federal Housing Administration was expected to make public its objective audit determining the soundness of the organization. Several have doubted its security because, as of Oct. 1, its reserve fund fell beneath the required 2% of the agency's unsettled loans for the first time in its history. What’s more, the agency unexpectedly canceled the publishing of that audit report, citing difficulties with the risk scenarios.

Clearly, the FHA’s problems come from the details that the independent auditors ascertained that the risks to the agency were greater than FHA Commissioner David H. Stevens has acknowledged publicly. What's being considered now is whether or not the FHA can re-establish its cash reserves without a government bailout as the agency has faced a growing number of defaults as its loan volume extended.

Unease continues to abound around the national economy as the jobless rate jumped up 0.4 percentage points to 10.2% – the highest level since April 1983 – while the broader U-6 measure shot up even more, rising half a point to 17.5%, a measurement that peaked in 1982 at 14.3%.

The economy lost another 190,000 jobs in October, taking the overall job losses to 3.5 million since January. While the average hours worked in a week remained at 33.0, which means that millions of part-time workers will have to develop into full-time employees before employers start hiring new workers.

With examples such as these in both the public and private sectors, it is difficult to conceive of a starker, definitive, negation of Keynesian stimulus. President Bush’s February 2008 $160 billion-dollar inducement and President Obama’s $767 billion dollar stimulus are proof positive that government spending does not translate into stabilizing the job market nor keep unemployment from rising.

As the accompanying chart shows, Team Obama calculation of keeping the jobless rate below or at 8% has not only not happened, it has actually made worse the situation had they done nothing at all. Once again, testaments to the fact that an entity, such as the government, is not a producer and therefore can only spend what it confiscates from the private sector – the idea that infusing money into failing companies does nothing more than delay the inevitable.

Americans know this to be the case, which is why a clear majority oppose a health care reform that is a precursor to government run health care. It is also why a microcosm of those same American’s chose to change the political tract in two states last week.

-- Killswitch Politick

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Tuesday, November 3, 2009

GDP grows by 3.5%, what it really means

The Q3 2009 GDP grew by 3.5% and Ford Motor Company posted a $1 billion profit. By those indications alone, the economy ought to be showing more signs of positive growth, but it isn’t…and there are a plethora of economic indicators that the downturn isn’t over yet.

Over the past year, the economy has contracted 2.3%. The economy declined 0.7% annualized in the Q2 and 6.4% in the Q1 (the figures are seasonally adjusted and adjusted for price changes). Personal income shrank $15.5 billion (0.5 percent), while real disposable personal income fell 3.4 percent, dissimilarity to a rise of 3.8% last quarter. All of which are nothing short of horrible numbers.

When measured in real numbers, the decrease in personal income fell -0.5% in Q3. Disposable personal income fell -0.7%, but, personal outlays rose +5.8% while personal savings rates dropped to +3.3%. In other words, while consumers were spending more, they were saving less, which is one of the chief reasons for the current downturn.

All of this, not to mention business investments weakened as a small swell in capital spending on equipment and software was beleaguered by another huge plunge in investment structures.

So why the 3.5% growth? The GDP is measured by five factors: private consumption + gross investment + government spending + (exports − imports).

And government spending is where you’ll find a good part of the positive numbers: as government spending rose at 7.9% in Q3, an erroneous Cash-for-Clunkers added a one-time contribution of about 1.7% points (auto sales have since shrunken, so all the program did is shift some demand frontward).

Posting its results late last week at Recovery.gov, the White House asserted 640,329 jobs have been “created or saved” because of the $160 billion in stimulus funds allocated as of Sept. 30. Other figures have estimated the number of saved jobs to be closer or just above 1 million. If that is true, then as ABC reports, the math doesn’t add up – $160 billion divided by 1 million equals a cost to taxpayers of $160,000 per job – not exactly fiscally palatable.

Jared Bernstein, chief economist and senior economic advisor to Vice President Biden, called ABC’s run of the numbers, "calculator abuse”. He added that the cost per job was actually $92,000 – but conceded that approximation is for the entire stimulus package as of the end of 2010.

-- Killswitch Politick

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Monday, October 26, 2009

An economic forecast, more of the same

Oil prices rose above $82 a barrel briefly, the Canadian dollar is near parity with the US dollar, the Euro rose to $1.4976, the British pound rose to $1.6447 from $1.6370, the U-3 unemployment inches past 9.8%, the U-6 unemployment number* at an astounding 17%, the federal deficit is $1.4 trillion and climbing – moreover, 49 of the 50 states have lost jobs after spending $787 billion on a stimulus package.

So what gives?

According to various Obama administration officials, the President himself and media sycophants – it’s Bush’s fault – still, period. Getting past the last administration’s fiscal irresponsibility is no easy task, but it is becoming burdensome to hear the same excuse without plausible explanation.

At the heart of the economic downturn is not so much as to what transpired in past administrations but what the present one has done and will do. Talk of a second stimulus is being seriously considered, to the chagrin of Wall Street and the engines of the economy at-large.

So what’s next?

In short, key economic indicators are pointing to more of the same or worse. The “D” word isn’t so likely but a “W” shaped recovery is; that is, a recovery that spikes back up then turns downward again. While just last year, economists were debating “U” or “V” shaped recoveries (meaning a slow or quick recovery, respectively), there is now evidence pointing to “W” or “L” shaped models.

So what can be expected?

In the past, recessions were ended by the auto and construction industries – but presently, both industries are two of the worst in the nation. With Detroit’s woes and foreclosures continuing to rise, they won’t be able to beat back the slowdown.

Real estate at-large has also been a saving grace in past economic downturns, but with so many commercial properties empty and more becoming idle, it is likely the next part of the economy to collapse.

What’s more is the job market is tail-chasing in a vicious cycle: the lack of jobs means a lack of spending and without consumers buying, businesses don’t hire. Another factor facing small and medium sized businesses is narrower access to loans, quashing any business trying to expand and restraining general economic growth.

Lastly, another portion of America that has traditionally chipped-in toward recovery was higher-income households and top earners that continued to spend despite downturns. But in the current climate, those top earners lost money in their own homes, mutual funds, investment accounts and the like. On the other side, lower income households are cutting back as credit and loans become harder to obtain.

With all of these key indicators, the recession is bound to last unless the administration is willing to give businesses what they need – more freedom and less government regulation. If the administration continues down it’s current path, near or at 10% unemployment will also continue and any recovery is too postponed, much like what is happening right now.

-- The Editors, Killswitch Politick

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*U-6 unemployment figure is published by the Labor Department's Bureau of Labor Statistics and is comprised of not only the more familiar U-3 unemployment figure, but also includes the unemployed who have temporarily quit searching, the underemployed, and the "marginally attached" workers who have other reasons for not pursuing a job right now.

Saturday, October 17, 2009

The Dow and unemployment, each toward ten

For a brief moment in over a year, the Dow Jones Industrial Index momentarily hit 10,000. While a large amount of the economy is still declining – unemployment is now at 9.8% and is expected to continue to rise – though the Dow has risen roughly 50% since March, the dollar continues to weaken.

As layoffs continue around the country, the recession doesn’t seem to be giving way to the massive stimulus package passed earlier this year. According to Forbes.com in the first half of last month, September’s layoffs counted over 12,600 displaced employees:

Sept. 16: ConAgra lays off 300 at a North Carolina facility where a June explosion cut production capacity.

Sept. 14: Eli Lilly & Company (LLY) fires 5,500 as it braces against patent expiration on four of its five top-selling drugs.

Sept. 11: Monsanto ( MON) doubles previous layoff plans from 900 to 1,800 jobs--8% of the company's total workforce.

Sept. 11: Dell ( DELL) closes customer service call center in Idaho, eliminating 500 jobs.

Sept. 10: Deere & Company (DE) lays off 367 production workers in Illinois as part the company continues ongoing layoffs.

Sept. 9: H.J. Heinz's (HNZ) frozen food arm fires 65 workers in Idaho.

Sept. 8: Valero Energy (VLO) closes a portion of a refinery in Delaware--cuts 150 employees and 100 contractors.

Sept. 2: Danaher (DHR) acquires two medical companies for $1.1 billion and pink-slips 3,300 workers.

Sept. 1: American Airlines (AMR) fires 921 flight attendants.

But the brief threshold-cross also prompted an ongoing debate among market professionals. Many carp the Dow average as a flawed surrogate for the market, though they concede its hold on public sentiment. Yet analysts also argued stridently over whether Monday’s highlight is substantiation that the market is headed up – or whether it conceals a wider weakening that has affected all but the biggest stocks.

-- Killswitch Politick

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