The Aftermath

Well, let’s not kid ourselves.  Health care reform is passing the House today, and it’s very unlikely it can be procedurally derailed in the Senate.  The game is, for all intents and purposes, over.  The turning point was the CBO report that showed increased deficit reduction (though a higher cost) than the Senate bill.  This was big for bill supporters for two reasons: deficit reduction IS an absolute must at the moment, and two, it allowed the use of the less controversial reconciliation option, as opposed to the absolutely weaselly “deem and pass”.

Refusing to face reality is not a strategy, so those of us opposed to this latest entitlement must be realistic.  Democrats will hear the judgement of the voters this November, but regardless of how big the Republican gains are, we are stuck with this.  I fear that this will some day be seen as the straw that broke the financial back of America.  I continue to have zero confidence that this bill will actually reduce the deficit; instead, I would wager a very large sum that it will greatly increase it.  I doubt very seriously that Social Security and Medicare were sold as bills that would someday drive the nation into insolvency, but they have.

If this country is to continue in its role of global economic prominence (and it may not for long in any case, given the Chinese economic juggernaut), the best thing leaders of both parties can do now that health care reform is effectively settled is to focus on deficit reduction.  We will probably need some new taxes (that’s very hard for me to say, but unfortunately, it’s true) and we’ll DEFINITELY need real spending reductions.  I don’t want to hear any blarney about government budgets being tight already – the bloat in the typical government agency is so large that any outside party without a vested interest in the power that comes with enlarged budgets and head counts could easily cut spending by a third without impacting public service whatsoever. 

How much confidence do you have that these sorts of cuts will take place – REAL, substantive cuts, meaning permanent reductions in FTE counts, travel budgets, etc.?  Not much?  Me, either…but that’s what we’re left to fight for.

A real example of a solution, then, in closing:  there are many services the government offers that entail people going to “real” locations and standing in line, where they are waited on by very real people who are paid a substantial salary to do things that a website can easily do.  Oh, but the the poor don’t have access to computers, is the inevitable reply.  Well, fair enough – replace all those government offices that require this totally outdated form of customer service with ONE (or even several, depending on the size of the city being served) office that has free computer terminals and several employees who will provide assistance.  Note that this cannot be an ADDITIONAL service that adds to the size of government – it has to REPLACE, permanently, FTEs in buildings across the nation. (By the way, this would mean that large office complexes could be sold for considerable money, as well).

This would be a major initiative, but it’s completely doable, and would save untold billions of dollars annually into perpetuity.  This is the kind of thinking we have to embrace.  The typical government answer to any problem is to assign resources to it – and resources are expensive, and tend to be permanent.  We have to realize that the answer to our biggest problem – a broke government – is to get rid of resources – permanently.  It’s going to be ugly – you’ll be fighting the SEIU (government employee union) in a death match – but it HAS to be done. 

We can’t afford our obligations already – we just added a trillion more dollars in obligation today.  This is an imperative.  My number one issue over the last year or so has been the defeat of health care reform.  We lost that one.  This one, we can’t afford to lose.  Reducing the deficit has become the issue that the future of our nation rests upon.  It’s as clear as that - cut back or kill the American dream…

UPDATE 10:40 p.m.:  Think I’m exaggerating?

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.

“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”

While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.

“Those economies have been caught in a crisis while they are highly leveraged,” said Pierre Cailleteau, the managing director of sovereign risk at Moody’s in London. “They have to make the required adjustment to stabilize markets without choking off growth.”

Advanced economies face “acute” challenges in tackling high public debt, and unwinding existing stimulus measures will not come close to bringing deficits back to prudent levels, said John Lipsky, first deputy managing director of the International Monetary Fund.

Unfortunately, people are notoriously illiterate about economics, but to those who understand global capital markets, this is horrifyingly close to a major global crisis…

54 comments to The Aftermath

  • I find Menzie’s response to be very weak and partisan…I hope to post on Samuelson’s column, and address the problem with CBO budget reduction prediction, in a post later today…

  • I see that David Frum was fired from the American Enterprise Institute today. I guess others on even the “Beltway Right” see him the same way as I do.

    Frum’s problem is that (much as I disagree with just about everything he says) he’s a generally honest guy, surrounded by people who are lying sacks of s%#@. Good for his mental health, and probably for his long-term reputation, that he got out of AEI. Whether there’s a living to be made as an “honest conservative” pundit is another matter. Not just for his sake, I hope the answer is “yes.”

  • Which reminds me that no discussion of Frum would be complete without a link to philosopher John Holbo’s review of Frum’s “Dead Right” (1994). (Warning: it’s extremely long. But I’m sure Bob, for one, will enjoy its skewering of Frum’s particular brand of ‘conservatism.’)

  • Smithe487

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