The Obama Deficit Effect

[Conan71]

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/28/AR2010032802353.html

With health bill, Obama has sown the seeds of a budget crisis

By Robert J. Samuelson
Monday, March 29, 2010

When historians recount the momentous events of recent weeks, they will note a curious coincidence. On March 15, Moody's Investors Service -- the bond rating agency -- published a paper warning that the exploding U.S. government debt could cause a downgrade of Treasury bonds. Just six days later, the House of Representatives passed President Obama's health-care legislation costing $900 billion or so over a decade and worsening an already-bleak budget outlook.

Note to self: Pass health care at any cost, inluding the possibility of an eventual downgrade of our credit rating...

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.

Let's be clear. A "budget crisis" is not some minor accounting exercise. It's a wrenching political, social and economic upheaval. Large deficits and rising debt -- the accumulation of past deficits -- spook investors, leading to higher interest rates on government loans. The higher rates expand the budget deficit and further unnerve investors. To reverse this calamitous cycle, the government has to cut spending deeply or raise taxes sharply. Lower spending and higher taxes in turn depress the economy and lead to higher unemployment. Not pretty.

Greece is experiencing such a crisis. Until recently, conventional wisdom held that only developing countries -- managed ineptly -- were candidates for true budget crises. No more. Most wealthy societies with aging populations, including the United States, face big gaps between their spending promises and their tax bases. No one in Congress could be unaware of this.

Two weeks before the House vote, the Congressional Budget Office released its estimate of Obama's budget, including its health-care program. From 2011 to 2020, the cumulative deficit is almost $10 trillion. Adding 2009 and 2010, the total rises to $12.7 trillion. In 2020, the projected annual deficit is $1.25 trillion, equal to 5.6 percent of the economy (gross domestic product). That assumes economic recovery, with unemployment at 5 percent. Spending is almost 30 percent higher than taxes. Total debt held by the public rises from 40 percent of GDP in 2008 to 90 percent in 2020, close to its post-World War II peak.

To criticisms, Obama supporters make two arguments. First, the CBO says the plan reduces the deficit by $143 billion over a decade. Second, the legislation contains measures (an expert panel to curb Medicare spending, emphasis on "comparative effectiveness research") to control health spending. These rejoinders are self-serving and unconvincing.

Suppose the CBO estimate is correct. So? The $143 billion saving is about 1 percent of the projected $12.7 trillion deficit from 2009 to 2020. (Let's see, Rwarn made a big deal about this $143 bil savings, but brushed off malpractice as being "only" 1 percent of overall health care costs) If the administration has $1 trillion or so of spending cuts and tax increases over a decade, all these monies should first cover existing deficits -- not finance new spending. Obama's behavior resembles a highly indebted family's taking an expensive round-the-world trip because it claims to have found ways to pay for it. It's self-indulgent and reckless.

But the CBO estimate is misleading, because it must embody the law's many unrealistic assumptions and gimmicks. Benefits are phased in "so that the first 10 years of [higher] revenue would be used to pay for only six years of spending" increases, a former CBO director, Douglas Holtz-Eakin, wrote in the New York Times on March 20. Holtz-Eakin also noted the $70 billion of premiums for a new program of long-term care that reduce present deficits but will be paid out in benefits later. Then there's the "doc fix" -- higher Medicare reimbursements under separate legislation that would cost about $200 billion over a decade.

Proposals to control health spending face restrictions that virtually ensure failure. Consider the "Independent Payment Advisory Board" aimed at Medicare. "The Board is prohibited from submitting proposals that would ration care, increase revenues or change benefits, eligibility or Medicare beneficiary cost sharing," says a summary by the Henry J. Kaiser Family Foundation. What's left? Similarly, findings from "comparative effectiveness research" -- intended to identify ineffective care -- "may not be construed as mandates, guidelines or recommendations for payment, coverage or treatment." What's the point then?

So Obama is flirting with a future budget crisis. Moody's emphasizes two warning signs: rising debt and loss of confidence that government will deal with it. Obama fulfills both. The parallels with the recent financial crisis are striking. Bankers and rating agencies engaged in wishful thinking to rationalize self-interest. Obama does the same. No one can tell when or whether a crisis will come. There is no magic tipping point. But Obama is raising the chances."

Oh, and this is all Bush's fault, right?  No wait, it's his cronies in the banking system....  Anyone aware that as late as 2008 the CBO was forecasting a SURPLUS from 2009 to 2018?

http://www.cnbc.com/id/36054221/print/1/displaymode/1098

"CNBC, working with the Congressional Budget Office, found that the 10-year outlook for the nation's deficit has deteriorated by almost $8 trillion. In effect, every man, woman and child in the United States has taken on an extra $25,000 in debt, CNBC has learned.

Comparing the CBO's outlook in 2008 to the current forecast, CNBC found that what was once a projected $247 billion surplus for the years 2009 through 2018, is now an estimated $7.4 trillion deficit."

[fotd]

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/28/AR2010032802353.html

With health bill, Obama has sown the seeds of a budget crisis

Wash Post is not a good reference...besides, our economy is suffering massive deflation in fixed assets making re inflating the economy a necessary evil. Timing becomes critical but it appears it will be many years before the Fed  has to raise rates. We still could afford to print more money without the inflation numbers getting out of line. Food and energy being the exception, what does it matter because the government no longer includes those two major components in figuring the rate of inflation?

Unless of course, a political party wants to be negative and hurt the confidence in this strong country in an election year. Unemployment is a far greater issue. Please quit driving discussions with the tool of fear.

The stock market obviously has responded well after the Bush hangover, which continues today, from the stimulus and the actions taken by the Fed. Believe it or not, we are in an extended bull market even if rates continue to modestly rise over the next 4-6 years.

[Gaspar]

I expect that the "Bush Hangover" will last for at least 3 more years, and as much as 7 years depending on the 2012 election.   

[Conan71]

Unless of course, a political party wants to be negative and hurt the confidence in this strong country in an election year. Unemployment is a far greater issue. Please quit driving discussions with the tool of fear.

I bet 20 some odd million unemployed Americans and thousands of no longer existant companies are still thrilled with the great dumbing down of the econmoy by Democrats in 2008. Actually I was on the winning end of Obama and Geithner continuing to beat it until the Dow hit 6500 (+/-). 

Did you suddenly forget the drubbing the Dems gave it the last election cycle or were you including that?

[fotd]

I bet 20 some odd million unemployed Americans and thousands of no longer existant companies are still thrilled with the great dumbing down of the econmoy by Democrats. Actually I was on the winning end of Obama and Geithner continuing to beat it until the Dow hit 6500 (+/-). 

Did you suddenly forget the drubbing the Dems gave it the last election cycle or were you including that?

?

So interesting to watch the intelligent guys in charge today versus what we had to watch during the Bushevik reign....but they did allow for the opportunity of a lifetime for those with big balls. You missed that opportunity of a lifetime brought on by 8 years of having idiots run our nation and their total lack of regulation and proper over sight?

[Cats Cats Cats]

So this guy is saying there was no budget issue before.  I think we can disregard anything else after that.

[nathanm]

"Could be downgraded" sometime in the distant future. Distant like 2020. If the economy never improves, leaving the budget in the toilet.

Also, his blathering about expenses being back-loaded while revenues are front-loaded is a demonstrable lie. Only a very slight surplus will be paid in prior to 2014. While almost all of the cost is delayed until then, so are almost all of the revenue increases. There's a nice chart somewhere on the internets.

If you're going to post already debunked right wing talking points, at least identify them as such. Thanks!  

[Conan71]

Talking points?  Actually, Samuelson is very non-partisan, Nathan.  He's been writing about economic issues since the late '60's.  I'll take his opinion over a bunch of deficit deniers any day.

[nathanm]

I'll take his opinion over a bunch of deficit deniers any day.

Who exactly is it that denies that there is a deficit?

Either way, he's full of smile:



If you take the CBO score, then subtract the approximately 80 billion that will be raised prior to 2014 that won't be spent on the high risk pool and other, more immediate, reforms, the bill still reduces the deficit.

[fotd]

The Magic Potion

http://www.nytimes.com/2010/03/30/opinion/30herbert.html?ref=opinion

" With the marathon effort to overhaul the health care system behind us, it is time for the Obama administration to move quickly and powerfully to the monumental task of putting Americans back to work. "

" The United States is a rich nation. To say that we cannot afford to do the things necessary to shore up the quality of our lives and establish a brighter future for coming generations is absurd. We always seem to have money for warfare and to bolster the interests of the monied classes. "

" As for the budget deficits, they will never be brought under control if Americans are not put back to work. Unemployment drives deficits by depriving the government of tax revenues and dramatically increasing the costs of safety-net programs and other public services. Putting Americans to work will ultimately make it much easier to begin bringing the deficits down."

[Conan71]

The Magic Potion

http://www.nytimes.com/2010/03/30/opinion/30herbert.html?ref=opinion


" As for the budget deficits, they will never be brought under control if Americans are not put back to work. Unemployment drives deficits by depriving the government of tax revenues and dramatically increasing the costs of safety-net programs and other public services. Putting Americans to work will ultimately make it much easier to begin bringing the deficits down."

That is a point well-taken and as well one of the reasons pointed to as to where the projected surplus of 2009 to 2018 went to as revenues plunged.

But...

Can the Obama Administration and Congress manage to do this without cramming in billions in un-needed spending and un-related mandates to make this happen?  What effect will the health care mandates make on future hiring practices?

[heironymouspasparagus]

Well, we all know the world just started in January, 2009.  There was nothing before that.  Shame it all has to end Dec, 21, 2012.

I think I see a connection here...  the RWRE believe the bad things in the world started that date.  All the other things before just were "placed" there to be found by later explorers, like the existing debt, the unlawful activities condoned by "someone in the past", and the hatred fomented by some of our excessive behavior.  (Examples available upon request.)

Kind of like their story about Earth being only 6,000 years old.  And that dinosaurs were contemporary to man.  In fact, the bones were "placed" into the rocks to be a test of faith! 

[fotd]

Gallup: 75% of Americans Correctly Blame Bush for Bush Recession

http://www.pensitoreview.com/2010/04/23/gallup-75-of-americans-correctly-blame-bush-for-bush-recession/

" and as a direct result of Republican efforts to rewrite the disastrous history of the Bush administration — a growing number of those surveyed said they are beginning to blame the Bush Recession on Pres. Obama. "

Tulsa is average.....

[nathanm]

Well, we all know the world just started in January, 2009.  There was nothing before that.

I've noticed that with the talk about the SEC porn surfing furor.

[guido911]

I've noticed that with the talk about the SEC porn surfing furor.

It's the GOP's fault the SEC was surfing porn...according to Barney "brothel in my home" Frank