Category Archives: Government Spending

Remember this? No one’s even tried to collect ;)

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Press Release

Oct 22 2010

Senate Candidate Bets Congress $100 Million That the U.S. Government Cannot Run out of Money

Warren Mosler Offers $100 Million of His Own Money to Pay Down the Federal Deficit If Any Lawmaker Can Prove Him Wrong

WATERBURY, Conn.–(BUSINESS WIRE)–Warren Mosler, Connecticut’s Independent candidate for U.S. Senate today announced that it is an indisputable fact that U.S. Government spending is not operationally constrained by revenue and will give $100 million of his own money to pay down the Federal deficit if any Congressman or Senator can prove him wrong. “I am running for U.S. Senate to see my policies implemented to create the 20 million jobs we need. And to do this it must be understood that there is simply no such thing as the U.S. Federal government running out of money, nor is the Federal government operationally dependent on borrowing from China or anyone else. U.S. states, individuals, and companies can indeed become insolvent, but U.S. government checks will never bounce,” states Mosler. “Yes, large Federal deficits that push the economy beyond the point of full employment can lead to inflation or currency devaluation, but not bankruptcy and not bounced checks. If lawmakers today understood this fact, they would not be looking to cut Social Security and we would not still be mired in this disastrous recession.”

With 37 years of experience as an ‘insider’ in monetary operations, Mosler knows that President Obama is wrong when he says that the U.S. government has ‘run out of money’ and is dependent on borrowing from China in order to spend. As Fed Chairman Bernanke publicly stated in March of 2009, the Fed makes payments by simply marking up numbers in bank accounts with its computer. Mosler explains further; “The Government doesn’t get anything ‘real’ when it taxes and doesn’t give up anything ‘real’ when it spends. There is no gold coin that goes into a bucket at the Fed when you are taxed and the government doesn’t hammer a gold coin into its computer when it spends. It just changes numbers in our bank accounts.” Mosler likens this scenario to a football game; when a touchdown is scored, the number on the scoreboard changes from 0 to 6. No one wonders where the stadium got the 6 points, no one demands that stadiums keep a reserve of points in a “lockbox” and no one is worried about using up all the points and thereby denying our children the chance to play.

Warren Mosler urges his opponents, Linda McMahon and Richard Blumenthal, and the entirety of Congress to recognize how the monetary system actually works and implement a full payroll tax (FICA) holiday and his other proposals to restore full employment and prosperity while not cutting Social Security benefits or eligibility.

About Warren Mosler

Warren Mosler is running as an Independent. His populist economic message features: 1) A full payroll tax (FICA) holiday so that people working for a living can afford to buy the goods and services they produce. 2) $500 per capita Federal revenue distribution for the states 3) An $8/hr federally funded job to anyone willing and able to work to facilitate the transition from unemployment to private sector employment. He has also pledged never to vote for cuts in Social Security payments or benefits. Warren is a native of Manchester, Conn., where his father worked in a small insurance office and his mother was a night-shift nurse. After graduating from the University of Connecticut (BA Economics, 1971), and working on financial trading desks in NYC and Chicago, Warren started his current investment firm in 1982. For the last twenty years, Warren has also been involved in the academic community, publishing numerous journal articles, and giving conference presentations around the globe. Mosler’s new book “The 7 Deadly Innocent Frauds of Economic Policy” is a non-technical guide to the actual workings of the monetary system and exposes the most commonly held misconceptions. He also founded Mosler Automotive, which builds the Mosler MT900, the world’s top performance car that also gets 30 mpg at 55 mph.

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FICA hike and sequester, cont…

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The 2% FICA hike was just over $3 billion per week and the sequesters just over 1 billion per week, for a total of about $5 billion per week.

This is not a sudden catastrophic event, but a permanent reduction in about that much demand over time. Initially consumers may borrow a bit more to sustain consumption, make their payments, etc. but that much less income and savings than otherwise does take it’s toll on sales, output, and employment.

The attached chart is only meant to show how we weren’t doing all that great to begin with, and how dips below current levels tend to deteriorate into something worse when the budget deficit becomes too small to support the credit structure and private sector pro cyclical forces come to ‘bear’.

And while still relatively large by historical standards, the federal deficit is no longer nearly as large as it has been, and is rapidly declining, helped of course by the pro active tax hikes and spending cuts, which means we are that much more dependent on private sector credit expansion to sustain growth and employment.

To that point, it’s said that ‘housing is kicking in’ etc. which is true. But note that it’s the private sector credit expansion aspect of housing ‘replacing’ the decline in govt deficit spending that supports additional growth. That is, it’s not a shift from income spent on one thing shifting to housing, but the additional spending from the ‘borrowing to spend’ aspect of housing that does the trick. And this time around I suspect there won’t be a housing credit expansion like the one that turned out to be sub prime fraud, or the one in the 80’s that turned out to be the savings and loan fraud, etc. And without that kind of ‘bubble’ of some sort we never have had a robust economy that I can recall.

Full size image

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China to Raise Budget Deficit by 50 Percent to Boost Demand

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The elders must have overruled the western educated kids…
;)

Note on China deficit spending:
The headline deficit spending is relatively low at 2% of GDP. The heavy lifting is done by state sponsored lending which is maybe 20%+ of GDP. Don’t know what level that is at currently.

China to Raise Budget Deficit by 50 Percent to Boost Demand

March 5 (Bloomberg) — China plans to raise its budget deficit by 50 percent this year as the central government cuts taxes and boosts measures to support consumer demand in the world’s second-biggest economy.

The gap will widen to 1.2 trillion yuan ($193 billion) in 2013 from 800 billion yuan last year, amounting to about 2 percent of gross domestic product, the Ministry of Finance said in its budget report to the National People’s Congress in Beijing today. Local governments will run a combined deficit of 350 billion yuan and the Ministry of Finance will issue bonds to cover their shortfall, according to the report.

The larger fiscal deficit indicates China’s incoming leaders may step up efforts to support expansion and address income inequality, with growth forecast to fall below the annual average of 10.5 percent the country reported under President Hu Jintao and Premier Wen Jiabao. Officials have pledged to make expansion more sustainable, emphasizing quality over speed and Wen said today he’s targeting 7.5 percent economic growth this year.

“The higher fiscal gap and improved consumption will be positive for the economy,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said before the report. Boosting spending on the social safety net and education subsidies would reduce inequality and “help reverse the rising trend in the savings rate,” he said.

Except the deficit adds to non govt. savings, yuan for yuan.

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Fed governor Jerome H. Powell

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And it all still goes unchallenged by the media.

I received this from an associate:

Discussion of “Crunch Time: Fiscal Crises and the Role of Monetary Policy”

“Three important propositions underlie the authors’ argument on this issue:

The federal government’s fiscal path is unsustainable under current policies.

If the market concludes that a government either cannot or will not service its debt, the central bank may be forced to choose ultimately between monetization leading to inflation or standing by as the government defaults–the threat of “fiscal dominance.”

The Federal Reserve’s balance sheet is currently very large by historical standards and still growing. The process of normalizing the size and composition of the balance sheet poses significant uncertainties and challenges for monetary policymakers.

I believe all of these statements to be true. They are also widely, if not universally, accepted.”

>   
>   Powell cites this one which is really bad (perhaps not surprisingly, it was edited by an
>   economist from the German Finance Ministry)
>   

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the sequester

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Thanks!
Change ‘stipulated’ to ‘stupulated’…
;)

If they only knew ‘the debt’ was just a reserve drain…
:(

The sequester is a group of cuts to federal spending set to take effect March 1, barring further congressional action.

President Obama signs the Budget Control Act into law. (Pete Souza/White House)

The sequester was originally passed as part of the Budget Control Act of 2011 (BCA), better known as the debt ceiling compromise.

It was intended to serve as incentive for the Joint Select Committee on Deficit Reduction (aka the “Supercommittee”) to come to a deal to cut $1.5 trillion over 10 years. If the committee had done so, and Congress had passed it by Dec. 23, 2011, then the sequester would have been averted.

Obviously, that didn’t happen.

A deal was reached to avert the cliff, in which the sequester was delayed to March 1.

The cuts are evenly split between domestic and defense programs, with half affecting defense discretionary spending (weapons purchases, base operations, construction work, etc.) and the rest affecting both mandatory (which generally means regular payouts like Social Security or Medicaid) and discretionary domestic spending. Only a few mandatory programs, like the unemployment trust fund and, most notably, Medicare (more specifically its provider payments) are affected. The bulk of cuts are borne by discretionary spending for either defense or domestic functions.

Food stamps are exempt from the sequester. (For The Washington Post)

Most mandatory programs, like Medicaid and Social Security, and in particular low-income programs like Temporary Assistance for Needy Families (TANF, or welfare) and the Supplemental Nutritional Assistance Program (SNAP, or food stamps) were exempt from the sequester.

The 2013 sequester includes:

  • $42.7 billion in defense cuts (a 7.9 percent cut).
  • $28.7 billion in domestic discretionary cuts (a 5.3 percent cut).
  • $9.9 billion in Medicare cuts (a 2 percent cut).
  • $4 billion in other mandatory cuts (a 5.8 percent cut to nondefense programs, and a 7.8 percent cut to mandatory defense programs).

That makes for a total of $85.4 billion in cuts. Note: numbers here updated to latest CBO figures; thanks to Center for Budget and Policy Priorities for noting the difference from initial OMB numbers.

More will be cut in 2014 and later; from 2014 to 2021, the sequester will cut $87 to $92 billion from the discretionary budget every year, and $109 billion total.

The sequester cuts discretionary spending across-the-board by 9.4 percent for defense and 8.2 percent for everything else. But no programs are actually eliminated. The effect is to reduce the scale and scope of existing programs rather than to zero out any of them.

The National Institutes of Health will see budget cuts in the billions if the sequester goes through. (J. Scott Applewhite/Associated Press)

Here are just a few. Update: Note that these are rough estimates based on numbers put out by OMB before the fiscal cliff deal:

  • Aircraft purchases by the Air Force and Navy are cut by $3.5 billion.
  • Military operations across the services are cut by about $13.5 billion.
  • Military research is cut by $6.3 billion.
  • The National Institutes of Health get cut by $1.6 billion.
  • The Centers for Disease Control and Prevention are cut by about $323 million.
  • Border security is cut by about $581 million.
  • Immigration enforcement is cut by about $323 million.
  • Airport security is cut by about $323 million.
  • Head Start gets cut by $406 million, kicking 70,000 kids out of the program.
  • FEMA’s disaster relief budget is cut by $375 million.
  • Public housing support is cut by about $1.94 billion.
  • The FDA is cut by $206 million.
  • NASA gets cut by $970 million.
  • Special education is cut by $840 million.
  • The Energy Department’s program for securing our nukes is cut by $650 million.
  • The National Science Foundation gets cut by about $388 million.
  • The FBI gets cut by $480 million.
  • The federal prison system gets cut by $355 million.
  • State Department diplomatic functions are cut by $650 million.
  • Global health programs are cut by $433 million; the Millenium Challenge Corp. sees a $46 million cut, and USAID a cut of about $291 million.
  • The Nuclear Regulatory Commission is cut by $55 million.
  • The SEC is cut by $75.6 million.
  • The United States Holocaust Memorial Museum is cut by $2.6 million.
  • The Library of Congress is cut by $31 million.
  • The Patent and Trademark office is cut by $156 million.

While military salaries are exempt from the sequester, benefits like tuition assistance and the TRICARE program (which provides health care to personnel and their families, among others) are not.

The Congressional Research Service has written that a sequester may not “reduce or have the effect of reducing the rate of pay an employee is entitled to” under their federal pay scale. However, the sequester is likely to cause furloughs, which amount to unpaid time off, or, basically, a pay cut.

Stephen Fuller, an economist at the libertarian-minded George Mason University, puts the number at 2.14 million jobs lost. That includes the direct loss of 325,693 jobs from defense cuts (including 48,147 civilian employees at the DoD) and 420,529 jobs from non-defense cuts (including 229,116 federal workers — the rest, by and large, are contractors). The rest of the jobs losses are indirect, resulting in a 1.5 point increase in the unemployment rate. However, Fuller’s estimates predate the delay in the sequester passed in December, and other analysts are more measured. Macroeconomic Advisers estimates the sequester will add only 0.25 points to the unemployment rate, a sixth of the impact Fuller predicts.

The CBO estimates that the combined federal fiscal tightening taking place in 2013 is knocking 1.5 points off GDP growth for the year. Of that, about 5/8 of a percent (or 0.565%) is due to the sequester. Macroeconomic Advisers similarly estimates that the sequester will shave off 0.6 points from the year’s growth rate. George Mason economist Stephen Fuller’s estimates are more dramatic, putting the loss of 2013 GDP at $215 billion, reducing the growth rate of GDP by two thirds. However, Fuller’s estimates precede the shrinking of the sequester.

President Obama has been vague on how he’d replace the sequester. (Pablo Martinez Monsivais/AP)

President Obama has been less specific than his colleagues in Congress on how he wants to see the sequester replaced, but he has suggested that, in lieu of a bigger deficit reduction deal, he wants to see the 2013 sequester replaced with a package of tax increases (including loophole closures and increases on the wealthy) and spending cuts.

Sens. Patty Murray (seated, left) released Senate Democrats’ sequester plan. (Mike Theiler/Reuters)

House Democrats, led by Budget Committee ranking member Chris Van Hollen, proposed replacing the $85 billion in 2013 sequester cuts with a mix of tax increases — including a “Buffett rule”-style minimum tax on income above $1 million and repeal of tax subsidies for oil companies — and spending cuts, notably including a reduction in farm subsidy payments to farmers and an increase in flood insurance premiums.

Most of these policies would be spread over a decade rather than falling entirely in 2013.

Senate Democrats, led by Budget Committee Chairwoman Patty Murray, introduced the American Family Economic Protection Act, which replaces the 2013 sequester with $110 billion in spending cuts and tax increases, spread out over the course of a decade. Like the House plan, these policies include a “Buffett rule,” the closure of tax loopholes for oil companies and cuts to farm subsidies. Additionally, the Senate bill cuts military spending in excess of the sequester’s cuts.

Both the Senate and House Democrats’ plans allow the sequester to take effect at the beginning of 2014.

House Speaker John Boehner, right, has laid out the Republican position on replacing the sequester. (Joshua Roberts/Bloomberg)

As part of John Boehner’s “plan B” approach to avoiding the fiscal cliff (embarked upon after initial talks with the White House broke down), the House on Dec. 20, 2012, passed the Spending Reduction Act of 2012. The plan would have replaced the 2013 defense sequester with a variety of spending cuts, including cuts to food stamps, the Affordable Care Act and Dodd-Frank (including eliminating the “orderly liquidation authority” at the center of the legislation). It would have reduced the size of the domestic sequester in proportion to the $19 billion in discretionary savings included in the bill.

Republicans have conceded that they won’t be able to pass the bill again, even in the House, but it provides a model for what Republicans want in a temporary replacement: no tax increases, no defense cuts and considerable domestic spending reductions.

The AARP (whose activists are pictured here) is among many groups resisting the sequester’s domestic cuts. (Melina Mara/The Washington Post)

Just about every interest group wants to stop the sequester and just about none wants to see it take effect. Aerospace and defense companies, along with universities reliant on defense research funding, have launched Second to None, a coalition battling the defense cuts. A group of almost three thousand organizations, including the NAACP, AARP, Children’s Defense Fund, the Wilderness Society, Greenpeace, Human Rights Campaign, the Innocence Project, and many, many more, have warned about the impact of the non-defense discretionary cuts in the sequester. Physicians and medical research organizations, including the American Medical Association, the American Pediatrics Association and many others, are resisting the discretionary cuts to medical research, and in particular the National Institutes of Health. Liberal groups like MoveOn and the Working Families Party are also getting in on the action.

The Tea Party-affiliated FreedomWorks has put out a letter calling for ObamaCare to be defunded so as to match the expected post-sequester spending level without letting the sequester take effect.

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