Moody's Has It Absolutely Wrong

July 18, 2011

There will be a market reaction to passing or not passing the debt limit. But it is time to start thinking about this problem as adults rather than as political party advocates. Moody’s comments the past few days are a prime example.

Moody’s, the credit agency has stated they are likely to downgrade America’s AAA credit rating if the debt limit is not raised.

Today, Moody’s stated that America should get rid of the debt limit ceiling altogether because it gives them a reason to downgrade our credit rating. This is not only illogical; it’s symptomatic of the way politicians, economists and pundits think. They almost always attack the symptom rather than the cause.

What Moody’s should be saying is that the Congress needs to pass a law that forces politicians to reduce the debit ceiling by some percent every year until our budget is balanced. Our problem is not the current debt ceiling. Our problem is that our budget is not balanced and on an unsustainable path upward.

There are two major reasons we spend too much.

One, the party out of office attacks the party in office for spending too much and the party in power defends the spending. When election results change, so do the positions of the parties. Congress has raised the debt ceiling 140 times since it was enacted in 1917.

By the way, the debt ceiling was created by President Wilson in order to pacify the opposition that he would not spend too much on WWI.

Two, we refuse to debate the cause of our problems. We only debate the amount of money we will spend on the symptom. For example:
1.Why does America with 5% of the world’s population spend about as much as the rest of the world does on defense? Is America responsible for most of the world? If it’s to protect democracy, why doesn’t Switzerland spend more?
2.Why hasn’t poverty been eliminated after trillions have been spent on the poor? Is poverty simply a percent of the population? Are the government and the population an enabler? Is our education system failing us? Etc. etc.
3.Why do we worry about the consumer price index (CPI)? It is only a symptom. Inflation is not a manipulated, mathematical index; it’s the increase in money supply. Should we be increasing the money supply?

I could give you a thousand examples but I think you got the idea. We need to change the way we think. Once we identify the real cause of the problem, we should be able to get consensus on how much to spend solving the problem.

By the way, America has defaulted on our debt five times starting in 1776. Also, the Federal Reserve can buy bonds to fund the government forever and never have to default on the “Public” debt (public debt is what we are talking about.)

What Slow Patch? Aren’t We Still In A Recession?

With the bad economic numbers we have been getting lately (employment, housing, manufacturing, etc.), the economy appears to be turning down again.

Consensus among mainstream economists is that the “recovery” is only entering a “slow patch” as we transition from a government funded recovery back to a private sector funded economy. The reason for this “slow patch” is that stimulus programs are running out of money and the Fed’s QE2 program is ending in June. Therefore, we have to be patient as the “real” economy continues to grow.

The real question is “Aren’t we still in a recession? We have spent trillions of dollars and all we have to show for it is debt. Now, we are going to have to go through a “slow down?”

Let’s face reality. Either the government gets out of the way and lets the economy reach equilibrium, as painful as that would be; or we borrow and spend more money to keep our economy growing at 1% (stagflation level). My guess is that the government will spend more without cutting or saying they will start to cut in 2014 (when they are all retired.)

Hit reply and tell me what you think:
Will they cut spending?
Will they spend even more?

There is one other thing they could try. They could stop looking short-term (definition: days to next election) or they could look at the cause of the recession (government intervention, spending on the flavor of the month, the tax code, trillions of unnecessary regulations, manipulation of interest rates, etc., etc.) That is what caused the bubble in the first place. Now, we are in the process of doing it over again. It’s time to re-think our priorities first, then budget levels.

Opinion: Why health care costs will be significantly higher than congress is projecting

The current House version of the “Healthcare Reform Bill” (H.R. 3962) is projected to cost about $900 billion which is the spending limit President Obama said he would place on the bill. President Obama also said the bill would have to be “revenue neutral” which translated means you can spend up to $900 billion but you cannot (directly) add to the deficit.

The house bill claims to meet these two requirements. It spends $900 billion (or more) and it is revenue neutral if you believe in fairy tales. Following are some reasons why:

1. Taxes paid in advance will be put into the same “lock box” used for Social Security

To get to revenue neutral, the bill provides for taxes to be collected immediately (about $600 billion over 10 years) but doesn’t start healthcare services until 2013. That’s one way to get the costs down to $900 billion: charge for the service for years in advance so you get 10 years of taxes but only have to deliver six or seven years of service.

But we’ve had enough experience with Congress to know that they will simply spend all the money they collect and then in 2013 make payments out of the general fund --.just like they did with Social Security.

2. The $400 billion dollar cuts to Medicare and Medicaid are vary unlikely to happen

They have not been able to cut 10 cents out of these entitlement programs since they were enacted in 1964. Now they are suddenly going to throw seniors under the bus. I don’t think so. Here are a couple of examples why:

Social Security recipients are not going to get an increase in their social security payments in 2010 because there is no inflation. And they are scheduled to get an increase of about $8 in their Medicare insurance payment. Unable to withstand the pressure for even an $8 cut in benefits, Congress is looking at a new program to pay each recipient $250 as part of a “stimulus” package.

Or, how about the $250 billion reduction in payments to doctors (part of the $400 billion overall Medicare reduction) to help pay for the health care program (and keep the total costs under $1 trillion.) But, they then introduced a separate bill to pay doctors $250 billion to replace the $250 billion they would lose in the Healthcare bill. Since this bill is not part of the healthcare bill, the costs don’t count. The bill was voted down but you know what their intent is and they will find a way to pass it or disguise it sooner or later.

3. Waste, fraud and abuse will be eliminated or severely reduced

There is no line item in the budget for waste, fraud and abuse. Therefore, politicians on both sides of the isle have been unable to find these unnecessary costs for the past 45 years. Now they expect us to believe they are going to find them next year.

It’s time for us to wake up and realize this is not a health care reform bill. It is a big government, big spending bill. We already have the best health care in the world and yes the most expensive because we like to eat cheeseburgers, get hip and knee replacements to make our lives better, and get the best and latest cancer treatment, etc.

If politicians were serious about reform, they would attack the real reasons healthcare cost are rising so quickly that many people can’t afford health care insurance like the aging population which is about half of the future rise in costs and federal and state government regulations that prevent us from having a consumer driven healthcare system.

If you would like to get more information on fiscal and monetary policy, you can go the non-partisan, web site of the Concord Coalition www.concordcoalition.org