The "fiscal cliff" is more like a mole hill

There's lots of consternation in Washington and among the chattering class over the "fiscal cliff" and while the hype will whipsaw markets and keep the politicians busy, it really is a drop in the bucket:

I see the future: The politicians will meet and fret and hold press conferences and predict disaster. Then they'll reach a deal.

It will just postpone the reckoning, but they'll congratulate themselves, and the media will move on.

America, however, continues to go broke.

"They're not going to admit that we're bankrupt, and they won't admit that we're on the verge of a major, major change in our society," says Rep. Ron Paul, R-Texas. "So they'll keep putting it aside, but then we'll eventually probably destroy the dollar."

The across-the-board cut, or "sequestration," was designed to be so distasteful that Congress would be moved to cut more deliberately. If it doesn't act, $110 billion in projected spending will be automatically cut -- half from domestic spending, half from the Pentagon.

"They assume that they made it so bad that they wouldn't accept it, but I don't think they did," said Paul. "They're not even ... talking about real cuts. They're talking about cuts in baseline budgeting."

Right, the old baseline budgeting trick.

"If they propose, let's say, a $10 billion increase for next year and cut it down to $9 billion, they say they're cutting 10 percent. But they're not cutting anything, they're only increasing it $9 billion instead of $10 billion. It's done on purpose so that people get confused."

Even better, the amounts under discussion are miniscule compared to the across-the-board cuts that are needed:

"When government spending is about $3.8 trillion, you're going to cut $100 billion? That's a deck chair on the Titanic," said Russ Roberts of the Hoover Institution.

And the US budget is looking more like the Titanic every day.

Obama asks Congress to raise the limit on his credit card

Barry "Boy Blunder" Obama asked Congress today to raise the USA's debt limit because he has maxed out his credit card again and has so much more spending to do. Maybe Michelle needs another vacation or fancy Halloween party complete with butterfly dancers in globes. For some more black humor, watch the folks at http://debtlimitusa.org/ show what it would be like if the rest of us could spend like the Obama regime:

Welcome to the Obama Downgrade

How's that Hopey Changey stuff working out for you? Pretty good if you own gold, I guess.

That's what you get when the clown in the White House maxes out the USA's credit card and spends it on bureaucratic bloat and payoffs for his union and community organizer pals and then demands more. It's going to take a fire hose to clean out Washington and the White House after Obama gets kicked out.

The Obama Downgrade

Barack Obama and his Congressional Democrat pals have been on wild spending spree and have now gotten the unsurprising result of the Obama Downgrade of the USA's credit rating by Standard & Poor's.

Then came the Obama blowout, in league with Nancy Pelosi's Congress. With the recession as a rationale, Democrats consciously blew up the national balance sheet, lifting federal outlays to 25% in 2009, the highest level since 1945. (Even in 1946, with millions still in the military, spending was only 24.8% of GDP. In 1947 it fell to 14.8%.) Though the recession ended in June 2009, spending in 2010 stayed high at nearly 24%, and this year it is heading back toward 25%.

This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.

Ah, but then there's the good news:

And yet, in a certain sense, these are still the good times. At the end of the week, U.S. Treasury yields plunged to Eisenhower-era rates. America, explained Ethan Harris of Bank of America Merrill Lynch, "still gets the safe-haven money." That's to say, as crazy as Washington is, Europe is perceived to be crazier. In confirmation of the point, over in Italy, which is (believe it or not) a G7 economy, police raided Moody's and Standard & Poor's over allegations that all the meanie things that the rating agencies have been saying about the Italian economy were having an impact on Italian stock prices. Apparently that's a crime in Italy. They're not yet shooting the messenger. But they are dragging him through the streets in chains pour encourager les autres. Good luck with that.

But I wonder if "the safe-haven money" is quite as safe as its investors assume. Under the "historic" "resolution" of the debt crisis (and don't those very words "debt crisis" already feel so last week?), America will be cutting federal spending by $900 billion over 10 years. "Cutting federal spending by $900 billion over 10 years" is Washington-speak for increasing federal spending by $7 trillion over 10 years. And, as they'd originally planned to increase it by $8 trillion, that counts as a cut. If they'd planned to increase it by $20 trillion and then settled for merely $15 trillion, they could have saved five trillion. See how easy this is?

I gotta get me some of that stuff!

As part of this historic "cut," we've now raised the "debt ceiling" – or, more accurately, lowered the debt abyss. Do you ever discuss the debt with your neighbor? Do you think he has any serious intention to repay the 15 trillion racked up in his and your name? Does your congressman? Does your senator? Look into their eyes. You can see the answer. And, if none of these parties seem inclined to pay down the debt now, what are the chances they'll feel like doing so by 2020 when, under these historic "cuts," it's up to 23-25 trillion?

And of course that is why S&P finally screwed up the courage to lower the USA's credit rating. That was apparently a big surprise to a lot of innumerate folks (e.g. talking hairdo Jeff Glor), but it has been obvious to the financially savvy who aren't so beholden to the Obama regime that they can't notice that Emperor Obama is buck naked. Cue well known investor Jim Rogers from before the Obama Downgrade:

While there is nothing new in the just released Jim Rogers interview with the WSJ, it is always refreshing to hear him tell the truth, which is, of course that "the US has already lost its AAA status. Who cares what Moody's say." As for the response: "The market looks ahead: this is not the first time that the market has dealt with the fact that the US is bankrupt." As for his proclivity to buy long term US debt: "I wouldn't lend money to the US in US dollars for 30 years at 3%, or 4%, or 5% or you name the interest rate.... I shorted it June 10. I am short the US bond market as we speak."

So where do we go from here? It doesn't look pretty, but we are talking banana republic time unless we can get Barack Obama and his clown posse out of Washington.

Obama still clueless about deficit

Here's what Barack Obama, the Clown in The White House, had to say about the negotiations to resolve the USA's out of control deficit:

"We are not out here trying to use this as a means of doing all these really tough political things. I would rather be talking about stuff that everybody welcomes like new programs or the NFL season getting resolved."

All that welcoming of new programs by Barack and his pals is what got us into this mess in the first place, but he apparently has a hard time making the connection with actually paying for it - kind of like a shop-a-holic with a credit card. Maybe he ought to stop sniffing around the NFL locker rooms and try a little reading:

“Socialism works only until you run out of other people’s money.” - Margaret Thatcher

Begone, Barack, and the sooner the better.

Obama comes out against raising the national debt limit

Barack Obama is uncharacteristically clear:

The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. … Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, 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. Americans deserve better.

Er, hold on a sec. That was back in 2006 when luxury vacations at taxpayer expense and vast socialist programs were just a gleam in his eye.

Nancy Pelosi says "Jump!" and Steve Driehaus asks "How High?"

You have to admire the duplicity of those House Democrats who tell the folks back home that they are fiscal conservatives and then head off to Washington and turn into Nancy Pelosi lapdogs. Don't they think anyone will notice?

Anyhow, today's case in point is Rep. Steve Driehaus of the first district of Ohio who apparently lost his self-proclaimed "fiscal conservatism" at the banks of the Potomac and voted for every crack brained tax scheme that Nancy told him to vote for. Lacking any backbone sure must make ole Steve a heck of a guy for yoga!

Here comes the tab for the Obama spending orgy

Bond Vigilantes Confront Obama as Housing Falters

For the first time since another Democrat occupied the White House, investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt, they are also threatening to derail Federal Reserve Chairman Ben S. Bernanke’s efforts to cut borrowing costs for businesses and consumers.

Er, it's not the lightweight in the White House who is getting "punished" for his spendthrift ways - it's us as usual.

The 1.4-percentage-point rise in 10-year Treasury yields this year pushed interest rates on 30-year fixed mortgages to above 5 percent for the first time since before Bernanke announced on March 18 that the central bank would start printing money to buy financial assets. Treasuries have lost 5.1 percent in their worst annual start since Merrill Lynch & Co. began its Treasury Master Index in 1977.

“The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

No kidding, Mr. Yardeni, but I think the characterization of these folks as "vigilantes" while catchy, gives what is going on the wrong flavor. They are merely investors, primarily foreign and often governments, who can't be strongarmed like the GM and Chrysler bondholders and are worried about the way the printing presses are running overtime in Washington.

The bond vigilantes are being led by international investors, who own about 51 percent of the $6.36 trillion in marketable Treasuries outstanding, up from 35 percent in 2000, according to data compiled by the Treasury.

“The vigilante group is different this time around,” said Mark MacQueen, a partner and money manager at Austin, Texas- based Sage Advisory Services Ltd., which oversees $7.5 billion. “It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned.”

MacQueen, who started in the bond business in 1981 at Merrill Lynch, has been selling Treasuries and moving into corporate and inflation-protected debt for the last few months.

Chinese Premier Wen Jiabao said in March that China was “worried” about its $767.9 billion investment and was looking for government assurances that the value of its holdings would be protected.

The nation bought $5.6 billion in bills and sold $964 million in U.S. notes and bonds in February, according to Treasury data released April 15. It was the first time since November that China purchased more securities due in a year or less than longer-maturity debt.

You'd be nuts to buy long term US debt today without an inflation premium (if not a protection mechanism). Looks like inflating away his grotesque deficit isn't going to be an option for ole Mr. Hopey Changey. Still he may try it on the backs of all the average US citizens who aren't savvy or in any position to avoid it. Gee, what would be worse, watching your pension disappear down an inflation black hole or your adjustable rate mortgage spiral into the stratosphere?  How about both?