June 1, 2009

Of Deficits, Debt and Spending

President Obama. The man who's campaign included the notion that the budget deficit should be tackled with a scalpel instead of a hatchet.

FOX NEWS: LOS ANGELES -- Sen. John McCain proposed a possible spending freeze on virtually every federal program except the Department of Defense, for veterans and entitlement programs in a presidential debate with rival Barack Obama Friday night. Obama countered that approach is too broad-based, saying it was the equivalent of "using a hatchet where you need a scalpel."

Why did he say this? Clearly even the President is smart enough to realize the debt he's accumulating is unsustainable. Perhaps during the campaign, he was unaware of the consequences of his debt-accruing future actions. But even someone who wants to nationalize at a bare minimum, health care, but potentially also the banks and the automotive industry, has to realize that the funding for all of this has to come from somewhere. The President has not lost touch with reality. He recently stated he was concerned about the unsustainability of the national debt.

May 14 (Bloomberg) -- President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Gee, do ya' think?!? This from the man who has provided a national budget that will DOUBLE the national debt accumulated by every other President in history COMBINED, and who has presided over the largest expansion over government EVER. The President's budget is $3.55 trillion. A trillion is a million sets of a million. How many Americans had heard of Barack Obama 3 years ago? Now he's set to spend over $3.5 trillion dollars America doesn't have. Good luck with that America.

But since the President has come to realize the danger that his spending has created, it's all okay now. We can all hit the snooze button on the United States' upcoming fiscal demolition, because the President is going to fix it.

Despite the empty words of the election campaign, the reality of the national debt is something that the President realizes he has to tackle. After all, he can't transfer wealth and pay for entitlements if there's no cash to support all of it.

The President has three options for handling the debt he burdened America with;

(1) Actually get out his scalpel and cut spending. Everywhere - maybe a hatchet would be good.
(2) Borrow from the Chinese and from future generations.
(3) Raise taxes.

What do you suppose the President will do? Well, it's all out in the open - he's doing all three.

(1) He's taken a scalpel to government, ordering his cabinet to cut $100 million in spending. That's not even a start though.

But it turns out, that wasn't the big hit he had planned. He decided to cut "wasteful" defense spending by 10%;

The Obama administration has asked the military's Joint Chiefs of Staff to cut the Pentagon's budget request for the fiscal year 2010 by more than 10 percent -- about $55 billion -- a senior U.S. defense official tells FOX News.

Last year's defense budget was $512 billion. Service chiefs and planners will be spending the weekend "burning the midnight oil" looking at ways to cut the budget -- looking especially at weapons programs, the defense official said.

All told it looks like the defense spending cuts (in the middle of a war) amount to $55 billion. Combined with the other savings the administration is finding, it amounts to $55.1 billion. He's taken a scalpel to everything but the military. Apparently the military was good enough to still get the hatchet.

(2) The President, despite running up a MASSIVE new debt, proclaimed the US can't just keep borrowing from China. Despite the fact that it's exactly what he's doing!

From Boston.com;

Obama said the debt situation would create greater economic problems if foreign countries like China lost their appetite for U.S. treasuries.

"What's also true is at some point they're just going to get tired of buying our debt,"
he said.

"And when that happens, we will really have to raise interest rates to be able to borrow and that will raise interest rates for everybody."

The White House estimated earlier this week the U.S. budget deficit will be $1.84
trillion for the fiscal year that ends September 30.

Obama has pledged to halve the U.S. deficit within four years despite implementing economic stimulus measures that will make it larger in the short term.

Even more ironic - after spiking the debt, he's promising to cut it in half in four years - to a level way beyond the worst annual deficit in American history. And that's supposed to be comforting? Or acceptable?

Why the press is still giving him a pass on the dooming of the nation is a mystery. Why he's claiming he can't do what he's doing is more obvious. He's setting the stage for the inflation he created so that he can - you guessed it - blame somebody else and replay his youtube clip in 2 or 4 years, saying "See, I warned you about this." Galling.

Running deficits means borrowing. Much of that borrowing is from countries like China. And it means, because of the size of the borrowing, that it will take generations to fix. That's the reason it's been called generational theft. What it also means is an increasingly nervous China that holds $767 billion in US debt (as of March 2009) and Japan holds another $686 billion. All told, $3.2 trillion is being held offshore. That is nationally dangerous. Compare it to March of last year when China held, $490 billion, Japan held $597 billion, and all told, $2.5 trillion was held offshore. In one year, China's stake in America has climbed 56%, Japan's by 15% and the world's stake has risen by 28%.

Not all of that gets laid at President Obama's feet. But let's face it, he's the guy now and he could choose to tackle the problem, ignore the problem or exacerbate the problem. He has chosen to compound the problem two-fold and over the next 10 years, three-fold. It borders on treasonous.

(3) Of course there's a third way. A Shining Path as it were. I mentioned Obama was setting everyone up for an 'I told you so' when the inflation hits. The reality is even worse. He's setting up the country for massive tax increases. Benefit now, the bill will come later. It's the only way he can get some of this stuff passed. By the time the bill comes due, he wants people to be thinking of everything as sunk costs. It has to be too late to turn back.

Tax changes are coming America. And they won't be small. Obama knows the money has to come from somewhere. He's proven he won't REALLY cut costs. He's setting up for the borrowing being an unsustainable option. So where does that leave you?

A lot of new taxes. He won't tell you to read his lips, but he's already saying it if you listen closely.

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