Saturday, July 30, 2011

Barack Obama's addicted to spending

CBS News chose this title - with an extra "Face It" at the beginning - and it is true.

It's true that he has not only borrowed nearly 5 trillion dollars in his first three budgets. We can see it's true because of his way of thinking. His speeches leave no room for doubts that he is only the president of those Americans who live out of debt and social programs and government employees i.e. those who generate no profit (and in an uncontrollably high proportion of cases, nothing good for the society in general). (Plus those who are so ideologically blinded or brainwashed that they defend the same attitudes, despite their own interests and despite the interests of America.)

In one recent speech, Obama said that during the recession, the revenue dropped - which "caused the government to borrow and spend even more money". Glenn Beck and others were making fun out of this shocking proclamation. I can't find the links right now.

But it is shocking. Just imagine how strikingly it differs from the thinking that has to be carefully followed by anyone who is actually responsible for his finances (because he is physically forced to think in this way).

If your income goes down, you obviously have to reduce your spending as well. You just don't have the money. At some moment, it may be a good idea to borrow but the logic of the previous sentence still holds, at least in the long run: at the end, you have to repay the debt. Obama is completely detached from this basic logic. He no longer understands what the money means. He started to understand the U.S. Treasuries as a perpetual motion machine that can simply produce any amount of money he wants for his programs.

(Some defenders of big spending among TRF commenters share Obama's disingenious approach. For example, they say that the U.S. has not yet "recovered" now or in 2010 - which is meant to say that the GDP hasn't reached the pre-recession levels - which implies that there has to be deficits. But this opinion just reflects their irresponsibility. If your GDP or revenue or income drops by 50%, you will need 10-20 years at a 3% growth to return to the pre-drop levels. But that doesn't mean that you should have huge deficits for 10-20 years. The drop of the GDP in 2008 was real and you can't ignore it or pretend that it is just an error of measurement. You have to adjust your spending to the actual GDP which often rises but sometimes it drops.)

But it's not only the basic relationship between the revenues and spending where his unrealistic opinions fragrantly show up. He is interpreting everything else from the same viewpoint. For example, look at the interest rates.

He has used the following words to justify the opinion that a rating downgrade is a bad thing:
Make no mistake -- for those who say they oppose tax increases on anyone, a lower credit rating would result potentially in a tax increase on everyone in the form of higher interest rates on their mortgages, their car loans, their credit cards. And that's inexcusable.
Look at it. I won't defend a rating downgrade because it is a bad thing but the logic of his explanation is bizarre. The quote above may look like an innocent and subtle proposition but its logic is really far-reaching. Obama thinks that higher interest rates are effectively the same thing as a higher tax rate. Oh, really?

A higher interest rate means that the people who have borrowed money will have to pay more money in the form of interests. For them, it's another payment - just like extra taxes. However, if these people have borrowed some money, there also exists someone else who has lended them the very same amount of money. For him, higher interest rates mean extra or higher income - much like tax cuts. And by the way, it's an extra income that can also be spent.

The savers usually tend to spend less of their money - that's how they became savers - but they can still spend some money. If they're having no interest or profit from their investments, they feel poorer and this is a reason why they don't spend much. If the interest rates grew (and as the central bank of central banks has said, they should - to avoid a looming inflation everywhere), the savers who have cash and related products would be earning something and they could spend it - or at least spend more than what they do spend now. By these sentences, I want to say that higher interest rates may reduce consumption but the reduction is surely smaller than if you completely neglected the existence of lenders.

In the whole world and in every balanced society, these two logics are perfectly balanced. This is a simple reflection of the fact that each loan has two parties and the total debt may be computed from the perspective of either of them. However, if you say that for "Americans", a higher interest rate is the same thing as a higher tax rate, it is very clear that your idea about "Americans" only includes those who are living out of debt. It surely doesn't include the other side - the "savers" or "lenders", which are two words you may use - and it indicates that you want America to be a nation of borrowers forever. You want the excessive borrowing - relatively to lending, saving, and investing - to become an inseparable property of the American nation.

However, this logic is surely unsustainable. And it wasn't true in the past. As recently as 30-40 years ago, America was a big lender or creditor or what's the right term. The Marshall Plan helping the democratic Europe after the war was the latest "huge" example of an America that actually lends the money. More recently, the pendulum went in the opposite direction and America's debt has risen, reaching 100 percent of the GDP recently - just like it did right after the World War II.

But it's totally obvious that this imbalance can't grow every year. America ultimately has to restore the balance between the money it borrows and the money it lends to others (with the accuracy of the GDP growth rate which is now 1% or so - which is why it is not a big issue) so that the debt expressed in the units of the GDP at least stops its dramatic growth. And the same logic holds for every other nation, company, or group of individuals, too.

Because of those reasons, Obama is only a spokesman for those people who have a personal interest in the growing rate of redistribution and debt. (And those who are ideologically brainwashed and defend the same attitude despite their interests and despite the interests of a healthy America.) And we may also say that his continuing, relatively high approval rate around 40 percent has been de facto bought for those 5 trillions dollars that have been borrowed during his three budgets. There's nothing sustainable about this support because there's nothing sustainable about the monstrous socialist government he's been building.

Of course, when I say Obama, it's not only Obama personally. It's the whole machinery behind him.

We are now 3 days from August 2nd which used to be considered the day when the U.S. runs out of money. The judgement day that would start the economic Armageddon, as those people said. The probability that the two main camps won't agree on any bill that would also raise the debt ceiling has grown. The House has clearly offered many more proposals. Boehner managed to defend his position of the House spokesman, even in a de facto way, when he has successfully forced most of the Republicans including the Tea Party caucus to get their "ass in line". As expected, his and the House's successful bill was killed by the Senate within minutes.

The Senate is less constructive but it's likely that its legislation will be killed by the Republican-led house. It doesn't have to happen because those proposals are not that far from each other. The Democrats have already admitted that they have lost this battle so they already agree that the reductions of the deficits have to be very large and there should be no tax increases. It may happen that the House will ultimately agree with one of those proposals. I don't know for sure.

They differ about the question whether this battle should be repeated next year or postponed to 2013. Of course, the second option may win if the conditions will be acceptable for the conservatives. Their preference for a "small deal" is a technicality that doesn't have much to do with the ideological gaps and my guess is that they may abandon this condition at some point.

When the debt ceiling is not raised, almost nothing genuine will happen on August 2nd - except for some unjustified hysteria (also on the markets). It's because this date was incorrectly calculated (recent revenues were underestimated) and America probably has enough money to run under the business-as-usual for another week or so.

But even if the debt ceiling is not raised until August 10th or whatever is the more accurate date, it doesn't mean default. Even though the Obama administration was deliberately spreading alarmist fog about this question, they have the right - and obviously, a duty - to prioritize the payments. The interest on the bonds is clearly the top priority and the default on the treasuries can be easily avoided.

When the fog disappeared and it became clear that the administration is able and legally allowed to pay the interest as a top priority, the Obama administration admitted that they created this hysteria deliberately. Fear has always been the best ally of every big government. But they say that if the government misses "any" payment, it will be a "form" of a default. Well, obviously a very generalized default which isn't considered a default by those who matter. Entitlement payments are not really debt so if someone is not paid a cheque from the social programs, it's pretty clear that it will have no impact on the rating agencies' evaluation of the ability of the U.S. government to repay its debt - simply because the pensions etc. are not debt. The same thing holds for salaries of military personnel or anyone else who is getting some money from the government.

We will see what will happen. Of course that I would find it natural if the three major rating agencies followed in the footsteps of three smaller rating agencies who have already downgraded the U.S. debt. The main reason why this downgrade is appropriate isn't the risk of a collision with the debt ceiling. The main reason is that in the medium run, America is simply on an unsustainable path that may lead to a Greek-like situation within 5 years or so. The widespread belief that America was the only large nation that was immune against such evolution is gone. It is clearly not immune.

There are many things in which the Tea Party - and sometimes even other Republicans - look too dogmatic to me. For example, while I agree that the budgets have to be balanced in the long run, I think that the idea of a balanced budget - every year - is inconvenient. It de facto eliminates the freedom of the government to save and borrow any money (a right that everyone else has: nowadays, the governments are clearly behaving more arrogantly than other subjects in debt - but there's no reason why they should have many fewer rights, either) which reduces its maneuvring space and which may force the government behave less optimally than what would otherwise be possible. Nevertheless, the budgets should be almost exactly balanced in the long run - e.g. every decade.

However, I surely agree with the basic logic of the Tea Party. And they should be damn sure that the new legislation will make the currently uncontrollable spiralling debt driving the Obama machine much more controllable. If they don't achieve this certainty, they should prefer the tough way to get this job done - to force the government to shrink by 40 percent immediately.

It could lead to some anger, a decrease of the GDP etc. but all those things would only be quantitative while the real threat of an America following the Greek path is qualitative in character.

The anxiety before the expected collision with the debt ceiling is an unusually good opportunity for fiscal conservatives to be heard and to approve legislation that will respect some of the principles they cherish. Once this debt ceiling crisis is over, be sure that the fiscally irresponsible people will do everything to return to their self-confident, exponentially growing, big government mismanagement of what we so far consider to be the world's only superpower.

Benjamin Franklin has said that once the people will vote themselves money, this will herald the end of the republic. America is gradually beginning to satisfy the condition of Franklin's proposition - as Obama and others are buying votes for trillions of dollars that are either taken from the other people's wallets or - increasingly often - borrowed. Third Newton's law - about the action and reaction - made it inevitable for something like the Tea Party to emerge. But it has to be seen whether the Tea Party has the right magnitude to revert the march towards the end of the republic.

A collision with the debt ceiling and the abrupt reduction of the government seems like a greater threat for the fiscally irresponsible politicians - roughly speaking, the fiscal left-wingers. That's why this possibility - which will occur if there's no approved legislation to raise the debt ceiling - would look like a relative victory for the Tea Party. However, the Tea Party must be careful in its optimism because such a forced abrupt reduction of the government could be a good opportunity for Obama, too.

If he hits the debt ceiling next week or the week that will follow after that, he will also have the freedom to choose which 40% of the government is slashed. And be sure that it's likely that his choice would be such that it wouldn't necessarily be viewed as a good choice from the Tea Party's perspective. If the debt ceiling is not raised, it's obviously not a kind of a "clean victory" that the Tea Party could celebrate the whole night. ;-)

Obama could also choose to refer to the 14th amendment and ignore or de facto raise the ceiling himself. I agree with Michele Bachmann and others that this can't possibly be allowed by the U.S. Constitution because if such things were allowed, the U.S. President could behave as a dictator. At any rate, if Obama chose this method, there would immediately be official calls for impeachment - whose results aren't predictable but the very threat is likely to be enough for Obama to avoid this option.

Meanwhile, the Obama administration is using lots of other weapons to hurt the U.S. and global economy. It has approved a bill to fight CO2 from cars. This bill requires the fuel efficiency to increase 5% in every year in the next decade, until 2025. This wishful thinking may naturally become reality due to technological progress or, more likely, it won't. In the latter case, this is de facto a ban on whole classes of cars. As I suggested yesterday, Volkswagen was the only major carmaker that dared to denounce the legislation which will probably disproportionately hurt the VW spectrum of cars. Others agree. They want to be friends of the government. Their success in the actual market is poor so it's better for them to rely on the government subsidies and bailouts etc. and justify the government's desire to make cars pricier which in combination, they hope, will simply compensate the dropping profits. The Obama administration is a government of losers and it makes everything it can to make losers more powerful. What the results of such policies may be?

Gillard defends her new Carbon Gestapo

I've learned about it from our president's Notes from Australia VII. He read that in Australia, they're planning to introduce new carbon cops who will have the authority to enter any company without any limitation, check all the firm's activities, look at and copy all documents it wants to see.

If they find any cheating about your CO2 emissions, you will get up to 10 years in prison or you will be shot on the spot, including your family, and you may also have to pay up to a million of dollars. Cute. Klaus says that at this point, the fun is ending because it's getting serious - so let me admit that I added the execution to the mix but the rest of the plan is authentic.

Prime minister Gillard defended her proposal of the new and modern Gestapo. She finds it outrageous that people such as Abbott dare to criticize a plan to give her voters a huge new and absolute power to screw anyone and everyone else. A pretty arrogant lady given her 25% approval rate. I guess that she will have to activate the "cops" before the new elections.

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