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Countdown to Deficit Cuts – But Still a Deficit: Update V

August 2nd, 2011 Comments off

08.02.2011 UPDATE V (Wrap up)

Countdown to Deficit Cuts – But Still a Deficit: Update V

original article written by Net Advisor

Reader Note: This article is part of a 5-part series that began HERE. This is Update V of our Countdown to Deficit Cuts article series. We will report and analyze major future changes in the deficit. Follow us on Twitter for more immediate updates, commentary and instant analysis.

President Obama announced that an agreement has been made: The government will continue operating with more debt.

The President said that the so called “deficit cut” will come in two phases and he included several other key statements:

1. “The first part of this agreement will cut about $1 trillion in spending over the next 10 years — cuts that both parties had agreed to early on in this process.”

2. “…the second part of this agreement…establishes a bipartisan committee of Congress to report back by November (2011) with a proposal to further reduce the deficit.”

3. “The result (of the $1 trillion cut over 10 years) would be the lowest level of annual domestic spending since Dwight Eisenhower was President.”

4. “I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job.”

5. “Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America.”

— Barack Obama (7-31-2011 White House Transcript, Source: Wall Street Journal, PDF)

1. There are no specific cuts made in this agreement. There is no formal agreement. The agreement is approved through bi-partisan leadership in principle and the details to be decided later in committee.

2. The agreement was made between 6 politicians called the “Gang of Six,” when there is 435 voting members of the House, and 100 voting members in the Senate.

3. Despite Obama’s pledge for a transparent government, the entire agreement, like Obama healthcare (article) was behind closed doors, away from the press, and TV cameras.

4. Most of the “deficit savings” is deferred into the future.

“If the committee cannot agree on at least $1.2 trillion in savings, or Congress rejects its findings, automatic spending cuts totaling that amount would kick in starting in 2013.”

— Source: Reuters, 07-31-2011

Note, the date that was agreed upon for these trivial spending cuts over 10 years can be conveniently delayed until AFTER the 2012 presidential/ General Election.

5. The actual amount of money to cut the deficit for 2011 is a mere $6 Billion. The 2011 Obama deficit is currently $1.049 Trillion and growing.

“…spending for the fiscal year that begins October 1 would be only $6 billion below the current level of $1.049 trillion.”

— Source: Reuters, 07-31-2011

To give some perspective on this trivial $6 Billion “deficit cut.” The amount of interest cost on the existing debt from period October 2010 to June 2011 is $385,871,949,498.62 ($385 Billion-871 Million-949-thousand-498-dollars-and-62-cents) [Source: U.S. Treasury. Chart below or see full PDF]. This translates to about $1.6 Billion in daily interest payments due on the National Debt. This number of course goes higher as government continues to spend money it doesn’t have.

Monthly Interest Expense on the U.S. National Debt Outstanding (Oct 2010 to June 2011). Total for this period: Approx. $386 Billion (Source: U.S.

We have stated in all of our articles on this deficit debate that no matter what the government did to come to an agreement; the result was going to be more debt.

6. To reach approximately $1 Trillion in deficit savings over 10 years, all government has to do is expedite out of Afghanistan and Iraq (Source: ArmyTimes).

7.  According to the President’s statement in his speech regarding $1 Trillion “cuts” (over 10 years) (point 1): “…both parties had agreed to early on in this process.”

We pointed this out back in our February 2011 article that this plan really wasn’t true “deficit reduction.” For more, please see our 2010 article on Obama Math.

Our analysis is that the government was not able to come to any big deficit reduction agreement, and used a prior agreement as a last ditch plan in case they could not make any real progress on the deficit.

8. The President states in point 3 of his address:
“the (deficit reduction) result would be the lowest level of annual domestic spending since Dwight Eisenhower was President” (ibid.Transcript).

In April 2011, the Obama Administration made a similar boastful statement about record deficit cuts, which was not exactly accurate then, and here were are again rehashing the same mantra three months later.

We are not sure where the President is getting his numbers from, but all hard data shows that the Obama Administration has broken all spending records, and is on-track to spend twice as much as President Bush did in just half the time.

9. The President said in point 4:
“I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job” (ibid.Transcript).

Mr. Obama still has not stopped his pursuit of higher taxes. Increasing taxes on Americans who pay taxes, won’t create any new jobs. All it does is allow government to spend, spend and spend which has done nothing but increase the national debt by 35% and increase the unemployment rate by 26% since Obama took office. That model is not working. Solution? Raise the debt ceiling, make trivial cutbacks, but keep on spending?

Doing the same thing over and over again, thinking it will produce a different result seems to define Dr. Einstein’s definition of insanity.

“Insanity: doing the same thing over and over again and expecting different results.”

10. The President said in point 5:
“Most importantly, it (the deficit deal) will allow us to avoid default and end the crisis that Washington imposed on the rest of America” (ibid.Transcript).

The only challenge with this statement is that the Administration didn’t have to pass all of these spending bills that rapidly created record deficits. Mr. Obama could have vetoed the spending policies and cut the deficit in half as Obama promised in February 2009.

In fact Obama knew and planned in advance to create massive record deficit spending within about a month of taking office in 2009.

“President Barack Obama forecast the biggest U.S. deficit since World War Two.”

— Source: Reuters, 02-29-2009

As we know, not only has this Administration not cut the deficit, he will have doubled it by the end of his term ending January 2013.

11. “Hope” Barely Creates “Change:” Economic Hope Verses Economic Reality
The government assumes that future economic growth will pay for the “deficit cuts” (Source: Reuters).

The White House assumes that the economy will grow over 300% faster than it did in 2009, and that the unemployment rate will fall to 5.2% at the end of the President’s term in 2013.

[Math: To get a 300% growth rate from 2009’s economic numbers, take 1.2% (2009’s growth rate) times 3 = 3.6% or 300% higher growth than in 2009. The President is looking at 3.2% growth rate in 2010 and 4% growth rate per year through 2011, 2012 and 2013.]

“After contracting at a 1.2% rate in 2009, a more modest drop than the Congressional Budget Office and Blue Chip Consensus forecasts assume, the White House sees growth domestic product growth snapping back by 3.2% next year (2010) and then 4% or higher the three years after that (2011-2014).

The last time the economy preformed that well was the New Economy heyday of the late 1990s…

As a result, the unemployment rate at the end of President Barack Obama‘s term in 2013 will be just 5.2%, according to the White House.”

— Source: Wall Street Journal, 02-26-2009

The U.S. economy grew by 2.9% in 2010 ( 2010 Report PDF Page 3, Parr 4). So far in 2011, the U.S. growth rate in terms of GDP fell during the 1st quarter to 0.4% from an expected 1.9% – that’s a 79% drop below growth expectations. The GDP number fell again in the second quarter 2011 to 1.3% from an expected 1.7%. That’s a 17.65% drop below growth expectations in the second quarter 2011.

“The Commerce Department said yesterday second-quarter GDP in the U.S. rose 1.3%. Economists expected a 1.7% rise. GDP for the first quarter was revised lower to 0.4% from 1.9%.

Growth in the second quarter resulted from slow consumer spending, which only expanded at a 0.1% percent. Local and state government spending was also slow in the quarter.

The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country’s economy. It is the most commonly used method to measure the value of the goods and services that the U.S. generates.”

— Source: C-Span, 07-30-2011 (PDF)

During the post recession recovery in 1983 under President Ronald Reagan the economy grew 5.3% and 9.3% respectively in comparable quarters. Thus the economic growth rate the Obama Administration was “hoping” for isn’t panning out, and in fact the economy is showing multiple signs of slowing again (Source: Reuters.UK).

The U.S. isn’t the only economy showing signs of slowing: Australia, China, India, and the United Kingdom to name a few also show signs of economic slowing. Now granted China and India are growing like gangbusters compared to the U.S., however those economies are also smaller compared to the USA, but that will change.

11. More Debt & Even Bigger Debates Coming to a Washington Government Near You
Nothing in the August 2, 2011 “deficit reduction” plan addresses how to grow the economy or create jobs.

The U.S. government will have another deficit debate around September 30th, 2011 when Congress will begin planning for the next multi-trillion-dollar budget (deficit) (PDF). Congress will also have to address the so called “Bush Tax Cuts” that set to expire January 1, 2013. If this is not properly resolved, we could see big selling in the stock market around November and December 2012 because investors will have a lower tax base on capital gains than they will when or if the tax cuts expire on 01-01-2013.

If the current short-term and deferred deficit ceiling issues are not resolved, we will also see this issue come up again in November 2011.

The Obama Administration plans on trying to sneak in what we believe will be over $1 Trillion in new taxes, which the Republican and Tea-party advocates have vowed to fight.

In fact, before the “deficit deal” has been signed, Obama has already come out and threatened to veto any legislation that allows any extension of the Bush Tax Cuts.

“The White House insists that tax revenues remain very much in play. Not only will Obama use his bully pulpit to try and pressure the newly formed bipartisan committee to include a tax increase – but he is now pledging to veto any effort at the end of 2012 – following his reelection, or defeat — to renew the George W. Bush tax cuts.”

— Source: Washington Post, 08-01-2011

And if everything works out in agreement with Congress and the Administration (doubt it), the U.S. will still face even larger deficits in the 1st quarter of 2013, just after the next election.

See 1 page summary of government spending projections by the Congressional Budget Office (CBO) (share link).

There just aren’t enough “corporate jet owners,” and “hedge fund mangers” to finance the massive deficits this Administration is racking up.


Cartoon credit by respective owner.

U.S. Treasury Chart (PDF link) and CBO Chart (PDF link) highlight added by Net Advisor™

Original content copyright © 2011 Net Advisor™

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Categories: Deficit