Obama’s Budget Proposal

President Barack Obama speaks at the GOP House Issues Conference in Baltimore, Maryland, January 29, 2010. REUTERS/Larry Downing

Now here comes the challenging part.  No, I’m not talking about the challenges around Obama’s budget, but about the challenge of keeping this blogging hobby of mine up while going into tax season.  This ought to be interesting.

Of course, my personal challenges pale beside the challenges of our nation as reflected in Obama’s budget proposal which will dominate the news cycle for the next few weeks.  To be sure, we’re all going to hear sniping from all sides of the political spectrum over tax increases and accusations of pork barrel spending.    You know, the type of stuff that makes your eyes glaze over  and at the end of the day, you actually know nothing more of what’s in the budget than you did when they first began talking about it.  By design, the debate over these matters evinces an emotional response rather than a rational one.  To  really appreciate what’s going on, there has to be some rational discussion had.

Obama said something interesting during his state of the union speech which both political parties agree with.  He mentioned that he’d like to see a spending freeze on discretionary spending with the exception of the defense and entitlement budgets.  Well, those two areas account for the largest slices of the federal budget.  I don’t have the figures right in front of me now, but as I recollect that these two areas account upwards to 70 to 75% of the budget, which means we’re going to have a protracted battle over the remaining 25%.  Somehow that just doesn’t make sense to me, particularly in light of the fact that the military and entitlements expenditures are the main things that aren’t sustainable over the long haul. Given that, it would seem that the main thing we ought to be talking about is those two areas—particularly military spending,  but it seems that both citizens and politicians lack the  political maturity to explore these areas honestly without hysterics.  To pull these areas off the cutting table continues the sort of dishonesty that got us here to begin with.  No one wants to see these areas cut, but no one wants to pay more taxes, so the political solution is to borrow, print up some more money and put off addressing the issue off in the future.  The future is here and we really need to deal with these issues now. We’re all really to blame for this. 

The federal deficits are as big as they are for much the same reason that the majority of the states are having budget gaps—there’s been a steep drop off in revenues while the expense base remains unchanged.  In my opinion, much of the drop off is structural or permanent  Moreover, since the private sector has shrunken back so much in the wake of the Great Recession, the idea is for government spending to replace private sector spending and create jobs.   While it may be possible for the government to support job creation in certain areas, widespread job creation is beyond what it really can do.  A robust private sector can, but it’s currently in retrenchment, so the most a jobs program is going to do is put a salve on the wound and I don’t have a problem with that, but I think it’s wise for folks to keep their expectations in check and not look for much beyond that. 

The chart immediately above depicts what the administration believes will be the deficit situation over the next ten years.  This is a little like looking at death in the face and there’s no doubt that they’ve likely underestimated the deficits, which means the problem is even worst.  These have to be financed and we lack the domestic savings to do so.  We also lack the will to raise taxes, so that means that China and Japan have to agree to come along to the dance and continue to loan us money.  They may be reluctant to do so as they’ve enough exposure to the US already with their existing holdings of our debt.  So the real question is who will finance us and at what cost?

We’re really at a tipping point now and some hard choices need to be made right now.  Unfortunately, all we’re going to hear over the next few weeks of posturing is about the 25% of the budget that’s up for grabs because they’ve all agreed that the remaining 75% is “untouchable”.  Beyond the fiscal crisis, the next biggest crisis we face is one of leadership across the board.  That will become even more apparent as we go forth.


4 Responses to “Obama’s Budget Proposal”
  1. Don’t forget about the fastest growing segment of the budget: INTEREST PAYMENTS FOR DEBT SERVICE.

    I attended the “Fiscal WakeUp Call” from the Concord Coalition. They stated that even if we shut down the Defense Department and NASA we STILL would go bankrupt as a nation in 30 years due to expansion in entitlements and the interest payments.

    Today this issues are in the abstract because they have limited impact upon people’s actual standard of living. Once the impact comes to their front door we will have to face the inevitable.

  2. Greg L says:


    Thanks for the comment and video.
    Investment guru Marc Faber says we doomed because it’s too late to save ourselves even now. I’m inclined to agree with him because no one is prepared to make some hard choices. As you point out, the debt service component is the tipping point. Interest rates are artificially low right now with rates on treasuries below well below 1%. Even a move towards a more normal yield curve with long term rates at 5%-8% will kill us, but in the long haul we’re not talking about rates that low. At some point, we’re talking about having to defend the dollar because the fed has printed so many. When that occurs, we’re talking rates well above that range.

    The only thing that’s giving us a reprieve right now is the fact the oil is priced in dollars, which means that most nations have to maintain a portion of their dollar reserves for transactional purposes. As this thing plays out, pressure will build for a new Bretton Woods type of deal with a new global reserve currency emerging. When that happens, the defacto backing of the USD by oil will end and at that point we might as stick a fork in it, because we’re “done”.

    This will go down in the history book as a massive failure of leadership across the board rife with corruption at the highest levels of government and commerce. These issues are well known to those with the information, but the public is absolutely clueless about what’s getting ready to go down. The impact on lifestyles will gather pace even before the problems with the US government become apparent. In the next few months, we’re going to see a ton of additional defaults on mortgages and commercial loans. It’s also very likely that we’re going to see some major municipal or state defaults as well.

  3. Sadly it will take a national economic crisis where people feel the pain to change the consciousness in this nation.

    We have a “Democrat vs Republican” orientation. Both sides have thrown their bucket of crap into the river and polluted it. The same is the case with the “Wall Street Welfare Queens” and the “Social Justice Welfare Queens”. Both have the equal proclivity to raid the national treasury.

    The job of the government needs to be to protect its Treasury from raiders.

  4. Greg L says:

    >>>We have a “Democrat vs Republican” orientation. Both sides have thrown their bucket of crap into the river and polluted it. The same is the case with the “Wall Street Welfare Queens” and the “Social Justice Welfare Queens”. Both have the equal proclivity to raid the national treasury<<<<

    Exactly and that's why I avoid getting snared by any of these guys. The two parties are basically the same; they market differently but basically behave the same. The one thing that's always amazed me is the constancy of policy notwithstanding the talk or supposed philosophy epoused by either side. The talk is really just marketing and depending on the mood of the country, the talk by the dems might be effective at one point while the same by the republicans may be at another. They both do the same thing once in office.

    BTW, I listened to all of those videos from the Wake up call and I found them to be a reasoned distillation of the issues that we face. One thing I found interesting is that each of the presenters referred to health costs being a major budget threat hence requiring reform. I'm wondering where these guys were at with the health care debacle we just saw. They really should have been out there shaping this discussion in the context of what this means, why it needs to be done and where exactly it should fall from the standpoint of priority.

    I think it's really difficult for most folks to appreciate an issue without a reasoned discussion. The biggest mistake that Obama and the dems made was trying to ram this thing through without having a protracted and reasoned discussion as to why this needed to be done and why it's so important now. Most folks had no time to absorb or understand anything about it (I'd include myself among that number) and quite naturally they're going to resist it, particularly after the attempt is characterized with descriptions of death panels, taking away medicare and etc.

    I mention the health care thing as an example as that will be a precursor of the outlines of the debate on social security reform as well as any other reform that's needed. The thing I find dismaying is that we've don't seem to have the ability to talk about issues in a reasonable fashion as shown in the video you linked. There's a urgent need for a reasoned discussion on an entire range of issues.

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