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Wednesday, August 26, 2009

Take The Stimulus Money Back

The news this summer has been very focussed on American citizens at townhall meetings. Some of the news diverts into showing just the screamers, while other reports show the questions being asked and statements being made. Almost all of the reports have been centered on health care reform and the people's objections to legislation currently working through the various committees of the House and Senate. Lost in the reporting is a very common message being given to members of Congress: stop spending money and creating massive debt for our children, grandchildren and great-grandchildren.

On Friday afternoon, with the President and the White House press corps A-Team out of town on holiday, the Administration issued an "oops" press release. It seems that its estimates of the budget deficits in the coming years was slightly off, only about 29%. Instead of the federal deficit reaching $7 trillion in ten years the White House acknowledged the numbers that have been put out by the Congressional Budget Office and said the number is more like $9 trillion--in the hole, negative, red ink.


So far this year the Treasury has been engaged in auctions of all of its bills and notes, 6 month, 1 year, 3 year, 7 year, 10 year. The auctions have actually gone quite well with significant bidders keeping the prices high and the yields low. Low yields when selling debt are important because when you start talking about hundreds of billions the smallest tick in rate costs hundreds of millions. When you are talking about a trillion a small tick is a billion. As of this writing the U.S. debt totals $11,719,060,925,865.86

One reason the Treasury debt auctions have gone well is because there have been plenty of foreign investors. As of June 2009 $3.4 trillion of U.S. Treasury Securities are held by foreign nations and investors. The interest payments on this $3.4 trillion approximates $25 billion per year, being paid to foreign investors, so far. Foreign investment accounts for approximately 30% of our national debt. While much is made of China's holding of U.S. treasury securities, and they own a lot at $776 billion through June, not too far behind China is Japan at $711 billion. What this means of course is that hundreds of millions of dollars per week are paid to both nations in interest payments.

Looking forward from the present there is great concern about the rapidly rising debt and treasury auctions since many of the auctions are used to refinance debt that is coming due. In six months the Treasury will have to pay off the 6 month bills issued this month, how? By auctioning on more bills and bonds. With our economy looking to be coming out of recession in the next six months we will see upward pressures on interest rates. Every one-quarter of one percent in interest rate (00.25%) the interest paid on $11.7 trillion goes up approximately $30 billion--that is the increase in payments.


Obviously the primary way to stop debt rising in the future is to stop borrowing today. Since we are talking about the U.S. government that is pretty much impossible, there will always be debt--the U.S. house will never be free from a mortgage. However what can be done is to control spending and reduce hindering future economies and generations with massive debt payments by limiting spending today.

As the current bills have piled up President Obama and the Democrats in Congress have touted that the payments of the bills will come from "the wealthiest among us." Specifically those making more than $250,000 as a family have been targeted as evidently not paying "enough" and will be called upon to pay higher taxes, and or have many tax deductions such as mortgage interest and charitable contributions taken away from them. But how much of a dent can Americans making $250,000 or more put into a $9 trillion deficit? How many Americans will suddenly make $249,000 because they net more after taxes than if they make that extra $1000? Is it realistic to believe that our current spending will be paid by future Americans making above that magic threshold?

It is just as realistic as my proposal to help lower the future deficit and send a message to Americans that they have been heard this summer.


Upon returning from summer recess (aside: when you hear Congress is on recess do you picture them on slides and swings, they often act like children I picture them on recess like children), when they return Congress makes huge in-roads with Americans and perhaps gains back a little trust if their first order of business is to repeal the Stimulus Package passed in February for any funds that have not yet been sent out. It is not needed to stimulate the economy as evidence that only 10-15% of the funds have been spent or credited through tax cuts and the economy by almost all reports is on the road to recovery. If the purpose of the $787 billion was to boost and support the economy, and the economy is boosting and supporting without the money then do not spend it. Take it back.

Yes there will be communities through the country upset because their pork projects of renovation of dilapidated and unused rail stations will stay dilapidated, skate parks expansions will stay the same size, walkways will not be built around lakes and some will be stuck with the millions and millions of dollars of signs printed touting a project is being paid for by Federal Stimulus Funding. So what, let them be upset in the end pulling almost $700 billion in spending back into the budget will help reduce the current deficit and the future deficit.

Americans across the country are telling their Congressional representatives to please listen to their constituents, look at how much money has been flowing out of Washington and how much more is on the table--over $1 trillion for HR 3200 the health care reform bill that is the center of most of the debates. Now is a chance for Congress to tell the American people, "we hear you, we understand, we will not spend money that is not needed to be spent by the Federal government."

Were Congress to rescind the unspent stimulus funds and pass a motion to suspend HR 3200 until Congress and the White House are able to reform and make efficient the waste in Medicare and Medicaid, I think they would have a much better chance of passing step-by-step and methodical health care reform.

If I were a "Blue Dog Democrat" on the hot seat in November 2010 for the deficits being rung up I would certainly be touting saving $700 billion and be part of the first Congress to ever un-ring a spending bill.

Think it will happen?



Haiku Frank (D) said...

Dennis, your propsal is overly wishful thinking
Granted, trillions in deficits are quite stinking.

But your sniveling about inflation is quite overblown
Deflation—not inflation—is the economy’s prevailing tone.

American households have lost 14 trillion
Dollars in wealth that is now all has-been.

Fed interest rates are at an all-time low
Yet real estate values still do not grow.

Some see real estate stabilizing to new gains
But it’s nothing but a postponment of further wanes.

Like FDR, Obama is trying fiscal stimulus bag of tricks
To long-term get us out of this deflation fix.

Interest rates won’t inflate like Jimmy Carter
They’ll continue at all-time lows, so don’t martyr.

Now, if only health care costs would stop inflating
Providing more universal coverage for which I’m still waiting.

I see the next decade like the 1930s:
Stagnant, deflated, with few perties.

With FDIC, SEC, unemployment comp and other safety nets
The Recession won’t depress to uncover one’s bets.

China and Japan will always buy our t-bonds to boot
As long as Congress does not re-pass Hawley-Smoot.

So the Keynesian tells Dennis the monetarist:
Government will save us all—so don’t be embarassed.

poolman said...

you cannot print more money than is currently in circulation without devaluing the dollar. if you have $100 and decide to print another $100 but do not have a corresponding rise in assets by definition the value of your original $100 is cut in half. as our debt becomes less attractive we will have to pay more in interest to sell our debt adding to inflation.

printing money without regard for proper monetary policy is more reminiscent of the weimar republic than of the U.S. in the 1930's.

the government is funded by our tax dollars. to finance a bigger government is to marginalize the individual by placing regulation, restrictions, forcible confiscation of earned wages (dont believe me? try not paying your taxes)the tax code alone almost insures that nearly everyone is breaking the law at some point so help me tim geithner. i for one prefer the government take as minimal a role as necessary. i am perfectly capable of taking care of myself and my family in fact the biggest obstacle to my economic success is the burden of regulation and taxes which the government has decided to "save" me with.