Tuesday, November 09, 2010

Understanding the Crisis

I will start this post with a sincere statement of understanding for the millions of Americans around the country who are currently unemployed and are experiencing substantial financial issues. I know what it is like as I have personally been there more than once. I lived through the inflationary 1970's on limited income while raising four kids and with a spouse that suffered numerous medical conditions. So for those now caught up in difficult circumstances, I GET IT.

Having said that, I remain somewhat confused that the amount of people unemployed when compared to the total workforce could be causing a near collapse of our entire economy.

Using the numbers reported the national unemployment sits at 9.6% out of a possible 100%. Excuse me but doesn't this mean that 90.4% of workers ARE CURRENTLY EMPLOYED? During the past 60 years the average national unemployment rate has averaged approximately 6.1% (or 3.5% more than the current level). Most economists consider a 4.5% level to be "full employment". So in reality we are dealing with current level that is 3.5% above the 60 year average and 5.1% above a "full employment" condition. Granted the current unemployment rate is too high and certainly needs to come down to a level around the 60 year average.

BUT, do these above average unemployment numbers that we are experiencing now really have the power to offset the 90.6% of workers that ARE employed and cause the National crisis we hear about 24/7? REALLY?

How much of the "crisis" is political? How much of the "crisis" is blown up by the media for their own ratings because after all we Americans must have our constant stream of bad news, right? How much of the "crisis" has been a diversion tactic by the banks, credit card companies, home builders, and too many of the general public who spent themselves into hopeless debt?

Let me repeat, 9 out of every 10 American workers (aside from those who have stopped looking) ARE WORKING and for the most ARE paying their bills and mortgages and ARE out buying goods and services (granted at a lessor level than during the insane years of 2003 through 2007).

Are we Americans prepared to throw in the towel completely because we have an unemployment rate that is a mere 3.5% above the 60 year average? REALLY? Has American optimism been lost as well? Will we not at some point get past the problems just has we have gotten past so many immense problems in our nation's history? I'm not ready to believe that all is lost just yet.

What we need is to stop being consumed by all the negative talk and fear being thrown at us every day and start thinking and believing in a positive future. By continuing on this current path we are also projecting a "woe is me" attitude to our children and that is not good at all.

IF things are truly on the brink of total disaster at today's levels what would it be like if we approached the 25% unemployment levels of the early 1930'? YIKES!! What if mortgage interest rates were 13 to 15% as they were in those tough years of the 1970's? What if the price of meat, coffee, sugar, milk, bread, and other products doubled or tripled as they did in the early 1970's? Yet, somehow we Americans adjusted and recovered from all of those situations that I would submit were worse on family budgets than what we are experiencing today. During the hard times of my eventful life I knew of no other way out of negative situations than to roll up my sleeves and do whatever I needed to for my family and myself.  Trust me, it CAN be done!


Thursday, November 04, 2010

The Numbers Are The Numbers

We've had the mid-term elections and there will be many new faces in Congress for at least the next 2 to 6 years and the Republicans will now control the House (which they did for 12 of the past 14 years) while the Democrats maintain a slim majority in the Senate. President Obama will continue as President for at least the next two years. That is the landscape. Now on to the numbers.

I have been listening to candidates and elected officials for most of my adult life (and that's several decades now) promise that they would be the one to control spending, balance the budget, reduce the national debt and keep taxes low. Well it hasn't happened and there is no compelling reason to believe that it will suddenly happen now. The sound bite things that candidates utter has been intentionally vague about just HOW they plan to keep those promises. They couldn't be specific because the raw truth would probably cause them to lose their election. We Americans love to buy into the promise with little detail because that is easier than hearing the truth about the numbers.

So, as we all hope and believe that this group will finally be the ones with the solutions let me pose some plain and direct questions. Exactly how will a "balanced budget" be achieved? Exactly how will the National Debt be reduced? Exactly what "spending will be reduced or eliminated to make up for the 1.27 TRILLION dollar deficit projected in the current 2010-2011 budget? Can any of this actually be accomplished with no increase in Federal revenues (tax INCREASES)? It will soon be time to stop campaigning and FIX THE PROBLEM.

Here are the numbers for the 2010-2011 Federal Budget;

           Total estimated revenue - - - -- - -- - - 2,567,200,000,000

           Total estimated spending - - - - - - - -  3,833,900,000,000

           Estimated deficit - - - - - - - - - - - - - -  1,266,700,000,000

                    Total Gross Public Debt          15,144,000,000,000
                      (after adding the current year deficit)

Breakdown of spending;

          Pensions - - - - - - - - - - - - - - - - - - - -787.6 Billion (20.5% of spending)
           (Social Security, Fed Retirement)
                                                                                           (30.7% of revenues)

          Healthcare - - - - - - - - - - - - - - - - -  898 Billion (23.4% of spending)
                                                                                        (35% of revenues)
           (Medicare- - 473.3 B
            Public Health services - 4.5B
            Health R&D - 38.5B
            Vendor Payts (Welfare) 357.8B
              296.7B of this goes to States
              for Medicaid Programs

         Education - - - - - - - - - - - - - - - - - - 140.9 Billion (3.7% of spending)
                                                                                         ( 5.5% of revenues)

         Defense - - - - - - - - - - - - - - - - - - -  928.5 Billion  (24.2% of spending)
                                                                                         (36.2% of revenues)

         Welfare - - - - - - - - - - - - - - - - - - - 464.6 Billion  (12.1% of spending)
                                                                                        ( 18.1% of revenues)

         Protection - - - - - - - - - - - - - - - - - 57.3 Billion    (1.5% of spending)
                                                                                        (2.2% of revenues)

         Transportation - - - - - - - - - - - - - 104.2 Billion  (2.7% of spending)
                                                                                       (4.0% of revenues)

         General Government - - - - - - - - 29 Billion        ( .08% of spending)
                                                                                       ( 1.1% of revenues)

        Other Spending - - - - - - - - - - - - 151.4 Billion    (3.9% of spending)
                                                                                       ( 5.6% of revenues)

        Balance - - - - - - - - - - - - - - - - -  21.0 Billion       ( .05% of spending)
                                                                                       ( .08% of revenues)

        Interest - - - - - - - - - - - - - - - - - 250.7 Billion      ( 6.5% of spending)
                                                                                       ( 9.8% of revenues)

Those are the numbers. How can we get to a balanced budget and begin to reduce the national debt as promised? The newly elected Republicans and all who remained in office have continually promised NO NEW TAXES (and most want to reduce the current tax levels) so the prospects of increased Federal revenues are not good. therefore we will assume the revenue total will stand as estimated above. Defense spending has been a "sacred cow" for Republicans so we will assume NO cuts in defense spending. Social Security (why is this included in the Federal Budget at all?) is a lightning rod for both Parties so we won't touch that for now.

The stark truth is that to eliminate the deficit (for this fiscal year) Congress and the President would have to;

            Education - - - - - - - - 140.9 Billion
            Protection - - - - - - - - 57.3 Billion
            Transportation -  - -   104.2 Billion
            General government 29 Billion
            Other spending - -  - -151.4 Billion
            Balance - - - - - - - - - -21 Billion
                                              503.8 Billion

         By eliminating ALL spending and thus shutting down ALL Government services and protection the 2010-2011 deficit would still be 762.9 Billion. So, to the next step.


                                              464.6 Billion
          This would still leave the 2010-2011 Deficit at 298.3 Billion

          In order to get all the way to a balanced budget (still with no reduction in the overall public debt) AND with NO increase in Federal revenues and no cuts to defense spending or Social Security spending we would need to;

                                             298.3 Billion (33% of that budget)

Wow! Is there anyone out there who actually believes that all of the above can or will actually be done? Does anyone out actually believe that any politician would go this far to balance the budget while still maintaining a policy of no taxes increases and no cuts to defense or social security spending? I think not.

The Federal Budget cannot come into balance without doing one of the following or a combination of the following;

           A) A substantial INCREASE in taxes to the extent necessary to balance the budget.
           B) A flat 33% cut to ALL budget items (including Defense and Healthcare and Welfare)
           C) The ELIMINATION of ALL spending in the categories listed above (503.8 Billion)

Well, we have arrived at the end of the numbers and the time for action. If the people in Congress and the President are unwilling to go to the deep end of the pool and deal with the numbers all their talk and spin means nothing and we will continue to have deficit spending as we have for the past 62 years (except for 8 years, and only two years since 1961).

Of course,  the American people need to get past the campaign rallies and decide just what they are really willing to accept in order to "control spending" and "have limited Government" and "reduce the "National Debt". We can't have the services and aid programs and endless increases in defense spending and lower taxes forever without pushing the country and ourselves off the proverbial cliff. The Numbers are the Numbers.

Now it really is TIME TO THINK AGAIN.