As reported in Huffington Post 11/4/11

 

WASHINGTON — House Speaker John Boehner said Thursday that any bipartisan agreement reached by the congressional deficit-reduction supercommittee will need to include some new tax revenue.

Most Congressional Republicans have signed a “taxpayer protection pledge” — devised by the Grover Norquist-led group Americans for Tax Reform — vowing not to raise taxes. When asked about Norquist on Thursday, Boehner dismissed him as “some random person in America” but later revised his comments to say that “Norquist, like millions of Americans, believes that raising taxes is not good for our economy.”

According to CBS News, Boehner insisted that Republicans would only compromise on tax revenue if Democrats were willing to take significant steps to shore up entitlement programs.

“Without real reform on the entitlement side, I’m not even going to put any new revenue on the table,” Boehner said. Entitlement programs include Social Security, Medicare and Medicaid.

Any new tax revenue would not come from raising rates, he said, but from overhauling the tax code, sweeping out loopholes and deductions in order to reduce individual and corporate rates.

“I do think that our efforts to have a flatter, fairer tax system, with our targets being 25 percent top rates for corporations, 25 percent top rates for individuals, is achievable,” Boehner said. “That means you clean out all the garbage. I think it’s very important that it get done.”

Boehner says he remains committed to helping the deficit panel succeed and that Congress should approve its recommendations if it produces a plan to curb the government’s gush of red ink. He expressed confidence on Thursday that the group would meet its goal.

//

//

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“I didn’t agree to set this thing up with any idea that it wouldn’t succeed,” Boehner said. “I’d love to exceed the goal, but we have to meet the goal, and I’m going to put every ounce of effort in to make sure that we do.”

Shortly after meeting with reporters, Boehner met again with supercommittee Republicans.

The panel has three weeks to come up with recommendations that would be given an automatic vote by both House and Senate.

The deficit panel appears deadlocked over demands by Democrats that it raise substantial new revenue. Republicans are united against the idea, though a GOP proposal last week counted new Medicare premiums and larger contributions from federal workers to their retirement as revenue. Republicans also assumed about $200 billion in revenue would come from the economic growth associated with reforming the loophole-cluttered tax code.

In a surprise development, the three GOP senators in the so-called Gang of Six group that forged a bipartisan deficit proposal including about $2 trillion in new revenues signed on to a letter drafted by conservative stalwart Jim DeMint, R-S.C., that called on the supercommittee to propose a solution with “no net tax increase.”

Boehner discussed a potential deficit deal with President Barack Obama this summer that would have allowed up to $800 billion in new revenues as part of a comprehensive tax overhaul bill that would have eliminated many tax breaks and used the savings to lower income tax rates.

However, the Boehner-Obama talks fell apart.

Boehner said Thursday that “all kinds of discussions” are going on now.

“I think there’s room for revenue but there’s clearly a limit to the revenues that may be available,” Boehner said.

As reported in Huffington Post 10/14/11

Written by Al Gore

For the past several weeks I have watched and read news about the Occupy Wall Street protests with both interest and admiration. I thought the New York Times hit the nail on the head in an editorialSunday:

“The message — and the solutions — should be obvious to anyone who has been paying attention since the economy went into a recession that continues to sock the middle class while the rich have recovered and prospered. The problem is that no one in Washington has been listening.” 

“At this point, protest is the message: income inequality is grinding down that middle class, increasing the ranks of the poor, and threatening to create a permanent underclass of able, willing but jobless people. On one level, the protesters, most of them young, are giving voice to a generation of lost opportunity.”

 

From the economy to the climate crisis our leaders have pursued solutions that are not solving our problems, instead they propose policies that accomplish little. With democracy in crisis, a true grassroots movement pointing out the flaws in our system is the first step in the right direction. Count me among those supporting and cheering on the Occupy Wall Street movement.

You can support the protests by clicking here.

As reported in Drudge Report

Sep 21, 7:41 AM
(ET)

By MARTIN CRUTSINGER

(AP) In this Sept. 30,
2010 file photo, Federal Reserve Chairman Ben Bernanke testifies on…
Full
Image
 


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WASHINGTON (AP) – The Federal Reserve is running out of options to try to
boost a slumping economy and lower unemployment. So policymakers are expected to
reach 50 years back into their playbook for their next move.

Most economists expect the Fed to announce a plan Wednesday to shift money in
its $1.7 trillion portfolio out of short-term securities and into longer-term
holdings.

The plan could lower Treasury yields further. Ultimately, it could reduce
rates on mortgages and other consumer and business loans, too.

Fed Chairman Ben Bernanke is expected to advocate the move despite criticism
from within the Fed and from Republican lawmakers and presidential candidates.

On Monday, the four highest-ranking Republicans in Congress sent Bernanke a
letter cautioning the Fed against taking further steps to lower interest rates.
Their letter suggested that lower rates could escalate the risk of high
inflation.

The plan the Fed is considered most likely to unveil Wednesday has been
dubbed “Operation Twist” and dates to the early 1960s. The Fed used a similar
program then to “twist” long-term rates lower relative to short-term rates.

Expectations that the Fed will do so again, along with renewed fears of
another recession, have led investors to buy up U.S. Treasurys. Treasury yields
have dropped in response.

The yield on the 10-year Treasury note last week touched a historic low of
1.87 percent. On Tuesday, it finished slightly higher, 1.93 percent.

Once the Fed announced last month that it would expand its September meeting
from one to two days, most economists have predicted that policymakers would
unveil some new step. Chairman Ben Bernanke has said that the Fed is considering
a range of options.

The central bank is under pressure to revive an economy that has limped along
for more than two years since the recession officially ended. In the first six
months of this year, the economy grew at an annual rate of just 0.7 percent. In
August, the economy didn’t add any jobs, and consumers didn’t increase their
spending on retail goods.

Most economists foresee growth of less than 2 percent for the entire year.
Many say the odds of another recession are about one in three.

The Fed has offered its own bleak outlook. At its August meeting, it said the
economy will likely struggle for at least two more years. As a result, it said
it planned to keep short-term rates near record lows until mid-2013, as long as
the economy remained weak.

The decision to do so highlighted a rift within the central bank. Three
members dissented from the Fed’s decision – the most negative votes in nearly
two decades. The three, all regional Fed bank presidents, said the Fed’s
policies have increased the risk of inflation.

Bernanke has also faced criticism from congressional Republicans and GOP
presidential candidates. Some have argued that the Fed’s $600 billion
bond-buying program, which ended in June, weakened the value of the dollar
against other currencies and contributed to a spike in oil and commodity prices.

Texas Gov. Rick Perry, who is seeking the GOP nomination for president, went
so far as to say Bernanke would be “almost treasonous” to launch more bond
buying.

Bernanke has said that the Fed could consider another round of bond
purchases. It could also provide more specific guidance on future interest rate
moves.

Or it could reduce the 0.25 percent interest the Fed pays banks on their
reserves at the central bank. Doing so would reduce the banks’ incentive to keep
money at the Fed and might make them more likely to lend.

But many analysts expect the Fed to opt for Operation Twist over those other
actions.

President Barack Obama has unveiled a $447 billion jobs program made up of a
combination of tax cuts and increased government spending. But the proposal
faces an uncertain fate in Congress, where Republicans are focused on efforts to
trim soaring budget deficits.

By  Peter Wallsten, Published: September 8

More than two dozen senators from both parties met privately this week to revive hopes of a grand debt-cutting bargain — exploring how to push the newly formed debt “supercommittee” to find far more than its assigned goal of $1.5 trillion in deficit reductions.

The senators want at least $3 trillion slashed from the deficit over the next decade. In addition, they plan to press the committee to pass a major tax overhaul to lower rates and close special-interest loopholes, as well as changes to entitlement programs such as Medicare, according to several participants.

The effort comes as the 12-member supercommittee begins what is expected to be a grueling process to map out its plans before a November deadline — and it threatens to undercut the chances for President Obama to win passage for portions of a jobs plan expected to cost hundreds of billions of dollars in the short term.

“I don’t think I’m speaking out of school that it was a unanimous feeling among a large group of senators from both sides of the aisle,” said Sen. Bob Corker (R-Tenn.), one of the meeting participants. “Most people are far more focused on this supercommittee than any speech the president’s going to give.”

Another in the group, Sen. Joseph I. Lieberman (I-Conn.), said the senators want to “encourage” the supercommittee “to reach for a higher number.” He said the committee should “compromise with one another and do what parts of each party will not like, for the greater good, because that’s really what most of the people in the country want.”

Obama, too, is expected to press the committee to exceed its deficit-reduction goal. In his speech Thursday night, he called on Congress to increase the super­committee’s deficit-cutting goals to cover the costs of his jobs plan, and he said that a week from Monday he will announce a more detailed plan “that will not only cover the cost of this jobs bill, but stabilize our debt in the long run.”

Several people familiar with the discussions said the lawmakers felt that, after the pomp and ceremony of Obama’s joint-session speech fades, the center of political and policy gravity on Capitol Hill will be the work of the special committee, chaired by Sen. Patty Murray (D-Wash.) and Rep. Jeb Hensarling (R-Tex.).

Under last month’s debt-ceiling deal struck by Obama and GOP lawmakers, deep cuts would automatically take effect in national security and other areas if the supercommittee fails to reach agreement or if Congress fails to pass legislation by December.

One senior Democratic aide called Obama’s jobs plan largely “dead on arrival” because its expected price tag would roughly cancel out the one year’s worth of savings many lawmakers hope the supercommittee will find.

The Senate on Thursday blocked a resolution of disapproval for an additional $500 billion increase in the debt ceiling. The procedure is required by the legislation to raise the borrowing limit in phases by at least $2.1 trillion.

A Senate staffer familiar with the senators’ private discussions said the effort was intended to be “complementary” to the work of the supercommittee but also to offer a gentle nudge.

The staffer said the senators’ push would “demonstrate there can be some support and safety if they choose to go beyond their charge.”

Both aides spoke on the condition of anonymity in order to discuss the private deliberations.

The private gathering this week, held Wednesday in a Capitol meeting room, included about 25 centrists from both parties. It was organized by Sens. Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.), two members of the “Gang of Six,” which tried unsuccessfully to engineer a grand deal patterned loosely after the plan laid out by the deficit commission headed by former Clinton White House chief of staff Erskine Bowles and former senator Alan Simpson.

At least a third of the Senate at one time had indicated some level of support for the broad framework being negotiated by the Gang of Six, according to people familiar with that group’s discussions.

By  Associated Press, Published: September 8

WASHINGTON — In an early show of optimism, Republicans and Democrats on a powerful committee charged with cutting deficits pledged Thursday to aim higher than their $1.2 trillion target, work to boost job creation and reassure an anxious nation that Congress can solve big problems.

Tax reform as well as cuts to benefit programs such as Social Security and Medicare will be among the options considered, members of the so-called supercommittee emphasized, although no specific proposals were debated at an opening session than ran scarcely an hour.

While they readily acknowledged numerous obstacles to a deal, committee members said it was essential to try at a time the economy is weak, joblessness is high and the country gives every sign of intense frustration with its elected leaders.

Compromise “is the difference between a divided government that works for the country and a dysfunctional government that doesn’t,” said Rep. Chris Van Hollen, D-Md., the last of a dozen members to speak.

The panel, co-chaired by Rep. Jeb Hensarling, R-Texas, and Sen. Patty Murray, D-Wash., lawmakers from opposite ends of the political spectrum, hopes to help broker a deal somewhere in the middle — on an issue where failure is the rule.

Shortly after the session, at least one Republican member threatened to quit if the panel considers cuts in defense beyond the $350 billion over a decade that Congress approved last month as part of a package of deep spending reductions and an increase in the debt limit.

“I’m off the committee if we’re going to talk about further defense” cuts, Arizona Sen. Jon Kyl said he told panel members. Speaking at a defense forum, Kyl said the military “has given enough already, and any further hit would be inimical to our national security around the globe.”

The committee, three members from each party in each house, faces a deadline of Nov. 23. Its most consequential sessions are expected to take place in closed door sessions that will give President Barack Obama and congressional leaders from both parties the opportunity to influence the outcome.

Ironically, the committee owes its existence to earlier failed attempts at sweeping deficit-cutting compromises, most recently an abortive negotiation between Obama and House Speaker John Boehner, R-Ohio.

Their talks collapsed over the summer, at a time Republicans were demanding deficit cuts in exchange for passage of legislation to raise the debt limit and prevent a first-ever government default.

In the end, the two sides agreed to increase the debt limit by enough to let the Treasury pay its bills through 2012 while also cutting $1 trillion over a decade from one category of government programs.

It was a significant sum, but far less than the White House and some Republicans had been hoping for. Nor did it change the tax code or significantly affect Medicare, Medicaid, Social Security, farm programs and other costly benefit programs than many lawmakers say must be part of any attempt to slow and ultimately reduce the nation’s debt.

That is particularly true of Republicans, although Democrats are largely unwilling to go along unless their GOP counterparts will agree to higher revenues at the same time.

“I approach our task with a profound sense of urgency, high hopes, and realistic expectations,” Hensarling said as he gaveled the session to order. He said the task “will not be easy, but it is essential,” and said the panel “must be primarily about saving and reforming social safety net programs that are not only failing many beneficiaries but going broke at the same time.”

A fellow Republican, Sen. Pat Toomey of Pennsylvania, added another item to the agenda moments later, speaking of “wasteful tax subsidies” that should be eliminated and calling for changes that can turn the tax code into an engine for more economic growth.

“When huge, iconic American corporations can pay little or no income tax, well that’s indefensible,” he said. “So I think we ought to wipe out those special interest favors, have commensurately lower rates, encourage the economic growth that will generate more revenues, generate more jobs.”

Among Democrats, Murray stressed the importance of compromise, saying that in meetings with constituents last month, they “asked why it was that every time they turn on their televisions, they hear about more political battling, more partisan rancor_but nothing more being done for people like them.”

She added pointedly that she was pleased that other members of the panel “have refrained from drawing in the sand or carving out areas that can’t be touched” as part of any deal.

The committee is scheduled to hold a public hearing next week at which Douglas Elmendorf, head of the nonpartisan Congressional Budget Office, is expected to explain the forces that have driven the annual deficits into the $1 trillion-plus range, and left the country with a debt of $14 trillion.

The legislation that created the committee also approved a $400 billion debt limit increase, and permitted Obama to request yet another $500 billion increase, with an option for Congress to block it. An attempt to do so failed in the Senate on Thursday evening.

If the committee fails to produce a 10-year package of cuts of at least $1.2 trillion, across-the-board spending cuts would take place that would and simultaneously allow the president to seek another increase in the federal debt limit of the same size.

On the other hand, any agreement on cuts totaling up to $1.5 trillion that are approved by both houses of Congress would permit Obama to request a dollar-for-dollar rise in the debt limit. There is no upper limit to the amount of deficit reductions the panel can recommend.

The committee proceedings were briefly interrupted by demonstrators who shouted “Jobs Now!” in a hallway outside the room. The group dispersed after police threatened them with arrest.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed

As reported In Huffington Post

WASHINGTON (Associated Press)– It’s a microcosm of the budget battling that has consumed Congress all year: The Obama administration wants federal agencies to save money while Republicans push for additional savings to take a substantial bite out of the government’s towering pile of IOUs.

White House budget chief Jacob Lew has ordered agency heads to submit spending plans for the upcoming budget at least 5 percent below this year’s levels. He also wants them to propose ways to trim a total of at least 10 percent of their spending.

Michael Steel, a spokesman for House Speaker John Boehner, R-Ohio, said Thursday that Lew’s directive was a good way to start finding spending cuts that are required under the recent debt-ceiling agreement between the two sides.

“But the White House must get serious about real structural reform of our entitlement programs if we’re going to get our debt under control to help our economy grow and create jobs,” Steel said, referring to huge and fast-growing benefit programs like Social Security and Medicare that help drive annual deficits skyward.

Lew’s letter did not rule out, or even address, the possibility of finding savings from benefit programs. But Steel’s remark pointed directly at the major fault line that has blocked a sweeping debt-cutting deal between the two parties: Democrats have resisted paring benefits from Social Security, Medicare and Medicaid, while Republicans have refused to consider tax increases.

The Obama administration has asked agencies in years past to propose similar savings. But Lew’s order comes just two weeks after Obama and congressional Republicans ended an epic debt ceiling battle that has left both sides eager to demonstrate a willingness to trim red ink ahead of a fierce autumn battle over the economy and the debt and just as the 2012 presidential and congressional elections approach.

By requesting two sets of potential savings from agencies, Lew is moving toward fulfilling the debt-ceiling deal, which created a series of annual spending targets and would save tens of billions of dollars a year.

“By providing budgets pegged to these two scenarios, you will provide the president with the information to make the tough choices necessary to meet the hard spending targets in place and the needs of the nation,” Lew wrote to agency heads.

The American Federation of Government Employees, which represents more than 625,000 federal workers and employees of the District of Columbia, also jumped into the fray.

In a written statement, national president John Gage said the cuts “mean just one thing: more job destruction in the midst of a jobs crisis.” He said that with millions of Americans already unemployed or too discouraged to seek work, “why on earth would the administration be trying to dig an even deeper hole?”

The spending that Lew ordered federal agencies to trim will consume more than $1 trillion of this year’s $3.8 trillion federal budget. The rest of the budget covers benefit programs and interest payments on the government’s $14.3 trillion debt.

Lew’s letter suggests that savings can be found by eliminating unneeded programs and making agencies more efficient. It also invites agency heads to propose initiatives that would spark economic growth.

“Finding the savings to support these investments will be difficult, but it is possible,” Lew wrote.

In a White House blog on Thursday, Lew said his request for savings was designed to help the administration make decisions about living within overall spending limits. He said it did not mean every agency will necessarily see budget cuts.

Republicans say tax and spending cuts are needed to blow life back into the flagging economy and create jobs. Obama plans to unveil a jobs proposal next month mixing tax reductions, construction initiatives and deficit reduction.

When Congress returns from its summer recess in September, also generating political heat will be the special bipartisan panel of 12 lawmakers that the debt-ceiling agreement created to try to craft a compromise $1.5 trillion, 10-year debt reduction package.

As another part of the debt-cutting deal, the two sides agreed to a separate $900 billion in 10-year savings from agency budgets. The details of those cuts will have to be worked out every year, but they will be evenly divided between national security and domestic programs.

Earlier this year, Obama and Congress also battled down to the wire over spending cuts and came within hours of forcing a partial government shutdown. In the end, they agreed to pare agency spending by $38 billion.

Lew asked agency chiefs for the two spending scenarios as the administration plans for the 2013 budget year, which begins in October 2012. That budget will be released early next year.

On Vacation

August 11, 2011

Go ahead,

 

Take a look around…

 

 

Everyone is on vacation

 

 

 

Try calling a client….

 

 

Catch up with me after
Labor Day

 

I’m taking some time
off

 

 

Why am I even writing this post?

 

 

 

I’ll probably just get a lot of

 

Out of the Office return reply messages?

 

 

For you faithful few….

 

 

 

The warriors!!!!!!

 

 

Vacation…

 

 

Humbug…..

 

 

 

I don’t care how hot
it is!!!!

 

 

 

I’m gonna work

 

 

 

Even if I can’t get
anything done

 

Because everyone is
away

 

 

 

 

I will write this post for you

 

 

 

This week….

 

 

Britain is in turmoil…

 

 

A policeman shot a teen

 

The People are rioting, burning buildings

 

 

Guess what????

 

 

Cameron came back off vacation

 

 

 

Congress and Obama have spent the last month

 

Battling over the debt ceiling

 

 

 

Each claiming they are sticking to their guns

 

“We must fight to protect the middle class”

 

 

Well….

 

They came up with the grand compromise

 

 

 

And quickly left for vacation

 

 

 

Standard and Poor’s drops our credit ranking

 

 

 

The stock market drops 600 points Monday

 

 

 

As of last week

 

The stock market was down over 2000 pints

 

in the last 30 days

 

 

 

I heard that people with 401k in the stock market

 

Lost about 12% of their value last week

 

 

 

 

 

Meanwhile, Congress is on vacation

 

 

Their probably listening to the constituents’

 

 

Hang tough…..

 

Don’t give in…..

 

We’ve got your back…..

 

 

 

 

Who has our back?

 

 

 

 

Why am I thinking about this?

 

 

 

I should be on vacation

As presented in InvestorsInsight.com

 

One of the great privileges of traveling and speaking as I do is getting to
meet a wide variety of very interesting people. Of late, I have become friends
with David Walker, former Comptroller General of the US, who is now
crisscrossing the country warning of the deficit crisis. It is a message that my
book Endgame resonates with. If we do not bring the deficit down below
the growth rate of nominal GDP, we become Greece. We hit an economic wall and
everything collapses. It will be a real and true Depression 2.0. Fixing this is
the single most important topic and task of our generation. If we do not,
worrying about P/E ratios, moving averages, long-term investments – anything
else, in fact – is secondary. Solve this and we can go back to the usual
issues.

This week’s Outside the Box is a presentation that David made recently.
Powerful stuff. I urge you to forward this on. The message must be heard so that
we can as a nation get this right. The world does not need a crippled USA.

David released a short statement about the Navy Seals getting Osama
(finally!). It echoes my own thoughts.

“All Americans should come together in appreciation for the work of America’s
intelligence agencies and special forces who planned and executed yesterday’s
Osama Bin Laden operation. While his death is a key milestone in the fight
against terrorism, the battle is far from over. More importantly, as I said in a
CBS 60 Minutes segment in 2007, ‘The greatest threat to America is not a
person hiding in a cave in Afghanistan or Pakistan, it is our own fiscal
irresponsibility.’ That statement was true then and it is even more true now.
It’s now time for the President and the Congress to work together and address
the fiscal debt bomb that represents a much greater threat to our country’s and
families futures.”

My flight was cancelled, so I am in Toronto for one more night. The folks at
Horizon Funds have graciously offered to take me to an early dinner and a
private wine cellar, as I have a 4:30 AM (ugh) wake-up call and will turn in
early. I hate 4:30 AM. That is not a civilized time of day. If I wanted to live
like Dennis Gartman I could learn to deal with it, but I guess occasionally one
does what one must.

One final thought. While getting OBL is a wonderful thing, it does little to
change the reality of the Middle East, and may even finally create a true martyr
(albeit one who was living well, and not in a cave). The world remains
unsettled. Every speaker at my recent conference was asked what keeps them up at
night. Every speaker mentioned the Middle East, some rather pointedly. It is a
true wild card. But let us enjoy for the moment some token of pleasure for the
just end of the planner of the 9/11 tragedy.

I will report more about the conference in future letters.

Your having a lot to think about analyst,

John Mauldin, Editor
Outside the Box


Restoring Fiscal
Sanity in the United States: A Way Forward

By: Hon. David M. Walker, Founder and CEO of the Comeback
America Initiative and Former Comptroller General of the United States
(1998-2008)

Two hundred and twenty two years ago, the American Republic was founded. The
United States had defeated the world’s most powerful military force to win
independence, and over a several year period, went about creating a federal
government based on certain key principles, including limited government,
individual liberty, and fiscal responsibility. That government was established
by what is arguably the world’s greatest political document – the United States
Constitution.

Our nation’s founders understood the difference between opportunity and
entitlement. They believed in certain key values including the prudence of
thrift, savings and limited debt. They took seriously their stewardship
obligation to the country and future generations of Americans.

The truth is, we have strayed from these key, time-tested principles and
values in recent decades. We must return to them if we want to keep America
great and help to ensure that our future is better than our past.

Believe it or not, to win our independence and achieve ratification of the
U.S. Constitution, the U.S. only had to go into total federal and state debt
equal to 40 percent of the size of its then fledgling economy. Fast forward to
today, when the U.S. is the largest economy on earth and a global superpower –
but total federal debt alone is almost 100 percent of the economy and growing
rapidly. Add in state and local debt, and the total number is about three times
as much as the total debt we held at the beginning of our Republic – and it is
headed up rapidly. As the below graphic shows, our total federal debt has more
than doubled in just the past ten and a half years.

America has gone from the world’s leading creditor nation to the world’s
largest debtor nation. We have also become unduly dependent on foreign nations
to finance our excess consumption. Many of these foreign investors have shunned
our long-term debt due to concerns over future interest rates and the
longer-term value of the dollar. And PIMCO, the largest Treasury bond manager in
the U.S., also recently sold their Treasury security holdings due to a lack of
adequate return for the related interest rate risk.

And who is now the largest holder of Treasury securities? It’s the Federal
Reserve. I call that self-dealing. The Fed may be able to hold down interest
rates for a period of time; however, they cannot hold them down forever. The
Fed’s debt purchase actions are just another example of how Washington
policymakers take steps to provide short-term gain while failing to take steps
to avoid the longer-term pain that will surely come if we fail to put our
nation’s fiscal and monetary policies in order.

The Fiscal Fitness Index

In March 2011 the Comeback America Initiative (CAI) and Stanford University
released a new Sovereign Fiscal Responsibility Index (SFRI) – or as my wife Mary
refers to it, a Fiscal Fitness Index. We calculated each country’s SFRI based on
three factors – fiscal space, fiscal path, and fiscal governance.

Fiscal space represents the amount of additional debt a country could
theoretically issue before a fiscal crisis is imminent. Fiscal path is an
estimate of the number of years before a country will hit its theoretical
maximum debt capacity. (The U.S. will hit its maximum within16 years, but will
enter a “fiscal danger zone” within 2-3 years). Fiscal governance is a value
based on the strength of a government’s institutions, as well as its
transparency and accountability to its citizens. Unfortunately, the U.S. ranks
far below the average in all three of these categories – in particular, the
fiscal governance category.

The overall SFRI index showed that the U.S. ranked 28 out of 34 nations in
the area of fiscal responsibility and sustainability. And when you see which
countries rank around us, it’s clear that we’re in a bad neighborhood. We’re
only a few notches above countries like Greece, Ireland, and Portugal, all of
which have recently suffered severe debt crises. That report also showed that
the U.S. could face a debt crisis as soon as two to three years from now, given
our present path and interest rate risk. Below is the full list of rankings.

On the positive side, the CAI and Stanford report showed that if Congress and
the President were able to work together to pass fiscal reforms that were the
“bottom line” fiscal equivalent of those recommended by the National Fiscal
Responsibility and Reform Commission last year, our nation’s ranking would
improve dramatically, to number 8 out of 34 nations. In addition, we would
achieve fiscal sustainability for over 40 years!

So what are our elected officials waiting for? Do they want a debt crisis to
force them to make very sudden and possibly draconian changes? If not, they need
to wake up and work together to make tough choices. That’s what New Zealand did
in the early 1990s, when that country faced a currency crisis. Due to tough
choices then and persistence over time, New Zealand now ranks number 2 in the
SFRI – second only to Australia, which the Kiwis are not happy about! If New
Zealand can do it, America can too!

The Recent Budget Policy Proposals

In order for us to begin to restore fiscal sanity to this country, President
Obama has to discharge his leadership responsibilities as CEO of the United
States Government. He got into the game with his fiscal speech on April 13, in
which he largely embraced the work of his National Fiscal Responsibility and
Reform Commission, although with a longer timeframe for implementation and less
specifics on entitlement reforms. The President also endorsed the debt/GDP
trigger and automatic enforcement concept that CAI had been advocating. Under
this concept, Congress could agree on a set of statutory budget controls that
would come into effect in fiscal 2013. Such controls should include specific
annual debt/GDP targets with automatic spending cuts and temporary revenue
increases in the event the annual target is not met. In my view, a ratio of
three parts spending cuts, excluding interest savings, to one part revenue would
make sense.

House Budget Committee Chairman Paul Ryan recently demonstrated the political
courage to lead in connection with our nation’s huge deficit and debt
challenges. His budget proposal recognizes that restoring fiscal sustainability
will require tough transformational changes in many areas, including spending
programs and tax policies. Chairman Ryan’s proposal includes several major
reform proposals, especially in the area of health care. For example, he
proposes to convert Medicare to a premium support model that will provide more
individual choice, limit the government’s long-term financial commitment and
focus government support more on those who truly need it. He also proposed to
employ a block grant approach to Medicaid in order to provide more flexibility
to the states and limit the governments’ financial exposure. These concepts have
varying degrees of merit; however, how they are designed and implemented involve
key questions of social equity that need to be carefully explored. And contrary
to Chairman Ryan’s proposal, additional defense and other security cuts that do
not compromise national security and comprehensive tax reform that raises more
revenue as compared to historical levels of GDP also need to be on the table in
order to help ensure bipartisan support for any comprehensive fiscal reform
proposal.

The President and Congressional leaders should be commended for reaching an
agreement that averted a partial shutdown of the federal government and resolved
funding levels for fiscal 2011. While it took way too much time and effort, this
compromise involved real concessions from both sides and represents a small yet
positive step towards restoring fiscal responsibility. But this action is far
from the most important fiscal challenge facing both the Congress and the
President. After all, Washington policymakers took about 88 percent of federal
spending, along with much-needed federal tax reforms, “off the table” during the
recent debate over the 2011 budget. In essence, they have been arguing over the
bar tab on the Titanic when we can see the huge iceberg that lies ahead. The ice
that is below the surface is comprised of tens of trillions of dollars in
unfunded Medicare, Social Security and other off-balance sheet obligations along
with other commitments and contingencies that could sink our “Ship of State”. It
is, therefore, critically important that we change course before we experience a
collision that could have catastrophic consequences. As you can see in the
series of pie charts below, mandatory programs like Social Security and Medicare
already take up the largest share of the federal budget and, absent a change in
course, will continue to do so in increasing amounts in the next several
decades.

The Federal Debt Ceiling Limit

Now that the level of federal funding for the 2011 fiscal year has been
resolved, there has been an increasing amount of attention on Congress’ upcoming
vote to increase the federal debt ceiling limit. As is evident by the chart
below detailing the debt ceiling limit per capita adjusted for inflation since
1940, the U.S. started losing its way in the early 1980s. Fiscal responsibility
was temporarily restored during the 1990s, when statutory budget controls were
in place, but things went out of control again in 2003, the year after those
budget controls expired.

In essence, raising the debt ceiling is simply recognizing the federal
government’s past fiscally irresponsible practices. But while federal law
provides for the continuation of essential government operations even if the
government has not decided on a budget or funding levels for a fiscal year, such
a provision does not exist in connection with the debt ceiling. Therefore, if
the federal government hits the debt ceiling during a time of large deficits,
which is the case today, dramatic and draconian actions will have to be taken to
ensure that additional debt is not incurred. This would likely include a
suspension of payments to government contractors, delays in tax refunds, and
massive furloughs of government employees. In addition, since Social Security is
now paying out more in benefits than it receives in taxes, the monthly payments
may not go out on time if we hit the debt ceiling limit. That would clearly get
the attention of tens of millions of Americans, including elected officials.

However, although failure to raise the debt ceiling is not a viable option
given our current fiscal state, we must take concrete steps to address the
government’s lack of fiscal responsibility. We must also do so in a manner that
avoids triggering a massive disruption and a possible loss of confidence by
investors in the ability of the federal government to manage its own finances.
Such a loss of confidence could spur a dramatic rise in interest rates that
would further increase our nation’s fiscal, economic, unemployment and other
challenges.

In order to begin to restore fiscal sanity, Congress could increase the debt
ceiling limit in exchange for one or more specific steps designed to send a
signal to the markets, and the American people, that a new day in federal
finance is dawning. To be credible, any such action must go beyond short-term
spending cuts for the 2012 fiscal year. The debt/GDP trigger and automatic
enforcement concepts I advocate above are one specific step Congress could take.

The S&P’s revised outlook on the long-term rating for U.S. sovereign debt
should be yet another wake-up call for elected officials and other policymakers
in Washington. S&P’s action serves as a market-based signal that independent
ratings agencies believe the U.S. is on an imprudent and unsustainable fiscal
path and that action is needed in order to maintain investor confidence. In my
view, this action should have been taken place some time ago; however, it is now
likely that other rating agencies will reconsider their ratings positions on
U.S. Sovereign debt.

Moving Past Partisan Politics

The American people need to understand that doing nothing to address our
deteriorating financial condition and huge structural deficits is simply not an
option. Failure to act will serve to threaten America’s future position in the
world and our standard of living at home. Therefore, both major political
parties must come to the table and put aside their sacred cows and unrealistic
expectations. As John F. Kennedy said, “The great enemy of the truth is very
often not the lie — deliberate, contrived and dishonest — but the myth —
persistent, persuasive, and unrealistic.”

Given President Kennedy’s admonition, liberals need to acknowledge that we
need to renegotiate the current social insurance contract. For example, contrary
to assertions by some, Social Security is now adding to the federal deficit and
is underfunded by about $8 trillion. As you can see below, it will face
escalating annual deficits beginning in 2015.

There is no debate that last year’s health care reform legislation will
result in higher federal health care costs as a percentage of the economy. (See
the chart below). In addition, according to Medicare’s independent Chief
Actuary, based on reasonable and sustainable assumptions, last year’s health
care reform legislation will end up exacerbating our deficit and debt challenges
rather than helping to lessen them. He estimated that the cost of the health
care law to the Medicare program could be over $12 trillion in current dollars
more than advertised.

Conservatives need to acknowledge that we can’t just grow our way out of our
fiscal hole. They need to admit that all tax cuts are not equal and there is
plenty of room to cut defense and other security spending without compromising
our national security. And while conservatives are correct to say that our
nation’s fiscal challenge is primarily a spending problem, they must recognize
that some additional revenues will be needed to restore fiscal sanity. The math
just doesn’t work otherwise.

All parties must acknowledge that we can’t inflate our way out of our problem
and that we must take steps to improve our nation’s competitive posture. This
means that some properly targeted and effectively implemented critical
infrastructure and other investments may be both needed and appropriate even if
they exacerbate our short-term fiscal challenge.

Washington policymakers need to understand that the same four factors that
caused the recent financial crisis exist for the federal government’s own
finances. And what are those factors?

First, a disconnect between those who benefit from prevailing policies and
practices and those who will pay the price and bear the burden if and when the
bubble bursts. Second, a lack of adequate transparency and accountability in
connection with the true financial risks that we face. Third, too much debt, not
enough focus on cash flow, and an over-reliance on narrow and myopic credit
ratings. Finally, a failure of responsible parties to act until a crisis was at
the doorstep.

There is growing agreement that the greatest threat to our nation’s future is
our own fiscal irresponsibility. In fact, as I noted in 2007 and Joint Chiefs
Chairman Admiral Mullin stated last year, our fiscal irresponsibility and
resulting debt is a national security issue. After all, if you don’t keep your
economy strong for both today and tomorrow, America’s standing in the world and
standard of living at home will both suffer over time – and waiting for a crisis
before we act could also undermine our domestic tranquility.

So where should Washington go from here?

First, Congress and the President should reach a compromise agreement on an
appropriate level of spending cuts in 2012 while also providing for some
additional properly designed and effectively implemented critical infrastructure
investments. Second, they should agree to re-impose tough statutory budget
controls that will force much tougher choices on both the spending and tax side
of the ledger beginning no later than 2013. Third, they should authorize and
fund a national citizen education and engagement effort to help prepare the
American people for the needed actions and to facilitate elected officials
taking them without losing their jobs. Fourth, they should create a credible and
independent process that will provide for a baseline review of major federal
organizational structures, operational practices, policies and programs in order
to make a range a transformational recommendations that will make the federal
government more future focused, results oriented, successful and sustainable.

Spending levels certainly need to be cut. After all, the base levels of
federal discretionary spending increased by over 30 percent between 2007 and
2010 during a time of low inflation. At the same time, all parties must be
realistic regarding how much should be cut and how quickly it can be achieved.
In my view, we should be targeting greater cuts than have been recently
considered, but over a longer period of time: for example, real spending cuts of
$125-$150 billion over several years. If we did so, the related savings would be
significant and would compound over time.

As the National Fiscal Responsibility and Reform Commission, CAI, The No
Labels political movement (of which I am a co-founder), and others have noted,
everything must be on the table – and all political leaders need to be at the
table – in order to put our nation on a more prudent and sustainable fiscal
path. This includes a range of social insurance program reforms, defense and
other spending cuts, and comprehensive tax reform that generates additional
revenues, including both individual and corporate tax reform. We must keep in
mind that the private sector is the engine of innovation, growth, and jobs. In
addition, many businesses are taxed at the individual, rather than the
corporate, level.

Realistically, it will take us a number of years to get back into fiscal
shape. And while it would be great if we could do a “grand bargain” and enact a
broad range of transformational reforms in one step, that just isn’t realistic
in today’s world. Therefore, what is a reasonable order of battle to win the war
for our fiscal future?

First and foremost we need to enact budget process reforms, re-impose the
type of budget controls and engage in the fact-based citizen education and
engagement effort referred to previously. The next order of battle items should
be corporate tax reform and Social Security reform. Why corporate tax reform?
Because it can help to improve our competitiveness, enhance economic growth and
generate jobs.

And why Social Security reform? Because we have a chance to make this
important social insurance program solvent, sustainable and secure for both
current and future generations. We can also exceed the expectations of all
generations and demonstrate to both the markets and the American people that
Washington can act before a crisis forces it too.

The above efforts should be followed by broader tax reform and
Medicare/Medicaid reforms. We will then need to rationalize our health care
promises and focus more on reducing health care costs in another round of health
care legislation. We must also begin a multi-year effort to re-baseline the
federal government’s organizations, operations, programs and policies to make
them more future focused, results oriented, affordable and sustainable.

In summary, the truth is that the government has grown too big, promised too
much and waited too long to restructure. Our fiscal clock is ticking and time is
not working in our favor. The Moment of Truth is rapidly approaching. As it
does, let us hope that our elected officials must keep the words of Theodore
Roosevelt in mind: “In any moment of decision the best thing you can do is the
right thing, the next best thing is the wrong thing, and the worst thing you can
do is nothing.” And “We the People” must do our part by insisting on action and
by making the price of doing nothing greater than the price of doing something
We must insist that our legislators offer specific solutions to defuse our
ticking debt bomb in a manner that is economically sensible, socially equitable,
culturally acceptable, and politically feasible We need to recognize that
improving our fiscal health, just like our physical health, will require some
short-term pain for greater long-term gain. The same is true for state and local
governments.

We’ll soon know whether Washington policymakers are up to the challenge and
whether they will start focusing more of doing their job than keeping their job.
They need to focus first on their country rather than their party. And yes, the
President and Congressional leaders from both political parties need to be at
the table and everything must be on the table in order to achieve sustainable
success. Let’s hope they make the right choice this time!

All of us who are involved with the Comeback America Initiative (CAI) will do
our part. All that we ask is that you do yours. The future of our country,
communities and families depends on it.

For more information about the Comeback America Initiative and No Labels,
check out www.tcaii.org and www.nolabels.org.

As reported in Huffington Post

WASHINGTON — Standard & Poor’s says it downgraded the U.S. government’s credit rating because it believes the U.S. will keep having problems getting its finances under control.

S&P officials on Saturday defended their decision to drop the government’s rating to AA+ from the top rating, AAA. The Obama administration called the move a hasty decision based on wrong calculations about the federal budget. It had tried to head off the downgrade before it was announced late Friday.

But S&P said it was the months of haggling in Congress over budget cuts that led it to downgrade the U.S. rating. The ratings agency was dissatisfied with the deal lawmakers reached last weekend. And it isn’t confident that the government will do much better in the future, even as the U.S. budget deficit grows.

David Beers, global head of sovereign ratings at S&P, said the agency was concerned about the “degree of uncertainty around the political policy process. The nature of the debate and the difficulty in framing a political consensus … that was the key consideration.”

S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress on Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time.

Another concern was that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect giant entitlement programs such as Social Security and Medicare.

S&P so far is the only one of the three largest credit rating agencies to downgrade U.S. debt. Moody’s Investor Service and Fitch Ratings have both issued warnings of possible downgrades but for now have retained their AAA ratings.

The rating agencies were sharply criticized after the 2008 financial crisis. They were accused of contributing to the crisis because they didn’t warn about the dangers of subprime mortgages. When those mortgages went bad, investors lost billions of dollars and banks that held those securities had to be bailed out by the government.

Ratings agencies assign ratings on bonds and other forms of debt so investors can judge how likely an issuer – like governments, corporations and non-profit groups – will be to pay the debt back.

//

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Asked when the United States might regain its AAA credit rating, Beers said S&P would take a look at any budget agreements that achieve bigger deficit savings. But the history of other countries such as Canada and Australia who saw cuts in their credit ratings, shows that it can take years to win back the higher ratings.

Administration sources, who briefed reporters on condition of anonymity because of the sensitivity of the debt issue, said the administration was surprised by the timing of the announcement, coming just a few days after the debt agreement had been signed into law.

Treasury officials were notified by S&P of the imminent downgrade early Friday afternoon and spent the next several hours arguing with S&P. The administration contended that S&P acknowledged at one point making a $2 trillion error in their computations of deficits over the next decade.

But S&P officials said the difference reflected the use of different assumptions about how much spending and taxes will come to over the next decade. The S&P officials said they decided to use the administration’s assumptions since the $2 trillion difference in the deficit numbers was not going to change the company’s downgrade decision.

In a Treasury blog posting Saturday, John Bellows, the Treasury’s acting assistant secretary for economic policy, said he was amazed by that decision.

“S&P did not believe a mistake of this magnitude was significant enough to warrant reconsidering their judgment or even significant enough to warrant another day to carefully re-evaluate their analysis,” Bellows wrote.

S&P officials said their decision hadn’t been rushed. They noted that S&P had been warning about a potential downgrade since April.

Some critics, the debacle of 2008 still in mind, raised questions about S&P’s actions now.

“I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating,” Sen. Bernie Sanders, I-Vt., said Saturday. “Where were they four years ago?”

Standard & Poor’s roots go back to the 1860s. One of its founders, Henry Varnum Poor, was a publisher of financial information about the nation’s railroads. His company, then called Poor’s Publishing, merged in 1941 with Standard Statistics Inc., another provider of financial information.

S&P’s website said both founding firms warned clients well before the 1929 stock market crash that they should sell their stocks.

The company has been owned by publisher McGraw-Hill Cos. since 1966.

As reported in Huffington Post

WASHINGTON — The long-term unemployed have been left out of a deal between congressional negotiators and the White House to enact massive spending cuts and raise the nation’s debt ceiling before its borrowing limit is reached on Tuesday.

Under the so-called grand bargain President Obama tried to strike with House Speaker John Boehner (R-Ohio), federal unemployment benefits would have been extended beyond January 2012, when they are set to expire.

But those negotiations collapsed in July. On Sunday, congressional leaders and the administration crafted a not-so-grand bargain that will cut spending without raising taxes or preserving stimulus programs like federal unemployment insurance.

Asked Sunday night why spending to help the unemployed had been left out of the deal, a White House official said, “because it had to be part of a bigger deal to be part of this.”

In other words, Democrats need significant leverage to get Republicans to agree to additional spending on the unemployed. Federal unemployment insurance programs, which kick in for laid off workers who use up 26 weeks of state benefits, cost a lot of money: Keeping the programs through this year required an estimated $56 billion. In December, Democrats only managed to keep the programs alive for another 13 months by attaching them to a two-year reauthorization of tax cuts.

Anyone laid off after July 1 is ineligible for extra weeks of benefits under current law. People who started filing claims in July who exhaust their six months of state benefits in January will be on their own. (People who are in the middle of a “tier” of federal benefits will probably be able to receive the remaining weeks in their tier, but they will definitely be ineligible for the next level up.) Since 2008, layoff victims could receive as many as 73 additional weeks of benefits, depending on what state they lived in.

Nearly 4 million people currently claim benefits under the two main federal programs (known as Emergency Unemployment Compensation and Extended Benefits), according to the latest numbers from the Labor Department. Another 3 million are on state benefits.

// // The White House official suggested it would be easier for the administration to preserve a Social Security payroll tax cut enacted as part of the December deal because Republicans would view its expiration as a tax increase. “The payroll tax cut will be extended because if they do not that would be a tax increase on every American, something I’m confident, if you believe Speaker Boehner when he says we will not have tax increases, it will have to be [extended],” the official said.

Asked if the White House would continue to push for a reauthorization of federal unemployment benefits, the official said, “Absolutely, we will absolutely keep pushing for that.”

The unemployment rate is not expected to come down anytime soon, and economic forecasters said earlier versions of the deal currently awaiting action in Congress would significantly slow economic growth because of reduced government spending.

Judy Conti is a lobbyist who deals with Congress and the administration for the National Employment Law Project, a worker advocacy group. She agreed with the official that unemployment benefits would have to be part of a big deal.

“Things like the payroll tax holiday and unemployment insurance are controversial and increasingly partisan issues. In order for those to be resolved so far in advance before their expiration there would have had to have been a very significant deal,” Conti said. “Once the grand bargain died, the chance for any meaningful stimulus died as well.”

Sam Stein contributed reporting.