Cut The $24 Trillion Corrupt Bank Gambling Debt Bailout ~ Not The People’s Social Security!

And what did America get?

– 39 million Americans on Food Stamps.

– 8 million foreclosures.

– A 17% real (U6) unemployment rate.

– A bill for $23.7 trillion dollars in bank bailouts, backstops, and guarantees.

– And a Fed Chairman now telling America that “modifications” need to be made to Social Security.

And Fortune Magazine’s William D. Cohan thinks “the story” is Merrill shareholders being short-changed out of $50 billion?

William D. Cohan thinks “the story” is Alberto Cribiore costing Merrill Lynch shareholders $50 billion, not Stan O’Neal and his fellow Wall Street Bankster-Gangsters costing America $23.7 trillion.

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It is a worst case scenario, but Neil Barofsky, the inspector general for the Troubled Asset Relief Program, has said the bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23.7 Trillion. To put this number into perspective, it is nearly double the nation’s entire economic output for a year, more than the cost of all the wars the United States has ever fought combined and the most the federal government has spent on any single effort in American history. It is about $80,000 for every U.S. citizen.

Printing and borrowing $800 billion to hand over the banks with no strings attached never seemed like a good idea. We wrote about it back in October of 2008 in this article. And despite some 80% of Americans being against the bailouts, our elected officials decided to hand over taxpayer money to their banker buddies anyway.

President Barack Obama and lawmakers are considering cutting Social Security and increasing revenue by changing the way the government measures inflation.

Four senior congressional aides said lawmakers are discussing using an alternative yardstick to gauge inflation, known as the “chained consumer price index,” to determine annual cost-of-living adjustments for millions of Americans.

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The idea may rile both Democrats and Republicans, because it could mean paring Social Security by $112 billion over 10 years, raising taxes by $60 billion and cutting pension and veterans’ disability payments by $24 billion, according to estimates by the nonpartisanCongressional Budget Office and the Joint Committee on Taxation.

Advocates say the change is needed because the government’s current measure of inflation overstates how quickly prices rise.

“There hasn’t been any economist anywhere that says we shouldn’t do that,” said Senator Tom Coburn, an Oklahoma Republican who was one of the so-called Gang of Six lawmakers that tried to develop a long-term debt plan. “We need a CPI that truly reflects what’s happening in the economy, not what’s good for the politicians.”

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The idea, which was discussed both as part of a series of debt talks led by Vice President Joe Biden and by the Gang of Six, resurfaced yesterday during a meeting between Treasury Secretary Timothy Geithner and House Democrats, according to a congressional aide. Democrats pressed Geithner on the issue and he didn’t rule it out, according to the aide.

Meeting Today

Obama met today with congressional leaders as they push to hash out a deficit-reduction plan that would ease passage of a debt-limit increase by an Aug. 2 deadline. Obama called the meeting “constructive” and “frank,” though he said they remain “far apart on a wide range of issues.”

The president said aides would work through the weekend and lawmakers would reconvene on July 10 so “the parties will at least know where each other’s bottom lines are and will hopefully be in a position to then start engaging in the hard bargaining that’s necessary.”

Representative Xavier Becerra, speaking on C-Span today, said the chained index proposal may be an Obama negotiating tactic. “He has tried many ways to get our Republican colleagues to come to some middle ground and hasn’t succeeded,” said Becerra, a California Democrat who opposes benefit cuts. “I suspect he’s saying, ‘Look I’ll put everything on the table, let’s see what sticks.’”

‘Zero Appetite’

Representative Jared Polis, a Colorado Democrat, said “there is a zero appetite in the Democratic caucus for looking at entitlement programs unless there is substantial revenue on the table.”

White House spokesman Jay Carney downplayed the significance of any changes in Social Security, saying in a statement: “The president has always said that while Social Security is not a major driver of the deficit, we do need to strengthen the program.” He said Obama wants to work with both parties to do that “in a balanced way that preserves the promise of the program and doesn’t slash benefits.”

Social Security and other government benefits along with much of the tax code are automatically adjusted for inflation so Americans don’t fall behind as prices rise. Yet economists say the government’s inflation measure exaggerates how quickly prices increase, which means it’s paying too much for annual cost-of-living gains while collecting too little tax revenue.

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Cutting Benefits

Democrats such as Representative Jan Schakowsky of Illinois say the alternative index, which she called the “chainsaw CPI,” would mean cuts in Social Security benefits. Over 10 years, using the alternative index would reduce projected Social Security spending by 1.2 percent, according to the Congressional Budget Office.

Schakowsky said the current inflation measure already understates the cost-of-living increases facing seniors because they spend more on medical care than the average American.

“Seniors get the double whammy — higher health-care costs and deeper benefit cuts,” she said.

Even Democrats like Senator Ben Nelson of Nebraska, who’s often voted with Republicans, rejected the idea. “At some point we have to look at Social Security, but that’s not part of this process,” he said today.

A. Barry Rand, head of the AARP, the advocacy group for the elderly, said: “Reducing the COLA by even a small amount is a harmful cut for many retirees.”

Stealth Tax Increase

Grover Norquist, head of the anti-tax Americans for Tax Reform, called the idea “effort number 27” to dress up a tax increase in the guise of good government.

“This is one of those things invented by people who are trying to raise taxes and pretend they’re not,” he said. “If you change the law to get more money, that’s a tax increase — doesn’t matter how you do it or what you call it.”

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Senator John Thune, a South Dakota Republican, said he supports applying the chained index to benefits programs, though not to taxes.

“Taxes are entirely different,” said Thune. “That would be a license to steal for the federal government if you just locked in tax increases every year based on what some index is.”

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, released a study yesterday that said the tax increases would hurt the middle class.

Technical Change

Advocates say switching index measures would be a technical change, not a tax increase.

“I don’t see how anybody can argue against having accurate formulas,” said Senator Mike Crapo, an Idaho Republican who was a member of the Gang of Six.

Coburn said the Gang of Six agreed on the chained index before he dropped out of the negotiations in a separate dispute. Another group of lawmakers led by Biden was debating the idea before their talks fell apart, said Senate Finance Committee Chairman Max Baucus, a Montana Democrat and a participant in that group.

Inflation is a general rise in the price of goods and services, and the government measures it by surveying thousands of Americans on what they buy and where they shop.

The Bureau of Labor Statistics each month sends 400 price collectors to 26,000 stores in 87 cities to record the prices of breakfast cereals, bus tickets, haircuts, toys, funerals, dental fillings, jewelry and 80,000 other products and services. It uses that information to devise a basket of goods the typical family buys each month in order to track prices.

Missing Consumer Response

There is a “pretty widely held” consensus among economists that the bureau’s methodology exaggerates inflation because it doesn’t fully account for how individuals respond to rising prices, said Mark Zandi, chief economist of Moody’s Analytics.

It accounts for those who buy cheaper brands of wine or steak when those prices rise, though not for those who opt instead for beer or chicken. That means it overestimates inflation, which leads to cost-of-living increases for Social Security beneficiaries, veterans and federal retirees that are bigger than necessary to maintain their purchasing power. It also affects the number of Americans who qualify for food stamps and other aid to the poor with eligibility criteria tied to federal poverty guidelines.

It means the thresholds at which higher income tax rates begin to apply to individual taxpayers rise faster than necessary to prevent so-called “bracket creep,” which means less tax revenuepouring into the Treasury.

The chained index accounts for the belt-tightening chicken eaters and beer drinkers. Over the past decade, the alternative index has grown more slowly than the current inflation measure by an average 0.3 percentage points a year, the CBO says.

“It’s a no-brainer,” said Marc Goldwein, former associate director of the administration’s deficit commission. “We’re measuring inflation wrong now and it’s obvious we should measure it right — especially if it’s going to reduce the deficit.”

Bloomberg

To contact the reporters on this story: Brian Faler in Washington at bfaler@bloomberg.net; Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


 

“Strong economic medicine” with a “human face”

“Promise amid peril.” The stated priorities of the Obama economic package are health, education, renewable energy, investment in infrastructure and transportation. “Quality education” is at the forefront. Obama has also promised to “make health care more affordable and accessible”, for every American.

At first sight, the budget proposal has all the appearances of an expansionary program, a demand oriented “Second New Deal” geared towards creating employment, rebuilding shattered social programs and reviving the real economy. 

The realities are otherwise. Obama’s promise is based on a mammoth austerity program. The entire fiscal structure is shattered, turned upside down. 

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To reach these stated objectives, a significant hike in public spending on social programs (health, education, housing, social security) would be required as well as the implementation of a large scale public investment program. Major shifts in the composition of public expenditure would also be required: i.e. a move out of a war economy, requiring a movement out of military related spending in favour of civilian programs. 

In actuality, what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people. 

The Obama promise largely serves the interests of Wall Street, the defence contractors and the oil conglomerates. In turn, the Bush-Obama bank “bailouts” are leading America into a spiralling public debt crisis. The economic and social dislocations are potentially devastating. 

Obama’s budget submitted to Congress on February 26, 2009 envisages outlays for the 2010 fiscal year (commencing October 1st 2009) of $3.94 trillion, an increase of 32 percent. Total government revenues for the 2010 fiscal year,  according to preliminary estimates by the Bureau of Budget, are of the order of $2.381 trillion. 

The predicted budget deficit  (according to the president’s speech) is of the order of $1.75 trillion, almost 12 percent of the U.S. Gross Domestic Product. 

War and Wall Street

This is a “War Budget”. The austerity measures hit all major federal spending programs with the exception of:  1. Defence and the Middle East War: 2. the Wall Street bank bailout,  3. Interest payments on a staggering public debt. 

The budget diverts tax revenues into financing the war. It  legitimizes the fraudulent transfers of tax dollars to the financial elites under the “bank bailouts”. 

The pattern of deficit spending is not expansionary. We are not dealing with a Keynesian style deficit, which stimulates investment and consumer demand, leading to an expansion of production and employment. 

The “bank bailouts” (involving several initiatives financed by tax dollars) constitute a component  of government expenditure. Both the Bush and Obama bank bailouts are hand outs to major financial institutions. They do not constitute a positive spending injection into the real economy. Quite the opposite. The bailouts contribute to financing the restructuring of the banking system leading to a massive concentration of wealth and centralization of banking power. 

A large part of the bailout money granted by the US government will be transferred electronically to various affiliated accounts including the hedge funds.  The largest banks in the US will also use this windfall cash to buy out their weaker competitors, thereby consolidating their position. The tendency, therefore, is towards a new wave of corporate buyouts, mergers and acquisitions in the financial services industry. 

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In turn, the financial elites will use these large amounts of liquid assets (paper wealth), together with the hundreds of billions acquired through speculative trade, to buy out real economy corporations (airlines, the automobile industry, Telecoms, media, etc ), whose quoted value on the stock markets has tumbled. 

In essence, a budget deficit (combined with massive cuts in social programs) is required to fund the handouts to the banks as well as finance defence spending and the military surge in the Middle East war. Obama’s budget envisages: 

1. defense spending of $534 billion for 2010, a supplemental 130 billion dollar appropriation for fiscal 2010 for the wars in Afghanistan and Iraq, and a supplemental $75.5 billion emergency war funding for the rest of the 2009 fiscal year. Defence spending and the Middle East war, with various supplemental budgets, is (officially) of the order of 739.5 billion. Some estimates place aggregate defence and military related spending at $ 1 trillion+. 

2. A bank bailout of the order of $750 billion announced by Obama, which is added on to the 700 billion dollar bailout money already allocated by the outgoing Bush administration under the Troubled Assets Relief Program (TARP). The total of both programs is a staggering 1.45 trillion dollars to be financed by the Treasury. It should be understood that the actual amount of cash financial “aid” to the banks is significantly larger than $1.45 trillion. (See Table 2 below). 

3. Net Interest on the outstanding public debt is estimated by the Bureau of the Budget) at $164 billion in 2010.

The order of magnitude of these allocations is staggering. Under a “balanced budget” criterion –which has been a priority of government economic policy since the Reagan era–, almost all the revenues of the federal government amounting to $2.381 trillion would be used to finance the bank bailout (1.45 trillion), the war ($739 billion) and interest payments on the public debt ($164 billion). In other words, no money would be left over for other categories of public expenditure. 

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TABLE 1  Budgetary allocations to Defence (FY 2009 and 2010), the Bank Bailout and Net Interests on the Public Debt (FY 2010)

$ Billions

Defence including Supplementary allocations; $534 billion (FY 2010), $130 billion supplemental (FY 2010), $75.5 billion emergency funding (FY2009)                                       739.5
*Bank bailout (TARP plus Obama)  1450.0
Net Interest        164.0
TOTAL 2353.5
Total Individual (Federal) Income Tax Revenues (FY 2010) 1061.0 
Total Federal Government Revenue (FY 2010) 2381.0 

Source: Bureau of the Budget and official statements. See A New Era of Responsibility: The 2010 Budget
See also Office of Management and Budget

* The officially announced bank bailouts to be financed from Treasury Funds. The timing of disbursements could take place over more than one fiscal years fiscal years. The actual value of bank bailout cash injections is substantially higher. 

The Budget Deficit

These three categories of expenditure (Defence, Bank Bailout and Interest on the Public Debt) would virtually swallow up the entire 2010 federal government revenue of 2381.0. billion dollars

Moreover, as a basis of comparison, all the revenue accruing from individual federal income taxes ($1.061 trillion), (FY 2010) namely all the money households across America pay annually in the form of federal taxes, will not suffice to finance the handouts to the banks, which officially are of the order of $1.45 trillion. This amount includes the $700 billion (granted during FY 2009) under the TARP program plus the proposed $750 billion granted by the Obama administration.   

While TARP and Obama’s proposed bailout are to be disbursed over FY 2009 and 2010, they nonetheless represent almost half of total government expenditure (half of Obama’s $3.94 trillion budget for fiscal 2010), which is financed by regular sources of revenue ($2381 billion) plus a staggering $1.75 trillion budget deficit, which ultimately requires the issuing of Treasury Bills and government bonds. 

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The feasibility of a large short-term expansion of the public debt at a time of crisis is yet another matter, particularly with interest rates at abysmally low levels.

The budget deficit is of the order of $1.75 trillion. Obama acknowledges a 1.3 trillion-dollar budget deficit, inherited from the Bush administration. In actuality, the budget deficit is much larger. 

The official figures tend to underestimate the seriousness of the budgetary predicament. The $1.75 trillion dollar budget deficit figure is questionable because the various amounts disbursed under TARP and other related bank bailouts including Obama’s announced $750 billion aid program to financial institutions are not acknowledged in the government’s expenditure accounts. 

“The aid hasn’t been requested formally, but appears in a line item “for potential additional financial stabilization efforts,” according to the budget overview. The budget office calculated a $250 billion net cost to taxpayers this year, because it anticipates it would eventually recoup some, though not all, of the money expended to help financial companies.

The funds would come on top of the $700 billion rescue package approved last October by Congress. The White House budgets no money for fiscal 2010 and beyond for such aid.” (Bloomberg, February 27, 2010)

Fiscal Collapse

A major crisis of the federal fiscal structure is occurring. The multibillion dollar allocations to the War Budget and to the Wall Street Bank Bailout program backlash on all other categories of public expenditure. 

The Bush administration’s $700 billion bailout under the Troubled Asset Relief Program (TARP) was approved by Congress in October. TARP is but the tip of the iceberg. A panoply of bailout allocations in addition to the $ 700 billion were decided upon prior to Obama assuming office. In November, the federal government’s bank rescue program was estimated at a staggering 8.5 trillion dollars, an amount equivalent to more than 60% of the US public debt estimated at 14 trillion (2007). (See table 2 below)

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Meanwhile, under the Obama budget proposal, 634 billion dollars are allocated to a reserve fund to finance universal health care. At first sight, it appears to be a large amount. But it is to be spent over a ten year period, — i.e. a modest annual commitment of 63.4 billion. 

Public spending will be slashed with a view to curtailing a spiralling budget deficit. Health and education programs will not only remain heavily underfunded, they will be slashed, revamped and privatized. The likely outcome is the outright privatization of public services and the sale of State assets including public infrastructure, urban services, highways, national parks, etc. Fiscal collapse leads to the privatization of the State. 

The fiscal  crisis is further exacerbated by the compression of tax revenues resulting from decline of the real economy. Unemployed workers do not pay taxes nor do bankrupt firms. The process is cumulative. The solution to the fiscal crisis becomes the cause of further collapse. 

Structure of The Public Debt

This large scale appropriation of liquid money assets under the bank bailouts by a handful of financial institutions serves to increase the public debt overnight. 

When the US Treasury allocates 700 billion dollars to the Troubled Assets Relief Program, this amount constitutes a budgetary outlay which inevitably must be financed from within the structure of government revenues and expenditures. 

Unless all other categories of public expenditure including health, education and social services are slashed, the various outlays under the bank bailout will require running a massive budget deficit which in turn will increase the US public debt. 

America is the most indebted country on earth. The US (federal government) public debt is currently of the order of $14 trillion. This does not include mounting public debts at the state and municipal levels. 

This US dollar denominated (federal) debt is composed of outstanding treasury bills and government bonds. The public debt, also called “the national debt” is the amount of money owed by the federal government to holders of U.S. debt instruments.  

US debt instruments are held by American residents as part of their savings portfolio, companies and financial institutions, US government agencies, foreign governments, individuals in foreign countries. but does not include intergovernmental debt obligations or debt held in the Social Security Trust Fund. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities.

The proposed solution becomes the cause of the crisis. The 700 billion bailout under the Troubled Asset Relief Program (TARP) combined with the proposed Obama $750 billion aid to financial services industry is but the tip of the iceberg. A panoply of bailout allocations in addition to the 700 billion have been decided upon.

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