Assuming last night’s “budget deal” is ratified – which is no gimme at this point – it represents a new low in Congressional ineptitude and irresponsibility. Brain-dead MSM outlets are trumpeting how the “deal brings stability to the budget”; but in reality, it represents the final nail in the coffin of a Congress shirking its responsibility to rein in spending – just as the Fed has done via unprecedented debt creation, inflation expansion, and income equality. In my mind, the only reason a deal emerged was to avoid a second government shutdown in three months’ time; as without it, the same political horror show witnessed in October would have played out again in January. With one major change of course; i.e., the effective termination of the “debt ceiling” via largely ignored fine print in the Continuing Appropriations Act of October 2013, empowering the President to veto any future attempt to cap the national debt – with the only way to override it being the virtually impossible scenario of 2/3rd majority votes in both the House and Senate. In other words, October 17th’s “penultimate deal with the devil” has been succeeded, as I predicted, by the ultimate finance-busting deal yesterday; assuming, of course, it becomes law.
Before I get to the details, recall that this mess goes all the way back to the August 2011 debt ceiling debacle; culminating in S&P stripping the U.S. of its triple-A rating, yielding blowback so powerful, its CEO was forced to immediately resign – followed by government lawsuits so onerous, S&P “threw in the towel” by raising its U.S. outlook from “negative” to “stable” this June, as discussed in “S&P hits a new all-time low.”
In August 2011, the U.S. national debt was $14.2 trillion, compared to $17.2 trillion today – just two years later. Late 2011 attempts to cap future spending – via the oxymoronically titled, bipartisan “Super Committee” – failed so miserably, the “Budget Control Act of 2011” was passed as a stopgap. This farce of a law raised the “debt ceiling” to $16.4 trillion under condition of $150 billion of annual “sequester” cuts; naturally, to commence January 1st, 2013, just after the Presidential election. However, with the economy remaining at stall speed, Congress decided to reduce the sequester cuts to just $85 billion via the “fiscal cliff deal” of New Year’s Eve, 2013; i.e., the even more ridiculously named American Taxpayer Relief Act, given that such “relief” included expiration of payroll tax cuts for all Americans, and a 4% increase to the top tax rate.
Subsequently, February’s “No Budget, No Pay Act of 2013 “delayed” the debt ceiling to May 18th, followed by a series of “extraordinary measures” that pushed it into October; which, of course, amounted to nothing more than “robbing Peter to pay Paul.” In other words, when the “Continuing Appropriation Act” of October 17th, 2013 again “delayed” the debt ceiling – this time, until February 7th, 2014 – such “robbed” funds were immediately released, pushing the national debt up by a whopping $328 billion on October 18th. Along the way, by the way, said $85 billion of “sequester” cuts were further reduced by Presidential decree – such as planned reductions in air traffic control; and thus, the original “Super Committee” goal of $150 billion of annual spending cuts over the next decade had been reduced to no more than $75 billion; back-end weighted, of course.
Today, however, what has transpired makes the aforementioned deals appear “conservative” in comparison. And, as usual, few details were released, leaving the MSM to grasp at straws at to exactly what was agreed upon. However, as I read it, this is what they have done to “control” America’s spiraling, Ponzi-esque spending spree.
For one – as noted above – the so called “debt ceiling” has been, for all intents and purposes, been permanently eliminated; as I predicted in November 2012’s “debt ceiling to infinity.” Secondly, essentially all of the originally proposed “sequester” cuts ($65 billion of the $75 billion or so) have been eliminated – replaced by so-called budget “savings” of $85 billion annually. And thus, in the context of a $17.2 trillion national debt – plus $5 trillion “off balance sheet,” perhaps $200 trillion of unfunded liabilities, and annual deficits of roughly $1 trillion – Congress proudly announces what even the top MSM television network, NBC, describes as “largely symbolic” projected annual deficit reductions of just $20 billion.
Of course, as always, the “devil is in the details.” And thus, not only is said $20 billion embarrassing at best – particularly in light of recent Chinese comments about America’s perilous finances; but most of such “savings” are not attributable to spending cuts at all. For the record, total fiscal 2014 spending is now pegged at $1.012 trillion, up 5% from fiscal 2013’s $0.967 trillion. In other words, actual “cash costs” are in fact rising significantly. Conversely, the so-called $85 billion of annual “savings” come from a hodge-podge of “non-essential” line items such as reduced pension contributions. But get this; most of the pension cost reduction results not from reduced government contributions, but mandatory, increased employee contributions. In other words, such government savings are nothing but a new, hidden tax to millions of pensioners; yet Congress has the gall to claim the deal does not raise taxes.
And how about this, for a doozy of an accounting shell game – in which the present value of supposed spending cuts is a big fat ZERO? Apparently, the Budget Control Act mandated a 2% reduction in Medicare payments to healthcare providers from 2013 through 2021. But now that it is 2013 – as opposed to 2011 when that law was passed – the blatantly fraudulent Congressional tactic of claiming budget savings “over the next decade” was utilized yet again. And thus, the 2% Medicare payment reductions – which, by the way, will only dis-incentivize our nation’s youth from becoming doctors further, while raising the cost of Obamacare for all Americans – has been extended from 2021 to 2023. In other words, the government managed to yet again raise overall spending levels and taxation; whilst fraudulently claiming it has reduced both.
Oh, and I forgot to add one of the most important of the actual cash spending cuts; i.e., the failure to extend unemployment benefits for 1.3 million Americans, which expire on December 28th. In other words, the perfect way to kick those that are already down, given last month’s 6% cut in the Food Stamps program – currently utilized by a record 48 million people. The food stamp cut saves taxpayers a whopping $5 billion annually – i.e., 0.03% of the national debt; and not extending the unemployment benefits, another $26 billion. Not that I support entitlements in general, but the social impact – and economic cost – of potentially putting hundreds of thousands of people onto the streets, is incalculable. And thus, yet another example of the pratfalls of a “dependency nation”; i.e., a vicious, unsolvable death spiral that ultimately results in exponentially rising costs; be they direct, via food stamps, unemployment benefits, etc. – or indirect. And if you think that’s bad, wait until I describe the impact on the Fed’s so-called “tapering timeline” of allowing 1.3 million people to become ‘permanently discouraged’ unemployed; which, I intend to do in my next article.
For those wondering if now is the time to convert ones hard earned life’s savings to the historical safety of real money, I suggest you read one of the most important pieces I’ve ever written; i.e., November 2012’s “Worst for America, but best for Precious Metals.” The premise is that Congress always elects to increase the nation’s debt and deficits; and will continue to do so as long as its “reserve currency” can be created ad infinitum by the Fed’s 24/7 printing presses. In my view, the END GAME for the global fiat Ponzi scheme commences once it is realized that debt – adjusted for accounting shenanigans like the aforementioned “extraordinary measures,” of course – is rising parabolic ally. This is precisely what is occurring today; and thus, any number of events – including physical gold and/or silver delivery issues – could catalyze the inevitable, global currency crisis at any time.