The Weiner Component #136 – Part 3: The Sequester

Following is perhaps one of the most important reasons for the Election of 2016.  Its results will strongly affect the future of the United States in terms of whether the country moves toward economic fulfillment for most of the population, stays where it is now, or goes further in the direction of continuing to exist mainly operated by the rich, be run by the rich, and mainly exist for their benefit.

 

On August 1, 2011, the House of Representatives passed the Budget Control Act of 2011, which was then approved by the Senate, and signed reluctantly by President Obama.  The Act provided that if the Joint Select Committee did not produce bipartisan legislation that made across the board spending cuts then automatic spending cuts would take effect on January 2, 2013.  Its commencement was by law delayed until March 1, 2013.  On that date, with no bipartisan deal having been reached, the initial sequestration cuts would take effect at midnight.  While President Obama signed the bill putting the cuts into effect he referred to them as being “deeply destructive.”

 

On March 6, 2013, the House of Representatives passed a bill to extend the continuing resolution and to enable defense and the veteran’s programs to adjust to the cuts brought on by sequestration.  Other bills were passed adjusting many of the visible cuts like those made to airport traffic control.  Suddenly most of the airports had long waits for planes taking off and landing as the number of air traffic controllers was cut by the sequester.  This and other visible cuts were adjusted; but many of the invisible ones like a decreases in school breakfasts and lunch programs for the children of the poor or, for that matter, meals on wheels for poor senior citizens, were also cut but they tended to be invisible so there was no large scale objection to these.

 

The cuts were divided evenly in dollar amounts between the defense and non-defense categories.  Some major programs like Social Security, Medicate, federal pensions, compensation for legislators, and veteran’s benefits were exempt.  Medicare benefits were reduced by 2% a year.  Instead of cutting some Federal pay rates a system of furloughs was set up which resulted in involuntary unpaid time off for government employees was utilized.

 

The sequester is supposed to lower total Federal spending by $1.1 trillion over an eight year period, from 2013 to 2021.  In 2013 it was supposed to lower non-defense discretionary spending by 7.8% or $294 billion and slightly lower in succeeding years; and it was supposed to lower defense spending by 10% or $454 billion, with slightly lower cuts in succeeding years.

 

In point of actual face since the application of the bill was delayed from the beginning of January of 13 to March 1, 2013 the actual savings for that year was 85 billion dollars instead of 110 billion dollars.  After two years the cuts have been devastating to both the defense and non-defense sections of the government.

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This was the non-compromise compromise that the Republican legislators in both the House and Senate insisted upon to force the Democrats and their President to compromise upon lowering government spending.  Was it a good idea?

 

Generally, with the exception of 2013, the sequester goes into effect at the end of the year and if the required cuts have not been made in all the programs then those not made by legislation during the year automatically go into effect on January 1 of the new year unless a special bill is passed limiting one or another sequester areas of defense or non-defense spending.  Keep in mind that this process is supposed to continue until 2021 and that only the third installment will have passed by the end of 2015.  There will be an additional six years to go.

 

The sequester will, if no significant changes are made, lower all Federal Government spending by a total of 1-1 trillion dollars from 2013 to 2021.  It decreased non-defense spending by a range of 7.8% in 2013 and will lower it to 5.5% by 2021.  This is a total of 450 billion dollars for the first year.  Defense spending was also lowered 10% in 2014 and will drop to 8.5% by 2021.

 

It is also important to realize that the sequestration has significantly cut federal and non-federal employment in the many hundreds of thousands.  In late 2008, Republican President George W. Bush’s last year in the office, the total economy tanked after thirty plus years of constant and sometimes irrational growth.  Bush and his Secretary of the Treasury, Hank Paulson, during the last months of that year spent many billions of dollars bailing out the major banking houses in the country, keeping them from going bankrupt.  The pattern of governments stopping potential bank failures and saving banks became an international operation in many industrial nations.

 

In the United States the oncoming economic failure became obvious in 2007 when the loans to homeowners became frenzied with mortgage lending 125% of the then value of the property.  The bankers were in complete denial that ever-rising values could ever stop happening.  Most of them had spent their entire prior work life during a period of ever-increasing real estate growth.

 

With the 2008 Real Estate Crash there was suddenly massive economic collapse with value dropping like bombs from airplanes during wartime.  The value of the dollar dropped to about ten cents overnight.  A good percentage of homeowners, particularly those who had continually refinanced their homes suddenly found themselves owing more on the properties than they were worth.  As a last minute move before the crash some banks were frantically continuing the process.  It had become by 2008 frenzied madness.

 

The new President, Barak Obama, inherited this problem when he assumed office in 2009.  He spent his first two years in office with a Democratic Congress, successfully working on this problem and getting Affordable Health Care passed.  He continued the bailout of the banks and saved both the financial institutions and the American auto industry with massive loans.  By the 2010 Midterm Election a goodly percentage of the people who had voted for him and change did not vote.  Probably they felt he had not brought any or enough of the change he had promised in the 2008 Election.  Consequently the Republicans achieved a majority in the House of Representatives and thereafter would pass nothing favored by President Barak Obama.  This continued through his first term in office and largely through his second term.  In 2014 Midterm Election the Republicans all achieved a slight majority in the Senate.

 

Consequently during most of Obama’s presidency Congress has refused to even consider fiscal policy, spending money to create jobs and modernize the infrastructure.  The Federal Reserve has utilized monetary policy, lowering the interest rates paid by the banks to consumers to almost nothing, one tenth of one percent, for most of the money deposited into the banks.  Despite all this in August of 2015 unemployment dropped to 5.1% of the work force looking for jobs, the lowest point since the Real Estate Crash of 2008.

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During Reagan’s presidency, in addition to massive military spending, the banks were deregulated.  In 1932, during the midst of the Great Depression, bank reform bills or regulation to avoid another massive depression, which mostly the banks had caused in 1929, were passed.  They had been added to over the years.  All this disappeared during the Reagan Era when the “Free Market” became dominant.  That was during the 1980s.  By 2008 the big banks had again undone the economy.  All this was strongly continued by the two Bush presidencies.

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Basically the Republican position has been “No new taxes,” even though Reagan and the first Bush president both oversaw some tax increases.  With the second Bush presidency it was two wars and a large tax decrease, particularly for the wealthy.  If more money is needed for any reason the Republicans would reduce non-military spending, particularly discretionary spending, to make up the difference.  Discretionary spending is programs which aid the elderly, the poor, and the middle class.  In essence their programs have been welfare for the rich at the expense of everyone else.

 

The Democratic position has been that the country can increase spending by having newer and fairer taxes.  This is the means of paying for new programs and increased costs.  They will not go along with paying increasing or new costs by decreasing the money spent on the lower levels of society.

 

From these two positions there is no way to achieve a compromise.  Thus we have sequestration, which is in essence squishing the bulk of the population and the functioning of the government. It is an interesting act of spite perpetrated by the Republicans upon the Democrats and the rest of the country.  There is no possibility of compromise.

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If the sequester were not in existence unemployment would currently be down to 2 ½ % or lower and there would be a labor shortage.  This would automatically raise the minimum wage and everyone’s standard of living would rise with the rise of wages as employers would be competing for workers.  The FED would have raised interest rates to hold down inflation and the GDP would be far higher than it is now.  The amount taken in in taxes, on all levels of state and federal governments, would have increased substantially and the Federal Government might even be slightly paying down the National Debt.  But instead the Republicans have to be “penny wise and dollar stupid,” holding down economic growth in the nation both as spite and as an economizing measure.

 

For the end of January 2015 President Obama had asked for an end of sequestration and an overall 7% increase in all areas of spending.  This was an opening position on the 2015 budget debate with a Republican Congress.  He got none of these.  The end of 2015 is coming up.  Both the time for the final cuts to the 2015 sequester and the 2016 Presidential Election will soon be with us.

 

The military is currently in worst shape than it has been since the end of World War II; when the war ended and the government overnight cancelled all war contracts and began quickly releasing a large percentage of its army back into civilian life.  This continued until the Federal Government realized there was a Cold War going on with the Soviet Union; then it reversed itself.  Currently, according to the armed services top officers another round of sequestration will have dire consequences, which will include the ability to win a ground war.  The size of the navy and air force is shrinking as these services cannot afford to replace outdated ships and air planes.  And this does not include all the other cuts that sequestration is causing.  The military is at present in a worst position of preparedness than it has been since the end of W.W.II.

 

On a non-military basis poor children are going to school hungry and staying hungry all day while trying to learn.  Senior citizens are doing without food and dying because of program cuts.  They often have to choose between rent, medicine, and food.  They can’t afford all of them.  Food is the first expense to go.  The country will lose a generation of scientists as research funding, which already has been cut 50% continues to decrease.  The Federal Bureau of Investigation released a report at the end of 2013 entitled, “Voices from the field,” that cites the effects of sequestration upon the F.B.I.  It states that, among other things, new intelligence investigations were not opened; criminal cases were being closed; informants couldn’t be paid; and there was not enough funding for agents to put gas in their cars.  And early Head Start programs were eliminated to balance budgets.

 

All these and many other programs tend to be invisible to the general public.  Also the effects of these and other unnecessary cuts bring about a significant loss of employment in the overall economy and, as we’ve seen, a noticeable drop in the GDP.   Sequestration is hurting the nation.  As it continues the damage increases.  Further cuts will have to be made at the end of 2015.

 

What amazes me is that virtually all the Congressional Republican legislators have taken an oath/pledge in writing to Grover Norquist, a libertarian-leaning Republican lobbyist and founder of Americans for Tax Reform, who has no direct connection with the Government, that they will never raise any taxes.  These same Republicans have taken an oath to uphold the Constitution of the United States.  It would seem that the first oath here comes before the one to the Constitution.  It would also seem that a number of Republicans would like to get rid of the sequestration but they are bound by their pledge or oath to Grover Norquist.

 

President Obama has stated that the government can raise the tax revenue to pay for doing away with sequestration by “fixing a tax code that is riddled with loopholes for special interests.  Some of these loopholes were passed during World War II, over a half century ago, to encourage the amount of gasoline produced during the war.  They are still on the books and Norquist sees them being done away with as an increase in taxes.  The current situation and inability of the two parties goes beyond sanity.

 

My solution to this problem would be to have both political parties appoint a bipartisan committee and lock them in a room without access to a bathroom which they cannot leave until a solution is reached.  And if others in Congress refuse to accept the compromise then automatically appoint them to a new committee and lock them in the same room until they reach a compromise.  This process would be continued until everyone is in agreement on a compromise.  If possible Grover Norquist should be added to all the different committees.

 

The members of Congress are each being paid 170 thousand dollars a year and take an oath to serve the country.  Each has a budget of over a million dollars for their staffs.  It’s time they did a competent job as legislators.  The taxpayers are spending a lot of money on them and their staffs.  The Republicans seem more interested in a welfare state for the rich than in a country that functions for the benefit of all its members.  Sequestration should never have happened; it’s the type of thing children would do: spite for the sake of spite.  The oncoming 2016 Presidential Election is an opportunity for the voters in America, despite the various suppression of voting in many Republican controlled states, to get rid of a number of legislators that are serving causes other than the welfare of the United States.

The Weiner Component #71 – Income Inequality

Income inequality and mortality in 282 metropo...

On Friday, March 14, 2014, in the Business Section of the LA Times, there was an article dealing with the changing levels of income across the United States and in particular in Orange County, California.  This is according to a report from the real estate website Trulia.  The institute demonstrated that the percentage of income was decreasing for the lower echelon of society while growing rapidly for the upper percentage throughout the country; this was particularly true for Orange County, California.

The Gross National (GDP) consists of all the goods and services produced and used in one fiscal (twelve month financial) year, stated in terms of dollars and cents.  In essence it is the amount of the National Cash Flow for one year.  The National Cash Flow consists of all the money circulated in the economy in cash and credit, being actual dollars, credit card expenditures, all bank credit and loans issued and government expenditures.

By ascertaining this amount and comparing it with similar data for other years the Federal Reserve (FED) can see the rate of growth or contraction and determine what needs to be done to allow the economy to properly grow.  These measures are determined quarterly and then summarized yearly.

The FED utilizes Monetary Policy, adjusting interest rates, while Congress and the President use Fiscal Policy, passing laws to allow the economy to expand or contract.  The process is not automatic; it takes both intelligence and action to bring about change.   There has been no Fiscal Policy change since the Republicans took over the leadership of the House of Representatives in 2011.

There were indications as early as 2005 that we had a housing and land bubble.  This was not recognized until 2007.  Most bankers and homeowners were in a state of denial.  The Housing Boom had developed over the last 30 some years.  It had existed through the economic life of most of the people dealing with the Housing Market.  They did not or refused to see that conditions could change.   Also the profits made by the banking houses were phenomenal.  A goodly percentage of the homeowners were using their homes as bank accounts, continually refinancing.  Many banks were offering loans at 125% of the appraised value of the property.  Toward the end of 2008 both the banks and the home-owners were going crazy in their activities for profit and additional income.

If we examine the GDP for 2007 and 2008 just before the Real Estate Crash that occurred at the end of the year and compare it with the GDP for 2013 we discover that by 2013 the National Cash Flow, amount of currency in existence, is greater in 2013 than it was before the Debacle of 2008.  There is more money available.  Supposedly everyone should be better off, but this is not the case.

What happened in 2008 was that the GDP shrank to .3% and in 2009 the contraction was -2.8%.  Thereafter there was a small increase each year through 2013.  The Federal Government poured billions into the economy to avert a major depression and the economy slowly recovered.  We never did get rid of the recession and a high amount of unemployment.  This was because of the policies of the House of Representatives after 211 which tended to shrink the Federal Government and subsequently the state governments because of reduced taxes.

The private sector has pretty-much recovered, although not as much as it could have with the application of fiscal policy.  This would have increased the GDP and brought unemployment to a negligible percentage of the workforce.

Homeowners could no longer use their properties as bank accounts and most of the consumption of goods and services that they did prior to the Crash ceased.  In fact a goodly number of them were underwater and could no longer afford the houses in which they were living.

In the process of this recovery corporate profits and executive compensation packages have grown substantially but ordinary wages have remained fixed or have barely increased.  With modest inflation this has caused a substantial decrease in the purchasing power of the middle and lower classes.

The overall result has been that the rich have gotten richer and everyone else has gotten much poorer.  Interestingly with the minimum wage at 7.25 an hour a person has to work two hours to buy a little over three gallons of gasoline.  And this is before taxes are taken out of their paycheck.

I suppose that it can be argued that this is inevitable and would have happened even without the bubble; but isn’t that beside the point?  There has to be something wrong with the country’s basic values to allow those conditions to occur.  The United States is currently at it richest historic point in its history.  It can easily produce enough to feed and clothe its population.  Yet we have hunger and all sorts of privation in the nation.  The irony of this, if such a thing is possible, is that the well-to-do could be earning even greater amounts if they changed their attitude toward the rest of the people in the nation.  We are capable of producing more wealth for the rich and more, also, for everyone else.  No one needs go hungry or be food insecure, or for that matter, not have a decent standard of living.  No one need not have employment, if they want to work.  This country is that rich and that capable.  There is definitely something wrong with our current system of values.

 

 

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