Even a Broken Obama Makes a Good Point Occassionally (Even If It Wasn't the Point He Was Trying to Make)

No, I didn't drop acid this morning and it is a few days past April fools. I was reading the speech Obama gave yesterday and I noticed that he actually made a valid point about the Ryan budget, in his own way. Now, I definitely didn't like it when he said:

This congressional Republican budget is something different altogether. It is a Trojan Horse. Disguised as deficit reduction plans, it is really an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism. It is antithetical to our entire history as a land of opportunity and upward mobility for everybody who’s willing to work for it; a place where prosperity doesn’t trickle down from the top, but grows outward from the heart of the middle class.

Talk about over the top. Who attacks a budget for social darwinism (side note, does this attack mean he is a social creationist?)? Most of the speech is the usual class warfare kind of claptrap which tries to make the case that the poor people will starve and children will end up like Oliver Twist if you enact this deficit reduction legislation. But what I actually thought was a relatively good point was when he said:

The year after next, nearly 10 million college students would see their financial aid cut by an average of more than $1,000 each. There would be 1,600 fewer medical grants, research grants for things like Alzheimer’s and cancer and AIDS. There would be 4,000 fewer scientific research grants, eliminating support for 48,000 researchers, students, and teachers. Investments in clean energy technologies that are helping us reduce our dependence on foreign oil would be cut by nearly a fifth.

If this budget becomes law and the cuts were applied evenly, starting in 2014, over 200,000 children would lose their chance to get an early education in the Head Start program. Two million mothers and young children would be cut from a program that gives them access to healthy food. There would be 4,500 fewer federal grants at the Department of Justice and the FBI to combat violent crime, financial crime, and help secure our borders. Hundreds of national parks would be forced to close for part or all of the year. We wouldn’t have the capacity to enforce the laws that protect the air we breathe, the water we drink, or the food that we eat.

Cuts to the FAA would likely result in more flight cancellations, delays, and the complete elimination of air traffic control services in parts of the country. Over time, our weather forecasts would become less accurate because we wouldn’t be able to afford to launch new satellites. And that means governors and mayors would have to wait longer to order evacuations in the event of a hurricane.

That’s just a partial sampling of the consequences of this budget. Now, you can anticipate Republicans may say, well, we’ll avoid some of these cuts -- since they don’t specify exactly the cuts that they would make. But they can only avoid some of these cuts if they cut even deeper in other areas. This is math. If they want to make smaller cuts to medical research that means they’ve got to cut even deeper in funding for things like teaching and law enforcement. The converse is true as well. If they want to protect early childhood education, it will mean further reducing things like financial aid for young people trying to afford college.

The reason I think this is all a valid point is simple. In order to reduce the deficit on the back of domestic discretionary spending, you will have to cut a lot of popular programs. The math is unavoidable. The worst part is that domestic discretionary spending is actually not what is killing our finances. As I wrote before, its the entitlements that are killing us, domestic discretionary spending as a % of GDP has actually been trending down over the decades:

Now I might question the need for scientific grants from the Federal government but based on my Federal Tax Receipt, I spent about $50 last year on that. Conversely, I spent several thousand dollars on social security and medicare payments to the elderly and thousands more on entitlements to a smattering of other people. Should we privatize the national weather service? Sure, it's probably a good idea (I don't remember weather forecasting being in the constitution) but at the end of the day, that won't make much of a difference to our well-being. Put another way, in 2012, even if we give up our entire military and shut down almost every federal agency (other than the IRS, CMS and SSA), we will just be meeting our obligations, we won't even be running a surplus.

The fatal flaw in the Ryan budget is that it leaves the entitlements alone for the foreseeable future. He doesn't touch Social Security at all and his medicare reform plan only starts helping after Medicare's scheduled point of bankruptcy (some help). And don't even get me started on his tax plan.

It seems that the GOP's Ryan worship has yoked them with a politically unpopular plan that doesn't even seriously tackle the main threats to our well-being as a nation.

Discretionary Spending has Doubled since 2000, so Why the Panic Over Sequestration?

Check out this graph that I came up with using the White House's historical budget tables and nominal GDP data from FRED:

As you can see, government spending has dwarfed the growth in the economy since 2000 with even non-Defense discretionary spending up a whopping 85% since then compared to growth in nominal GDP of 57.5% (so no blaming the wars in Iraq and Afghanistan).  The sequester cuts barely even register as blips on these spending growth curves with total federal spending continuing to climb after these supposedly "draconian" cuts.

So all the scare tactics that seem to imply that aircraft will drop from the skies, cops and FBI agents will be let go and children will die from lack of vaccinations are just a bunch of BS.  As everyone who has been to a government office knows, there is plenty of slack in government with government workers being paid more to do less than private sector counterparts.  Check out this list of common sense cuts from Rand Paul that won't cause anyone to lose their jobs:

•         Stop Hiring New Federal Employees: $6.5 billion saved annually 

Every year, thousands of federal employees retire or leave their jobs. In 2011, roughly 62,000 people ended their careers with the government. Estimates vary, but allowing a federal bureaucrat to retire without replacing that person with another employee can save anywhere from $60 billion to $200 billion over 10 years. This provision estimates to save $6.5 billion in one year.

•·         Bring Federal Employee Pay in Line With Private Jobs: $32 billion saved annually 

According to the Congressional Budget Office, the average compensation of a federal employees is 16 percent more than their private equivalents. By reducing salaries to align more with their private counterparts, this provision could save as much as $32 billion a year.

•·         Reduce Federal Employee Travel by 25 Percent: $2.25 billion saved annually

The latest data provided by the General Services Administration suggested that the federal government spent $9 billion on travel. Reducing the federal travel budget by at least 25 percent can reduce the budget by $2.25 billion a year.

•·         Focus Military Research on Military Needs: $6 billion saved annually 

According to research done by the staff of Sen. Tom Coburn (R-Okla.), found that the Defense Department spent $6 billion on research that had nothing to do with military or military-related health inquires.

•·         Require Competitive Bidding for Government Contracts: $19 billion saved annually 

The Davis-Bacon prevailing wages law requires federal projects to pay the employees higher wages. This would repeal this requirement and allow the government to save money by making pay competitive to all government employees. The Heritage Foundation estimates that this will save $9 billion a year. Also, many contracts in the federal government are provided to companies without requiring a competitive bid - or the opportunity for the government to contract work at the lowest price possible. This provision would require the government to competitively bid all contracts. This provision would save an additional $10 billion a year.

•·         Cut 50 Percent of Foreign Aid: $20 billion saved annually

We spend more than $40 billion a year on foreign aid. When we're dealing with a budget crisis here at home, it's only responsible to bring this money home. This provision would eliminate half the foreign aid budget. 

Supreme Court Justices Make a Mockery of the Obama Administration's Argument Against the Arizona Immigration Law

I almost feel sorry for the current Solicitor General, who needs to make ludicrous arguments in front of the Supreme Court, repeatedly.  Even Breyer and Sotomayor point out how silly the arguments are (they are at the end of this post):

JUSTICE ALITO: Well, suppose that every -- suppose every law enforcement officer in Arizona saw things exactly the same way as the Arizona legislature. And so, without any direction from the legislature, they all took it upon themselves to make these inquiries every time they stopped somebody or arrested somebody.

Would that be a violation of Federal law?

GENERAL VERRILLI: No, it wouldn't be, Your Honor, because in that situation they would be free to be responsive to Federal priorities, if the Federal officials came back to them and said, look, we need to focus on gangs, we need to focus on this drug problem at the border --

JUSTICE ALITO: But what if they said, well,we don't care what your priorities are; we have our priorities, and our priority is maximum enforcement, and we're going to call you in every case? It was all done on an individual basis, all the officers were individually doing it –

GENERAL VERRILLI: Yes, well –

JUSTICE ALITO: -- that would be okay?

GENERAL VERRILLI: Well, if there's a – if there's a state policy locked into law by statute,locked into law by regulation, then we have a problem. If it's not –

JUSTICE SOTOMAYOR: General –

GENERAL VERRILLI: -- I mean, the line is mandatory versus discretionary --

JUSTICE ALITO: That's what I can't understand because your argument -- you seem to be saying that what's wrong with the Arizona law is that the Arizona legislature is trying to control what its employees are doing, and they have to be free to disregard the desires of the Arizona legislature, for whom they work, and follow the priorities of the Federal Government, for whom they don't work.

GENERAL VERRILLI: But they -- but with respect to immigration enforcement, and to the extent all they're doing is bringing people to the Federal Government's attention, they are cooperating in the enforcement of Federal law --

JUSTICE KENNEDY: But the hypothetical is that that's all the legislature is doing.

GENERAL VERRILLI: Well, except I think, Justice Kennedy, the problem is that it's not cooperation if in every instance the officers in the state must respond to the priorities set by the state government and are not free to respond to the priorities of the Federal officials who are trying to enforce the law in the most effective manner possible.

…

JUSTICE SCALIA: Are you objecting to harassing the -- the people who have no business being here? Is that -- surely you're not concerned about harassing them. They have been stopped anyway, and all you're doing is calling up to see if they are illegal immigrants or not. So you must be talking about other people who have nothing to do with -- with our immigration laws. Okay? Citizens and -- and other people, right?

…

GENERAL VERRILLI: -- it would ameliorate the practical problem; but, there is still a structural problem here in that this is an effort to enforce Federal law. And the -- under the Constitution, it's the President and the Executive Branch that are responsible for the enforcement of Federal law –

CHIEF JUSTICE ROBERTS: It is –

GENERAL VERRILLI: -- and –

CHIEF JUSTICE ROBERTS: It is not an effort to enforce Federal law. It is an effort to let you know about violations of Federal law. Whether or not to enforce them is still entirely up to you. If you don't want to do this, you just tell the person at LESC -- if that's the right -- is that the right acronym?

GENERAL VERRILLI: It is, Mr. Chief Justice.

CHIEF JUSTICE ROBERTS: -- LESC, look, when somebody from Arizona calls, answer their question, and don't even bother to write it down. Okay? I stopped somebody else, is he legal or illegal, let me check -- it's, oh, he's illegal. Okay, thanks, good-bye. I mean, why -- it is still your decision.  And if you don't want to know who is in this country illegally, you don't have to.

GENERAL VERRILLI: That's correct. But the process of -- the process of cooperating to enforce the Federal immigration law starts earlier, and it starts with the process of making the decisions about who to -- who to stop, who to apprehend, who to check on.  And the problem -- the structural problem we have is that those decisions -- in the making of those decisions, Arizona officials are not free --

CHIEF JUSTICE ROBERTS: Under 2(B), the person is already stopped for some other reason. He's stopped for going 60 in a 20. He's stopped for drunk driving. So that decision to stop the individual has nothing to do with immigration law at all. All that has to do with immigration law is the -- whether or not they can ask the Federal Government to find out if this person is illegal or not, and then leave it up to you. It seems to me that the Federal Government just doesn't want to know who is here illegally or not.

GENERAL VERRILLI: No, I -- I don't think that's right. I think we want to be able to cooperate and focus on our priorities. And one thing that's instructive in that regard, Mr. Chief Justice, are the declarations put into the record by the police chiefs from Phoenix and Tucson, both of whom I think explain effectively why S.B. – the section 2(B) obligation gets in the way of the mutual effort to -- to focus on the priorities of identifying serious criminals so that they can be removed from the country.

JUSTICE SCALIA: Anyway, what -- what's wrong about the states enforcing Federal law? There is a Federal law against robbing Federal banks. Can it be made a state crime to rob those banks? I think it is.

GENERAL VERRILLI: I think it could, but I think that's quite --

JUSTICE SCALIA: But does the Attorney General come in and say, you know, we might really only want to go after the professional bank robbers? If it's just an amateur bank robber, you know, we're -- we're going the let it go. And the state's interfering with our -- with our whole scheme here because it's prosecuting all these bank robbers.

GENERAL VERRILLI: Well, of course, no one would –

JUSTICE SCALIA: Now, would anybody listen to that argument?

GENERAL VERRILLI: Of course not.

JUSTICE SCALIA: Of course not.

GENERAL VERRILLI: But this argument is quite different, Justice Scalia, because here what we are talking about is that Federal registration requirement in an area of dominant Federal concern, exclusive Federal concern with respect to immigration, who can be in the country, under what circumstances, and what obligations they have –

JUSTICE KENNEDY: Now, are you talking about 3 now or –

…

JUSTICE ALITO: Well, could I ask you this about 2, before you move on to that? How is a – this is just a matter of information. How can a state officer who stops somebody or who arrests somebody for a nonimmigration offense tell whether that person falls within the Federal removal priorities without making an inquiry to the Federal Government? For example, I understand one of the priorities is people who have previously been removed, then that might be somebody who you would want to arrest and -- and remove. But how can you determine that without making the -- the inquiry in the first place?

GENERAL VERRILLI: Well, in any individual case, that's correct. You -- you would need to make the inquiry in the first place. It won't always be correct, if you're arresting somebody based on probable cause that they have committed a serious crime, and they -- and they -- the inquiry into whether -- into their status will be enough to identify that person for priority –

JUSTICE ALITO: Well, what if they just, they stop somebody for a traffic violation, but they want to know whether this is a person who previously was removed and has come back or somebody who has just -- just within the last few hours possibly come -- well, let's just -- somebody who's previously been removed? How can you know that without making an inquiry?

GENERAL VERRILLI: Well, I think -- I think it's correct that you can't, but there is a -- there is difference, Justice Alito, I think, between the question of any individual circumstance and a mandatory policy backed by this civil fine, that you've got to make the inquiry in every case.

…

JUSTICE BREYER: Look, in the Federal statute, it says in 1373 that nobody can prohibit or restrict any government entity from making this inquiry of the Federal Government. And then it says that the Federal Government has -- any agency -- and then it says the Federal has an obligation to respond. Now, assuming the statute were limited as I say, so nothing happened to this individual, nothing happened to the person who's stopped that wouldn't have happened anyway, all that happens is the person – the policeman makes a phone call. Now that's what I'm trying to get at. If that were the situation, and we said it had to be the situation, then what in the Federal statute would that conflict with, where we have two provisions that say any policeman can call?

…

JUSTICE SOTOMAYOR: Can I get to a different question? I think even I or someone else cut you off when you said there were three reasons why -- 2(B). Putting aside your argument that this -- that a systematic cooperation is wrong -- you can see it's not selling very well -- why don't you try to come up with something else? Because I, frankly -- as the chief has said

to you, it's not that it's forcing you to change your enforcement priorities. You don't have to take the person into custody. So what's left of your argument?

The Federal Government is Just 3 weeks Away from a Possible Government Shutdown and 5-8 Weeks Away From Completely Running Out of Cash

While the news cycle has been dominated by Syria and the full-court press by the White House to get people to sign on to his unbelievably small operation in Syria meant to make Assad eat his Cheerios with a fork (no word on whether Assad knows how to tip the bowl into his mouth), people have forgotten that we may have a government shutdown October 1 and we might run out of cash in late-October early November.

Congress needs to pass another continuing resolution to fund the government (God forbid they actually pass a budget) and then they need to vote again to raise the debt ceiling.  Check out this chart from the Bipartisan Policy Center which shows when the Federal Government will completely run out of cash:

Hopefully the GOP leadership keeps its spine and is able to squeeze out further discretionary spending cuts.

Low Interest Rates are a Net Negative for Both Consumers and the Economy

David Kelly and David Liebovitz wrote a very interesting article in Morningstar on how our zero interest rate policy is actually doing much more harm than good:

The Consumer Problem

First, contrary to the assumptions of most commentators, the Fed’s policy of super-low interest rates is actually reducing consumer discretionary income relative to the alternative of raising interest rates. As shown in Chart 2, as of September 30, 2012, American households had $78.2 trillion in assets, of which we estimate roughly $15.2 trillion were interest-bearing, compared to $13.4 trillion in debt¹.

Based on mortgage data from the Census Bureau², over 90% of outstanding mortgages carry a fixed rate, as well as the vast majority of auto loans, allowing us to assume that approximately 70% of liabilities are fixed rate debt.

Determining the exact amount of variable rate assets is more difficult, but given that more than one-half of deposits are comprised of time deposits, savings deposits and money market funds, it may be reasonable to assume that more than 70% of household interest-bearing assets could be considered to be variable rate. Therefore, as an approximation, a +1% increase in interest rates could increase consumer interest income by $106 billion (on 70% of assets) and interest expense on household liabilities by $40 billion (on 30% of liabilities). While definitive numbers are more difficult to calculate, what is clear is that interest income would rise more than interest expense.

...

An even more serious problem is that the Fed’s policy of trying to engineer artificially low mortgage rates appears to be reducing the supply of mortgages. The problem is that, within the banking system, mortgages are long-term assets financed by short-term liabilities. Provided defaults are low, this is a profitable business in normal times, since, as can be seen in the chart below, 30–year mortgage rates are almost always substantially above short-term interest rates. However, while the current prevailing mortgage rate is 3.35%, in the long run, according to the average view of Federal Reserve officials themselves, the federal funds rate should be over 4%³. Banks issuing a 30-year fixed rate mortgage today, even allowing for a little profit in the first few years, should ultimately be saddled with a money-losing asset.

It could be argued that banks should not care about this – so long as they can package and sell these mortgages to other investors, it would no longer be their problem. However, recent history has shown a tendency for bad mortgages to return to haunt their issuers.

In the simplest terms it is akin to price-fixing, and by pushing prevailing mortgage rates down to unprofitable levels for lenders, the Federal Reserve is effectively constraining the supply of mortgages. In the oil shock of the early 1970s, the Nixon administration imposed price controls to prevent gasoline prices from rising to unreasonable levels. The good news, at that time, was that gasoline prices were kept at levels that consumers could afford. The bad news, as witnessed by the gas lines of the day, is that few wanted to sell them gas at that price. In a similar vein today, mortgage rates are an excellent deal for borrowers – the problem is finding willing lenders.

...

Easy Money and Slow Recoveries

In the last 30 years, the U.S. economy has suffered three recessions – the recession of 1990, the recession of 2000-2001 and the recession of 2008-2009. The first two were relatively mild – the last was extreme. However, one trait they all have in common is that they have seen slower than normal recoveries. This is regarded as a puzzle since, in each case, the Federal Reserve had responded to the recession in a very active way. However, a careful review of the supposed effects of “monetary stimulus” suggests that this stimulus may actually have done more harm than good, as we believe it has in the current case.

Economies, like humans, have natural immune systems that should lead them to recover from shocks and illnesses. A recession, on its own, will generate pent-up demand and once the shock that caused the recession has ebbed, this pent-up demand, combined with Americans’ desire to earn more, spend more and get ahead, should lead to a recovery. Often policy makers, like medieval doctors of old, claim credit for a recovery that would have occurred anyway and perhaps earlier without their services. We believe this is true in spades today when it comes to the U.S. economy and the Fed’s over-easy policy.

...

The banking system currently holds over $1.5 trillion in currency ($1.4 trillion of which is “excess reserves” that is over and above the reserves they are required to hold to meet reserve requirements). They do this because the Fed is paying them slightly more than they could get lending this money out at the federal funds rate. If the Federal Reserve raises the federal fund rate, it will have to raise this interest paid on reserves in lockstep or banks will simply lend the money on the federal funds market, defeating the attempts of the Fed to raise short-term interest rates. However this could get expensive. At an interest rate of 0.25%, the Fed is paying about $4 billion to maintain $1.5 trillion in reserves. However, at an interest rate of 4.0% (which would be about neutral given our current 2% inflation rate) it would cost the Fed $60 billion, wiping out most of the Fed’s profits.

A more serious situation would occur if the Fed felt that it needed to raise real short-term rates to a tighter than average level to combat rising inflation. At a rate of 6%, it would cost $90 billion, which, combined with the operating expenses of the Fed, could mean that the Federal Reserve would operate at a loss.

...

Also, in a rising rate environment, it is unlikely that consumers and international businesses would be willing to hold anything like $1.15 trillion in non-interest earning cash and, as that cash made its way back into the vaults of the banking system, it would further boost the reserves on which the Fed had to pay interest.

The Fed’s other option would be to sell its vast security holdings back into the market, which could lead to a disorderly surge in long-term interest rates and cause it to suffer capital losses. It could also raise reserve requirements, which would help reduce the number of bonds it has to sell. Or it could make the dangerous decision to forgo necessary monetary tightening, leaving the door open to higher inflation, which would be reflected in higher interest rates.

Moreover, the newly expanded QE policy, if maintained for another year, would add almost another $1 trillion to both the Fed’s assets and excess reserves, worsening this problem. We don’t know exactly how it is going to end. However, partly because of this extraordinary balance sheet expansion, it is hard to see any long-term scenario that doesn’t involve higher inflation, higher interest rates or both, a sober prospect for investors who are overweight cash and fixed income today and still moving money in the wrong direction.

...

Investment Implications

While this article only deals with two problems with the Fed’s current policy, there are others. Historically low U.S. interest rates are motivating cash flows into some emerging market economies, leading to unwelcome currency appreciation and, from time-to-time, into commodities spurring some overseas inflation. Additionally, low interest rates have affected pension plans, as driving down longer-maturity bond yields to their current levels has increased the present value of future obligations while simultaneously causing plan funding rates to deteriorate due to lower expected returns. Finally, although lower interest rates have made mortgages much more affordable for consumers, this is a double-edged sword; cheap access to credit can help Americans purchase a home today, but if they decide to move in the future, they will most likely be unable to obtain another mortgage at a similar rate, a trap that could further reduce already declining mobility.

From an investment standpoint, despite historically low interest rates, investors have continued to embrace low-yielding fixed income securities, rather than moving into riskier assets as the Federal Reserve intended. With the 10-year U.S. Treasury yielding less than inflation, holding these types of assets is a losing battle, as investors are essentially locking in a negative real return. Additionally, the system is awash with liquidity, and if inflation begins to increase, investors in high-quality fixed income stand to see their returns deteriorate even further. The FOMC has chosen two lagging indicators (unemployment and inflation) to dictate the future direction of monetary policy, but once these indicators reach levels that the Fed believes warrants a tighter monetary policy, it may be too late. That being said, when the FOMC begins to raise interest rates (likely due to stronger growth and/or higher inflation), investors could benefit from being invested in asset classes like equities and commodities, which have traditionally outperformed fixed income and cash when inflation and interest rates are rising.

Regardless of the wisdom of the Federal Reserve’s current policy, investors need to position themselves to deal with its ultimate consequences. The reality is that it is hard to see how this doesn’t end badly for bond investors, and it is becoming increasingly difficult to believe that it won’t, at some stage, also result in a bout of inflation. Given this prospect and current valuations, it makes sense for long-term investors, relative to their “normal portfolios” to be somewhat underweight bonds and overweight equities and traditional inflation hedges such as real estate.

Thoughts on the Debt Ceiling Talks

I do realize that what is going on right now is mostly political theatre but I also have to shake my head about the whole situation, especially the behavior of Obama.  Having seen negotiations occur in the non-political world firsthand, I'm used to the people involved try to get things done, unlike the current administration, which seems to want the exact opposite (I'm actually starting to think Obama wants a default so he can blame the GOP, as his W bashing is no longer working outside of academia).  Just two weeks ago he actually said he was too busy to be involved with the negotiations and now he says he will veto any short term solutions and he implied he would do the same with anything that didn't raise taxes.  The US is already the most progressive tax system in the developed with the top decile paying a more disproportionate percent of taxes than any other country in the OECD.  Also, we already have a slew of taxes coming in 2013, including across the board tax rate increases (as tax rates revert back to those under Clinton) and a slew of taxes coming from Obamacare.  The worst part is, Obama knows that a very large number of Republican Congressman signed a no tax pledge, so raising taxes is a no go.  With time quickly running out, Obama is trying to make the GOP cross a redline they cannot cross.  Not exactly the actions of someone who is trying to get a deal done.

On another point, I'm getting the feeling that the product of all these negotiations might not be what we think it might be.  How could we possibly reform Medicare, Medicaid, Social Security and the general budget by August 2nd?  Just writing the bills to do so would probably take longer than that.  My guess is that a debt ceiling increase will be exchanged for nothing more than promises to tackle them later on.  As if they will be tackled going into an election year.  I'm hoping I'm wrong and that we at least get hard spending caps, but the rumor of a "contingency" plan from Senate Republicans is giving me a sinking feeling.  Republican voters will go nuts if they back down.  After all, we didn't elect the GOP to capitulate on deficits, we elected them to shrink the size of government.

Update:  Apparently the Democrats were only offering $2 billion in discretionary spending cuts next year. Talk about a very unserious set of negotiations.

Struggling with Santorum

Newt is done.  There are no if's and's or but's about it.  His "Southern Strategy" became a "Deep South Strategy" after Super Tuesday and now he doesn't seem to have a strategy to win at all.  If someone has any ideas that are both logical and doable and don't include some sort of deus ex machina resolution to the primary race, I'd love to hear them (Politijim has some ideas but I'm not sure they are enough to get him over the top).  I am still thoroughly convinced that Newt is the best man for the job, by far.  He is the smartest, the most inspiring and hasthe best experience to get us through these difficult times.  Unfortunately, most conservatives seem to be enamored with Rick Santorum, who has very wisely decided to market himself as Newt without the personal baggage.  He has gone so far as to actually steal lines from Newt's speeches, if you watched the Alabama Presidential Forum, you'll know what I mean.

And at this point, I WANT to like Rick Santorum, to endorse him and be done with it.  He clearly is the only conservative in the race who can even have a chance of over-taking Romney, especially if Newt endorses him and gets his delegates to vote for Santorum (a scenario I didn't think about in my previous piece on the possibility of a brokered convention, which focused on each candidate's individual chances without combinations).  A Newt/Santorum alliance would only need to outperform Romney by about 8% (in both hard bound and total delegates) to be officially ahead of Romney at the convention and all bets could be off if that happens.  Even the establishment will think twice before screwing a candidate who is so popular with the grassroots who also came in at #1 to the convention.  Though I have no doubt they will try anyway (though there is a difference between sort of trying and pulling out all the stops). 

Unfortunately, I'm just not there yet.  Yes, Santorum is a conservative, is very supportive of Israel and generally conservative on the important issues of the day, like repealing Obamacare and getting our national finances in order.  Unfortunately, he is a George W. Bush compassionate conservative with very major holes in his record.  Just compare his ACU ratings from 1991-1994 with Newt's.  I picked those years because that was when they both overlapped in the House of Representatives and therefore are being judged on the exact same versions of the exact same bills.  In 1991, Newt scored 100% while Santorum only scored 80%.  And those 20% of votes where he didn't vote conservative were actually quite important.  He voted against caps in discretionary spending, SDI funding, against allowing employers to hire permanent replacements for striking workers and for NEA funding.  In 1992, Newt against scored a perfect 100% and Santorum scored 83%.  Santorum voted against school choice and a spending freeze but voted for NEA funding.  In 1993, Newt scored 96% and Santorum scored an abysmal 70%.  Newt's only indiscretion was that he voted against a bill which would have required the military to ask new recruits if they were gay.  Santorum once again voted against SDI, school choice, employer rights to hire replacements and quite a few more (7 key bills in all).  In 1994, Newt was once again a perfect 100% and Santorum scored 81%.  He voted against the Trident II missile and against NEA termination, but for halting development in the deserts of California (I guess both wetlands and very very drylands need to be "saved"). 

That is all not very reassuring.  Of course, though, he did improve over time and in his last year in the Senate he did have an ACU rating of 96% and a lifetime rating of 88%.  Also, if you look at Newt's record in his first year, it wasn't perfect either.  Yes, he had a score of 89 but he voted for the Department of Education and also something called the Energy Mobilization Board, which would have allowed a panel of political appointees to overrule business decisions to "mobilize" the energy sector.  Long story short (I know, too late), Santorum seems to have become more conservative and currently is using rhetoric indistinguishable from Newt's but I'm just not sure if, once in office, he won't run things as a moderate, as many Republicans do once elected to higher office.

I am also struggling with Santorum's social views.  Look, I'm pro-life but otherwise I'm a live and let live kind of guy who thinks people should be free to do what they like in the privacy of their own home if it is not infringing on someone else's rights.  He is not that kind of guy at all.  He has a very paternalistic view of society which kind of scares me.  As President, he will speak out and try to curtail things like gambling, porn and contraception which I don't think is the business of government.  The only reason I might let this category slide is because I really don't think as President he will have much power to do much in the social sphere, which is a good thing.

Basically, I'm just not sure if I vote for Santorum it will actually be a vote for him as opposed to a vote against Romney and then against Obama.  I've done that before, quite a few times actually, and I'm sick of just voting for the lesser of two evils.  I want to vote for the good and I'm not sure yet if Santorum is good enough.  Yet.  Though given how much I hate Romney (who has even flip flopped on the subject of Catfish) I might just bite the bullet once again.

Will We Really Default Just So Obama Doesn't Have to Raise the Debt Ceiling Before the Election?

If you take a look at the CBO scoring of the Reid and Boehner, they look almost identical in terms of discretionary spending savings, Reid's only theoretically saves more money because it includes savings from getting out of Iraq and Afghanistan.  The only real difference between the two plans is that Reid's plan would give Obama cover until after the next election (at least one would hope but you never know, Obama spends money like a drunken sailor) while Boehner's would require us to do this all over again in several months.  So if the Boehner plan actually does pass the House today (a big if), given how similar the Senate bill is, does it make sense to kill it just over timing?  Given how similar the two bills are can they really call the Republicans radical crazies and have anyone but Rachel Maddow and the rest of the MSNBC whack jobs believe them?  The Republicans can sound very reasonable by saying, "hey, we just didn't want to write a blank check for $2.7 trillion, equivalent to an entire year's worth of Federal receipts."

However, if the Boehner bill doesn't pass the House, then I would say we should just bite the bullet, accept the Reid plan and call it a day.  Yes, there will be some angry constituents out there and Bachmann will be able to make a few great speeches on how the GOP establishment sold out, but in the end the GOP would have won a major victory for the American people over the Obama's, Pelosi's and Reid's of the world. Remember, they had wanted an automatic debt limit increase without any conditions and then said they would only accept cuts if they increased taxes.  To get cuts without tax increases would be a nice victory and would set the stage for a GOP sweep in 2012, which is the ultimate goal.  We are in a marathon, not a sprint, there is no reason to use all of our ammo in this lap.  We have lots more to go.

How to Compare the Record of a Perry to a Romney or a Christie

The last few debates have featured Rick Perry attacking Mitt Romney over of his record, especially Romneycare, with Romney trying to deflect/excuse it by saying he wasn't playing as strong a hand as Perry (who was in a very Red state with a conservative legislature).  If Chris Christie enters the race, he will most likely be assaulted for some of the decisions that he has made as Governor of New Jersey that most conservatives would cringe over.  He is also likely to attempt the same excuse as Romney, that he is governing in a blue state and has to make compromises.  So how much of his or any Governor's record should we excuse due to their location?  How are we to compare a Governor of Texas with a Governor from anywhere in the Northeast?

There are, of course, no easy answers but the way I have started thinking about it is like this:  Is the Governor's record as conservative as it could have been, given his circumstances?  I think that is what is important as when a Governor becomes President his environment will change and so may his policies.  Remember, W's record in Texas was relatively conservative but when he came into office, he became decidedly less conservative than you would have thought with his discretionary spending increases and the creation of the Medicare Part D entitlement.  Also, if you look at the record of Jon Huntsman in Utah, it was pretty stellar.  However, it is also clear that it was probably stellar just because of his environment and if he won the White House he would be decidedly more liberal (as his support for cap and trade attests).   To have a truly safe conservative choice, therefore, you would want someone with a conservative record, who was able to maintain that record despite constant opposition from legislators and voters.  Someone like Tim Pawlenty, who despite having a Democratic legislature and a relatively blue or at best purple electorate, was able to have one of the most conservative records for a Governor in the country.

So where do the current crop of candidates stand with regards to this way of thinking about their records?  Well, despite what Romney would have you think, he was still way more liberal than he needed to be.  I don't seem to remember William Weld trying to provide universal health care.  Heck, William Weld got one of the highest grades in the Cato Fiscal Policy Report Card, something Romney was unable to achieve.  Rick Perry clearly has a conservative record, but can you really argue he was as conservative as he possibly could have been in a state like Texas?  He gets a strong B in the Cato Institute's scoring system, but in a state like that, is there an excuse for not getting an A if you are a true conservative?

Now for Chris Christie.  I realize there are quite a few mixed signals on whether he will enter the race or not but I figure I'll discuss him now anyway.  Unfortunately, in many ways it is just too early to tell exactly how conservative he is.  He has only been Governor for less than 2 years, after all.  But so far, I would say he is definitely close to being as conservative as he could be in New Jersey.  Taking on the thugs in the unions is difficult in any state, but especially in a state where they are so much a part of the political machine as New Jersey.  His conservative credentials have pretty much survived a trial by fire (something you definitely cannot say about Perry or Romney or Huntsman) so in many ways I would be more comfortable with him as President than many of the other candidates.  Also, it will be extremely entertaining watching him debate President Teleprompter.

Ideally, we shouldn't raise the debt ceiling, but because of our state-dependent society, it's going up at some point, no matter what

I have to admit, I'm very attracted to the idea of not raising the debt ceiling.  In one fell swoop, we could cut the lifeblood of Leviathan through what is essentially a balanced budget mechanism.  If we are at the debt limit, government receipts have to equal government expenditures.  So even though Obama would have won the November election, our government would be as limited (at least on an expenditure basis) as it would be under Ron Paul.  Unfortunately, the realities of electoral politics and the fact that 70% of the Federal budget goes to some sort of dependence program, any victory will be short lived.  Let's say enough of the GOP goes along and keeps us from increasing the debt ceiling (which is far from likely given most House Republicans voted against the cliff and it still passed thanks to a RINO-Democrat coalition), then what?  We'd have to cut government spending by 40% (about $1.3 Trillion!) in order to not have our debt limit breached.  Our deficit is so big that if we cut out ALL discretionary spending, all defense and just about every cabinet department, just focusing on interest and entitlements, we just balance the budget.  So realistically, we'd have to take a knife to medicare and social security in order to balance the budget, immediately.  As we all know seniors vote, how would you expect them to react in 2014?  We could easily end up with a filibuster proof Democratic majority in the Senate (heck it even could be big enough to amend the Constitution, won't that just be a hoot!) and a massive majority in the House.  Plus, most people probably won't be happy with their parents and grandparents suddenly cut off from their income.  They will blame the people cutting off the funds now, not the people who raided the trust fund in the first place.  So after 2014, not only will the debt ceiling likely be permanently increased, but we would get socialist programs that would make the French blush.  Essentially we would be winning a battle but losing a war.  Badly.

Perhaps we could have gotten away with not raising the debt ceiling in 2007, when we would have only had to cut spending by 6% to balance the budget, but those days are long gone.  Obama has spent our money like a conman who just had a big haul after a long dry spell.  It's simply not a realistic vehicle for long term restraint of the government.

We Can't Fix the Budget Without Fixing Entitlements

After Obama released his disastrous budget yesterday, I was looking through some of the historical budget data and came upon something interesting which really hit the importance of entitlement reform home.  If you look at outlays as a % of GDP, you see that discretionary spending (everything from wars to the Department of Education) has actually fallen over the last 50 years and is clearly not the source of government largesse, at least in terms of spending (regulations are a different story).  What really is busting the budget are the "mandatory" items like social security and medicare.  Just take a look:

With taxes as a % of GDP expected to be at 15.8% in 2012, this means that even if we give up our entire military and shut down almost every federal agency (other than the IRS, CMS and SSA), we will just be meeting our obligations, not even running a surplus.  Some on the left would suggest we need to increase taxes, but given the recessionary nature of taxation (1% of GDP in increased taxation would decrease GDP by 3%), that is just not realistic, not given the levels of additional taxes we would need to collect.   It is just simply impossible for us to balance the budget again without reforming medicare and social security.   We just can't afford to ignore the problem any longer.

Did Carly Fiorina Betray Conservatism by Opposing the 2013 Shutdown?

Some on the right are calling Carly Fiorina a RINO for not supporting Ted Cruz during the 2013 shutdown.  Since she was not a Senator and hence we don't have a vote record for her, the evidence of her RINO-ness is an interview on CNN in which she said:

Everybody could see this train wreck coming. I actually feel badly for John Boehner. I think this is Ted Cruz and President Obama’s shutdown. I think Ted Cruz’s tactics were wrong. There’s no honor in charging a hill that you know you can’t take, only casualties, although Ted Cruz maybe got name recognition and money along the way. But President Obama wanted this shutdown. And Ted Cruz played right into his hands.

Is there anything wrong in this analysis of the 2013 attempt to defund Obamacare which resulted in a government shutdown?  It was pretty obvious to anyone with knowledge of basic arithmetic and civics that a bill to defund Obamacare would never pass.  Sure it could pass the GOP controlled House but never had a chance in the Dem controlled Senate.  And then let's not forget ye olde Presidential veto which would be almost impossible to override on such an issue (we're not even likely override it on that disastrous Iran deal which has bi-partisan opposition).  Even if every single Republican stood by Cruz, we would still have lost. Despite all of this, Ted Cruz led the charge to defund Obamacare anyway which led to a government shutdown because the House wouldn't pass a continuing resolution that didn't defund Obamacare.

A government shutdown was an obvious result and then it wasn't quite clear what the plan was to get the Democrats to cave.  So the government was shutdown, so what?  Obamacare was still, for the most part, funded due to much of it coming from mandatory, not discretionary spending.  Some government workers were furloughed, parks closed, big deal.  Cruz is no doubt brilliant but he didn't seem to think through the endgame very well.   And the Republicans were taking the blame in public opinion.  According to a CNN poll at the time, only 20% of people said that most Republican members of Congress deserved to be re-elected, compared to 42% of people saying most Democratic members of Congressed deserved re-election.  56% of respondents said the Republican Party was too extreme compared to only 42% saying the same about the Democrats.  Luckily, the shutdown was way before the 2014 election and voters forgot about it but at the time it was a complete disaster for the GOP.

Given all that, did Carly Fiorina say anything that was actually wrong?  The strategy had no hope, check.  It helped Cruz get a greater profile and probably money, check.  It helped Obama, check.  I don't remember anything about conservatism that requires you to follow a leader into certain doom, no matter how brilliant he may be.  Or to get a lobotomy so you don't question the popular kids.  I don't like thought police of any kind but I am especially disappointed when those thought police are people who claim to be for freedom and individuality.

Notre Dame v. Obama

Here is the text of the complaint against the Obama administration for forcing religious groups to provide abortion inducing drugs and contraception.  It's well worth reading:

1.      This lawsuit is about one of America's most cherished freedoms: the freedom to practice one's religion without government interference. It is not about whether people have a right to abortion-inducing drugs, sterilization, and contraception. Those services are, and will continue to be, freely available in the United States, and nothing prevents the Government itself from making them more widely available. But the right to such services does not authorize the Government to force the University of Notre Dame ("Notre Dame") to violate its own conscience by making it provide, pay for, and/or facilitate those services to others, contrary to its sincerely held religious beliefs. American history and tradition, embodied in the First Amendment to the United States Constitution and the Religious Freedom Restoration Act, protects religious entities from such overbearing and oppressive governmental action. Notre Dame therefore seeks relief in this Court to protect this most fundamental of American rights.

2.      This country was founded by those searching for religious liberty and freedom from religious persecution. And since the founding of this country, religious organizations such as Notre Dame have been free to fulfill their religious beliefs through service to all, including the underprivileged and underserved, without regard to the beneficiaries' religious views.

3.      The U.S. Constitution and federal statutes protect religious organizations from governmental interference with their religious views—particularly minority religious views. As the Supreme Court has recognized, "[t]he structure of our government has, for the preservation of civil liberty, rescued the temporal institutions from religious interference. On the other hand, it has secured religious liberty from the invasion of civil authority." Through this lawsuit, Notre Dame does not seek to impose its religious beliefs on others. It simply asks that the government not impose its values and policies on Notre Dame, in direct violation of its religious beliefs.

4.      Under current federal law described below (the "U.S. Government Mandate"), Notre Dame must provide, or facilitate the provision of, abortion-inducing drugs, sterilization, and contraceptive services to its employees in violation of the centuries' old teachings of the Catholic Church. Ignoring broader religious exemptions from other federal laws, the Government has crafted a narrow, discretionary exemption to this U.S. Government Mandate for "religious employers." Group health plans are eligible for the exemption only if they are "established or maintained by religious employers," and only if the "religious employer" can convince the Government that it satisfies four criteria:

• ·         "The inculcation of religious values is the purpose of the organization";
• ·         "The organization primarily employs persons who share the religious tenets of the organization";
• ·         "The organization primarily serves persons who share the religious tenets of the organization"; and
• ·         "The organization is a nonprofit organization as described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended."

Thus, in order to safeguard their religious freedoms, religious employers must plead with the government for a determination that they are sufficiently "religious."

5.       Notre Dame's health benefits plans may not qualify for this religious exemption, because, for example, while it is a nonprofit charitable organization that is firmly grounded in the tenets of Catholicism, it appears not to fall within section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code.

6.      The U.S. Government Mandate, including the narrow exemption for certain "religious employers," is irreconcilable with the First Amendment, the Religious Freedom Restoration Act, and other laws. The Government has not shown any compelling need to force Notre Dame to provide, pay for, and/or facilitate access to these objectionable services, or for requiring Notre Dame to submit to an intrusive governmental examination of its religious missions. The Government also has not shown that the U.S. Government Mandate is narrowly tailored to advancing its interest in increased access to these services, since these services are already widely available and nothing prevents the Government from making them even more widely available by providing or paying for them directly through a duly-enacted law. The Government, therefore, cannot justify its decision to force Notre Dame to provide, pay for, and/or facilitate access to these services in violation of its sincerely held religious beliefs.

7.      If the Government can force religious institutions to violate their beliefs in such a manner, there is no apparent limit to the Government's power. Such an oppression of religious freedom violates Notre Dame's clearly established constitutional and statutory rights.

8.      The First Amendment also prohibits the Government from becoming excessively entangled in religious affairs and from interfering with a religious institution's internal decisions concerning the organization's religious structure, ministers, or doctrine. The U.S. Government Mandate tramples all of these rights.

Obama's Regulators Are Killing the Economy

There are a few stories out there that remind you why it's extremely important to have the right person in the White House.  Sure, Obama's power to pass laws is hampered by a divided Congress, but his ability to jam job & economy killing regulations down the throats of American businesses is still unrestrained.  Anytime you elect a President you also elect the regulators that go with him, and unfortunately, in 2008, Obama voters elected a group of regulators that care nothing about the economic impact of their actions. 

First, there is the National Labor Relations Board.  You knew the group heading this crew were particularly anti-business when they sued Boeing over a plant OPENING in South Carolina, simply because South Carolina is a right to work state.  What's particularly galling here is that no union jobs were lost as a result of this move, so the NLRB is basically saying that non-union members don't have a right to a job.  They are also disincentivizing plant openings in lower cost states as businesses fear the wrath of the NLRB.  This makes products more expensive and hence negatively impacts the discretionary income of both businesses and consumers in general.  Does that sound like it's good for the economy? 

Unfortunately, the anti-business, anti-non-union worker decisions don't end there.  The NLRB has also scrapped a 45 day window in which workers can request a secret ballot after a card check unionization effort.  Card check unionization essentially allows unions to organize without a formal vote and as it is non-secret, allows unions to bully people into signing.  Hence a secret ballot would be a good way to make sure that a minority of the workers aren't speaking for the whole shop.  This decision doesn't do anything for the rights of labor, just the rights of unions.  The board has also just made it easier for unions to organize in nursing homes through micro-unions, aka bringing gerrymandering to unionization.  This will have a very negative impact on care as the nursing home industry is currently one of the least profitable of any around, with an average net margin of 0.9%!  Even the slightest change in labor costs can have a dramatic impact, causing many to lower their costs to remain profitable.  This basically means that unions will be directly profiting at the expense of the elderly.  And I've personally seen the difference between a good nursing home, where residents have a decent standard of living, and one where there is clearly no investment by the people in charge.  It was basically a concentration camp for old people.  This ruling will make more nursing homes like the latter instead of like the former.  But hey, gotta help your union buddies!

Then there is the Holder DOJ war on banks.  They are using pressure tactics to force banks to lend to minorities at below market rates (according to some settlements).  They are using statistical analysis and the fact that certain banks might not have as many branches in minority areas to sue banks to eek out the concessions that they want.  No proof of actual discriminatory intent is needed.  And I don't think it would be possible anyway for any of the larger banks.  They work off of statistics like income and credit scores to judge who is most likely to pay them back and adjust interest rates accordingly.  By forcing loans to effectively subprime borrowers at below market rates, you are essentially forcing banks to take on more risk than they would otherwise want to.  How is that going to end well for them?  It's not like their balance sheets are doing especially well these days as they are still full of non-performing mortgage loans (oh, you thought they went away?  Nope, banks were simply allowed to use their own discretion as to when they wrote them down.  Bank of America alone may be at risk in their current portfolio for another $50 billion in writedowns!). 

These regulations may seem minor, but they certainly add up.  The White House recently disclosed that 7 new regulations from the EPA and Department of Transportation may cost the economy over $100 billion to comply with.  I know we are used to large numbers like that being thrown around (especially when Obama flushed $862 billion down the toilet) but that is 0.7% of GDP we are talking about.  That's enough to bring us into recession, especially with some plants closing because of these regulations.  Obama's regulators have issued another 212 regulations each with an impact of at least $100 million.  That is another $21.2 billion in costs at a very absolute minimum.

This is another reason why I will vote for ANY Republican over Obama.  Republican regulators will hopefully be able to undo some of this damage, however if Obama wins, his regulators will be unleashed to do much more.  And at that point he won't have another election holding him, or them, back.