Tag Archives: Deficit

Who’s better at managing money – Republicans or Democrats?

One of the best jobs for managing money is being governor of a state. So, let’s take a look at the 50 states and see which ones have the best governors for managing money.

Here’s a new report from George Mason University, and it’s written up in Investors Business Daily.

IBD says:

A new report from George Mason University’s Mercatus Center ranks all 50 states based on 14 measures designed to determine whether states can pay their short-term bills and meet their long-term obligations — debt, pension liabilities and such. The data go through 2013.

The best-run states have enough cash to pay its current bills, enough revenue coming in to meet its fiscal year needs, a cushion for economic shocks, and management long-term liabilities.

The worst states, in contrast, have “tens, if not hundreds, of billions of dollars in unfunded liabilities — constituting a significant risk to taxpayers in both the short and the long term.”

[…]There’s only one factor these fiscal winners and losers share in common. And that’s their political leanings. Of the top 10 states in the Mercatus ranking, just two — Florida and Ohio — voted for the Democratic presidential candidate in the past four elections, and just one — Montana — has a Democratic governor. Even if you look at the 25 best-performing states, only three could be considered reliably liberal.

At the other end of the list, just two of the 10 lowest-ranked states — Kentucky and West Virginia — have voted for the Republican in the past four presidential elections. And while four of them have Republican governors, they all are in solid blue states and all were elected to clean up messes left by their Democratic predecessors.

It’s also worth noting that these same states consistently show up at the top and bottom of other lists that measure business friendliness, tax burden and economic freedom.

In fact, six of the 10 worst-performing states in the Mercatus ranking — California, New York, Illinois, New Jersey, Massachusetts, and Connecticut — are also states with the heaviest tax burdens and rated the least business friendly, according to rankings from the Tax Foundation and Chief Executive magazine.

It would appear, then, that abiding by a philosophy of limited government, lower taxes and fewer regulations leads to growth, prosperity and fiscal soundness.

Here’s the full map from the George Mason University study:

George Mason University study on fiscal solvency
George Mason University study on fiscal solvency

At the state-level, everyone understands that Republican governors know what they are doing, because they understand economics. So then why do we forget that and elect a community organizer when it comes to the Presidency? Do we just not care about the debts we are piling onto our children when we elect wastrels and profligates?

Puerto Rico debt crisis will impact U.S. investors

Which financial companies hold Puerto Rica debt?
Which financial companies hold Puerto Rico debt?

Pay attention to this article from Investors Business Daily if you have investments.

It says:

With the financial world transfixed by Greece’s debt-driven meltdown, Puerto Rico announces it can’t pay its $73 billion in debt. Once again, we’re learning that welfare statism is no replacement for fiscal responsibility.

Compared to Greece’s $353 billion in debt, Puerto Rico’s $73 billion doesn’t sound so big. On a per capita basis, it’s about a third less.

But appearances deceive. Puerto Rico is in deep, owing actually much more than that amount.

We learned this after a report on Monday, co-authored by former International Monetary Fund No. 2 Anne Krueger, revealed the island’s finances are a shambles.

The devastating analysis noted that some 150 agencies ran up deficits that couldn’t even be accurately counted, so the true indebtedness might be even higher — as much as $100 billion by some estimates.

Now Republicans favor privatizing state-owned organizations because the private sector is more efficient. Democrats want to nationalize private sector services so that they can control access to it and use their monopoly to buy votes.

What does Puerto Rico do?

The government has funneled public money to state-owned enterprises that are supposed to be financially independent. Worse, the report said, many workers no longer even look for jobs, since welfare benefits pay more than actual work.

Now guess whether a Republican or a Democrat is to blame for this. Which party likes to borrow money from future generations in order to buy votes with spending right now?

In short, the government has been horrendously mismanaged.

[…]The problem is, Puerto Rico’s dysfunctional economy means the debts only piled higher, with no way to pay them. Deficits grew, too, since spending was never really cut.

Now, as a commonwealth, it can’t declare bankruptcy. It can default, however. That would be messy, creating a financial crisis in the territory, causing businesses to close and sending thousands fleeing to the U.S. mainland. Yet the Democrat-led government has said that, while it hopes to avoid default, it won’t cut either pensions or spending. So disaster looms.

Wow, just like Greece – they refused to cut pensions, raise retirement ages and cut spending, too. There is some good news – we probably won’t have to bail them out:

A bailout? Even President Obama rules that out. If the White House couldn’t bail out union-run Detroit, it sure couldn’t do it for Puerto Rico.

And, despite Padilla’s denials, politics is very much a part of the equation. Just like Greece and dozens of other financial basket cases, Puerto Rico has become a welfare state run by leftist bureaucrats and politicians that overspends on public pensions without having the money to pay for it all.

It’s a story repeated over and over around the world.

If Puerto Rico defaults, it won’t suffer alone, however. As the New York Times notes, “much of Puerto Rico’s debt is widely held by individual investors on the United States mainland, in mutual funds or other investment accounts, and they may not be aware of it.”

So better check your 401(k). Or your hedge fund. Because virtually all of that $73 billion is held by the U.S.

This is not to time for you to quit your job and go on vacations or focus on fun in any way. There is a world-wide financial crisis brewing. It’s nothing to panic over, but this is serious enough for us all to focus on our careers and savings, and cut our own spending. It’s not just Greece or Puerto Rico either, there are other warning signs from other countries, e.g. – China, Japan, etc.


Meanwhile, across the globe, we’re headed toward a reckoning on excessive debt, and it won’t be pretty. The welfare state model with big pensions for all and lavish unemployment benefits is dead. We’re watching its death throes now. Only the politicians don’t get it.

Even here, many states have severe debt problems with underfunded public sector obligations, as well as other problems. There’s just this problem with people wanting to depend on government. There are too many people wanting a free ride, and too few people willing to work and raise the next generation of workers.

What happens to crime rates if we punish police officers for stopping crime?

This story from Heather MacDonald in the Wall Street Journal is scary.

She writes:

The nation’s two-decades-long crime decline may be over. Gun violence in particular is spiraling upward in cities across America. In Baltimore, the most pressing question every morning is how many people were shot the previous night. Gun violence is up more than 60% compared with this time last year, according to Baltimore police, with 32 shootings over Memorial Day weekend. May has been the most violent month the city has seen in 15 years.

In Milwaukee, homicides were up 180% by May 17 over the same period the previous year. Through April, shootings in St. Louis were up 39%, robberies 43%, and homicides 25%. “Crime is the worst I’ve ever seen it,” said St. Louis Alderman Joe Vacarro at a May 7 City Hall hearing.

Murders in Atlanta were up 32% as of mid-May. Shootings in Chicago had increased 24% and homicides 17%. Shootings and other violent felonies in Los Angeles had spiked by 25%; in New York, murder was up nearly 13%, and gun violence 7%.

Those citywide statistics from law-enforcement officials mask even more startling neighborhood-level increases. Shooting incidents are up 500% in an East Harlem precinct compared with last year; in a South Central Los Angeles police division, shooting victims are up 100%.

By contrast, the first six months of 2014 continued a 20-year pattern of growing public safety. Violent crime in the first half of last year dropped 4.6% nationally and property crime was down 7.5%. Though comparable national figures for the first half of 2015 won’t be available for another year, the January through June 2014 crime decline is unlikely to be repeated.

What could the cause of this be? Well, it’s the backlash against police officers who defend themselves from assault by criminals who attack them:

Since last summer, the airwaves have been dominated by suggestions that the police are the biggest threat facing young black males today. A handful of highly publicized deaths of unarmed black men, often following a resisted arrest—including Eric Garner in Staten Island, N.Y., in July 2014, Michael Brown in Ferguson, Mo., in August 2014 and Freddie Gray in Baltimore last month—have led to riots, violent protests and attacks on the police. Murders of officers jumped 89% in 2014, to 51 from 27.

The state’s attorney general, Eric Schneiderman, wants to create a special state prosecutor dedicated solely to prosecuting cops who use lethal force. New York Gov.Andrew Cuomo would appoint an independent monitor whenever a grand jury fails to indict an officer for homicide and there are “doubts” about the fairness of the proceeding (read: in every instance of a non-indictment); the governor could then turn over the case to a special prosecutor for a second grand jury proceeding.

This incessant drumbeat against the police has resulted in what St. Louis police chiefSam Dotson last November called the “Ferguson effect.” Cops are disengaging from discretionary enforcement activity and the “criminal element is feeling empowered,” Mr. Dotson reported. Arrests in St. Louis city and county by that point had dropped a third since the shooting of Michael Brown in August. Not surprisingly, homicides in the city surged 47% by early November and robberies in the county were up 82%.

Similar “Ferguson effects” are happening across the country as officers scale back on proactive policing under the onslaught of anti-cop rhetoric. Arrests in Baltimore were down 56% in May compared with 2014.

But there’s more – there’s also leniency towards property and drug crime, and criminals are getting the message:

As attorney general, Eric Holder pressed the cause of ending “mass incarceration” on racial grounds; elected officials across the political spectrum have jumped on board. A 2014 California voter initiative has retroactively downgraded a range of property and drug felonies to misdemeanors, including forcible theft of guns, purses and laptops. More than 3,000 felons have already been released from California prisons, according to the Association of Deputy District Attorneys in Los Angeles County. Burglary, larceny and car theft have surged in the county, the association reports.

“There are no real consequences for committing property crimes anymore,” Los Angeles Police Lt. Armando Munoz told Downtown News earlier this month, “and the criminals know this.” The Milwaukee district attorney, John Chisholm, is diverting many property and drug criminals to rehabilitation programs to reduce the number of blacks in Wisconsin prisons; critics see the rise in Milwaukee crime as one result.

Yes, this is what happens with the leftist mainstream media and the Democrats who run big cities like Baltimore, Ferguson, New York, Cleveland, Seattle, etc. get together and decide that they are more opposed to police officers than they are to criminals. If we as a society choose to intimidate and persecute the police for doing their jobs, then crime goes up. What’s my counter to this? Well, it might be time to start thinking about moving out of big cities, especially ones that are run by Democrats. I just don’t see how this is going to get fixed in the near-term, given that Obama rolled back welfare reform, and welfare is what causes women to have children before they get married. Fatherless children are more likely to become criminals. The decline of marriage and family that everyone seems to be celebrating as “tolerance” will just make more delinquent children. So, just when we most need the police (since we insist on attack marriage with welfare, no-fault divorce and same-sex marriage) we are actively working to undermine them.

But that’s not all I am seeing that troubles me. I see a lot of support for amnesty, and that means a lot more Democrat voters in the future, especially in states with a high concentration of illegal immigrants. Not only that, but there are problems of underfunded pensions at the state level, and the trillion dollar student loan bubble, and the problem of continued funding of entitlement programs like Social Security. And of course we have the $10 trillion that the Democrats added to the debt, and the problems in so many countries in the Middle East, like Iran, Iraq, Libya, Yemen and Syria. The whole Middle East is on fire, and this is bound to affect us as our defense spending declines.

How to respond to this? I think having earnings and savings is key, and maybe trying to move away from areas that are likely to have high crime, and strains on state and local budgets from illegal immigrants, pension obligations, etc. I really have no answer to the student loan bubble, the entitlements, the debt and the foreign policy threats. What I am doing is focusing on earning money (through work) and saving it by restricting spending on luxury items, e.g. – travel, fun, etc.

Obama’s irresponsible student loan policies leave taxpayers with trillion-dollar bubble

President Obama's student loan bubble
President Obama’s student loan bubble

This is from Investors Business Daily.

It says:

In 2010, Obama eliminated the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. Now, the Department of Education is the only place to go for such loans.

Obama sold this government takeover as a way to save money — why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?

The cost savings didn’t happen. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan program’s costs by $27 billion, or 30%.

What did happen was an explosive growth in the amount of federal student loan debt. President Clinton phased in direct federal lending in 1993 as an option, but over the next 15 years the amount of loans was fairly stable. The result of Obama’s action is striking. In each of the past six years, federal direct student loan debt has climbed by more than $100 billion. (See chart.)

And since Obama keeps making it easier and easier to avoid repaying those loans, it’s a problem that taxpayers will eventually have to shoulder.

Through words and actions, Obama has encouraged irresponsibility on the part of student borrowers. He constantly talks as if student debt were an unfair burden they unknowingly had foisted upon them.

At the same time, he’s made it easier and easier to avoid paying back student loans in full. Earlier this year, for example, Obama expanded eligibility for his “pay as you earn” program, which limits loan payments to 10% of income, with any debt left after 20 years forgiven.

Students got the message. The St. Louis Fed reports that 27.3% of student loans in repayment are at least a month behind in payments. That’s a far higher delinquency rate than any other kind of debt, and it’s significantly higher than the delinquency rate 10 years ago.

“This overall level of delinquency is very concerning,” concluded authors Juan Sanchez and Lijin Zhu.

A 2013 Consumer Financial Protection Board report found that less than half of this federal loan money was actually being paid. About 30% was held by borrowers still in school or in a grace period, another chunk in deferment or forbearance, and almost 14% was in default.

The problem here is that whenever the government nationalizes something that the private sector is doing, it always creates a problem. Let me explain. If student loans (or mortgage loans) are run solely by the private sector, then the motivation for lending money out at interest is to make money for the bank’s depositors and investors. In other words, because the bankers are in a free market and have to compete for depositors and investors, they have an interest in making sure that the loans they make get paid back.

But when the government takes over loans, they are not interested in being wise with the money they lend out – it’s not their money. They want to lend out as much as possible today in order to buy votes, and then kick the can down the road on the repayment. So instead of being careful about asking “will this get paid back?” they ask “how can I borrow from the future in order to buy as many votes as I can right now?” And that’s how we got the housing crisis of 2008, as well as this trillion-dollar student loan crisis.

When you take the profit motive out of the lending decision, then money gets lend to people who will never be able to pay it back. No private bank that has to answer to shareholders hands out money to students who want to study underwater basket-weaving. But the government does. They want to buy as many votes as possible. And besides, this is not their money. They are borrowing it from the future earnings of the very students they are giving it to! That’s what happens when you let big government decide everything.

Whenever big government politicians want to buy votes with taxpayer money, they always sell it to the people with sob stories about some poor, helpless group of people will suffer through no fault of their own. There are a lot of voters who will vote for politicians who cry crocodile tears for them, especially ones who don’t understand economics. There is no free lunch – somebody has to pay. Democrats are basically throwing a party for students, and then mailing them the (unexpected) bill for it, with interest.

Is Obama’s economy as good as the mainstream media are telling us?

This article from CNS News was tweeted by GOP presidential candidate Carly Fiorina.

The economy is not good
This economy is not good (click for larger image)

It says:

The federal government taxed away more money, spent more money and ran a bigger deficit in the first half of fiscal 2015 than it did in the first half of fiscal 2014, according to the Congressional Budget Office.

“The federal government ran a budget deficit of $430 billion for the first half of fiscal year 2015, CBO estimates–$17 billion more than the shortfall recorded in the same span last year,” the CBO said in its Monthly Budget Review for March 2015, which was published April 8. “Both revenues and outlays were about 7 percent higher than the amounts recorded in the first six months of fiscal year 2014.”

Keep in mind that these deficit numbers are for half a year. In 2007, George W. Bush was running a deficit of $160 billion for an entire year.

And we’re being taxed more, too:

The biggest source of additional tax revenue for the federal government was the individual income tax. In the first six months of fiscal 2014, Americans paid the federal government approximately $585,000,000,000 in individual income taxes. In the first six months of fiscal 2015, Americans paid $642,000,000,000 in individual income taxes—an increase of $57 billion (or 9.7 percent) from fiscal 2014.

What’s the long-term forecast?

The Wall Street Journal has it:

Question: “How close are we from seeing entitlement programs like Medicare, Medicaid, and Social Security come into direct conflict with defense spending priorities? Defense spending is almost 20% of the Fed budget and nearly 60% of discretionary spending. Current cost of health care and an aging population are strong indicators this could happen sooner than later.”

Zumbrun: “I’d say we’re already seeing it now. As Nick noted above, the CBO projects that mandatory spending and spending on interest will climb, but that defense and nondefense discretionary spending will be squeezed. Anyone who doesn’t want to see that happen in the next decade needs some combination of higher revenue, much faster economic growth, or cuts to entitlement programs.

“The budget deal known as sequestration squeezed down both defense and non-defense discretionary spending. If, instead, everyone agreed it was okay to cut entitlements (which they obviously don’t), you wouldn’t have needed to squeeze that down. So I think it’s fair to say these things are already in conflict.”

Question: “Debt as long as partnered with productivity is no problem. From the looks of it, the U.S. might fall as an economy, but is now the time?”

Timiraos: “That’s a good point. One thing that’s a little bit troubling, however, is that estimates of the potential output of the U.S. economy have been revised down. What does that mean exactly? Instead of growing at a 2.7% rate from 2014-18, it now says the economy will grow at a 2.5% rate. That doesn’t sound too bad, but over time, it adds up.”

Question: “The U.S. has so far been capable of keeping its cost of borrowing at a remarkably low level. What about in the long term where it seems likely that servicing the debt will eat up a larger and larger percentage of government expenditures in an age of slowing growth?”

Zumbrun: “There’s actually decent reason to believe that if the economy slows down a lot then interest rates will stay very low. That’s basically the situation in Japan, right? They’re mired in decades of low growth, driven by aging demographics and a central bank that was really timid for a long time, but as a result of their permanently stagnant economy, interest rates are incredibly low. In the U.S., one scenario like this is known as secular stagnation.

Wow, if our economy starts to look like Japan, that will not be good. They have massive deficits, zero economic growth and a looming demographic crisis (few young workers, many older retirees). It’s a very bad situation that’s being masked by low interest rates and massive, massive borrowing.

The Brookings Institute agrees

Lest you think that this is just the conservative take on this, here’s the leftist Brookings Institute, writing about it just last week.

They say:

Debt figures tell part of the story. When the Great Recession hit, the federal debt was equal to about 40 percent of GDP. But to fight the recession, Congress enacted an $800 billion dollar stimulus bill. Stimulus spending, combined with already enacted spending and tax policy, resulted in four years of trillion dollar deficits. As a result, the debt ballooned to 78 percent of GDP in 2013, almost twice the pre-recession level. The annual deficit is now declining at a stately pace, but by 2016 it will begin increasing again, and by 2020 under CBO’s alternative fiscal scenario, we will once again return to annual deficits above a trillion dollars, thereby once again greatly increasing the national debt.

Oh come on – Obama says that he saved the economy, and everyone in the mainstream media agrees.

Did he?

What’s the word for our fiscal situation? Stunning? Shocking? Desperate? In recent testimony before the Senate Budget Committee, Boston University Economics Professor Laurence Kotlikoff, in effect, told the Committee that all of these terms are pathetically inadequate to describe our true fiscal situation. In compelling testimony, Kotlikoff argues that the federal fiscal situation is much worse than the CBO estimates let on. The reason is that CBO’s debt estimates do not take into account the full financial obligations the government is committed to honor, especially for future payments of Social Security, Medicare, and interest on the debt. He asserts that the federal government should help the public understand the nation’s true fiscal situation by using what economists call “the infinite-horizon fiscal gap,” defined as the value of all projected future expenditures minus the value of all projected future receipts using a reasonable discount rate.

If you’re going to be retirement age around 2030, you’d better do two things right now – first, don’t expect any help from the Federal government. I don’t care if you paid into their Ponzi scheme redistribution programs – there is no money for you there. Second, if you’re working till you’re retired, then expect the government to raise taxes even more on you.

Would you expect secularists to care about the next generation when this is the only life they have? I would not. Ideas have consequences.