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The Moral Bankruptcy of FY2009 and 2010 HA-10-4-08

 

By Tony J. Sanders

 

When government is controlled by private economic power, that is fascism.

                                                                          Franklin Delanor Roosevelt

A.    Introduction

 

1. The three page $700 billion Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets introduced on September 20, 2008 by Treasury Secretary, former Golman-Sachs CEO, Paulson quickly grew to a 109 page Emergency Economic Stabilization Act H.R. 3997 that failed to pass in the House by a vote of 205 to 228.  Following this defeat, the stock market lost $1.2 trillion in a single day, some of which was restored in the days following.  Caving in to this market manipulation by the hundreds of billions secretly invested by the Bush Administration and self-interested financial institutions, the Senate passed the measure earlier in the week on a bipartisan vote of 74-25 (Hirschfeld & Espo 2008).  On Friday October 3, 2008, 29 lawmakers changed their minds, far more than the dozen needed, and the House passed a second version, titled A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes H.R. 1424, by a vote of 263 to 171.  In addition to the provisions in the initial legislation, this bill includes an increase in Federal Deposit Insurance Corporation insurance to $250,000.  Other changes include an extension of: the Alternative Minimum Tax (AMT) patch to prevent an additional 21 million families from being subjected to this onerous tax; research and development tax credits which enable businesses to invest in innovation; the deduction for state and local sales taxes; renewable energy tax credits that increase investment in wind, solar, geothermal and bio-fuels; and energy efficiency tax credits. The bill creates new tax credits for construction of clean coal facilities and for capturing carbon dioxide. The bill also prohibits insurance companies from imposing treatment limitations or financial requirements on the coverage of mental health benefits, bringing them on par with coverage for physical ailments, and expands the refundable portion of the child tax credit to lower-income families (Shays 2008).  

 

2. "For the average person, $700 billion sounds like a whole heck of a lot of money," said John Silvia, chief economist for Wachovia. "It's reasonable to look at that number and be scared about it, but in the end, the Treasury may actually make money from the deal." Of the more than 1,000 Americans surveyed in a national CNN/Opinion Research Corp. poll, conducted September 19-21, 62% said they think in general the government should step in to try to address the problems facing struggling financial institutions. The margin of error was plus or minus 3 percentage points. Americans think the cost of the $700 billion plan being debated in Congress is too high. Though 55% said they favor the proposed bailout, 65% said it would probably treat taxpayers unfairly. 88% of 518 respondents said they are concerned or even scared by the tumult in the financial markets.  55% supported the government's actions taken so far (Goldman 2008).  In an Associated Press-Knowledge Networks poll, only 30 percent of those surveyed expressed support for Bush's package. Forty-five percent were opposed, with 25 percent undecided. The survey was conducted Thursday, September 24, and had a margin of error or plus or minus 3.8 percentage points (Hirschfeld Davis 2008). Should the holders of toxic mortgage loans be rewarded for their inability to protect the health and welfare of their clients?  Would the federal government do any better?  With a $407 billion deficit predicted for FY 2008, not including the long term $200 billion cost of nationalizing mortgage companies Fannie Mae and Freddie Mac, can the federal government afford a $700 billion mortgage loan?  Is the federal government not the stereotypical subprime borrower whose adjustable rate mortgage (ARM) loans got us into this financial crisis in the first place?  Is the reason for this bailout that the federal government is shirking their responsibility to prohibit the delivery of biological weapons by their own domestic spies who need to be dismissed by legislating tenant landlord relations, poison control and the $350 million cost of adequately staffing the Social Security Administration to manage disability petitions?  Isn’t this sort of third party interference by the government in the mortgage market the whole problem, in the first place?  People are disturbed by the enormous size of the bailout and the corrupt interests that would be paid off. 

 

3. The American people disagree with the bailout.  "The sentiment from Ohioans about this proposal is universally negative," said Sen. Sherrod Brown, D-Ohio. "Why are we bailing out companies whose leaders got rich by gambling with other people's money?" Sen. Mike Enzi, R-Wyo., pointed out that the bailout had an initial cost of $2,300 for every man, woman and child in the country. Sen. Jim Bunning, R-Ky., said, "The Paulson plan will not fix [these] problems; the Paulson plan will not help struggling homeowners." Bunning continued, saying the bailout out would do nothing but "prop up and clean up the balance sheets of Wall Street. It is a financial socialism and it's un-American" (Zumbrun 2008). Lawmakers initially balked at rubber-stamping the Treasury plan to remove illiquid assets from the banking system, with Democrats demanding it include support for homeowners and limits on executive pay and Republicans resisting the plan's reach and size (Lanman & Torres 2008).  In her speech, that Republicans blamed for torpedoing the bill, Speaker of the House Nancy Pelosi D-CA, had assailed Bush and his administration for reckless economic policies, "They claim to be free market advocates when it's really an anything-goes mentality: No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute and the taxpayer will bail you out. Those days are over. The party is over” (Hirschfeld-Davis 2008). 

 

4. House Minority Leader John Boehner R-OH, who voted for the proposal, sent out a practical alternative in his newsletter, based upon “Economic Rescue Principles” that had been created by Chairman of the Senate Banking Committee Sen. Dodd.  The rationale was that Congress should develop a common sense plan to have Wall Street fund the recovery, not taxpayers.  Rather than providing taxpayer funded purchases of frozen mortgage assets to solve this problem, we should adopt a plan to insure mortgage back securities through payment of insurance premiums. Currently the federal government insures approximately half of all mortgage backed securities, (MBS).  We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance.  First, we must have private capital injection to the financial markets, not tax dollars. Instead of injecting taxpayer capital into the market, in illegal subsidies, to produce liquidity, private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. Too much private capital is sitting on the sidelines during this crisis.  Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.  Second, we need immediate transparency, oversight and market reform.  To increase transparency w must require participating firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.  We must limit Federal Exposure for High Risk Loans: Mandate that the GSEs no longer securitize any unsound mortgages. We must call on the SEC to audit reports of failed companies to ensure that the financial standing of these troubled companies was accurately portrayed. Wall Street Executives should not benefit from taxpayer funding.  Call on the SEC to review the performance of the Credit Rating Agencies and their ability to accurately reflect the risks of these failed investment securities. Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed to make recommendations to Congress for reforms of the financial sector by January 1, 2009 (Boehner 2008).

 

5. We may or may not also be on the verge of another Great Depression. The federal government is now certain to face record deficits in FY 2009 and the criminal usury will continue into FY 2010.  A balanced budget is not predicted until 2012.  The Bush administration proposed an unprecedented bailout for investors, after the federal government had already sunk a total of $900 billion into America's financial institutions, potentially bringing the total value of the Fed's tinkering to $1.6 trillion over three years.  All this despite the fact that subsidies for the rich obviously do not work.  For instance, the Housing and Economic Recovery Act of 2008 P.L. 110-289 of July 30, 2008, that put Fannie Mae and Freddie Mac into conservatorship, immediately led to the highest number of foreclosures in history.  In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were the highest in any month since RealtyTrac began issuing reports in January 2005.  303,879 foreclosures in August 2008 was an increase of 12% from the previous month and 27% from August of the previous year.  However the annual increase is lower than the previous year when is was hovering around 50-65% (Realty Trac 2008).  The bill, is one of the greatest rip-offs in history. Bush, on the way out of power, is trying to create a publicly financed honeypot for the private sector on a scale never before imagined.  The irreconcilable deficit will give his administration two years to get away with the hundreds of billions of dollars they looted from the war chest and laundered in corporate America through the toxic subsidy for the sociopathic domestic spy program that is the cause of the current state of moral bankruptcy in the corporations of the first world, that having renounced human rights, has internalized their colonial behavior.  By subsidizing the corrupt corporations the federal government is merely legitimizing and financing the third party infringement of fascist corporate government spying, that is breeching the confidentiality of private financial matters, resulting in insolvency.  The Treasury plan looks like an attempt to restore confidence in the financial system by convincing creditors of troubled institutions that everything's OK, by buying assets off these institutions, rather than legislating tenant landlord and borrower creditor relations to dismiss and discipline the infringing third partires. Making matters even worse is the fact that it's almost impossible to put a fair market value on this massive pile of bad debt.  What's clear is that the federal government is not only going to continue their toxic subsidies but dramatically increase the scope of the massive transfer of public wealth to the private sector (Holland 2008),

 

B.     Financial System Rescue

 

6. Policy-makers in the United States, who have seen several giant financial institutions sound their alarm bells, as well as policy-makers across the globe, are desperately seeking to avoid the series of mis-steps that accentuated the financial crisis of the 1930s. They are all stressing that lessons from the Great Depression have been learned, and that the many policy mistakes that were associated with it will be avoided. One of the important lessons of the Great Depression, which we must not forget, is that “protectionism” and economic isolationism do not work and subsidy reduction is important for the world’s poor (Lamy 2008). The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.  In 2008 12 banks have been seized by the FDIC this year - not a high number historically, but higher than it's been in recent years - and that number is expected to grow in the coming months. In September, two of the nation's most venerable investment banks - Lehman Brothers and Merrill Lynch - fell and the Federal Reserve was forced to lend $85 billion to prevent the sudden collapse of insurance giant American International Group (Sahadi 2008). The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. "This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody’s Economy.com, who has written a book on the mortgage meltdown. And the final cost to the government? No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking. In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls. "Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower." (Crutsinger 2008).  The Bush administration seems to be using the threat of recession as leverage to extort, what we hope is, a final $700 billion, not so much from the American taxpayer, as from the future of the American dollar on the currency exchange market, which devaluates when the government prints incredible sums of money.

 

7. This is not the first such bailout of foolish and incompetent financiers and politicians.  As Paul Krugman notes, "historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets." The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the (Resolution Trust Corporation, founded in the wake of that crisis). The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions. On October 24 1929 thousands of investors lost their savings in the stock market crash after a five-day frenzy of heavy trading. Too much speculation with borrowed money had inflated market values unrealistically.  In 1975, during the Oil shortage caused by OPEC refusing to sell oil to the west, union demands had bankrupted New York, the Big Apple had to be rescued by Gerald Ford.  Marion Barry's Washington, D.C., was next in line at the cashier's window.  In the Reagan era, it was Chrysler. On October 19, 1987 there was panic on the floor of the New York Stock Exchange as the Dow Jones dropped more than 500 points - the largest decline in modern times amid frenzied selling. On Black Monday, the Dow Jones Industrial Average stock barometer plunged 22.61% to 1,738.41 points.  Later that decade, Citibank, Chase-Manhattan and Bank of America were staring into the abyss, as Latin American regimes, to whom they had lent scores of billions, were balking at paying their debts. Uncle Sam stepped in.  Then came the Mexican and Asian financial crises and the U.S.-IMF bailouts of the 1990s.  For the countries bailed out, like Mexico, Thailand, Indonesia and South Korea, were forced to devalue. This radically reduced the wages of their workers relative to American workers, creating incentives for U.S. manufacturers to shut plants here and move them abroad. The devaluations also slashed the price of foreign goods relative to U.S. goods. Imports flooded in (Buchanon 2008).  It is the US dollar that is facing devaluation this time.  Investor concern that the Paulson rescue would inflate the U.S. budget deficit pushed the dollar down 2.3 percent in the biggest decline since creation of the euro in 1999. U.S. stocks and bonds also fell.  The dollar strengthened to $1.4658 per euro from $1.4774 (Lanman & Torres 2008).  To benefit humanity the vast majority of the devaluation of the dollar should take place with countries from whence many immigrants come, such as Mexico, China and Guatamela.

 

8. The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression (Crutsinger 2008; Sahadi 2008). The plan would allow the Treasury to buy up mortgage-related assets. The aim is for the government to buy the securities at a discount, hold onto them and then sell them for a profit (Sahadi 2008).  The legislative proposal was sent by the White House to lawmakers on September 19. Paulson, Federal Reserve Chairman Ben Bernanke and other officials have said in recent days that the lack of easy credit between banks and other financial institutions threatens to inflict serious damage on the economy if not addressed immediately (Sahadi 2008).  The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. Officials have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government — say 50 cents on the dollar — and those offering the lowest price would win the bid.  By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books (Crutsinger 2008). "The government could make a profit, a substantial profit," said Jaret Seiberg, a financial services analyst at the Stanford Group, a policy research firm. "The pricing mechanism is going to be central." (Sahadi 2008).  The cost of the program to taxpayers may hinge on the price at which the Treasury buys the mortgage securities (Hirschfeld Davis 2008).  Secretary Paulson and Chairman Bernanke are however more intent upon channeling large sums of money to Wall St. financial institutions than buying cheap and selling high.  The logic - there's only a certain amount of bad debt on Wall Street's books, left over from the wild and woolly days of lax mortgage lending. Once removed from the Streets' books, credit will flow again. And once credit flows again, even Main Street can breath a sigh of relief (Reich 2008). Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys. ``I am not advocating that the government intentionally overpay,'' Bernanke told the Joint Economic Committee, at the same time, Bernanke repeated his view that the government won't pay ``fire-sale prices'' for the mainly mortgage-related securities Paulson aims to buy in a proposed $700 billion rescue. Officials want to set a long-term value on assets, holding them until they mature or markets improve. Their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys”(Christie & Shenn 2008).  

 

9. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.  The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy.  In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital.  Investor concerns about financial institutions increased over the summer, as mortgage-related assets deteriorated further and economic activity weakened.  Among the firms under the greatest pressure were Fannie Mae and Freddie Mac, Lehman Brothers, and, more recently, American International Group (AIG).  As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply. The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements--for example, by raising new equity capital, by negotiations leading to a merger or acquisition, or by an orderly wind-down.  Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk (Bernanke 2008).  The Federal Reserve defends their recent actions.  To avoid unacceptably large dislocations in the financial sector, the housing market, and the economy as a whole, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury used its authority, granted by the Congress in July, to make available financial support to the two firms.  The Federal Reserve, with which FHFA consulted on the conservatorship decision as specified in the July legislation, supported these steps as necessary and appropriate.  We have seen benefits of this action in the form of lower mortgage rates, which should help the housing market.  The Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors.  The chief executive officer has been replaced.  The collateral for the loan is the company itself, together with its subsidiaries. (Insurance policyholders and holders of AIG investment products are, however, fully protected.)  Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent.  In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things. Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress.  Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.  In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions.  Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions.  More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth (Bernanke 2008). 

 

C.     Assurance of a Deficit

 

10. Perhaps the only thing that these bailouts of financial institutions are sure to do is ensure that the federal government runs a deficit for at least two more years while the war President gets away with his loot.  The deficit for FY2008, which ends on Sept. 30, is expected to rise to $407 billion (Sahadi 2008; Taylor 2008).  This figure is $246 billion, more than double the $161.5 billion imbalance for 2007, reflecting the costs of the economic slowdown and this year's $168 billion economic stimulus program, including $117 billion from individual rebates. The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $489 billion, a record in dollar terms (Crutsinger 2008; Taylor 2008). The deficit for 2007 totaled $161.5 billion, the lowest number since an imbalance of $159 billion in 2002, the first budget deficit after four consecutive years of budget surpluses. The forecast doesn't include the $200 billion the administration committed to spending when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.  And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.  The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion. The new legislation will boost that debt limit to $11.315 trillion, up another $700 billion (Sahadi 2008; Crutsinger 2008).

 

Table 1: Budget Totals

(In billions of dollars)

Budget Totals

2007

2008

2009

2010

2011

2012

2013

Receipts

2,568

2,553

2,651

2,916

3,084

3,288

3,439

Outlays

2,730

2,960

3,133

3,094

3,187

3,230

3,410

Proposed

Outlays

 

 

450

3,583

350

3,444

 

 

 

Deficit

-163

-407

-482

-178

-103

58

29

Proposed

Deficit

 

 

-932

-528

 

 

 

Debt

9,062

9,946

10,528

10,716

10,819

10,761

10,732

Proposed Debt

 

10,600

11,315

11,843

11,946

11,882

11,853

GDP

13,671

14,248

14,822

15,632

16,513

17,369

18,239

Budget as % of GDP

 

 

 

 

 

 

 

Receipts

18.8%

17.9%

17.9%

18.7%

18.7%

18.9%

18.9%

Outlays

20.0%

20.7%

21.1%

19.8%

19.3%

18.6%

18.7%

Proposed Outlays

 

 

24.2%

22.0%

 

 

 

Deficit

-1.2%

-2.7%

-3.3%

-1.1%

-0.6%

0.3%

0.2%

Proposed Deficit

 

 

-6.3%

-3.4%

 

 

 

 

Source: CBO

 

11. The new $400 billion-plus deficit numbers represent about 3 percent of the economy, which is the deficit measure seen as most relevant by economists.  3 percent is the statutory deficit limit in the European Union. In dollar terms, the record is the $413 billion deficit recorded in 2004.  The CBO expects the deficit to exceed $400 billion - or 3 percent of gross domestic product - for each of the next two years if current policies remain in place.  For FY 2008, the deficit is projected to be $407 billion.  This estimate includes $117 billion from individual rebates and other effects of the enacted economic stimulus legislation, without which the deficit would have been $272 billion. As a percent of GDP, the 2008 deficit is projected to be 2.7 percent.  As a percent of GDP, the $489 billion 2009 deficit is projected to be 3.3 percent, not including the cost of mortgage assets that would drive the deficit up as high as $932 billion, a record, 6.3 percent. The $178 billion deficit is projected to fall to 1.1 percent of GDP in 2010, not including the cost of the mortgage bailout that brings it as high as $528 billion 3.4 percent, and then is expected to fall to $103 billion, 0.6 percent of GDP in 2011, and to reach balance in 2012.  Not including the bailout of financial institutions, total outlays for 2008 are now estimated to be $2,942 billion.  For 2009, the estimate of total outlays has increased by $26 billion relative to February, to $3,133 billion (Crutsinger 2008).

 

12. The increasing budget deficit is attributed to a substantial increase in spending and a halt in the growth of tax revenues.  The drop in revenue is driven in part by an 
estimated 15 percent decline in corporate tax receipts that fell as a result of lower corporate profits and tax rules governing how businesses depreciate their investments 
this year. A second factor is the rebates provided to tax filers from the economic stimulus law Congress passed earlier this year. The spending hike is partly due to efforts 
by the government to cover the insured deposits of insolvent financial institutions and the tax rebate to individuals (Sahadi 2008).  Profits from current production 
(corporate profits with inventory valuation and capital consumption adjustments) decreased $60.2 billion in the second quarter, compared with a decrease of $17.6 billion 
in the first quarter.  Profits before tax decreased $0.9 billion in the second quarter, compared with a decrease of $143.4 billion in the first.  The before-tax measure of 
profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments.  Current-production cash flow (net cash 
flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- decreased $60.5 billion in the second 
quarter, in contrast to an increase of $10.1 billion in the first.  The federal government must have caused the decrease in profits by greatly increasing tax collection. Taxes 
on corporate income increased $3.9 billion in the second quarter, in contrast to a decrease of $30.6 billion in the first.  Profits after tax with inventory valuation and capital 
consumption adjustments decreased $64.1 billion in the second quarter, in contrast to an increase of $13.0 billion in the first.  Dividends increased $13.9 billion, compared 
with an increase of $16.1 billion; current- production undistributed profits decreased $78.1 billion, compared with a decrease of $3.1 billion.  Domestic profits of financial 
corporations decreased $31.0 billion in the second quarter, in contrast to an increase of $37.3 billion in the first.  Domestic profits of nonfinancial corporations decreased 
$4.2 billion in the second quarter, compared with a decrease of $32.1 billion in the first (BEA 2008). 

 

13. If Congress fixes the alternative minimum tax, or AMT, next year's deficit could rise another $60 billion or so.  Democratic efforts to pass a second economic stimulus bill to follow the tax rebate checks sent out earlier this year would add another $50 billion or so to next year's deficit. The White House and congressional Republicans are resisting the move and instead want Congress to pass other pieces of legislation, such as free trade agreements with Panama, Colombia and South Korea, to help the economy.  Under the promises of Democratic presidential nominee Barack Obama and Republican nominee John McCain — who both say they want to extend most of the tax cuts passed in 2001 and 2003 at the urging of President Bush — the deficit is likely to remain high.  Even if all the Bush tax cuts were allowed to expire at the end of 2010, the budget would still run a considerable deficit of $325 billion in the following year, CBO says. The cost of extending the Bush tax cuts and other expiring pieces of the tax code, along with making sure the AMT doesn't trap more and more middle class families, would reach more than $400 billion a year by 2012 (Taylor 2008).  Although tax relief could be reconciled, the bailout cannot be afforded, no matter how one cooks the books.  By passing the bill Congress has assured themselves a deficit for at least the next two years, and no chance to savor a $10 trillion public debt.

 

A.    Economic  Assumptions

 

14. The nation is experiencing a significant period of economic weakness (Sahadi 2008).  Growth in gross domestic product, or GDP, may slow to 1.5 percent next year, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg (Lanman & Torres 2008). The economy is likely to experience at least several more months of very slow growth. Whether this period will ultimately be designated a recession or not is still uncertain, but the increase in the unemployment rate and the pace of economic growth are similar to conditions during previous periods of mild recession. The weakness in the economy is due to high energy and food prices, and the slump in the housing and financial markets.  The economy could still slide into a recession. France and Great Britain are expected to fall into recessions (Vandoore & White 2008).  The CBO predicts that the economy will grow 1.5 percent this year in real terms and slip to just 1.1 percent growth in 2009.  The CBO predicts unemployment averaging 6.2 percent in 2009 (Taylor 2008).  Real GDP is expected to increase only 1.6 percent this year, but it is projected to rise by 2.2 percent in 2009 and to reach a strong 3.4 percent growth rate in 2010–2011. Beyond the next three years, real GDP growth is projected to moderate, de­clining gradually to a 3.1 percent rate in 2012 and 2.9 percent in 2013 as labor force growth slows with the aging of the work force.  Because of the recent slower economic growth, the labor market is likely to remain sluggish for a period of time before returning to better performance. The unemployment rate is projected to average 5.6 percent in 2009, up from 5.3 percent in 2008 and 4.6 percent in 2007. With a return to stronger growth, the unemployment rate is expected to decline to an annual average of 4.8 percent by 2012.

 

Table 2: Economic Assumptions

In billions of dollars

 

Gross Domestic Product

2007

2008

2009

2010

2011

2012

2013

Current Dollars

13,841

14,370

15,007

15,850

16,730

17,586

18,457

Chained 2000 Dollars

11,567

11,751

12,010

12,423

12,849

13,241

13,624

Percent Change

 

 

 

 

 

 

 

Current Dollar

4.9

3.8

4.4

5.6

5.5

5.1

5.0

Chained 2000 Dollars

2.2

1.6

2.2

3.4

3.4

3.1

2.9

Incomes

 

 

 

 

 

 

 

Corporate Profits before tax

1,877

1,694

1,890

1,950

1,958

1,971

2,019

Wages and Salaries

6,366

6,643

6,979

7,369

7,791

8,187

8,585

Other taxable Income

3,055

3,199

3,329

3,499

3,636

3,766

3,937

Consumer Price Index

2.9

3.8

2.3

2.2

2.3

2.3

2.3

Unemployment Rate

4.6

5.3

5.6

5.3

5.0

4.8

4.8

Federal Pay Raises

 

 

 

 

 

 

 

Military

2.7

3.5

3.4

n/a

n/a

n/a

n/a

Civilian

2.2

3.5

2.9

n/a

n/a

n/a

n/a

Interest Rates

 

 

 

 

 

 

 

91 day Treasury bills

4.4

1.9

2.8

3.9

4.1

4.1

4.1

10 year Treasury Notes

4.6

4.0

4.6

4.9

5.2

5.3

5.3

 

Source: CBO

 

15. According the Bureau of Economic Analysis (BEA) whose overestimates were the cause of the economic slump beginning in third quarter 2007 real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.8 percent in the second quarter of 2008.  In the preliminary estimates, the increase in real GDP was 3.3 percent.  Up from 0.6 percent in the first quarter.  The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease in imports than in the first quarter, an acceleration in exports, a smaller decrease in residential fixed investment, an acceleration in nonresidential structures, an upturn in state and local government spending, and an acceleration in PCE that were partly offset by larger decreases in inventory investment and in equipment and software. Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- decreased 0.1 percent in the second quarter, in contrast to an increase of 0.1 percent in the first.  Real gross national product -- the goods and services produced by the labor and property supplied by U.S. residents -- increased 2.1 percent in the second quarter, compared with an increase of 0.1 percent in the first.  Current-dollar GDP -- the market value of the nation's output of goods and services – increased 4.1 percent, or $143.7 billion, in the second quarter to a level of $14,294.5 billion.  In the first quarter, current-dollar GDP increased 3.5 percent, or $119.6 billion.

 

16. The U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Personal income increased $61.5 billion, or 0.5 percent, and disposable personal income (DPI) decreased $93.3 billion, or 0.9 percent, in August.  Personal consumption expenditures (PCE) increased $3.9 billion, or less than 0.1 percent.  In July, personal income decreased $69.0 billion, or 0.6 percent, DPI decreased $91.0 billion, or 0.8 percent, and PCE increased $14.2 billion, or 0.1 percent, based on revised estimates.  The pattern of changes in income primarily reflects the pattern of payments associated with the Economic Stimulus Act of 2008.  The August and July changes also reflected provisions of the Supplemental Appropriations Act of 2008, which provides up to 13 weeks of additional unemployment compensation benefits to those who have exhausted their regular unemployment benefits. The additional unemployment benefits boosted the level of personal current transfer receipts by $17.6 billion in August and by $4.6 billion in July.  Personal current taxes increased $154.9 billion in August, compared with an increase of $21.9 billion in July. Disposable personal income (DPI) -- personal income less personal current taxes – decreased $93.3 billion, or 0.9 percent, in August, compared with a decrease of $91.0 billion, or 0.8 percent, in July.  At end of August, 6.6 percent of mortgages were at least 30 days past due. That's up from 5.8 percent at end of June. We're also seeing a growing amount of credit card and auto payments past due. The culprit isn't just those sub-prime loans. With jobs and wages are dropping across America, many people who had been able to pay their bills no longer can. It's no coincidence that states where mortgage delinquencies are highest are also states with the highest rates of job losses (Reich 2008).

 

17. According to the Bureau of Labor Statistics, the official rate of unemployment in California in August was 7.7 percent. That's up from 5.5 percent a year ago. In Florida, unemployment has climbed to 6.5 percent, from 4.1 percent a year ago. Some 600,000 fewer jobs are listed on the nation's payrolls than were there last year. Millions more Americans are too discouraged even to look for work. And as employers squeeze their payrolls, even people with jobs are putting in fewer hours. Bottom line: Unless Americans on Main Street have more money in their pockets, Wall Street's bad debts will continue to rise (Reich 2008).  Employers slashed payrolls by 159,000 in September, the most in more than five years, a worrisome sign that the economy is hurtling toward a deep recession.  The Labor Department's fresh snapshot, showed that the nation's unemployment rate held steady at 6.1 percent as hundreds of thousands of people streamed out of the work force for any number of reasons. The reduction in payrolls was much sharper than the 100,000 cuts economists were forecasting. They expected the jobless rate to be unchanged.  It marked the ninth straight month that the economy has lost jobs. The drop underscores fallout from a long slump in the housing market and a dangerous credit crunch that intensified last month throwing Wall Street — and the economy — into chaos. So far this year, 760,000 jobs have disappeared. Employers cut 73,000 jobs in August, slightly less than the 84,000 initially estimated, according to revised figures. However, the cuts in July turned out to be a bit deeper — 67,000 versus the 60,000 previously reported. The 159,000 jobs lost in September were the most since March 2003, when the labor market was still struggling to get back on its feet after being knocked down by the 2001 recession. Manufacturers cut 51,000 jobs, construction companies axed 35,000 jobs, retailers got rid of 40,000 positions, business services shed 27,000 and financial services slashed 17,000 positions, with securities and investment firms accounting for 8,000 of those reductions. Leisure and hospitality companies also reduced employment by 17,000. These losses overwhelmed employment gains by the government, in education, health and elsewhere (Aversa 2008).

 

18. Inflation has increased in recent years, in large part because of surging food and energy prices, and continued rapid increases in these prices contributed to 5 percent inflation in the first half of 2008. If food and energy prices stabilize as expected, the inflation rate should decline. Core inflation, excluding food and energy prices, has remained relatively stable at around 2.3 percent per year, and higher unemployment will put downward pressure on inflation in 2009. On a year-over-year basis, the consumer price index (CPI) is projected to increase 3.8 percent this year and then to rise by 2.3 percent in 2009 and 2.2 percent in 2010 before settling in on a 2.3 percent growth rate in 2011–2013. Growth in the GDP price index is projected to be 2.2 percent in 2008 and 2009, 2.1 percent in 2010, and 2.0 percent in 2011 and beyond (BEA 2008).

 

B.     Conclusion

 

19. Over the long run, growing budget deficits and the resulting increases in federal debt are the underlying cause of slower economic growth (Crutsinger 2008).  The international market that has come to frown upon borrowing and lending.  In 2004, the IMF’s loan portfolio was roughly $100 billion. Today it has fallen to around $10 billion (Engler 2008).  The record deficits of the Bush Administration are certain to be the cause of the financial crisis.  Don't bail out debt with more debt. George Washington wrote in 1799 to James Welch, "To contract new debts is not the way to pay for old ones." Thomas Jefferson similarly admonished Samuel Kercheval in 1816, "To preserve (the) independence (of the people), we must not let our rulers load us with perpetual debt." (Some are quick to point out that Thomas Jefferson financed the Louisiana Purchase with government loans, but they overlook the fact that Jefferson's administration lowered the federal deficit by nearly one-third during his eight years in office.) Have a pay-as-you-go government. If we don't have the money, we shouldn't spend it. Period. No more debt. No more bailouts. No more spending. As Thomas Jefferson wrote to Fulwar Skipwith in 1787, "The maxim of buying nothing but what we (have) money in our pockets to pay for … (is) a maxim which, of all others, lays the broadest foundation for happiness" (Norris 2008).  The rapidly rising debt is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs (Crutsinger 2008). The administration's proposal requests Congress to authorize an increase to the nation's debt ceiling. Currently, it's set to rise to $10.6 trillion for fiscal year 2009 - which runs from October 2008 through September 2009; the proposal requests that limit be increased to $11.315 trillion to allow for the purchases of mortgage-backed assets (Sahadi 2008). 

 

20. The Bush administration has done all they could to make balancing the budget impossible FY2008.  The Recovery Rebates and Economic Stimulus for the American People Act of 2008 P.L. 110-185 of February 13, 2008 cost $165 billion dollars, taking the wind out of the sails of economists who for the past several years have regularly advocated for the return of lost surplus funds from the Department of Defense (Dod) to reduce the deficit.  Unfortunately, although DoD does return the money, the Treasury conceals this return as corporate and individual tax receipts.  Because of this bad faith, the Social Security Administration (SSA), has not returned their half of the surplus to the general fund, to completely balance the budge in FY2007. As the result of the recovery rebates, a balanced budget was not possible, even using the hypothetical surpluses that were previously successful in managing the budget deficit FY2007 (Sanders 2007).  Therefore absolutely no work was done to balance the budget FY 2008.  Having disheartened the economic conservatives (not only with the charity of the rebate but also a considerable amount of poison), and in the absence of any voices of reason, Congress passed the Housing and Economic Recovery Act of 2008 P.L. 110-289 on July 30, 2008 that put Fanny Mae and Freddie Mac into conservatorship at an estimated cost of $200 billion.  Peter Orszag, the Director of the CBO says that come January, the activities of Fannie and Freddie will be incorporated in its baseline federal budget. The CBO will be working with House and Senate budget committees to address questions of just how transactions by both companies should be accounted for - the answers to which will greatly influence the net effect the companies have on the federal deficit (Sahadi 2008).  In order to maximize, what we hope is, the final embezzlement attempt of the Bush administration, the $700 billion Emergency Economic Stabilization Act H.R. 3997 failed to pass in the House by a vote of 205 to 228.  We are relieved that Congress has, at the close of the fiscal year, rejected the Treasurer’s Wall St. bailout, and chosen to uphold spending limits under 2USC(20)§901

 

21. The 110th Congress agreed on a pay as you go strategy under 2USC(20)I§902.  In FY 2007 Congress was successful in bringing the deficit down $163 billion, from a high of $412 billion in 2004.  The Bush administration has mocked, intimidated and seduced Congress with the most lavish deficit spending that has ever been witnessed.  Now that the new fiscal year has arrived, Congress must not be misled by the market manipulation of the day, Congress must again receive the returns of the military surplus to achieve and deficit reduction targets under 2USC(20)I§903.  As the result of their deception over the past two years Congress and the Bush Administration have no record of the return of surplus military spending that was concealed as personal and corporate income taxes.  Bush is not going to let economists take his golden parachute.  It is highly inappropriate for the administration to ask for $700 billion at this time, when the market would be best moved by the federal government demonstrating the fiscal discipline needed to reduce the deficit – receive surplus funds from the military and other agencies showing a surplus.  It is not right that a $482 billion deficit is predicted for FY2009 when a new President will take office.  It is even more wrong that neither Democrat and Republican Presidential candidate demonstrates any cognizance of the duty of the President to balance the budget.  The Presidential candidates and Congress should be striving to run the next administration with a balanced budget.  While FY2008 is a foregone conclusion, that with a will could be reduced to $350 billion.  With the bailout bill FY2009 will not be a year of liberation from the deficits economy of the War president, but will be a record deficit, if the bailout is even accounted for.  FY 2010 will be the same.  In FY 2011 we stand a chance of balancing the budget and Congress already promises to do so in FY 2012.  Why this deficit spending?  Because the Bush administration is trying to cover up the need to place a $400 billion spending limit on military spending.  The surplus goes directly into the pocket of the warlord.  Were it not for the emergency creating, emergency spending, the federal budget deficit could be eliminated, if military spending were limited to $400 billion and half the social security surplus was returned.  Although without the satisfaction of a balanced budget we should not mobilize Social Security assets for anything but the $350 million cost of staffing the agency, we must not let the unfixable deficit deter us from limiting defense spending to $400 billion for the sake of world peace.  

 

On October 3, 2008, the U.S. Debt is estimated at: $9,849,354,380,955.73

Your share of today's public debt is: $30,891.15

 

Bibliography

 

1.      A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes. H.R. 1424 October 3, 2008

2.      Andreas, Joel. Addicted to War. Why the US Can’t Kick Militarism. An Illustrated Expose Updated to Include the War in Iraq. AK Press. Oakland, California. 2004

3.      Aversa, Jeanne. Employers cut jobs by most in more than 5 years. AP. Washington. October 3, 2008

4.      Bernanke, Ben. S. Chairman of the Board of Governors of the Federal Reserve. U.S. financial markets. Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. September 23, 2008

5.      Boehner, John. Economic Rescue Principles. September 25, 2008 Boehner, John. Economic Rescue Principles. September 25, 2008

6.      Buchanan, Patrick J. Amnesty for Stupidity. Human Events. September 23, 2008

7.      Bureau of Economic Analysis. Gross Domestic Product: Second Quarter 2008 (Final) Corporate Profits: Second Quarter 2008 (Final) BEA 08-45 September 26, 2008

8.      Christie, Rebecca; Shenn, Jodie. Paulson, Bernanke Put Aiding Banks Ahead of Best Taxpayer Deal. Bloomberg.com. 24 September 24, 2008

9.      Congressional Enforcement of Spending Limits 2USC(20)§901

10.  Crutsinger, Martin. Economists see financial bailout as necessary. AP. Washington. September 20, 2008

11.  Deficit Targets 2USC(20)§901

12.  Engler, Mark. The Impact of the “Battle in Seattle”. September 29, 2008

13.  Executive Office of the President Office of Management and Budget. Mid Session: Budget of the U.S. Government. Fiscal Year 2009. July 28, 2008

14.  Gingrich, Newt. Replace Paulson and Suspend Mark to Market. October 1, 2008

15.  Goldman, David. Americans want bailout – poll. CNN poll finds most Americans support government intervention, but they are concerned about the cost to taxpayers. CNNMoney.com. New York. September 22, 2008

16.  Hirschfeld Davis, Julie. Bush Requests $700 Billion for Bailout. AP. Washington. September 20, 2008

17.  Hirschfeld Davis.Democrats Predict Bailout Deal by Sunday. AP. Washington. September 27, 2008

18.  Hirschfeld, Davis; Espo, David. House Approves $700 Billion Bailout. AP. Washington. October 3, 2008

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27.  Reich, Robert. Former Secretary of Labour. Bailing out Wall Street's bad debts when millions more Americans can't pay their bills is like bailing out a rowboat springing more leaks while the ocean is rising. TPM Café. September 23, 2008

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On 10/4/08 the Ohio Barack Obama for America Campaign wrote,

 

Hi-

Thank you for your support. We appreciate your suggestions.

In re: Fair Housing Amendment
 
Dear Congress:
 
For Congress to resolve the housing crisis it will be necessary to prohibit the war crime of torture and biological experimentation that is corrupting the housing sector.  It is not enough to prohibit drug related criminal activity in public housing under the Controlled Substances Act in Title 24 of the Code of Federal Regulation.  There are far too many diseases and toxins used to abuse the human rats reported in the American Journal of Physiology, that need to be prohibited.  Medical research should be devoted to healing.  To be effective any law hoping to redress the foreclosure crisis must contain the following three provisions.
 
Tenant Landlord Relations
 
Lenders, landlords and landladies must uphold tenant landlord relations when approached by third parties in regards to their tenants or mortgage holders at all times, even when those third parties are law enforcement or mental health professionals.  The tenant or mortgage holder must be informed of any third party investigations.  For all intents and purposes lenders and borrowers and tenants and landlords enjoy a confidential relationship.  It is forbidden for a landlord, landlady or lender to spy on their clients by divulging information regarding them to a third party without notifying that person.
 
Poison Control
 
Landlords and landladies shall evict tenants whom they believe to be poisoning, torturing or sickening other tenants.  Landlords and landladies shall be sympathetic with those tenants who tell them they are sick or being poisoned and do what they can to secure their dwelling from unwanted biological invasion.  Bio-security invalidates a lease and a person is free to move.  It is a criminal offense for a landlord, landlady or lender to poison their tenants or borrowers.  It is a criminal offense to knowingly facilitate or abet the commission of poisoning.  Poison Control at 1-800-222-1222 is the competent authority.  
 
Misconduct
 
Court Officers, law enforcement officers, public officials, housing administrators, health professionals, mental health professionals, lawyers, bank officers and auctioners engaged in breaking and entering, hiring domestic spies, defrauding lease documents, and/or poisoning people in order to torture, eliminate witnesses and/or leverage the foreclosure of a home or apartment building, shall be fired, disbarred and subjected to criminal penalties.  
 
These provisions will conclude the Adjustable Rate Mortgage (ARM) Ban and Americans can go back to being secure in their homes www.title24uscode.org/housing.htm