{"id":889,"date":"2011-06-28T13:27:50","date_gmt":"2011-06-28T20:27:50","guid":{"rendered":"http:\/\/www.clarkjudge.org\/?p=889"},"modified":"2011-08-05T18:56:36","modified_gmt":"2011-08-06T01:56:36","slug":"another-fine-mess-hughhewitt-com-06-28-11","status":"publish","type":"post","link":"https:\/\/www.clarkjudge.org\/wordpress\/2011\/06\/28\/another-fine-mess-hughhewitt-com-06-28-11\/","title":{"rendered":"Another Fine Mess | HughHewitt.com | 06.28.11"},"content":{"rendered":"

In this morning\u2019s Wall Street Journal<\/em> former Federal Reserve Board governor Lawrence Lindsey says \u201cthe deficit is worse than you think.\u201d (see: http:\/\/tiny.cc\/2q8wx)<\/a> But rumors around Washington and Wall Street suggest that Lindsey\u2019s is the optimistic scenario. To see why, let\u2019s start with what he says.<\/p>\n

His argument is simple: the Obama Administration\u2019s projections incorporate four flaws.<\/p>\n

First, they assume that interest rates will continue at or near their current historic lows. Today the Treasury\u2019s cost of borrowing is less than half its ten-year average. \u00a0Assuming interest rates return to the norm in the next several years adds close to $5 trillion to interest costs, and the deficit.<\/p>\n

Second, the Administration assumes that the economy will grow at or over four percent every year, growth that we are nowhere near achieving. \u00a0Missing that forecast by one percent in any year costs $750 billion. \u00a0Using more realistic growth assumption (but still optimist by recent experience), in just the next three years, the government will take on $4 trillion more than projections.<\/p>\n

Third, no surprise here, Obamacare will be wildly more expensive than any price the White House will acknowledge. \u00a0A recent McKinsey survey found that 30 percent of employers would dump their private insurance once the government plan kicks in. \u00a0The result will be at least $1.5 trillion in extra federal spending every two years.<\/p>\n

Finally, tax increases cannot possibly make up for the kind of excess spending numbers we have been seeing.<\/p>\n

The administration probably knows all this, and Congress certainly does. \u00a0The last Congress \u2013 the one that Democrats controlled \u2013 failed to pass a budget. \u00a0But now the Democratic administration has failed even to submit a budget, at least a credible one. \u00a0The Senate rejected their first try 97-0. \u00a0Then the president gave a speech that was, he said, part of presenting a new budget with $4 trillion in spending cuts. \u00a0But he has never specified the cuts. \u00a0When the head of the Congressional Budget Office was asked for the office\u2019s estimates of the president\u2019s proposal, he replied, \u201cWe don\u2019t estimate speeches.\u201d \u00a0And he\u2019s a Democrat.<\/p>\n

This is all bad news. But waiting in the wings is news that is worse.<\/p>\n

Two weeks ago I wrote about a conversation I recently had with a former senior Treasury official (see http:\/\/tiny.cc\/s963h).<\/a> His service had been in the Reagan era. \u00a0The official had noted that the Treasury has not been selling 30-year debt, despite extremely low long-term interest rates. \u00a0He suggested that the only reason would be that the department fears failure of a long-term bond auction, sparking a market panic.<\/p>\n

The column led to an invitation to appear on Varney & Company, the Fox Business program hosted by Stuart Varney, one of the sharpest financial journalists of this time. \u00a0Varney questioned me closely about my report, asking at one point did I believe market rejection of Treasury debt was likely. \u00a0I said I thought not, but that I believed Treasury was just uncertain enough not to want to test fate. \u00a0Now I feel I may have been too optimistic.<\/p>\n

In the last two weeks, financial community sources have suggested to me that conditions are worse than the first story indicated. \u00a0All new Treasury debt with maturities longer than two years, one said, is being bought by the government itself, meaning the Fed or government controlled trust funds.\u00a0 The average maturity of all new debt that ends up in non-US government hands is under two years.<\/p>\n

One source speculated that the Administration is straining every muscle and nerve to keep the extent of market dismay at the U.S. government\u2019s financial condition and expectations of exploding inflation from public view until after the 2012 election. Another suggested that the motive is less political and more fear of the economic and financial market fallout. But obviously these are not either-or motivations.<\/p>\n

In the last few days, the president has said that he will become directly engaged in budget talks, something he has declined to do until now. \u00a0But based on his performance in office to date, it is questionable whether he actually knows how to negotiate. \u00a0Has he ever seriously engaged in the give and take of policy talks, even within his own party? \u00a0Repeatedly he has passively accepted legislative packages that Democratic leaders in Congress have laid out, then rigidly refused to adjust to additional views. \u00a0This is not negotiation.<\/p>\n

So here is where we end up. \u00a0A crisis in government finance may be closer than we believe. \u00a0And the administration may be less capable than we expect to cope with it.<\/p>\n

It brings to mind the old Laurel and Hardy line: \u201cWell, this is another fine mess.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

In this morning\u2019s Wall Street Journal former Federal Reserve Board governor Lawrence Lindsey says \u201cthe deficit is worse than you think.\u201d (see: http:\/\/tiny.cc\/2q8wx) But rumors around Washington and Wall Street suggest that Lindsey\u2019s is the optimistic scenario. To see why, let\u2019s start with what he says. His argument is simple: the Obama Administration\u2019s projections incorporate […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[48],"tags":[12],"class_list":["post-889","post","type-post","status-publish","format-standard","hentry","category-us-debt-crisis","tag-hugh-hewitt"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/889","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/comments?post=889"}],"version-history":[{"count":3,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/889\/revisions"}],"predecessor-version":[{"id":945,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/posts\/889\/revisions\/945"}],"wp:attachment":[{"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/media?parent=889"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/categories?post=889"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.clarkjudge.org\/wordpress\/wp-json\/wp\/v2\/tags?post=889"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}