Tuesday, February 15, 2011

Obama’s Budget to be Nipped, Tucked, and Enhanced, Thoughts on True Freedom

2/15/2011 Portland, Oregon – Pop in your mints…
Yesterday President Obama presented his proposed budget, only five months late, not bad for government work.  The Federal Government rarely passes a budget on time and is accustomed to operating on autopilot for months at a time.  Since the FED is currently buying up all of Uncle Sam's freshly minted Treasury Debt, it should come as no surprise that they are not in a hurry to pass any kind of budget.
Yet at some point, the political theater demands the annual budget show, or showdown, as this year's version may be called.  Mr. Obama, the protagonist, appears to have alienated nearly everyone with this proposalApparently the overextended and inefficient governmental operation currently being run cannot be scaled back without ruffling a few feathers.   
After accelerating government spending into a realm which has never been seen before, the proposal promises to cut the annual Federal deficit in half by the end of his first term.   
We wouldn't hold our breath.  His budget optimistically assumes that GDP will grow BY 3.6% in 2012 and 4% thereafter.  GDP growth is easy to obtain when all you have to do is plug numbers in to a spreadsheet.  It is much harder to achieve in an economy bent on destroying itself.
But don't worry, Mr. Obama's proposal, for all of its rosy assumptions and good intentions, has no chance of passing in its current form.  It is now going to have a series of procedures performed on it that would make a plastic surgeon grimace.  
The Republicans and anyone who was elected as a "fiscal conservative" will categorically say that his proposed cuts are not enough.  They are preparing the scalpel, ax, and a plunger to modify the budget as it passes through the Republican controlled House of Representatives.  Apparently, Mitch McConnell, the US Senate Republican leader, in a dramatic display of representative government, somehow manages to speak for all Americans when he says:
"Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts. And I hope the president will work with us on achieving them soon."
Mr. McConnell is as deluded as Mr. Obama.  The last thing American's want, especially those who receive any portion of their paycheck either directly or indirectly from the Federal Government, which according to the last estimate we saw was more than 50% of them, is for Federal spending to be reduced.  How can we be so sure?  We present the events in Egypt yesterday as exhibit A.  Just 48 hours after gaining their "freedom", they are already demanding that the new Government give them a raise.
A news flash to the world! True Freedom means completely free commerce, not relying on a Government to tax you, redistribute wealth, and tell you what to do.  The later is the definition of an Empire and the tendency of Socialist economic systems.  However, most people cannot fathom True Freedom.  So the word gets reduced to simply describing a change of regime.  This, fellow taxpayer, is a tragedy.
Now, we return to the US budget political drama.  We left off with Mr. Obama's budget in the recovery room after being nipped and tucked in the house.  Before the slimmed down budget has fully healed, it will go on to the Democratic controlled Senate to be "enhanced" by injecting Silicone and Botox in nearly every curve and crevice.  With the FED supplying the materials, there is no limit to how much can be injected.
The 2012 US Budget: From Slender in the House to "Healthy" in the Senate
Through the magic of the budget approval process, which assures that no freeloader or lobbyist gets left behind, the Budget Barbie doll that left Mr. Obama's desk yesterday will return to him looking more like Barney.  At which point Obama himself will perform the anticlimactic act of signing it into law, just in time for it to expire.  Budgeting in Washington is a farce.  Would you stick to a budget if you could print your own money?
No, this budget theater is just a distraction from the Tsunami of hyperinflation that is beginning to trickle into Main Street.  According to our estimates, prices will generally rise in fits and spurts until March of 2012.  After that, it is anybody's guess as to when and how it will end, but the tendency for prices to rise (i.e. inflation) is set in place until at least April of 2014 and likely well beyond.  By then the Federal Deficit could well be down to 3% of GDP, as Obama's budget suggests, and, due to the magic of inflation, the US government will be a mere skeleton of the albatross that it is today and will provide only a small fraction of the services that it promises.
Of course all of this assumes that the current insane Monetary System and US Government exist in 2014.  Can the later survive the collapse of the former?
Stay Fresh!
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Key Indicators for Tuesday, February 15th, 2011

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.