BA Spending Daily August 20, 2012

Fromer Chairman of the Senate Budget Committee Judd Gregg and former Governor of Pennsylvania Ed Rendell call for leaders in Washington to come together and address our nation’s debt crisis in an opinion editorial for Politico.  Gregg and Rendell write, “Over the past 40 years our national debt has averaged less than 40 percent of GDP—it now stands at over 70 percent. Without significant, fundamental and comprehensive reforms, the debt will reach 90 percent of the economy within 10 years and exceed 250 percent by the early 2040s. These crippling levels of debt threaten the strength of our economy, our standard of living, and the next generations’ access to the hope and opportunity we have come to accept as an American birthright. We can fix this problem, but we need to act now.”

As massive cuts to defense spending loom, Reuters reports, “[C]hildren of American soldiers already are feeling the pinch of a budget mess” and “because of their [Washington's] inability to compromise on a replacement for this budget axe – and because of a quirk in the way the U.S. Department of Education allocates funds to schools heavily populated by military kids – the pain already is palpable.”  The article goes on to say that the cuts were “designed to be awful,” saying, “The trouble began last year when a Congress panicked by rising budget deficits and influenced by the Tea Party movement, a loose coalition of fiscal conservatives bent on smaller government, enacted severe spending cuts designed to be so awful that they would provoke a more measured response. But that never happened, largely because of an identical gamble on the part of Republicans and Democrats. Each wagered that they will be in a better position to get their way after November’s presidential and congressional elections.”

In other sequester news, Politico reports, “In Fayetteville alone, that [the sequester] could take a bite out of $640 million in government contracts that flow into companies here, like major contractors Lockheed Martin, Boeing and Booz Allen Hamilton. The mood is so dark that even members of Congress who voted against sequestration in the first place fear they’ll still get the blame — a sentiment shared by incumbents across the country. ‘We put this in as a last-minute measure thinking that, certainly, it wouldn’t go this way. Look where we are,” said Rep. Larry Kissell (D-N.C.). “I voted against this every chance I got. It’s just terrible legislation.’ … But the locals here want less talk and more action as they think about what they’ll do at the polls in November. … Jim Lynch is chief operating officer of K2 Solutions, which trains military bomb-sniffing dogs at Fort Bragg and other military bases. The company employs about 300 people. ‘I’m upset that our Congress, they’re not doing their job. If I don’t do my job in business, I get fired,’ Lynch said. ‘They’re all saying the same thing. It’s time for action.’”

The Wall Street Journal editorializes, “President Obama traveled to Iowa Tuesday and touted wind energy subsidies as the path to economic recovery. … There certainly is a subsidy choice in the election, but the facts are a lot different than Mr. Obama portrays them. What he isn’t telling voters is how many tax dollars his Administration has already steered to wind and solar power, and how much more subsidized they are than other forms of electricity generation. The facts come in a 2011 report from Mr. Obama’s own Department of Energy. The report—’Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010′—identifies $37.16 billion in federal subsidies. These include special tax breaks, loans and loan guarantees, research and development, home heating assistance, conservation programs, and so on. The best way to compare subsidy levels is by the amount of energy produced. But the Energy report conspicuously left out this analysis, though Congress specifically requested it.”

Bloomberg reports, “The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010. As deposits increased 3.3 percent to $8.88 trillion in the two months ended July 31, business lending rose 0.7 percent to $7.11 trillion, Federal Reserve data show. The record gap of $1.77 trillion has expanded 15 percent since May, the biggest similar-period gain since July, 2010. … While the gap has narrowed to $1.75 trillion as of Aug. 8 as lending of $7.12 trillion trailed $8.87 trillion in deposits, the gap is more than 17 times the $100 billion average in the decade before credit markets seized up, Fed data show.”