BA Spending Daily September 24, 2012

Spending Daily | September 24, 2012

Why the National Debt Matters
The Associated Press reports, “A sea of red ink is confronting the nation and presidents to come. The budget deficit – the shortfall created when the government spends more in a given year than it collects in taxes and fees- is on track to top $1 trillion for the fourth straight year. When there’s not enough to pay current bills, the government borrows, mostly by selling interest-bearing Treasury bonds, bills and notes to investors and governments worldwide. It now borrows about 40 cents for every dollar it spends. The national debt refers to the total amount the federal government owes; the deficit is just a one-year slice. … The outstanding debt has since risen to a shade over $16 trillion. While there’s plenty of finger-pointing by politicians over who’s to blame, deficits historically surge during wars and deep recessions, and the U.S. has had both over the past decade. … Congress sets a ceiling on how much the government can borrow. If this debt limit is breached, the government will default on its obligations. This has never happened, but it almost did last summer in a Capitol Hill standoff. As a consequence, the nation’s credit rating was downgraded for the first time ever. The current $16.4 trillion debt limit will be reached late this year or early next. A slew of tax breaks will expire at the same time. No matter who wins, he’ll immediately have his hands full.”

Sequester II:  Return of the Sequester
Politico reports, “There’s an idea kicking around Congress to avoid the year-end ‘fiscal cliff,’ and it bears an uncanny resemblance to the dreaded sequester that’s become the bane of lawmakers’ collective existence.   It’d be a stretch — but not a huge one — to call it another sequester.    Designed to head off the deep automatic spending cuts and higher tax rates set to kick in next year, the proposal is to instruct — actually, mandate — the powerful House and Senate tax-writing  committees to rewrite the Tax Code.” There is no telling what will happen if they fail, but Congress would be forced to slash the deficit and reform tax laws. …    While the latest idea — under consideration at the highest levels of Congress — would be structured differently than the sequester, it is inspired by a similar line of thinking. Proponent of the plan,    Sen. Kent Conrad (D-N.D.), the Budget Committee chairman said he wouldn’t call it a second sequester. But many fear Congress may have no other choice. ”   After rushing out of town last week for the campaign homestretch, lawmakers left behind a pile of unfinished business that could send the economy back into recession if left unresolved before the new year.”

Ryan Takes On Entitlements at AARP
The Wall Street Journal editorializes, “The headlines this weekend were all about the boos Paul Ryan elicited on Friday when he addressed the AARP, the self-styled seniors’ lobby. The herd of independent media minds missed the real story, which is that the Republican Vice Presidential nominee went into the heart of the entitlement culture… Perhaps most striking, Mr. Ryan even earned some applause when he discussed Social Security reform, including ‘slightly raising the retirement age over time and slowing the growth of benefits for those with higher incomes.’ Raising the retirement age used to be anathema and AARP still opposes it. … In an instructive question and answer session that is available on AARP’s website, Mr. Ryan also held forth on the threat of rising national debt, the economic drawbacks of raising payroll taxes (the favorite liberal answer on Social Security) and the bipartisan roots of his proposal for Medicare premium support.”

Congress Skips Town, Putting Off Important Issues Until After Election
The Washington Post reports, “With final Senate votes cast 1 a.m. Saturday morning, Congress has concluded work and departed Washington, putting off major decisions on tax and budget issues until after the November election. The session ended on terrain familiar from the past 18 months of gridlocked action — with both parties blaming each other for not getting more done and a procedural debate in the Senate delaying final action on a bill over which there was no big dispute. The Senate early Saturday approved a six-month spending measure to fund the government when the fiscal year ends Sept. 30 on a 62 to 30 vote. The measure, which the House approved last week, would spare Washington the specter of a government shutdown in the weeks leading up to the election. Approval of the must-pass funding bill marked Congress’s only significant accomplishment during an eight-day work period that followed the August recess.”

“Poll: More trust President Obama on Medicare”
Politico reports, “More swing-state voters trust President Barack Obama to handle Medicare than Mitt Romney, according to a poll Monday. Fifty percent of registered voters in 12 swing states trust Obama to handle Medicare, compared to 44 percent who trust Romney more, according to a Gallup Poll. Nationally, Obama has a 51 percent to 43 percent edge over the Republican nominee. Only 44 percent said Romney and running mate Paul Ryan have put forth a specific plan to overhaul Medicare. Ryan, as chairman of the House Budget Committee, has proposed giving seniors money to purchase either a government plan or a private plan, which Democrats have criticized as ‘ending Medicare as we know it’ because the voucher might not be enough to cover medical costs comparable to traditional Medicare. … Only 44 percent said Romney and running mate Paul Ryan have put forth a specific plan to overhaul Medicare. Ryan, as chairman of the House Budget Committee, has proposed giving seniors money to purchase either a government plan or a private plan, which Democrats have criticized as ‘ending Medicare as we know it’ because the voucher might not be enough to cover medical costs comparable to traditional Medicare.”

Senate Passes Stopgap Spending Measure to Avoid Gov’t Shutdown
Reuters reports, “A deeply divided and unproductive Congress wrapped up its final business before November’s elections early on Saturday as the U.S. Senate passed a stopgap measure to fund federal programs and avoid an Oct. 1 government shutdown. The 62-30 vote on the funding bill, which now moves to President Barack Obama’s desk to be signed into law, was delayed by days of partisan bickering over votes on unrelated measures aimed at boosting both Democrats’ and Republicans’ political fortunes. For the new fiscal year which begins on Oct. 1, the $524 billion measure slightly raises discretionary spending – which funds government agencies and everything from defense to national parks – from current levels. It was needed because Congress’ normal process of appropriating money for government operations broke down amid disagreements between Democrat and Republicans over spending levels and funding was due to run out after Sept. 30.”

Bill to Repeal Health Insurance Tax Has Enough Co-Sponsors to Pass in House
The Hill reports, “Rep. Charles Boustany Jr. (R-La.) announced Friday that his bill to repeal one of the taxes in President Obama’s healthcare reform law has 218 co-sponsors — enough to ensure it would pass the House. The Republican-led House has voted more than 30 times to repeal or defund all or part of the Affordable Care Act, so Boustany’s bill never would have faced much trouble. But it targets a provision that has faced steady, consistent opposition from Republicans as well as the insurance industry. Boustany’s bill would repeal the health law’s tax on insurance plans — a policy critics say would raise premiums at a time when millions of new people will be coming into the insurance marketplace.”

Germany Grows Impatient as Spain is Reluctant to ask for Help 
Bloomberg reports, “Germany’s governing coalition showed growing exasperation with Spain, as a senior ally of Chancellor Angela Merkel said Prime Minister Mariano Rajoy must stop prevaricating and decide whether Spain needs a full rescue. ‘He must spell out what the situation is,’ Michael Meister, the chief whip and finance spokesman for Merkel’s Christian Democratic Union, said in an interview in Berlin today. The fact he’s not doing so shows ‘Rajoy evidently has a communications problem. If he needs help he must say so.’ … Rajoy has displayed reluctance to seek more help after Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister Soraya Saenz de Santamaria said last week Spain will consider a bailout if conditions are acceptable. … ‘There won’t be any nation that voluntarily, with a pre- emptive move, even if rationally justified, would go to an international body and say, ‘I give up my national sovereignty,’ Polillo said in Rome. ‘I rule it out for Italy and for any other country.’

Investors Race to Buy Treasuries as Doubt Over Fed Recovery Looms
Bloomberg reports, “U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, aiding the government in its efforts to borrow as total public debt outstanding rises above $16 trillion. Government debt securities held by domestic buyers, excluding the Federal Reserve, rose 10.7 percent in the first seven months of this year to $3.61 trillion, compared with a 6.9 percent increase for countries from China to Germany, according to the latest data available from the Treasury Department and compiled by Bloomberg. Record-low yields are proving no deterrent to U.S. buyers concerned that unprecedented stimulus by the Fed and Chairman Ben S. Bernanke may neither stimulate the economy nor bring down a jobless rate that has exceeded 8 percent since February 2009. … Even though the national debt has soared, borrowing costs have tumbled as investors sought a haven from the turmoil. …  ’One of the biggest risks out there is market risk that interest rates will start rising,” Kathleen Gaffney, a money manager at Loomis Sayles & Co.’

“U.S. Stock Futures Fall as Europe Leaders Clash on Crisis” 
Bloomberg reports, “U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will drop a third day, as European leaders clashed on ways to stem the debt crisis and data from China and Germany signaled the slowdown is deepening. … S&P 500 futures expiring in December retreated 0.4 percent to 1,445.70 at 8:39 a.m. in New York. Dow Jones Industrial Average futures lost 49 points, or 0.4 percent, to 13,451 today. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 31 percent lower than the 30-day average at this time of day, according to data compiled by Bloomberg. Read More 

Video: David Axelrod: “This is not the time” to Discuss Social Security