Home Business Spending Daily January 14, 2013

Spending Daily January 14, 2013

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Spending Daily | January 14, 2013

Facing Sequestration, Pentagon Freezes Hiring, Delays Contracts
According to The Hill, “The Pentagon did an about-face on sequestration this week, taking concrete steps — including a hiring freeze and a delay in awarding some contract awards — more than six weeks before the across-the-board spending cuts are scheduled to hit. The moves announced by Defense Secretary Leon Panetta were a significant shift for the Defense Department compared to the approach ahead of the initial Jan. 2 sequestration deadline, when Pentagon officials did not officially start planning for the cuts until December.”

Do Deficits Still Matter?
The Washington Examiner editorializes, “If you believed that President Obama and his congressional allies had any interest in cutting government spending and reforming runaway entitlement programs, then last week should have dispelled your illusions. … ‘[D]eficit reduction is not a goal — a worthy goal unto itself,’ Carney told reporters last Wednesday. ‘This is all about making our economy stronger and making it more productive and allowing it to create even more jobs. I mean, that is the most important thing when it comes to economic policy as far as the President is concerned.’ That’s a far cry from Obama’s promise to cut the deficit in half by the end of his first term. ‘It will require us to make difficult decisions and face challenges we’ve long neglected,’ Obama said in 2009. ‘I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.’”

Obama Administration: No Backup Plan if Debt Ceiling Not Raised
According to The Wall Street Journal, “The showdown over the nation’s debt ceiling could force the government to consider drastic steps to manage its limited cash, including delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others. The Obama administration has said it has no backup plan to pay the government’s bills if Congress refuses to raise the $16.4 trillion federal borrowing limit. The White House said Saturday in a statement that ‘there are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default.’ … One thing the White House says it won’t do is to pursue a somewhat fanciful idea of minting a $1 trillion platinum coin and depositing it at the Federal Reserve as a way to raise funds without borrowing. The administration also has ruled out borrowing beyond the ceiling by invoking the 14th Amendment’s clause on public debt, which some argue would permit the practice.”

“Obama’s Health Spending ‘Problem’”
The Wall Street Journal Editorializes, “President Obama said a fair bit during the fiscal-cliff negotiations—speaking for 45 minutes in one 50-minute meeting, for example—but today let’s zero in on the claim he kept repeating: ‘We don’t have a spending problem. We have a health-care problem.’ For our money—and yours—those are two of the most remarkable sentences our Orator in Chief has ever strung together. Not so much on the merits, insofar as the federal government is the largest, and worst, buyer of health care in America. But didn’t we recently have an epic debate on this very topic? It seems only yesterday that the President was saying that health-care reform ‘is no longer just a moral imperative, it’s a fiscal imperative’ and ‘one of the best ways—in fact maybe the only way—to reduce those long-term costs.’ … The health entitlements—Medicare, Medicaid, the children’s state insurance program and soon ObamaCare subsidies—accounted for 21% of the budget in 2012. But that will rise to about 24% this year, and about 33% by the end of the decade.”

Health-Insurance Premiums On the Rise
Merrill Matthews and Mark E. Litow editorialize in The Wall Street Journal, “Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare. The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it. Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modified community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions. Guaranteed issue incentivizes people to forgobuying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.”

Fed Kills Trillion Dollar Coin Idea
Buzzfeed reports, “The Federal Reserve was responsible for killing a controversial proposal to circumvent the debt limit, a senior administration official told BuzzFeed Sunday. On Saturday the Treasury Department released a statement ruling out the only remaining alternative to Congress raising the nation’s borrowing limit, which would utilize a loophole in federal law to mint a $1trillion coin to be deposited in the Federal Reserve and ensure the federalgovernment could pay all bills and debt obligations. … But it was the Federal Reserve that killed the proposal, the official told BuzzFeed, denying a purely political rationale for the announcement, saying the independent central bank would not have credited the Treasury’s accounts for the vast sum for depositing the coin.”

Americans’ Paychecks Shrink As Payroll Tax Hike Takes Effect
 Reuters reports, “Americans are beginning to feel the pinch from Washington’s decision to embrace austerity measures aimed at bringing down the nation’s budget deficit. Paychecks across the country have shrunk over the last week due tohigher federal tax rates, and workers are already cutting back on spending,which will drag on the economy this year. In Warren, Rhode Island, Ben DeCastro got his first paycheck on Friday in which taxes on his wages rose by 2 percentage points.That works out to about $30 a week. ‘You sit back and do the calculation, and that’s $30 I’m not going to spend at a restaurant,’ said DeCastro. He said he worries that people hit by higher taxes will spend less at the chain of furniture stores where he works as a marketing manager. Politicians in Washington made much hubbub last week about a bipartisan deal to soften or postpone some $600 billion in scheduled tax hikes and government spending cuts. Nevertheless, for most workers, rich and poor alike, taxes went up on December 31 as a temporary payroll tax cut expired.”

Fed Official Charles Evans: U.S. Economy to Grow 2.5 Percent in 2013
Reuters reports, “The U.S. economy is expected to grow by 2.5 percent in 2013, improving to 3.5 percent growth in 2014, top Fed official Charles Evans said on Monday Evans also forecast the U.S. unemployment rate would be 7.4 percent this year, easing to about 7 percent in 2014.”

Has Europe Gained the Upper Hand In Debt Crises?
Bloomberg reports, “European leaders declaring they’ve gained the upper hand in the three-year-old debt crisis are sharpening efforts to channel a rebound in financial markets to an economic recovery to chip away at soaring unemployment. Even as euro-area chiefs call for more time to lock in a bailout package for Cyprus and elections loom next month in Italy, German Finance Minister Wolfgang Schaeuble said Jan. 11 that the single currency is ‘over the worst of the crisis.’ Financial markets are starting to appear normal again,” Erik Nielsen, chief global economist at UniCredit SpA (UCG), wrote in a note to clients yesterday. He referred to European Central Bank President Mario Draghi’s Jan. 10 comments forecasting that the euro-area economy will climb out of recession this year.”