To Boehner & McConnell: Tell Obama To FOAD

US News

Karl Denninger / Market Ticker

That should be the Republican response.

Multiple sources are reporting that the “opening offer” from Obama on the Fiscal Cliff is (note: I am recasting all numbers into annual ones, as that’s the only honest means of comparison):

• $100 billion in immediate tax increases by expiring “the rich’s” tax cuts.
• $60 billion more in tax increases by removing deductions from “the rich.”
• $50 billion in additional spending (over 2012 levels) on infrastructure for 2013.
• $240 billion in continued deficit spending by continuing the payroll tax cut.
• $30+ billion in continued deficit spending by continuing EUC 2008 (extended unemployment.)
• $40 billion in promised, unspecified but suspended for one year changes in Medicare and Medicaid.
• A permanent revocation of Congressional oversight of Treasury debt.

Yeah, right.

The promised spending cuts will never happen, just as has occurred every time before.

Add this all up and you get a net $110 billion decrease — in theory — on the deficit, which is less than 10% of the size of that deficit. In other words, even assuming you get what Obama promised (and you won’t) it’s a joke.

In point of fact the “automatic escalators” in federal spending due to baseline budgeting will wipe that out and we will see no net improvement in the deficit at all.

The correct answer by the Republicans is that no deal that does not cut the deficit in half this year and half again next will be accepted.

This means, at minimum:

• The payroll tax cut must be rescinded. Yes, that’s a “tax increase” if you want to be technical about it, but the fact of the matter is that this “tax cut” was a raw undermining of Social Security. If the Democrats cannot accept this then they can put $230 billion in immediate and permanent Social Security benefit cuts (annually) on the table to cover their “tax cut.”
   
• EUC 2008 must end now. Unemployment must go back to being an insurance program. The original 26 weeks are fine; the rest is not. Give people an incentive to get off their ass.
   
• One final increase in the debt ceiling to $17 trillion should be permitted, with the passage of that increase requiring a 75% majority or declared war to be increased further. This will give Congress one year with the expiration of the payroll tax cut and the spending cuts herein to permanently balance the budget. If they can’t or won’t then the debt ceiling will force them to spend only received tax revenues as of January 1st, 2014. This law must also permanently bar Treasury from “borrowing” from TSP plans and other “sources” of temporary funds under penalty of imprisonment for grand theft.

The only true fix for the budget is to pull the monopoly protections on the medical industry and collapse costs by 2/3rds or more along with dealing with our defense budget and energy dependence. Anyone who says “that’s impossible” and “that cost savings won’t happen” on the medical side is welcome to argue with the Oklahoma Surgical Center which takes cash and in fact provides surgeries at about 1/5th the “normal” cost in hospitals that are part of the medical monopoly racket.

As Boehner has said, this isn’t a game. But Boehner and the Democrats both believe it’s a game. They believe they can play around with so-called “deficit reductions” that even if enacted as promised would only result in a 10% decrease in the deficit and history says that spending will never be decreased and thus the deficit won’t be either.

With ~$16 trillion in debt the interest alone at 5% would cost $800 billion a year which is approximately what we spend on Medical Care, Social Security or Defense. Rising interest rates, which will eventually happen if we don’t cut this crap out, will utterly destroy the nation. Oh sure, The Fed can play it’s QE games for a long time, but doing so simply imposes that very same deficit as an effective tax increase via destruction of purchasing power, and that falls most-heavily on the working class people, poor and retired — an extraordinarily regressive means of assessment!

There is no way around acceptance of what has to happen. If you doubt it go back and read The Ticker entitled What You Simply Must Understand once more. We are the fish and the debt is the coverage of lilies on the pond.

If you want to see the budget in pictures, here’s a short video that makes clear exactly what we face and why we cannot put it off any longer:

I understand the political challenges that will come from dealing in an honest and forthright fashion with the people, particularly when doing so means those very same politicians will have to admit to lying to the public for the last 30 years.

But arithmetic doesn’t care about political problems or how many people want to claim “I won a mandate” in an election. Nor does it care about your personal pride and political legacy, no matter whether your upturned-nose-in-the-air is attached to a “D”, “R”, white or black face.

Arithmetic simply is, and if the White House and Democrats will not deal with this honestly then either the Republicans erect the middle finger or they become complicit in what will be a destructive spiral of credit downgrades, higher borrowing costs and ultimately the very-real risk of a complete collapse of all social spending or a rocketing higher of costs on the poor and elderly to the point that they contemplate whether it is better to fight and perhaps have a full belly or suffer in silence.

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