Recently by Mike “Mish” Shedlock: Pact With the Devil Over Gold
I sit back in amazement and watch Republicans self-destruct with ridiculous proposal after ridiculous proposal.
Let’s ponder two plans, neither of which is going anywhere, and one of them may very well cost Mitt Romney the election should he win the nomination.
Ryan Plan Revives Deficit Duel
The Wall Street Journal reports Ryan Plan Revives Deficit Duel
Rep. Paul Ryan’s budget instantly became the centerpiece of an election-year debate over the size of government on Tuesday, thrusting back into the spotlight a topic the deficit that has been largely overlooked by the presidential candidates.
Mr. Ryan (R., Wis.), who heads the House Budget Committee, said his plan would put the U.S. on a sound economic path by spending $5.3 trillion less than Mr. Obama recommends over 10 years, resulting in a budget deficit that would be $3.3 trillion narrower.
Let’s pause right there for a second. The deficit is about $1.4 trillion. If the US lapses back into a recession at any time, (something I think is highly likely) it will worsen. Cutting $5.3 trillion over 10 years, is $530 billion a year, still leaving deficit spending at $900 billion a year, not counting the odds of a recession.
Let’s continue with a few more snips …
Congressional budgets by nature lack specifics those are provided in spending bills that come later and this one was no different. Still, Mr. Ryan made some things clear. Most dramatically, he proposed repealing Mr. Obama’s health law.
The plan also would cut the top tax rates for corporations and individuals to 25% from 35%, creating just two brackets for individuals, 10% and 25%.
Mr. Ryan angered Democrats, and privately frustrated some Republicans, by proposing a $1.028 trillion cap on discretionary spending for next year, a figure that excludes formula-based programs such as Social Security and Medicare. The two parties, after weeks of negotiation, had agreed on a level of $1.047 trillion in a deal in August.
Mr. Ryan said he was taking into account another section of that deal, which requires across-the-board cuts of $97 billion beginning in January, $55 billion of that in defense. Party leaders are planning to negotiate a way to restructure those cuts, probably after the election. Mr. Ryan’s plan instead directs six House committees to come up with cuts by May that total a similar amount.
Ryan Reneges on Defense Cuts
Notice that Ryan cannot even stand for a measly $55 billion cut in defense spending instead wanting to cut entitlements. Yes, entitlements should be cut, but so should defense spending.
This proposal is doomed from the get-go. It is both pointless, and weak. All Ryan has proven is that he is a deficit-cutting wimp. If you are going to start another budget war, at least have the decency to propose a balanced one.
Ron Paul alone wants to balance the budget.
Searching for Sings of Intelligent Thought
The only possible conclusions for Ryan’s proposals are: He is brain-dead. He does not want a deal for political reasons.
Although it’s frequently hard to see signs of intelligent life from either party in Congress, I will give Ryan the benefit of the doubt, suggesting that he purposely wants to antagonize Democrats for political reasons.
No Deal Coming
A USA Today Editorial states GOP budget hurts prospects for deficit deal.
If anything is obvious from the past several years of budget wrangling, it’s that meaningful progress on the federal deficit will require a grand, bipartisan deal of the kind that President Obama and House Speaker John Boehner were negotiating last summer before their talks collapsed.
Democrats will have to give ground on the entitlement programs that are swallowing the federal budget. Republicans will have to compromise on tax revenue.
If that is too tall an order during a presidential election year, the two parties should at least avoid fanning flames that will make future deals harder to achieve.
What’s most galling, however, is that the plan would violate the terms of the stopgap budget deal worked out last summer. It would breach the cap on defense spending and take money from other areas. It is hard to imagine a better way to undermine prospects for a broad long-term deficit deal than for one side to go back on its word.
As for Democrats, they need to get their heads out of the sand. The argument that they can simply "protect" Medicare against marauding Republicans does not square with reality. While prudent tax hikes can buy some time, and cuts in other spending might be in order, the biggest threats to the nation’s solvency by far are health care and retirement entitlements.
The Democrats’ response to Ryan’s latest plan was both predictable and troubling. Even before the plan was out, they launched a Medi-scare campaign of letter-writing and robocalls targeting 41 vulnerable Republican incumbents.
But, in an era in which both parties try to pawn off partisanship as patriotism, why let the facts get in the way of a good attack ad? Perhaps after this year’s election, when big spending cuts and tax hikes are slated to take effect, the two sides will seriously address the long-term fiscal problems the nation faces. After all, notwithstanding the fantasies of party leaders, a sweeping deficit reduction package enacted on a party-line basis is not going to happen.
Mitt Romney Proposes $8 Trillion Welfare Program for Defense Contractors
As noted above, Ryan’s proposal is seriously misguided at best. Unfortunately, Romney’s plan is far worse.
Please consider A Lesson in Republican Math: Throwing Money at the Pentagon
If youve been fretting about faltering math education and falling test scores here in the United States, you should be worried based on this campaign season of Republican math. When it comes to the American military, the leading Republican presidential candidates evidently only learned to add and multiply, never subtract or divide.
Despite current Pentagon budgets that have hovered at the highest levels since World War II and 13 years of steady growth, the administrations latest plans would only reduce spending at the Department of Defense by 1.6% in inflation-adjusted dollars over the next five years.
Still, compared to his main Republican opponents, Obama is a T. rex of budget slashers.
After all, despite their stated commitment to reducing the deficit (while cutting taxes on the rich yet more), the Republican contenders are intent on raising Pentagon spending dramatically. Mitt Romney has staked out the high ground in the latest round of Republican math with a proposal to set Pentagon spending at 4% of the Gross Domestic Product (GDP). That would, in fact add up to an astonishing $8.3 trillion dollars over the next decade, one-third more than current, already bloated Pentagon plans.
Nathan Hodge of the Wall Street Journal engaged in polite understatement when he described the Romney plan as the most optimistic forecast U.S. defense manufacturers have heard in months.
In fact, Romneys proposal implies that the Pentagon is essentially an entitlement program that should receive a set share of our total economic resources regardless of whats happening here at home or elsewhere on the planet. In Romney World, the Pentagons only role would be to engorge itself. If the GDP were to drop, its unlikely that, as president, he would reduce Pentagon spending accordingly.
Rick Santorum has spent far less time describing his military spending plans, but a remark at a Republican presidential debate in Arizona suggests that he is at least on the same page with Romney.
Mitt Romney at Sea
But lets stick with the Republican frontrunner (or stumbler). What exactly would Romney spend all this money on?
For starters, hes a humongous fan of building big ships, generally the most expensive items in the Pentagon budget. He has pledged to up Navy ship purchases from 9 to 15 per year, a rise of 50%.
Romney is also a major supporter of missile defense and not just the current $9-$10 billion a year enterprise being funded by the Obama administration, primarily designed to blunt an attack by long-range North Korean missiles that dont exist. Romney wants a full, multi-layered system.
That sounds suspiciously like the Ronald Reagan-style fantasy of an impermeable shield over the United States against massive nuclear attack that was abandoned in the late 1980s because of its staggering expense and essential impracticality.
If the development of Romneys high-priced version of a missile shield were again on the American agenda, it would be a godsend for big weapons-makers like Boeing, Lockheed Martin, and Raytheon, but would add nothing to the defense of this country. In fact, it stands a reasonable chance of making things worse. Given the overkill represented by the thousands of nuclear warheads in the American arsenal, the prospect of a nuclear missile attack on the United States is essentially nil.
Ensuring a Cost-Overrun Presidency
If you were hoping that, with an eye to fighting yet more disastrous wars in the Greater Middle East like the $3 trillion fiasco in Iraq, the U.S. would raise ever larger armies, then Mitts your man.
Prepare for Two Wars if Romney Wins
Should Mitt Romney win election this November, prepare for two wars.
- War with Iran
- Trade War with China
Both would be stupid and both will cost trillions of dollars.
Actually, the sane thing to do is prepare for two wars regardless of who wins. The odds may be lower under Obama, but that is the best one can say.
The self-destruction of Republicans is very painful to watch because I am not a Democrat and do not like President Obama in the least.
Unfortunately, some Republican proposals are so out of whack with what needs to happen that independents are highly likely to make a lesser-of-two-evils choice of Obama over whoever the Republican nominee is.
Given the strong likelihood Republicans manage to hold the House, a divided Congress and a divided executive-legislative split might easily be the best we can hope for.
I am writing in Ron Paul. The chips will fall, how they fall.
Hopefully Republicans get their act together in 2016 because this was a pathetic performance.
Reprinted with permission from Global Economic Analysis.
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.