Even With The Sequester in Place, Feds Continue to Hire & Spend

 

"Deep concern." That's what President Obama said on Monday about his feelings towards the automatic federal spending cuts, which began to take place yesterday.

"We are going to manage it as best we can, try to minimize the impacts on American families," Obama told reporters during a meeting with his Cabinet.

The President's opposition to the $85 billion in spending cuts is well known, and according to the Congressional Budget Office it's really only $44 billion. At turns, he's called it "draconian" and "drastic."

It’s not as bad as it seems. For example, layoffs may be in the offing, but right now the government is advertising for workers.

The U.S. Forest Service is looking for “recreation aides" this summer. At the same time, the IRS advertised for an office secretary in Maryland, the U.S. Mint wanted 24 people to help press coins, and the Agriculture Department said it needs three "insect production workers" to help grow bollworms in Phoenix.

On Monday alone, as these shocking cuts were supposed to take place, the government advertised 400 new jobs by 6 p.m. Things can’t be all that bad if Uncle Sam still wants to hire 24 people to press coins.

In February, during the to-ing and fro-ing over sequestration, our federal debt rose by $253.5 billion. Our government was borrowing at a rate 44 times the puny cuts we were arguing about.

Don't worry about the government going hungry. The federal government is on pace to collect a record $2.7 billion in tax receipts this year, 11% higher than last year.

It’s not just the hiring and the tax collections that continue. It's the waste too. The USDA is planning two conferences in Oregon and California in the upcoming weeks that will feature guest chefs and wine for department employees.

Then there are the duplicated programs and the reams of poverty programs.

The federal government runs 33 different housing programs: 21 programs to provide food, 8 health-care programs, and 27 cash or general assistance programs.

It's hard to find a government department that doesn't run an anti-poverty program and that’s just scratching the surface.

According to Senator Tom Coburn, there are nearly 1,400 programs that duplicate others for a total of $364.5 billion in wasteful spending.

Maybe, just maybe, it’s time we stopped spending so much. Maybe it’s time the government stopped producing cooking shows and studying how fish view Democracy. Maybe it’s time we get the shrimp off the treadmill that we spent $500 million on.

The Presidents says he’s worried about cuts hitting regular Americans, but I think he just wants to keep government growing and growing. 

The Next Housing Bubble: Student Loan

Uh-oh. It’s beginning to feel just a little bit like the 2006 housing bubble that burst. This time it's not housing that is growing uncontrollably, it’s student loan debt.

Last week I told you about how students have more debt than ever and how they just can't seem to pay it down.

According to a report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of 2008. That’s astonishing and it wouldn't be possible except for the fact that investors are desperate for higher rates of return in this market and student loans are giving them that.

Student loans are packaged almost exactly like mortgages (before the crash), and sold to investors. These days, investors are hungry for risky loans because with rates so low it's difficult to find higher yields. The highest yields are found on the riskiest loans.             

Last week, the largest U.S. student lender, Sallie Mae, sold $1.1 billion worth of securities backed by student loan debt. Demand was the highest for the riskiest of the bunch, those that will lose money first if the loans go bad. In fact, it was 15 times greater than the supply. So, what do you think lenders do when they see it? They create more of it.

That is exactly what happened during the housing crisis. Professional investors demanded packaged mortgage debt, which ultimately led to booming loans to people who simply couldn’t afford them. A ninja loan, also known as a subprime loan, is a loan to people with no income or jobs, and with this kind of loan you could decide to pay only interest and no principle.

That didn't work out so well for Main Street or Wall Street. It's my fear this won't work out well either. Students are graduating with average debt of $27,000 and colleges continue to raise prices.

Is Geithner Really Going to Conduct Financial Crisis Seminars?

 

Former Treasury Secretary, Timothy Geithner plans to hit the university circuit in the coming months, conducting a series of seminars on financial crises. In other words, Geithner is the "man" when it comes to teaching your kids about what the nation should do in response to financial crises.

I, for one, say no.

Look, four years after Lehman Brothers went out of business and the economy pitched into the darkest recession since the great depression, the economy is still punk. Unemployment is unacceptably high. Banks may be reporting record profits and lucrative bonuses, but on so much of Main Street, the real recovery is yet to start.            

I believe it was the medicine applied to the patient by doctor Geithner that is responsible for this. The administration claims that bailing out banks under a $800 billion TARP program was the best solution to what otherwise would have been a collapse of the banking sector. But, that can't be the only yardstick measuring the success of TARP.

What we did as a nation was give away far too much in bailout money and support to the banks and automakers. In fact, we are still doing it. A Wall Street strategist will tell you privately that the market's rally is based on the Federal Reserve's easy money policy, a strategy that Geithner is fully behind.

When it comes to TARP, the former Treasury Secretary is fond of saying the government made money on that.

Again, no.

Banks and financial institutions still owe $118.5 billion in TARP funds. That includes the government's ongoing stakes in companies like Ally Financial, AIG, General Motors, as well as the $4.2 billion the Treasury had written off and then realized losses of $9.8 billion "that taxpayers will never get back."

If this is success, what would failure look like?

I could tell you the stories about Geithner's failure to pay $30,000 in taxes and not long after, he was in charge of the IRS. But, I don't want to go there. As a regulator, he believed, like his mentors, Bob Rubin and Larry Summers, that "failure containment" was what needed to be done. Regulators come in after the crisis and clean up.             

That means the problems never get solved. Our nation's largest banks are still too big to fail and nothing in Dodd-Frank prevents the government from bailing them out all over again.

Only one thing is for certain. The next bubble bursting will be bigger and more threatening, and next time, it will be a real crapshoot whether the government even has the resources to clean up the mess.

Budget Cut Countdown: Will We Survive the Sequester?

These days, you can't turn on the TV without hearing news of the sequester.

Conservatives and Liberals alike are unhappy, but I think that's good news for taxpayers.

If Congress and the President don’t agree on something by March 1, we are going to see some significant changes.

Here's what will happen.

Number one: federal spending will not, be reduced. Despite what you hear, there will be cuts to planned increases in spending, but the federal budget will grow.

According to CBO estimated spending levels over the next few years, federal spending will drift higher and higher.

Even with the sequester, the federal government will spend $15 billion more than it did last year!

So, the question is whose ox is getting gored?

The answer is clear.

Although their spending will be nearly 14% higher than in 2007, defense spending will take the biggest hit.

Departments that promote the President's priority programs, for example, the Energy Department, that is working to shut down coal production and slow oil drilling, is getting a big funding boost. The DOE’s funding is up more than 43% in the last decade!

Look, the powers that exist are telling you we are in uncharted territory and the terrors of budget cutting are terrible, but that's just not true.

In today's New York Times, which is not exactly a bastion of conservative thinking, reported that between 1969 and 1974, as the Vietnam War was winding down, the government dropped spending by 24%.

Former Texas Senator, Phil Gramm, wrote in today's Wall Street Journal, that back in 1985, a Democratic House, a Republican Senate and the White House agreed on a sequester of across the board spending cuts amounting to nearly 4.5% on non-defense spending and 5% on defense spending.

Today, what we are talking about is a spending slowdown of less than 2.5%. That is not even close to 1985 or the early '70s. We will survive, but the reputations of the hysterical politicos may not!

Taxpayers Giving Big Banks $83B a Year!

Every once in a while you have to say, “I told you so.”  This is one of those days.

As we've been saying on this show for some time now, the Dodd Frank law, which rewrote the regulatory rulebook for banks, did nothing to get rid of "too big to fail," the implied promise that big banks will get bailed out if they get into trouble. Just like they did during the financial crisis.

In fact, two researchers have actually pinned down what that promise means to banks: a subsidy of $83 billion a year.

Here's the math: big banks pay nearly a full percentage point less in borrowing costs or interest rates because they are backed by the federal government. If any one of the big banks were to go bust, the government would face enormous pressure to step in and keep the bank going. That interest rate discount applies to everything from bank liabilities, to customer deposits.

That one little percentage point makes a whale of a difference. If you multiply that amount times the total liabilities of the 10 largest banks, you get $83 billion a year. According to the researchers, that's akin to giving the banks three cents out of every tax dollar collected.

Now, most of the benefit is going to just five big banks: J.P. Morgan, Citigroup, Wells Fargo, Goldman Sachs and Bank of America. Were you to take away that subsidy, you might take away their profitability. In other words, this benefit is keeping this sector afloat!

Today, the Senator Elizabeth Warren got in on the action by asking Fed Chairman Ben Bernanke why we give such a freebie to the sector, and David Vitter agreed with her, saying "too big to fail" is alive and well. 

What's interesting is that Senator Elizabeth Warren is as left as it gets, while David Vitter is very conservative.

That should tell you something, the hard right and the hard left agree on something. They may have a point. The government needs to get out of the business of guaranteeing the business of the banks.

We can't afford it. 

Why Health-Care Costs Are So Out of Control

Imagine you're 64 years old, and you get severe chest pains at home. Chances are you might just call for an ambulance. That's what Janice of Connecticut did. She was taken the four miles to an emergency room at Stamford Hospital, which is officially a non-profit institution.

After three hours of tests and a visit with a doctor, she was told she didn't have a heart attack, just indigestion. That's the good news. The bad news is that she was charged $21,000 for the false alarm. That's $995 for the ambulance ride, $3,000 for doctors and $17,000 for the hospital.

That's one of Steven Brill's many anecdotes illuminating a story on the rat's nest that is health care services pricing and billing. We spend twice as much as most nations- 20% of our GDP on health care. The story appears this week in Time magazine.

To put it in another way, we spend more on health care than the next 10 big spenders combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia. U.S. health care spending will probably total $2.8 trillion this year alone.

Thought we spent a lot of money cleaning up New York, New Jersey and Connecticut after Hurricane Sandy?  Well, we spent almost that much last week on health care.

Why are costs so out of control? Brill surmises that the system is run by the sellers of services, not the consumers. Put any five people in an emergency room for treatment for the exact same condition, and most likely, you'll get five totally different bills, depending on their insurance coverage.

As he points out, the medical establishment is becoming very wealthy under this system. CEOs of non-profit hospitals are pulling down six figure salaries, and the government predicts that 10 of the 20 fastest growing occupations are in health care. The industry outspends the aerospace and oil and gas sectors on lobbying.

Come to think of it - the health care complex has replaced the military industrial complex as the business with the most political muscle.

If consumers of health care actually able to shop around for service, maybe they could make a difference. But, that rarely happens. Let’s face it, when you're on a gurney you don't necessarily ask for a price estimate, but maybe we should.

Prescription drug prices in this country are 50% higher than other countries.

Market discipline needs to be introduced into the system. Currently, Medicare doesn't even negotiate prices on drugs. If two drugs have the same effects and one is five times the price, shouldn't the government choose the cheaper one?

I understand the need for Medicare patients to get help paying bills, but why can get a Medicare patient get a free ride or nearly free ride for catastrophic care, when those without any insurance face bills that are unpayable. Why is cancer a million dollar treatment event for anyone but a Medicare enrollee?

Unfortunately, Obama did nothing to solve these problems because it focused on who pays for care rather than how in the heck can we stop the increase in health care prices?

That is the problem that needs to be solved.

Food Prices Skyrocketing At Grocery Stores

Rising food prices are becoming hard to miss at the grocery store.

Payroll Tax Crushes Consumers

 

I know we're supposed to be in a low-growth economy, but prices sure aren't.

First off, rising food prices are hard to miss at the grocery store.

According to the government, ground beef is up 13.5% year over year, chicken is up more than 12%, steak up 9% and coffee is up 7.5%.

That's two of my three food groups. The third group, peanut butter, is up more than 11%.

I joke, but it’s very serious.

Consumer budgets are stretched to the limits, wages are stagnant or down for those with jobs, and for those on fixed incomes, there isn't a lot of room for T-bones when the price is skyrocketing.

We asked viewers on Twitter and Facebook if you are facing higher prices: the answer a resounding yes!

Serena says this:  "We are having a hard time making it. I stretch every meal, not a scrap of food is wasted and I plan meals two weeks out."

Ginee has solutions too: "Eating a lot more fresh veggies from our garden... green bananas, yucca, all greens such as the broccoli leaves.”

And, it's not just food.  Gas prices are up almost 50 cents in the last month alone- a strange and quick jump that is stumping economists.

The average for unleaded gas isn't the highest we've ever seen, but it's the highest we've ever had for late February. Insider says seasonal factors are at work, but that's cold comfort for consumers.

Three states, and the District of Columbia, have gas prices above $4 a gallon.

News of inflation in gas and food prices flies under the radar because the government doesn't count it in its consumer price index- the main measure of consumer level inflation.

They say prices of gas and food are too volatile to put into the index, but isn't that the point to measure price changes at every level?

Even so, the rise in consumer prices is coming at a bad time. After the first of the year, every working American got a tax hike in the form of the payroll tax, which was restored to pre-recession levels.

This was a pay cut that most of us just weren't anticipating. It is knocking two percentage points off take-home pay,

According to the Wall Street Journal, it’s taking a total of $110 billion out of consumers’ hands, which could presumably have been spent in the economy.

For a household with an income of $65,000, it's a $1,300 haircut. Ouch!

This week, Wal-Mart announced the tax was hurting their sales.

Wal-Mart now joins others, including Burger King and Kraft Foods, in lowering forecasts for sales and adjusting sales and marketing strategies.

They know the higher prices will cost sales, but the question is how much.

Wal-Mart will stock stores with cheaper goods and smaller packages of diapers, while Burger King is cutting the price of its Whopper Jr. to $1.29 from $2.

Look, prices just keep going up and Americans are adjusting their spending and their expectations.

One potential silver lining: the Agriculture Department says food inflation may ease later this year as the effects of last year's drought begins to wear off. Maybe this time the federal government will get its inflation right, but they don't actually have a good record on that score.

By the way, I had to share this from Robert: "Higher food prices equates to more beans and rice at our house, but now our budget for air fresheners has skyrocketed!!!"

Thanks Robert!

Obama's $50 Billion Infrastructure Plan... On Roads That Don't Need it!

 

Bridges, highways and roads of this country are so broken, so sorry that only radical solutions will suffice. So says our President…. like spending $50 billion of our taxpayer dollars.

A new report says maybe not. The Libertarian Research Foundation, also known as Reason, says the nation's highways and bridges are in better shape than they were 20 years ago.   The report measured infrastructure on seven different criteria.

Let's start with those bridges. According to Reason, the percentage of bridges that are deficient in this country is down from 27.8% in 1989 to 23.7% in 2008. That's far from perfect but better than in the past.

Likewise, the proportion of urban interstates that are in poor condition is down as well from 6.6% in 1989 to 5.4% in 2008.             

The percentage of rural interstate highways in poor condition is under 2% in 2008 from 6.6 % in 1989. 2% is not exactly cause for boosting our nation's debt, right?

Now here's the really interesting thing.

The report concludes that when it comes to highway infrastructure, money doesn't tell the whole story. States that spent the most money per mile didn't necessarily enjoy the biggest improvement in the seven performance measures. For example, California spent twice the national average but showed improvement in just two categories. Ten states managed to show improvement across the board despite spending less than the national average.

Which goes to show you, even when it comes to infrastructure, money isn't the answer.

The President first started talking about spending money on infrastructure as a way to bail out the economy, but that didn't go so well.

There's a lot of about infrastructure improvements that is not that predictable. Seems like the President should remember that.

U.S. CEO Blasts France: ‘Keep The So-Called Workers’

Here at Fox Business, we have, on occasion, held American workers feet to the fire. There were the FedEx workers throwing Christmas presents in the bushes instead of delivering them. Then, there were the autoworkers drinking beer on their lunch break.

But, American workers just don't stack up to French workers in the goofing-off and mailing it in department.

The CEO of American Tire found this out the hard way. Titan International CEO Maurice Taylor had attempted to turn around a French tire factory, but it didn't go so well. Here’s what he wrote France’s Minister of Transforming Productivity (yes, they have one of those) after spending time at a factory in Amiens.

"I have visited the factory a couple of times. The French workforce gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three, and work for three. I told this to the French union workers to their faces. They told me that's the French way!”               

The CEO went on to warn that France will lose all its domestic tire producers if the government continues to meddle in labor negotiations.             

"The Chinese are shipping tires into France - really all over Europe - and yet you do nothing. In five years, Michelin won't be able to produce tire in France. France will lose its industrial business because government is more government."

As for buying the factory? Taylor says no way!

"You can keep the so-called workers," he writes.

It's no surprise that France is in a big recession. When François Hollande was running for office, he predicted the economy would grow 1.7%. By the time he hit office, he had shaved the number to 1.2%, and by the time the budget was drawn up, the government was forecasting growth of .8%.

Turns out, all of that was way too optimistic.

It all reminds me of a story I read recently about a store owner who just didn't get it. He sold a popular breakfast treat that he couldn't keep in stock because it would sell out in minutes disappointing customers who arrived later in the day. So, instead of ordering more, or making it himself, he stopped selling the treat.

Just like France, he didn't get it!