This is a pretty tough post for me to write. Partly because I am taking on a hot topic and I really want to do it justice but also because while doing the research for this post, I came to understand that the Republicans in Congress are a lot of things, but interested in wise governance of this country is not one of them.

I have to say that I have asked myself how did things get so crazy?  Ultimately I realize that I have to leave the pundits and the historians to answer that question.

I stopped blogging 3 years ago because I got feedback that my blog, with its economic focus was just too much.  Yes, we seemed to be teetering over the edge, but why blog about it.  As I transition through middle age, maybe I will blog about menopause, but not today.

I’m still interested in human behavior and economics and I am also crazy enough to think that if people knew enough they would demand something better from their elected officials.

Right now we have a group of people who seem bound and determined to destroy our country, push millions of people into economic hardship and ruin the reputation of our country.  A country that I love.

We have just ended day 8 of the government shutdown. At our hospital we have emergency meeting after emergency meeting as we discuss contingency plans to reduce services to patients.  Doing the research for this blog post I realized that the Republicans are simply lying to the American people.  Power is the only thing they want…period.

I have spent the last several days looking over the United States Financial Statements since 1997.  I wanted to know what were these big budget surpluses of the 1990s and I wanted to know how dire our situation is.

Here is what I learned.  The Republicans are right, our balance sheet is awful. But they are lying when they don’t discuss restructuring Medicare and Social Security as the solution. They are lying when they say short term budget deficits are the root of all evil. They are lying when they state that the Affordable Health Care Act will worsen deficits when the General Accounting Office (the accounting arm of the legislative branch of government) states that it is the one  piece of legislation enacted that may stem the tide of rising health care costs.

The other reason this post is hard for me to write is simple. I am a fiscal conservative. I even voted Republican back in the day. So doing the research and integrating the information into my consciousness was akin to a slap across the face.

So let’s start and see where this takes us.

When we talk about US budget deficits we are really talking about two things:

1) The deficit created when expenses exceed income

2) The deficit created when liabilities exceed assets

All across America, families meet at the dinner table for fellowship and to pay bills.  They match income with expenses.  When expenses exceed income, the excess expenses go on a credit card. When income exceeds expenses, the excess income is retained as savings.  It is possible for a family with a budget surplus each month to still have a net negative position.  The way that works is when a family saves regularly, yet carries long term debt in the form of student loans, a mortgage, a car or any other way of taking on debt you can think of.  So looking at a family’s financial picture involves looking at the income statement which is income verses expenses and the balance sheet which is assets verses liabilities.  Some families carry credit card debt.  For those that do, sometimes the smart play is to move that debt from one card to another to keep borrowing costs low while you pay the debt.  For the most part we think that is a good thing to do.  It is why credit card companies offer ultra low introductory rates to allow someone to control the interest they pay on outstanding debt, but also to essentially use one card to pay off another.  Financial Gurus actually endorse this strategy as long as it is used as part of a debt-reduction plan. The credit card company is actually betting that the family will never pay off the debt, but that is another blog post.  Too many credit cards and the family cannot take care of its long term debt obligations, but if this family has a $100 K income and a million dollar mortgage, it doesn’t matter how many budget surpluses they have, they won’t be able to address the million dollar mortgage.  That mortgage will be the guerrilla  at the dinner table!  If you use one credit card to pay another, that is called rolling the debt over. When you refinance your home to pay off credit card debt, that is called rolling the debt over and when you refinance your home to pay off a first and second mortgage that is called rolling the debt over.  Notice that each of these maneuvers is aimed at address debt that has already been incurred.

This is the United States Financial Statement in a nutshell:  It is just a version of a family’s (albeit a very dysfunctional one) finances on steroids.  The only difference is that it completely controls its own debt and prints its own money.  Nice work if you can get it.

So let’s look at the budget since 1997:

You like?  I did this myself.  This is in trillions of dollars by the way.

To me a budget deficit occurs when expenses exceed income a surplus occurs when income exceeds expenses.  Not so with the government because Uncle Sam holds money in different accounts for different purposes that it may or may not have to spend at any given time, but will have to spend at some point in the future.  The way to think about this is the average family has $1000 dollars in income. They spend $1050 dollars. They should have a budget deficit of 50 dollars, but Mom owes Sally the neighbor $100 dollars and she just happens to have that money on hand. She hasn’t yet given it to Sally.  Because Mom still has the $100 bucks, the family’s budget deficit of 50 dollars becomes a budget surplus of 50 dollars even though that $100 bucks does not belong to the family.

Well Uncle Sam had a number of accounts that they could use to offset the deficit.  Some of the money was funds set aside for Veterans among others. You will notice that those funds were used to overstate budget surpluses and blunt budget deficits.  The bars in red are represented by the straight-up calculation: income minus expenses. The bars in blue are what happens when Uncle Sam uses the money it is holding for other purposes to offset the deficit.

OK so like, yeah, the massaged 2012 budget deficit was 1.089 Trillion dollars, less than 2011. But let’s look at the overall trend. Ick!

Then let’s look at Uncle Sam’s net position:

This is cumulative budget deficits along with known recurring financial obligations.  Now here is the thing:  The GAO actually wrote in its 1999 financial statement that Y2K was the greatest threat to America.  Of course if only they had known about 9/11, Iraq and Afghanistan, the d0tcom bubble and the financial collapse.  I will leave you to add to the map who was President when and the serious events going on in America at each year.  Truth is that government really is bigger. The Department of Homeland Security did not even exist before 2001 and it has added $600 billion dollars directly to the Federal Deficit.  Medicare part D added 5 Trillion dollars to the long term federal debt and it is essentially off book, because there is no line item cost for Medicare part D.

The US Financial Statement describes, Social Security, Medicare Parts A, B and D as “Total present value of future expenditures in excess of future revenue”. This category used to be called “unfunded obligations” .  In 2011 that number was 33,830 Trillion dollars.  In short that is money that we owe, that we don’t, and most likely won’t, have.  These entitlement programs are our guerrilla mortgage! The payroll taxes collected for Medicare haven’t been sufficient to support the expenses of the program for some time. Payroll taxes collected are set to be insufficient to support current Social Security payments some time during the next decade.

Let’s look at debt held:

And interest payments on that debt:

Paul Krugman, Economics Princeton and Nobel Laureate and uber liberal, happens to be right here, with borrowing costs at historic lows, the government is paying no more for its debt than it did in 1997 despite the 2-3 fold increase in debt burden.  Uncle Sam has benefitted greatly from the Federal Reserve’s monetary policy since the financial collapse.

What does all this have to do with the debt ceiling?  One of my friends asked that if we were trying to get out of debt, why raise the debt ceiling?  Any person who has ever gotten out of debt knows that they have to go through a period of economic austerity to make debt reduction possible. In most cases they have to restructure debt, negotiate with creditors for lower interest rates, refinance debt or move debt from one financial instrument to another.  All of these maneuvers are designed to help address the debt they have already incurred. The irony is that in order to address that debt, you have to have the capacity to borrow more because each new financial maneuver is considered a new loan.  So your friend loans you 100 dollars. You agree to pay 10 cents per month.  A fee you can easily pay. The term of your loan is one year. At the end of that year you can either return the 100 dollars to your friend or not.  If you don’t have the cash to pay your friend, you may borrow 100 dollars from someone else to pay your friend and pay that new person 10 cents a month.  Your overall debt burden hasn’t changed but you have rolled the debt to a new loan.  What if you couldn’t borrow 100 dollars from someone else and did not have the 100 dollars to pay your friend?  You would default and the next time you wanted to borrow you might have to pay one dollar per month interest.

The debt ceiling simply allows Congress to pay the debts it has already incurred.  Starting on the 2001 financial statement you can see something interesting.  There is a line item that says  ___Trillion bonds paid, ___ Trillion bonds purchased. That is the government rolling its debt.  Basically IOUs from the government come due each year.  The government pays those creditors by simply rolling that debt to a lower interest credit card:   Selling new bonds and using those funds to pay off bonds that have matured. Without this flexibility the government would have to use its income, the same income it uses to make Social Security payments, pay Veteran’s benefits, etc, to service its debt.  Since 1997 the government has taken in anywhere between 1.7 and 2.8 Trillion in revenue.  Without an increase in the debt ceiling, government would shut down while all available resources would be used to service debt.  US Income is really not sufficient to pay back all bonds that mature at any given time so default would happen.

Why do I say the Republicans have lied to the American people?

They have to acknowledge what the long term driver of our deficit is:  The entitlement programs particularly Medicare.  David Wessel in Red Ink wrote at length about the long term impact of health care on our government’s bottom line. Long before the Affordable Health Care Act, the Federal Government was the largest health care provider when considering all its programs: Medicaid, Medicare, The Veteran’s Administration, The Indian Health Service, The NIH, The CDC.

They have willingly told the American People that the Affordable Health Care Act will burden an already strained Federal Budget and as such it is bad law.  This is not the truth. The GAO is essentially the accounting arm for Congress. If anything they would be biased toward the legislative branch.  What follows is taken from the 2011/12 combined financial report:

“The financial projections for the Medicare program reflect substantial, but very uncertain, cost savings deriving from provisions of the Affordable Care Act. However, it is important to note that the improved results for HI and SMI Part B since 2010 depend in part on the long-range feasibility of the various cost-saving measures in the Affordable Care Act–in particular, the lower increases in Medicare payment rates to most categories of health care providers. Without fundamental change in the current delivery system, these adjustments would probably not be viable indefinitely. It is possible that health care providers could improve their productivity, reduce wasteful expenditures, and take other steps to keep their cost growth within the bounds imposed by the Medicare price limitations. For such efforts to be successful in the long range, providers would have to generate and sustain unprecedented levels of productivity gains–a very challenging and uncertain prospect. A transformation of health care in the United States, affecting both the means of delivery and the method of paying for care, is also a possibility. The Affordable Care Act takes important steps in this direction by initiating programs of research into innovative payment and service delivery models, such as accountable care organizations, patient-centered “medical homes,” improvement in care coordination for individuals with multiple chronic health conditions, improvement in coordination of post-acute care, payment bundling, “pay for performance,” and assistance for individuals in making informed health choices. If researchers and policy makers can demonstrate that the new approaches developed through these initiatives will improve the quality of health care and/or reduce costs, then the Secretary of Health and Human Services can adopt them for Medicare without further legislation. Such changes have the potential to reduce health care costs and cost growth rates and could, as a result, help lower Medicare cost growth rates to levels compatible with the lower price updates payable under current law.

It concludes:

The United States took a potentially significant step towards fiscal sustainability in 2010 by reforming its system of health insurance through enactment of the ACA. The legislated changes for Medicare, Medicaid, and other health coverage hold the prospect of lowering the long-term growth trend for health care costs and significantly reducing the long-term fiscal gap. Furthermore, enactment of the Budget Control Act in August 2011 placed limits on future discretionary spending and established a process to further reduce projected deficits by at least $1.2 trillion from 2013 through 2021. But even with the new laws, the projections in this Report indicate that if policy remains unchanged the debt-to-GDP ratio will continually increase over the next 75 years and beyond, which implies current policies are not sustainable and must ultimately change. Subject to the important caveat that policy changes are not so abrupt that they slow the economic recovery, the sooner policies are put in place to avert these trends, the smaller are the revenue increases and/or spending decreases necessary to return the Government to a sustainable fiscal path.”

The GAO cites two pieces of legislation, the Affordable Health Care Act being one of them, that may help improve the long-term financial outlook for America.  The ACA is simply not the DUD the GOP claims it is.

Sure, creating budget surpluses is the way to pay down our short term debt and there needs to be intelligent discussion about that, but threats posturing and wrecking the good name of the United States Government should not be part of that discussion.  Further given our 24/7 news cycle it is simply irresponsible to entertain default.  A family cannot reasonably expect to sit outside a financial institution and discuss not paying a debt it already owes.  What do you think would happen if they decided to march right in and take out a loan?  If they could borrow at all would they get the most favorable interest rate?

In efficient markets simply talking about default should cause interest rates to spike and cause a market selloff….oh wait.

I have always wanted to write a blog post with that title and now I can.
I find it so odd that the party that professes to promote family values has done all it can to wreck them. There is this quirky thing in a government shutdown: employees are considered exempt or non exempt from outright furlough. Those who are non-exempt are furloughed. Those who are exempt because they oversee critical operations or provide medical care are expected to remain on the job and forfeit all planned, and previously approved, time away from work during the shutdown under threat of furlough (being shifted to non pay status and being barred from returning to work). Without clear guidance, what this is translating into is delayed or cancelled time with family. Cancelled weddings. The couple who couldn’t get married at the Grand Canyon made the news at CNN, but real federal employees are canceling their weddings altogether because of fear that they will be furloughed (prevented from returning to work) if they take the time to get married now. A woman out on maternity leave, who would have been on family medical leave is now furloughed. People who went on emergency medical leave near the end of September are now in furlough status and there is a great deal of uncertainty as to whether or not those individuals we be allowed to return to work once the medical emergency has passed. A visit from a relative is now in jeopardy because leaving your duty station to spend time with that relative may put you in furlough status. Many people would readily go a day or a week without pay if it meant they could get married on time or spend time with loved ones, but most would balk if taking that day or week would result in a month without pay or if taking that day or week meant undue hardship, because of increased workload, on colleagues left behind.

The party of family values has placed millions of people in the unenviable position of kicking family to the curb…throwing momma from the train.

“Isn’t it ironic? Don’t you think? A little too ironic, yeah I really do think.”–Alanis Morissette

Every federal Employee has his or her performance addressed at least twice a year. The performance is graded along 5 tiers similar to the Ordinary Wizarding Level in the Harry Potter Novels:
Outstanding
Exceeds Expectations
Acceptable
Poor
Dreadful
Troll
Okay so we don’t have Dreadful and Troll but maybe we should. A federal employee can face disciplinary action for gross nonfeasance. Our Congress couldn’t pass a basic spending bill, a minimum requirement for job performance. Instead they have thrown millions of families into economic uncertainty and shown the world that the US Government cannot handle its business. Our Congress will continue to receive full pay come October 11 (that would have been our next pay day) and every two weeks thereafter while the government is shut down. Some in Congress have voiced appropriate embarrassment over this and have pledged to give their pay to charity but most are keeping mum.
What is your congressman or senator going to do? Call them, write them, tweet them and urge them to give their money to disabled veterans or another worthy cause. Urge them to share in the economic pain they have caused by being unable or unwilling to do their jobs.

One of my colleagues and I delivered a baby this morning.  When we got to the hospital at 4 AM this morning, lights were on, nurses were on duty, patients were there needing to be seen.  The government is shut down, but no one told the baby we delivered and no one told the patients in our Emergency Department.

I was wrong, the total number of employees who will be furloughed at 0800 this morning is 800,000.  These are people who, through no fault of their own except maybe being a federal employee, will go without pay and sit at home because of the whims of Congress.  Congress of course will continue to get paid due to the 27th amendment.   Economically, at least, they will never feel the pain of their actions this week.

The total number of Federal Employees? 3,400,000.  2.6 million of whom will report to work and not get paid until this mess is resolved.  Pay may not happen even then as Congress has to agree to allow back pay to occur. Did you know that Uncle Sam is this country’s largest employer? I didn’t. I thought it was Walmart. So what happens when the nation’s largest employer shuts down and the unemployment rate is 7.3%? Guess we will find out.

While the shutdown started this morning, the Affordable Health Care Act will move forward in implementation any way.

The crazy thing?  The Affordable Health Care Act and the Federal Budget actually had nothing to do with one another.  Here is what I mean.  Congress and the President have to pass a budget by the beginning of each fiscal year.  The fiscal year starts October 1st.  Barring an actual budget (and we haven’t had one of those at the start of the new fiscal year in I don’t know how long), Congress passes a temporary spending plan to continue the prior year’s spending.  Was there mention of the Affordable Health Care Act in last year’s spending?  Uh…no…

The Affordable Health Care Act isn’t tied to congressional appropriations they way the national parks (Liberty Island is closing by the way…how’s that for symbolism?) and the DOD are, but is funded through targeted tax increases (like Medicare and Social Security) which are slowly being phased in.  One of those tax increases is scheduled to go into effect January 2014 and will affect me.  I’m not thrilled about it as I outline in my Regarding Henry Post, but the health exchanges are a good idea.  I will probably be using one some day.

What has happened is similar to this:  Two business men meet to discuss dam safety.  One is wearing an avocado green polyester suite and he just also happens to have a solution to our growing dam safety problem.  The other is wearing traditional gray, wool with a red power tie.  He knows the dams are stressed and cracked but won’t admit it publicly.  Mr. Gray refuses to meet with Mr. Green until Mr. Green takes off his suit.  Mr. Green wonders why discussion of his clothing is even relevant as he has a plan that will address the dam safety problem, so he refuses.  Mr. Gray continues to refuse to meet with Mr. Green. He doesn’t have a plan, but figures the dams are ok enough for now;  if there is a real problem, though, folks down stream from a suspect dam can just call emergency services.  Mr. Green wondered what kind of man he would be if he changed his clothes in order to have a discussion about dam safety.  Mr. Gray says that he is representing the interests behind him who hate the color green.

While the two men bicker, a dam breaks.  Mr. Green wears his green suit to the flood site to survey the damage.  Mr. Gray changes his tie from red to blue and goes to the site as well.  He realizes that collateral damage was greater than he anticipated.  The interests he represented are all upstream from the dam and are unharmed, but he did not realize that some of his interests above the dam depended on those below the dam.

He realizes that there are no emergency services big enough to clean up the mess.

Last week we held an emergency meeting to discuss the possibility of a government shutdown. I half-jokingly invited my colleagues to send comments that I would post on my Blog. During that meeting I genuinely had no plans to publish anything at all. That is until I saw some of the political debates over the weekend. I was so sickened that I had to turn the TV off. As I write this, we are 4 hours and three minutes from a shutdown. In my almost 20-year career of service this will be the second shutdown my co-workers and I have weathered.

The Republicans in Congress have done a very good job of isolating the Federal Worker. We are portrayed as people with overly generous benefits packages who do little work. I went straight from residency training to this job so I cannot speak to my benefits package as it is compared to the private sector. What I can say is that I would have made more money and amassed substantially more assets over my 20-year career had I taken my Ivy-League education and deployed it in the private sector. Whatever my health insurance and benefits package, it is the same one our members of the house have voted for themselves.

There are 800,000 federal workers. We are doctors, lawyers, law enforcement officials, we are the military, we handle disasters both domestic and abroad, we are engineers, we build bridges and dams, we are chemists, physicists, we are teachers and technicians, we are information specialists, we are security guards and housekeepers. We have mortgages. We pay our bills.

Our federal housekeepers swab the toilets and clean up the messes of the men and women of Congress who have forgotten how to govern. I spoke to a friend today, a Republican, who told me he was so disgusted by the Republican party that he was going to hand in his card.

Federal workers spend money. We make plans. The plans we make will go unrealized and the money will remain in our pockets. Can our service-based fragile economy endure 800,000 people spending only what they must while we wait for the uncertainty regarding our pay to be resolved?

Like it or not Barack Obama won a second term as President of the United states and he did so by winning the popular vote. The Affordable Health Care Act was passed into law during Mr. Obama’s first term. The Republicans who oppose it are not among the 45 million Americans who lack access to care and they never will be. Increasingly membership in the legislative branch of our government has become less about governing and more about influence peddling and power brokering. Peter Schweizer in his book, “Throw Them All Out” reveals the sad truth that the majority of Senators and Congressmen leave government far richer than when they came, truly governing and finding a way forward for America simply isn’t a priority any more. The craziness we are seeing today isn’t about the insurance mandate or the need to protect the insurance companies (Rand Paul actually said that we need to be careful that we don’t decimate the insurance companies on Face the Nation yesterday). It is about not liking the man in the White House and wanting to turn the clock back to November 5, 2012. It is about closing the sandbox because you don’t want certain kids to play there. In any other Banana Republic we would call this a coup, a situation in which one faction subverts the government because they don’t like the outcome of an election. But because the Republicans haven’t gotten in tanks, taken up arms and rolled down Pennsylvania Avenue, we don’t call it that. Instead we call it government dysfunction.

Well, I blogged about a month ago that I finally got my iPad. I am so loving this thing that it is a bit sick, really. I realized the gimmick of the thing. The accessories. I never really understood Malibu Barbie, but I understand Malibu iPad. First of all, I haven’t turned my MacBook on for anything other than the need to retrieve a file in over a month. Poor thing, kicked to the curb.

Since I bought the iPad, I have spent over $100 dollars on accessories. My compass iPad stand arrived the other night just before a small dinner party I was hosting got started. I can’t really use the word that one my friends used when it arrived. But I can say my friends think Ive gone a bit overboard. I am typing this post using a bluetooth QWERTY keyboard. Now in my defense, I happen to have two of these things lying around the house. One for the iMac and the other for the MacMini. Okay that doesn’t even sound right but I will persevere and turn this into a what works and what doesn’t for the iPad. First the case. I got a beautiful red Case Crown leather case for my iPad. As far as cases go I should have stopped there. When I was traveling in November, I thought I could use a hard shell, so I bought the speck, black hard candy case. The thing is a royal pain to use and does not protect the front the way I would like. So it is back to the Case Crown as my primary case, but because I paid for the speck, I feel the need to carry it around…and use it when I feel my iPad needs an outfit change. In April a reviewer wrote that the dock was a waste of money. It is. I found that out only after buying it! It is a good idea in that it allows the iPad to charge while vertical so you can still type on it while it is charging. But here is the rub: most iPad users, and I am no exception, like to keep their investment in its case. You cannot park the iPad on a dock and leave it in its case. You have to take it out of its case to use the dock…what a waste! While I was traveling,I decided to use my laptop case to lug the iPad, keyboard and leather case around. Way too much luggage to carry such a small item around. I now have a case crown iPad bag. I carries the keyboard, compass, both cases and charger. Apple asks that we iPad uses don’t use cleaning cloths containing solvent on our screens so I got a lens cloth. Okay soooooo total accessories:
CC red leather case
Speck black hard candy case
iPad bag
Compass iPad stand
iPad dock
lens cloth
Bluetooth keyboard which I don’t count because I already had some.

The hard candy case, sexy though it is,is a waste of money as is the dock. If Apple redesigned it so that it could be used while the iPad is still in a protective case, the dock would be more useful. Total moolah wasted???? $60 dollars.

Now what about apps? The NY Times just ran an article: 10 Magical iPad apps. Through that article I found Flipboard. This great app turns my Facebook and Twitter updates into a magazine. I can literally flip through updates in a manner of minutes. Awesome app. I have Kindle. OMG! iBook is a great way to handle PDF files, but for books, the Kindle app rocks and it’s free. I have the ABC news and NY Times apps (they are just okay). I also have pages and numbers on my iPad. Those items are the word-processing and spreadsheet applications. The cost is 9.95 each and they are worth every penny. I have a mobile me account so I can save documents as Microsoft word files and upload them to my idisk (in the techno cloud) download the same file onto another computer and keep working even while traveling and even if I choose to leave my hardware behind. For printing, I use Printopia, another app costing 9.95 and worth every penny. Apple chose NOT to turn AirPrint on with the update to 4.2. It was a functionality they pulled at the last minute. There were 3 options to deal with this: 1) download just a few lines of code off the Internet that turned the functionality on and then download another program that allows you to print or 2) buy a new printer (you’ve seen them advertised on TV) or 3) buy a program that will allow you to print to a network printer. I bought Printopia. It got better reviews than Printcentral.
Cost? 9.95 for either program. Notice a pricing theme here? Downside to Printopia? Your computer won’t go to sleep. Printopia and Printcentral download to a computer on your home network and they are always on in the background and they constantly wake your computer up and tell it to check for network activity. There is a work around that is pretty easy. Through the system preferences pane, click energy saver, then uncheck the “wake for network access” box. Your network computer will remain asleep when you put it down for the night.

Finally I downloaded Handbrake, a free app that allows you to store your DVDs in a format that iTunes can read. That means that you can load your videos into your iPhone, iPad through iTunes. I was able to travel with the LOTR trilogy, Blade 2, HP 3 and Finding Nemo.

Well that’s it. Share your iPad stories.

While I was posting Deficit Unplugged, our President was compromising with Republican Leadership to create Deficit Ignored.  Should we have a payroll tax holiday?…yes we should.  Those tax cuts?  They should have gone the way of the DoDo.

Here is, honestly, why I am concerned about the deficit.  As a Nation we have promises to keep.  We have the promise to our citizenry that if you work hard and use your mind, you can have a better life than your parents, in other words, we have a promise of upward mobility, yet our middle class is shrinking.  For the last 75 years we have promised everyone who works that they, and in some cases their dependents, will have a safety net in old age and for the last 35 years we have promised elders some semblance of health care.

There is a risk now that all the promises will be as ashes.  In truth the giveaways that I talked about in Adult Conversation are part of the problem.  In order to make Social Security more appealing benefits increased and the retirement age was lowered even as the population began to see increases in  longevity.  In order to avoid fiscal responsibility, Social Security receipts were spent as part of the general budget.  When borrowing from ourselves wasn’t enough, we borrowed from other nations.

Engineering short term budget deficits will never allow us to attack the long term budgetary issues that affect our fiscal health.  We had a chance to let the tax cuts expire but now that ultimate decision has been kicked two years down the road.  Our tax code is a mess, to be sure: it is over 67,000 pages of nonsense and exceptions to nonsense. TAX prep is a 65 Billion dollar industry and roughly 61% of filers use a tax prep service.  Refund Anticipation Loans are a huge business in low income areas.  I have lost count of the number of articles I’ve read by economists over the past few weeks who advocate reforming the tax code, collapsing to two brackets, the top of which would be lower than the top bracket under the beloved Bush cuts, and adding a value added tax.  Taxing both production and consumption rather than production as we solely do now.  Some of the logic for not doing these things boggles the mind:  A value added tax would cause the poor to save rather than spend so we shouldn’t do it…huh???  We should preferentially tax the rich because the rich would save rather than spend….huh???  We should extend unemployment benefits because the unemployed will spend them….huh???

Since the 1970s the roots of our economy changed from a manufacturing base to a consumer base, an economy driven by spending.  What did George W. Bush urge us to do after 911? He urged us to remember our patriotic duty and shop.  But there is a problem with jobs based on retail and consumer spending and that problem was summed up by Lee Scott, CEO of Wal Mart:  “Some well-meaning critics believe that Wal-Mart stores today, because of our size, should, in fact, play the role that it is believed  General Motors played after  World War II.  And this is to establish this post-world war middle class that the country is so proud of.  The facts are that retail does not perform that role in this economy.”

Our economy has become dependent on people spending and when they run out of their own money to spend, borrowing to spend more.  No wonder we are in the mess we are in.  We have become a nation of “business as usual” trying to hang on to what it has rather than pave the way forward  with programs and incentives that will restore our middle class.  I actually believed that there would be a push for updated infrastructure and a new power grid.  It kills me that a chunk of my money every month is recycled back to the very extremist groups responsible for 911.

What do I think the President should have done?  How about lock everyone in a room with the camera’s rolling rather than hammer out an agreement after hours behind closed doors?  Make people responsible for their positions in public, not when surrounded by the safety of the herd as most politicians are when they make statements about the economy.  He should be in my face all day every day articulating his views.  That 70 minute internet only version of Mr. Obama’s 60 Minute interview was a revelation.  He has sound positions but is not doing a great job of communicating them.

I am not someone that my mother would call liberal; my mother occasionally calls me Neal (for Neal Bortz and she has even called me a selfish capitalist on my own blog)…I don’t believe in using the tax code to redistribute wealth, and I believe that everyone must pay.  I believe in term limits to certain safety nets like unemployment insurance coupled with sound public policy like a jobs bank and retraining.  By jobs bank, I don’t mean a jobs bank that the automakers had in which laid off workers were paid substantial incomes while at home waiting to be called back to automotive jobs.  No, what I mean is a database of jobs and industry trends so that people don’t have to guess what industries are fading and which ones are emerging, they don’t have to guess what the qualifications for any given job are, opening and closing dates for applications are posted and adhered to, resources for retraining are promulgated and there is funding for retraining. I believe in a national infrastructure bank with national priorities that are updated and funded and I don’t believe that public works projects should be awarded to  certain companies without the benefit of competitive bidding.

What we have now is a mess.  And political will only to posture rather than fix our problems.

I am afraid that the scenario that I outlined in Adult Conversation will take place.  I believe that Americans will ultimately have to forgive the intra-governmental debt Social Security now holds and Americans will have to accept less.  You avoid the iceberg when the tip is just a speck on the horizon, not when the berg is looming  off the bow.

By kicking the can down the road as our leaders just did this week we are surely headed for tougher choices down the road.

Please comment.

I started this blog because of my interest in personal finance and financial freedom.  Gosh, that phrase financial freedom is sooooo trite.  I started blogging just before it became clear there was going to be a financial meltdown.  I’ve been wondering exactly what my role in the overall economy is.  I make money, I save money, I invest money and I spend it.  But lately, it seems as though we are in a free-for all economy.  Everyone is worried and out to get theirs.

It seems to be okay that some thrive while others suffer.  Some intimate that the thriving of one group causes the suffering of another.  (Certainly the financial meltdown has shown that a few thrivers have caused many to suffer) but are we really going to fall into a society so polarized that we argue that the thrivers must pay their fair share to ameliorate the suffering of others?

We live in a civil society…everyone must pay.  To extend the tax cuts for everyone will cost roughly 4 trillion dollars.  Extending them for the wealthiest 2% of Americans will make up $700 billion of that total.  That means that the lion’s share of the tax cuts belong to the middle class.  The grand total being roughly 3.7 trillion dollars.  It seems silly therefore that we talk about budget deficits without considering the totality of tax cuts.  We cannot target one group against the other and appear to be an intelligent nation.

I’ve been looking at the US budget since 2004.  The US income statement is so easy to find.  I discussed the budget in 3 previous posts : IOU America, IOU America Part 2 and Robin Hood.

In my previous posts I used a hypothetical college student as a micro example of the US Budget.  Now I am going to use something more personal, me.

It is not a state secret I had major debt troubles; 30 years ago I got my first credit card, my debt increased gradually through the years until I had 16K a month revolving credit card debt.  I had a house, a car, expenses and deferred student loan debt.  My expense situation could be divided into immediate needs + short term debt.  Lurking down the pike was the Ghost of Christmas future:  long term debt + immediate needs + short term debt.

My short-term debt payments + immediate expenses were about 90% of income. I made up any short falls by borrowing, i.e., using credit cards.  I knew that I had long term debt obligations that I would have to begin paying, but I was so busy being a rat on a wheel, I didn’t know how I was going to make that happen.  Something snapped…I saw the light.

I adopted an austerity program.  But I adopted a program that made sense.  First I eliminated every expenditure that I didn’t absolutely need, that meant canceling credit cards, pre-paid calling cards, meals out.  I only spent a dollar if it put food in my belly, kept clothes on my back, or put a roof over my head.  I prioritized purchases, everything that didn’t fit the above categories went on a list.  I needed some major help in the financial literacy department so I allowed myself to buy books on that topic…4 per month.  One thing that I did do was develop a spending plan.  I had to get to and from work and take call so I maintained my car.  I also continued routine maintenance on my home to make sure the roof was okay and the cooling and heating systems worked.  The spending plan helped me save and take care of the priorities around my home while I paid off my debts.  It is important to mention that my total debt was 123% of my annual take home pay. Ouch!

It is important to understand that even while I was digging myself out of my hole, I had to continue to spend. I had to spend on housing, I had to spend on food, I had to spend on clothing, I had to spend on maintenance.   When our lawmakers talk about all spending as a bad thing they are  really blowing smoke. What they really should be saying is that we know we are going to continue to spend during this recession, but we only want to spend on the things we want to spend on.  And there is the ideological rub.

There are the billions spent on unemployment insurance on the one hand or the trillions spent  to make tax cuts permanent.  The expenditure for unemployment insurance will stop at some point as the economy improves and the unemployment rate falls.  The 4 trillion dollars in lost revenue through a permanent tax cut extension is, well, permanent.  This debate is not about the budget it is about ideology.  We have two 800 pound gorillas in the wings, the dual apes of Social Security and Medicare.  The economy has forced us to talk about them at least a decade sooner than we’d like. We can’t kick the can down the road and everyone must be prepared to give something up.

I am tired of hearing that earmarks amount to a rounding error in the budget.  At one end of an earmark is a Congressman or Senator who lobbied for their district, at the other end is a consituency who benefited.  Everyone must pay, earmarks must stop.

It was wrong for Krugman to rail against the freeze in Federal pay.  Federal employees have the most generous benefits packages around and have been receiving COLAs when others have been receiving pay cuts.  Federal employee pay may be a rounding error in the budget but everyone must pay.  By the way, VA and Federal employee retirement benefits were a 4 trillion unmet obligation in the Federal budget.  A two-year COLA freeze will save money because it will affect retirement pay.  The freeze should be extended to the military not on active duty.

I realized long before Mr. Obama was elected that my taxes were going to go up.  Honestly, I’m really surprised they haven’t yet.  My taxes should go up, but living in a civil society isn’t free. They should go up for everybody.  We shouldn’t be discussing saving 700 billion, we should be discussing saving 4 trillion.  Everyone should pay.  To take the sting out of the tax increase, there should be a payroll tax holiday and reform of the tax code as Bowles and Simpson have proposed.  Everyone will benefit from that.

We are in a recession, but there are still necessary expenditures.   Just as I had to maintain my car and home when I was in my personal recession, we have to maintain our infrastructure and doing that requires spending money, a jobs bank requires spending money.  Just as my mechanic and my plumber benefited from my maintenance plan, our citizenry will benefit from a jobs bank and infrastructure projects.

Please comment.

I finally got one! An iPad. As I write this, I am sitting in a Starbucks in San Francisco. This town should be called iTown. The woman sitting next to me on my right is typing into her Macbook Pro while listening to music on her iPad. The woman on my immediate left is using a Windows-based PC. On her lap is an iPhone.

What inspired this blog post? A Washington Post article of a few weeks ago called The Republicans Prepare Their Agenda of Less. In the article, a member of the Tea Party spoke of the need to address the looming issues of Social Security and Medicare and have an “adult conversation” with the American People.

Several months ago, I wrote a series of articles about why Medicare sucks. I am still getting comments about those articles. I wrote about the budget in those articles and that Medicare, in all its many parts, and Social Security represent represent tens of trillions of unmet obligations in the Federal budget. I also said that any attempts to address long term deficits would have to take into account those two programs and restructure them significantly if they are to remain solvent and if the American people are to continue to be able to afford them.

There are three things to remember about what I wrote:
1) Social Security and Medicare are paid for through payroll taxes. Every working individual, from the very old to the very young both rich and poor, pays into these programs. This is something that appeals to my sense of social justice, that is that everyone should pay for programs that everyone benefits from.
2) for the past 30 years the government has used receipts in excess of pay outs to fund general government operations. The excess receipts have been traded for government bonds. the interest payments alone are crippling. When people, ie, officials, talk about a trust fund, they are talking about money held in trust, except there isn’t money held in trust. There is money held in bonds, bonds that we don’t have the ability to repay, not at current income levels.
3) all discussions about Social Security are discussions about current income or current receipts, as example by the year 2037 to 2041 we will only take in enough income to pay out 75% of obligations. On the bright side this means that the government will stop misappropriating the people’s retirement funds to fund general government operations on the down side we will all wake up to the reality that that is what has been going on and there will likely be a significant public outcry.

The history of Social Security is outline well at http://www.ssa.gov/history It is worth a read fascinating, really. These documents hold the key to why we are in such trouble. Truthfully, everyone is to blame for the Social Security and Medicare mess. When the money was flowing and it wasn’t being borrowed against, it was too big a pile of cash not to spend. By 1950 cost of living adjustments and disability payments and survivor benefits were added. Health care was originally envisioned to be part of Social Security. It was not part of the original law, but along came Medicare in 1965. Politicians voted for the expansion of Social Security and Medicare at the urging of their constituents and no one thought about the long term consequences. Well, those consequences are here.

It is important to understand what Social Security was meant to do. It was originally called Social Insurance and it was intended to provide economic security against abject poverty. It was intended to keep people out of Alms or Poor Houses. The Great Depression was the third great economic dislocation this country experienced in about a century. It brought with it 25% unemployment and extreme poverty for many, savings were decimated and pensions were rare. Alms houses were funded by state governments to care for people in poverty, but state implementation of these programs was spotty, there was a significant stigma associated with accepting assistance from Alms houses, there was means testing and people were reluctant to receive help from what amounted to state-run welfare programs. When Social Security was enacted, it was not a popular program. The benefits, set at roughly 30 dollars, the amount intended to keep someone from becoming destitute, did not change for the first decade or so of the program. People felt that they could and would get more benefits from the state-run welfare programs. Social Security provided direct payments to states to bolster those programs. In the beginning, Social Security was simply another tax people paid that they perceived little benefit from. In order to increase the popularity of the program, payments began to increase and the retirement age was lowered from 65 in 1935 to 62 in 1950. Thirty dollars in 1935 has the same purchasing power of 470 dollars today, yet a recipient retiring at age 62 who has enough credits to qualify for full benefits will receive 1750 dollars, an amount more than 3 times greater than what Social Security was ever intended to pay our per individual. The machinations that took place in the 1950’s were successful; for a program that was intended to keep its eldest citizens from becoming destitute has become one of our largest entitlements. It is a program that has not kept pace with the realities of demography. In 1935 the life expectancy was 59 years today it is roughly 78. In 1935 people were only expected to spend a handful of years collecting Social Security. Today a recipient, retiring at age 62, may collect Social Security for 20 years or more.  The truth about the payroll tax is that it  has become a stealth income tax because income in excess of payments has been rolled into the general budget. Given that almost half of our citizenry pays no income taxes, yet everyone pays payroll tax, this is a form of tax justice I can live with.

What is the adult conversation our government needs to have with us? First we have to understand that it won’t be a conversation. This is what our government will have to say:
1) The party’s over
2) There is no trust fund and the trillions of dollars in IOUs the government has promised to pay Social Security will have to be forgiven.  What is a trust fund?  You can find the definition here.  I am sure you will agree when you read this that what is going on with Social Security does not meet the definition of “trust fund.” When I first wrote this, I went back to the Social Security site and went to the program solvency link FAQ’s.  When I read the FAQ section I was genuinely shocked.  See the solvency issue is really about what to do with stretching the current income being paid into Social Security.  No one wants to have the program redeem its bonds in large quantity to meet obligations because no one knows what would happen if Federal Bonds were redeemed.  Our government is already printing money at historic numbers to prop up the economy, how would it fare if investors showed up to say redeem 1 trillion dollars in bonds to fund Social Security obligations?  Where would the money come from to pay those bonds?  Right now the money that comes in is sufficient to allow the US government to roll over its debt as it relates to Social Security.
3) The retirement age will have to be between 70 and 72
4) Benefits will have to be reduced

I wonder if Americans are ready?

Please comment.

Okay so like I’m middle aged.  I think middle aged people tend to conduct their affairs in pretty much the same way.  Middle aged people tend to reflect on their lives and decide ultimately that people, more than things, are important.  I know that is true for me and I think is the reason why the fastest growing demographic on Facebook are people in middle age.  We are trying to recover those connections that we lost on the road to getting somewhere.  Middle aged people have acquired all the things they want or have adjusted their wants not to want so much and start to clear the clutter from their lives.  A few years ago my home flooded.  I was racing about the house trying to save things that were doing their best to die a water-logged death.  I realized then that I had way too many things.  A friend remarked as she viewed my personal possessions strewn about the back yard to dry, that my yard looked like the Sanford and Son junk yard. I began to de-clutter then out of necessity, but clutter is the natural state of our lives and de-cluttering requires conscious living and constant vigilence. Middle aged people also tend to become more frugal.  Retirement is just around the corner and we have to think about that.  A friend of mine recently told me about a trip out with his wife.  She wanted to go out for a burger.  He checked the fridge to see if they had the ingredients to make a burger at home.  They did not. Realizing that they would have to eat out, my friend grabbed a slice of American Cheese and put it in his breast pocket. He wanted to save the cost of the cheese for the cheeseburger.  My same friend enjoys a glass of wine with dinner.  The problem is that drinks with a meal can increase the tab by 30% to 50% and the mark up on beverages is routinely 300%.  So his solution is to bring his own wine and have a glass in the parking lot before going into the restaurant. While I don’t port my own cheese and wine, there are things that I do to save money.  All of my friends enjoy life,  time with their families,and  sharing the occasional meal out and traveling, what we all have in common is the desire to plug the crazy money leaks that can keep us from doing those very things.  I use online banking to save both time and money.  If you use online banking the customer service division at your bank is at your disposal should a payment go missing. Years ago I would have to wait for a check to clear then obtain a copy of that check to prove that I made a payment  No so with online banking, they have an electronic trail and they will make contact with your “payees” should your payment go missing.  I recently had an experience in which my bank caught one of my service providers holding a payment until it generated a late fee before crediting my account.  I ditched that service provider and got a cheaper plan with a competitor. I canceled my cable/dish subscription.  Most households spend over a thousand bucks a year on those subscription services.  You would have to become a zombie in front of the TV in order to get enough “value” to justify that cost.  I watch TV on the Internet instead.  Fewer commercials, less time to watch each show and I only watch what I want to watch when I want to watch it.  I reuse ziploc bags and aluminum foil.  As a result I only buy those items once a year.  I buy Amway SA8 laundry detergent.  It is super concentrated, eco-friendly, hypoallergenic, dissolves completely in the wash, gets my clothes clean and I only have to buy it once a year. Even though rates of return for savings are ghastly at all banks, I use virtual banks for my savings.  They offer higher rates and are FDIC insured.  I use a frequent flier credit card for charges I would make anyway, utilities, groceries and gas, and redeem the points for flights.   Since 2005 I have saved $1000 per year in air fare.  I negotiate big ticket items.  My money is very patient, I don’t have to spend it right away and, as a result, before making a purchase I ask, “can you do any better?” If I am shopping online and find an item I like, I always Google that item to see if I can find it cheaper. I almost always can.  I keep a “most wanted” list to curb impulse buying.  I am storing my DVDs and CDs in iTunes so that I can donate the hard copies and continue to de-clutter my life.  We have a garden and eat at home.  We go out maybe 4 times a month.  I don’t slavishly shop at Wal-Mart assuming I am getting the best quality for the deal.   I shop at Wal-Mart, Safeway and the local food co-op.  I had an electrician install a digital, programmable thermostat.  It has saved 20% on my heating costs.  I hire professionals to do work that I have either no business doing or work that isn’t in my best interest to do.  I am a big “do it your selfer”. But being a DIYer can put you in a time and financial hole as deep and as wide as the Grand Canyon (okay that is hyperbole but you get the point).  The trick is to figure out the tasks I should do and the ones I should not do.  Let’s go back to the thermostat.  I had it for 6 months before it was finally installed.  The instructions and the wiring that went with it were very complicated and carried dire warnings that a wiring mistake could result in furnace damage.  I added the installation onto a planned project that required an electrician, the thermostat got installed and I am saving money which wouldn’t have been the case if I had clung to my DIY tendencies.

I would love to know about those cheap things you do!

Please comment.