Viable Opposition

Electoral College Imbalance - Some Votes Are Worth Less

2012-09-05T11:11:00.002-03:00

Now that we're finally entering the official phase of this seemingly endless Presidential election season, I thought that I'd take a look at the electoral college system and how imbalanced it is becoming. Fairvote.org has an intriguing analysis of the 2008 election, looking at the number of voters per electoral college vote for each state. This analysis shows that certain states have far more voters for each electoral vote, meaning that the voters in these states have less impact on the end result than their underpopulated, over-represented counterparts.

For my readers that aren't familiar with the arcane voting system that is used in the United States, here is a symmary of the Electoral College which was established in the U.S. Constitution. When voters in the U.S. vote for their presidential choice, ballots show the names of the presidential and vice presidential candidates, however, voters are actually electing a slate of "electors" that represent them in each state. It is these electors that combine to form the Electoral College. The number of electors was last set in 1964 and is equal to the number of Senators plus the number of Congressmen/women and currently stands at 438 plus 100. Each state is allowed a number of electors that is equal to the number of its U.S. Senators (always two) plus the number of its U.S. Representatives, a number that may change every ten years based on changes in population. These electors are selected by each political party at the state level and they must not be members of the Senate or Congress. The electors are generally considered to be "free agents" since only 29 states require these loyal party supporters to vote as they have pledged. After the election day votes are counted, the party that wins the most votes in each state appoints all of the electors for that state ("winner-takes-all"). The electors cast their votes in mid-December and the sealed votes are then sent to the president of the United States Senate. These sealed votes are opened on January 6th in the year following the presidential election. To be elected as president, a candidate must have an absolute majority (50 percent plus one) of the electoral votes for that position. It isn't until noon on January 20th that the elected president and vice president are sworn into office, two and a half months after the election.

Let's look at the analysis starting with the national picture. On average in 2004, each of the 538 electoral votes was backed by 545,828 individual voters. By 2008, population increases had raised this number to 565,166.

Now let's look at the state level representation per electoral vote for the 2008 election:

The higher the "% vs. Nat. Avg." the more imbalance there is. For instance, Wyoming, with a 2008 population of only 532,668, had three electoral votes for an average of 177,556 voters per electoral vote. When compared to the national average, Wyoming's individuals were "worth" 318 percent more than the national population versus number of electoral votes average. Other states with far lower voters per electoral vote are the District of Columbia (286%), Vermont (273%), North Dakota (264%), Alaska (247%), Rhode Island (215%) and South Dakota (211%). Looking at the other side of the issue, Texas has the greatest number of voters per electoral vote; with a population of 24,326,974 and only 34 electoral votes for an average of 715,499 voters per electoral vote. This works out to each individual vote being "worth" only 79 percent of the national average. Other states that have far more voters per electoral vote are Florida (83%), California (85%), Arizona (87%) and Georgia (88%).

If we step aside for a moment, we can see from the 1988 election how imbalanced the system has become. In that election, the combined voting age population of the seven least populous jurisdictions in Alaska, Delaware, the District of Columbia, North Dakota, South Dakota, Vermont and Wyoming (a total of 3,119,000 voters) carried the same strength of 21 Electoral College votes as the entire voting population of Florida, all 9,614,000 voters.

Going back to the study, in 2008, 36 out of 50 states plus the District of Columbia had the weight of their individual votes being worth more than the national average when measured using population versus the number of electoral votes.

There are some obvious problems with the Electoral College system as it currently exists. From this analysis, one can quite quickly see that smaller, generally more rural states have far more Electoral College votes per person than the larger, more populous states. On the other hand, the states with far more electoral votes tend to get more attention from presidential candidates since there is more at stake. On top of this imbalance, the Electoral College can completely negate the will of the majority; as the 2000 election and 15 other occasions since the founding of the Electoral College have proven. The Electoral College proves that the electors are quite capable of not representing the national popular will Somehow, it just doesn't seem right that, in a two party system, the winner is really not determined by the individual voter. Perhaps it is really is time to rethink the current system.

Quebec's Federal Transfers - Living on Borrowed Time?

2012-09-04T07:59:00.002-03:00

Since we're very close to the conclusion of Quebec's provincial election and it looks like Mme. Marois and the PQ may win at least a minority, I wanted to take one last look at the province's fiscal standing in Canada by looking at the all-important transfers from the Federal government.

Here is a chart showing how each province benefits from Ottawa's largesse in order from west to east:

Here is the same data in graph form showing the size of the federal transfers to the provinces from the least to the greatest:

Quebec, as Canada's second most populous province, naturally comes in second place with overall transfers of $17.431 billion in fiscal 2012 - 2013. Of the $57.609 billion in transfers this year, Quebec accounts for 30.3 percent of the total. In case you were wondering, according to Statistics Canada, at the end of 2011, Quebec had 23.1 percent of Canada’s total population.

Here is a graph showing the even more telling per capita transfer for each province from the least to the greatest:

Quebec sits in the middle of the pack, well below the three Maritime provinces and Manitoba but 50 percent higher than Ontario.

Here is a graph showing the history of federal transfers to Quebec since fiscal 2005 - 2006:

Quebec's transfers have risen by $5.291 billion or 43.6 percent from the benchmark level of $12.140 billion in fiscal 2005 - 2006. Growth in Quebec's transfers have increased very little since fiscal 2010 - 2011 and, if one looks back, between the benchmark fiscal year and fiscal 2010 - 2011 when transfers plateaued, in that five year period, Quebec saw its transfers rise by 43.4 percent or a compound annual growth rate of 7.46 percent, well above the national rate of inflation as shown here:

Here is a graph showing Quebec's historical per capita transfers:

Quebec's per capita transfers peaked at $2204 per man, woman and child in fiscal 2010 - 2011 and have fallen back slightly to $2170 in fiscal 2012 - 2013. This is still up 35.5 percent from the benchmark year of 2005 - 2006 and works out to a compound annual growth rate of 6.6 percent from the benchmark year to the peak year, again, well over the rate of inflation over that period of time as noted previously in this posting.

In closing, where does the Federal transfer get allocated? In fiscal 2012 - 2013, of the $17 billion and change, $6.77 billion or 39 percent goes to Quebec's health care system, $2.735 billion or 15.7 percent goes to social programs and $7.391 billion or 42.4 percent goes to equalization, a program that "equalizes the fiscal capacity of the have-not provinces" for those of you that are not Canadian. Looking at Quebec's 2012 budget, these equalization payments make up 24.5 percent of the province's total revenue (including Federal transfers plus own source revenues) and, with total expenditures of $70.879 billion in fiscal 2012 - 2013, Federal transfers will supply 24.6 percent of the province's spending needs.

As I have stated previously, one wonders how Mme. Marois and her Pequiste counterparts can possibly think that Quebec can do it on their own. Without billions of dollars of annual transfers from Ottawa, an independent Quebec would certainly find itself in an interesting fiscal situation very, very quickly.

Quebec's Fiscal Picture and The Chances of Successful Sovereignty

2012-09-01T20:05:00.000-03:00

Now that the votes are being counted in Quebec's election, I thought it would be prudent to take a look at their fiscal picture, comparing it to the rest of Canada's provinces and see what kind of situation faces the province's next government.

Let's open by looking at how the Dominion Bond Rating Services (DBRS) rates Quebec's long-term debt compared to its peers:

Quebec sits in the middle of the pack with an "A high" rating. According to DBRS the "A" rating suggests the following that seem to apply to Quebec in specific:

1.) GDP growth may have been steadily below average or inconsistent in previous years.

2.) Tax burdens may already be somewhat high, limited the ability of government to raise taxes if needed.

3.) Government has reduced ability or willingness to manage downturns through meaningful expenditure restraint or revenue-raising initiatives.

4.) The borrowing platform may be somewhat narrow and is generally limited to Canada.

5.) Unfunded public sector liabilities are large and growing.

6.) Less co-operative relationship with senior government and overlapping areas of responsibility.

One example of a growing public sector liability in the province is the City of Montreal's pension plan; this plan now accounts for 13 percent of the city's operating budget, even more than the amount that is spent on public transit. This is not a sustainable or healthy situation.

Now, let's take a look at specific provincial deficit and debt statistics from TD Economics. Please note that I'm using the 2012 - 2013 budget estimates for both statistics:

Quebec's forecast deficit for fiscal 2012 - 2013 looks quite good compared to its provincial peers, coming in roughly one-third the size of Ontario's and sitting right in the middle of the pack. Quebec's overall projected debt doesn't look quite as good, coming in second highest behind Ontario and well above the rest of its peers.

Let's look at my favourite metric, per capita debt. Please note that population data is current to the end of 2011 and is taken from Statistics Canada's database for consistency:

Quebec has the highest per capita debt level, coming in at $22,369 per man, woman and child. Ontario is in second place with a per capita debt of $19,524 and Newfoundland and Labrador are in third place with a per capita debt of $16,647. Alberta comes in with an actual surplus of $3,439 for every Albertan.

Let's look at how Quebec's debt has grown over the past two and a half decades:

Now let's look at how Quebec's debt-to-GDP level, now the highest in Canada by a wide margin, has grown over the same time period:

While Ms. Marois may be caught in the "sovereignty loop", Quebec's fiscal picture is a far cry from healthy and must be considered before the PQ rattles the "sovereignty sabre" yet again. This is particularly apparent if one considers the fact that the Harper government consistently threatens that they will wean Canada's have-nots from federal transfers which are expected to total $17.431 billion for Quebec in fiscal 2012 – 2013 as shown here:

Without billions of dollars in annual federal transfers, Quebec's illusion of fiscal prudence will vanish along with its ability to "go it alone" without the rest of Canada. Let's hope that saner heads prevail.

Negative Interest Rates - Never Say Never

2012-08-31T10:25:00.001-03:00

An interesting article out of the New York Federal Reserve entitled "If Interest Rates Go Negative....Or, Be Careful What You Wish For" takes a look at the scenario of negative interest rates and how these rates would impact the economy and consumers.

As shown on this graph, for each of the eight recessions that America has experienced over the past five decades, the Federal Reserve has used falling interest rates (in red) to prod the economy back to life:

Notice that, since 1980, the background interest rate during expansions (in green) has dropped to lower and lower levels, most notably in the period since 2008 when interest rates were pushed to near zero. Despite that, the economy is barely growing and unemployment remains elevated. This has led some people to suggest that the Fed should push short-term rates into negative territory, yet another experiment along with the already ineffective QE and Twisting.

The Fed could best accomplish this by charging interest on excess bank reserves rather than paying interest. The Interest On Excess Reserves or IOER currently sits at 0.25 percent. It is this rate that is the benchmark for Treasury Bills, commercial paper and interbank lending. By lowering this rate further or pushing it into negative territory, banks would have less incentive to keep deposits with the Fed and may be more willing to loan the funds thereby stimulating the economy.

According to the authors of the analysis, Kenneth Garbade and Jamie McAndrews, IOER rates below negative 0.50 percent would present problems for banks because their products and services would be used in ways that are not expected. As cash from money market funds flooded into banks, they would likely be forced to charge depositors for holding onto their cash, essentially creating a negative yield. The Bank of New York Mellon has already taken steps toward charging a fee to depositors with large cash balances as shown here. As well, demand for certain Treasuries would spike as investors sought yield, pushing the price up and yields down further, resulting in even greater distortions in the bond market.

Here are some of the impacts of negative interest rates and tactics that consumers and businesses may use to avoid losing money on their savings:

1.) Some analysts suggest that negative rates are not possible since investors will choose to hold cash. While that may be possible for smaller investors like you and I, it is not possible for corporations and various levels of government who would be holding billions of dollars in physical currency. That said, smaller businesses and individuals who elect to hold cash would pressure the Treasury Department to print more physical currency as demand for paper bills rose.

2.) Special-purpose banks would likely be created. These banks would offer conventional checking accounts for a fee and would pledge to hold no assets other than cash, held in a vault. Checks written on these banks would essentially be a receipt on the cash held by the bank.

3.) Individuals may choose to make large excess payments to the IRS, counting on collecting the overpayment the following April. This would avoid losing money on negative interest unless, of course, the IRS implemented a negative interest rate policy on overpayments.

4.) Individuals may also choose to make large excess payments on their credit cards, running down the balance as they make purchases.

5.) Rather than depositing checks received from governments, businesses or other individuals immediately, recipients may find it more prudent to avoid negative interest rate charges by simply not cashing the checks immediately.

6.) Consumers and businesses will have more incentives to make payments on outstanding credit balances quickly over a shorter period of time and receive payments on such credit balances more slowly over a longer period of time. This is completely contrary to the current system that demands payment on credit as quickly as possible. This will pose problems for a system that has evolved in an environment where "time is money".

As we can see from this analysis, a Federal Reserve-implemented negative interest rate environment would result in an intriguing set of issues for the American economy, the banking sector and consumers. While it is highly unlikely that such an environment will occur, ten short years ago, no one would have ever thought that the Fed would have pushed interest rates down to a fraction of a percent for a three year period.

Never say never.

Yet Another 2012 Election Prediction Tool

2012-08-30T19:30:00.000-03:00

An interesting website, NerdWallet, founded by Tim Chen and Jacob Gibson in 2009, has just published its most recent outcome prediction for the 2012 Presidential election. I realize that everyone and their dog has an analysis that predicts a November winner but I found this one intriguing. Here is a summary of Joanna Pratt's analysis.

Let's start out with what the analysis uses as its baseline.

1.) President Obama has 201 safe electoral votes.

2.) Mitt Romney has 181 safe electoral votes.

3.) The winner needs 270 electoral votes out of 538 total.

There are 12 states with a total of 156 electoral votes that could go to either candidate. To get the 270 votes, Mitt Romney needs at least 89 of those 156 electoral votes or 57 percent of the total to win. Here is a chart showing the 12 states in play, the current polling numbers and the statistical odds of winning each state:

Right now, the margin of error in polling is just over eight percent according to NerdWallet, a number that will drop to 5.5 percent by the time that election day rolls around. This margin of error was statistically gleaned from the 2004 and 2008 elections.

The computer simulations run using the current polling results and polling accuracy suggests that, at this point in time, Mitt Romney will win only 248 electoral votes, a number that is short of what is needed to win the Presidency.

To summarize, here is a pie chart showing the odds of winning the election based on NerdWallet's analysis:

Basically, Mitt Romney's chances of getting the 89 electoral votes that he needs to win is only 20.2 percent, compared to 78.5 percent for the incumbent President.

I will continue to follow NerdWallet's analysis as the weeks pass. It is always fascinating to see the logic behind these predictions and the simplicity of this one seems quite compelling to me.

The Hurting Households of Europe

2012-08-29T11:22:00.002-03:00

Nearly every day, we read some grim news about Europe's economy. The latest ECB Monthly Bulletin shows that European households are having a difficult time. A handful of graphs will show you where the problems lie.

To help keep the importance of household consumption into perspective, the ECB states that in the first quarter of 2012, Europe's GDP was 2365.1 billion euros. Of this, household final consumption expenditures were 1364.3 billion euros or 57.7 percent.

First up, here is a graph showing annual percentage changes as a percentage of gross disposable income for household income and consumption growth and savings ratio :

Real disposable income declined by 0.5 percent on a year-over-year basis. Consumption (dashed brown line) grew by a modest 1.9 percent annually, close to income (solid blue line) growth of 1.8 percent over the same one year period. The savings ratio (dashed green line) has dropped to near-decade lows of 13.3 percent, down from nearly 16 percent during the peak of the Great Recession.

The net worth of households continues on its downward slide as shown here:

The net worth of households declined on the back of falling real estate prices; over the past four quarters, household net worth has declined by 4.9 percent of gross disposable income. As you can see from the purple line on the graph, the change in net household worth has swung to the negative side for the first time since the end of the Great Recession. The household debt-to-assets ratio reached a historical peak of 14.5 percent as a result of relatively low savings and decreases in the value of non-financial assets.

Despite massive intervention by the ECB and the Bank of England, households definitely are not feeling the wealth effect from their domestic stock market portfolios:

Consumer confidence is, not surprisingly, "below its long-term average" as shown on this graph:

This signals that consumers simply are not willing to spend as is reflected in shrinking total retail sales data (solid blue line).

Lastly, let's look at Europe's employment picture. In June, the unemployment rate across the Eurozone hit 11.2 percent, an increase of 1.2 percentage points over a year earlier despite the fact that this is supposed to be a post-recession recovery. These two graphs show that further job losses are anticipated in both manufacturing and non-construction employment and that the losses appear to be accelerating:

Here is a graph showing the unemployment situation:

Unemployment expectations for 2012 stand at 11.2 percent, rising to 11.4 percent in 2013 and falling back slightly to 10.8 percent in 2014, hardly stellar and well above what both the United States and Canada are experiencing and expecting.

For those who are still working, here is a graph showing how compensation in some countries continues to drop when compared to the euro area:

You will notice that workers in both Greece and Spain have seen their wages fall back to the levels that they were at in 2002 and that Ireland is back to levels that it experienced back in 2004.

When you see all of this data in one place, it make you realize why things in Europe look so grim. What is even more frightening is that in today's global economy, all of our markets are intertwined. The United States and the European Union have the largest bilateral trade relationship in the world with the U.S. investing three times as much as they invest in all of Asia and the EU investing eight times the amount in the U.S. that they invest in India and China. Approximately 15 million jobs are linked to the transatlantic economy. In the case of Canada, the EU is its second most important trading partner after the United States, accounting for 10.4 percent of Canada's total external trade. Thirty-four percent of Europe's imports are sourced from Canada.

From this posting, I hope that you will realize how important the health of Europe is to the rest of the world's economy and, in particular, how important it is that Europe's households remain fiscally secure. After all, in our consumer-driven economy, households are key.

Has America's Real Estate Market Turned A Corner?

2012-08-28T09:45:00.002-03:00

Fiserv has now released its analysis of the United States housing market. Here are a few of the salient points from their summary accompanied by my usual commentary.

Let's open by looking at the most recent Case-Shiller chart of national home price indices showing that things finally appear to be turning a corner:

Fiserv notes that the U.S. housing market is finally showing some signs of stabilizing. Home prices in 151 markets or 39 percent of the 384 metropolitan areas tracked by Fiserv Case-Shiller showed an increase in the first quarter of 2012 compared to a year earlier. That noted, price declines of 1.9 percent were noted on average across the U.S. and are forecast to decline another one percent over the next twelve months. On the upside, prices are expected to appreciate by 5 percent between Q1 2013 and Q1 2014!

Price appreciation was noted in Detroit, and Michigan (up 8.6 percent) and Miami, Florida (up 6.4 percent), however, this has to be taken into context since these areas have seen peak to trough price declines well in excess of 50 percent. In sharp contrast, double digit price decreases were noted in Atlanta, Georgia (down 17.4 percent), Las Vegas, Nevada (down 7.4 percent) and Memphis, Tennessee (down 4.7 percent), all on a year-over-year basis, largely because these markets are still flooded with foreclosure properties.

Fiserv notes that inventories of single-family homes has dropped below 2.5 million, the lowest level since 2004. This shrinking supply is nudging prices upwards, however, the large number of homeowners with negative equity is impacting many markets. Many markets that experienced price crashes are now seeing far lower inventories of foreclosures, putting modest upward pressure on prices.

The 35 to 40 percent drop in prices over the past 6 years has resulted in the ratio of the price of a median single family home to median family income at its lowest point since 1991. In fact, for those lucky Americans that are not underemployed or unemployed, the mortgage payment for a median-priced home now consumes only 12 percent of a median family's income, the lowest percentage since record-keeping began in 1971. From FRED, here is a graph showing housing affordability back to 1980, noting, of course, the recent drop in affordability:

So we can all better understand this graph, here's how FRED measures housing affordability:

"Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home."

Fiserv notes that the biggest risk to the housing market is the stalling world economic recovery and the risk of another political impasse in Washington over debt and deficit reduction.

Fiserv suggests the following:

1.) Investors and buyers looking for home price appreciation should head west since eight of the top ten markets projected to grow fastest in the next year are located in Oregon, Idaho, California and Washington.

2.) The housing market in Florida continues to be bleak with eleven of the 20 metro areas seeing home prices falling the most over the next year. The state is home to four of the ten worst markets and four of the ten best markets based on projected changes in housing prices over the next five years. Orlando is projected to see an additional 6.8 percent drop over the next year and Jacksonville will see an additional drop of 3.3 percent.

Fiserv projects that between the first quarter of 2013 and the first quarter of 2014, 358 of the 384 metropolitan housing markets (or 92 percent of the total) will see price increases.

Only time, the unemployment situation, interest rates, the political games in Washington, a slowing world economy and the debt crisis in Europe will tell whether Fiserv’s projections are wanting.

A New Arctic Sea Ice Record - The Canary Sings

2012-08-27T18:50:00.000-03:00

My apologies in advance for posting climate-related articles two days in a row, but recent data from both NASA and the National Snow and Ice Data Center (NSICD) are intriguing and pretty hard for me to ignore. Both releases show that the extent of Arctic ice has reached its lowest point in more than thirty years of measuring, an issue that bears watching.

NASA's analysis of ice coverage shows that on August 26th, 2012, the areal extent of Arctic ice reached a new generational low, breaking the previous record set back on September 18th, 2007. What is concerning about this is that melting is likely to continue for several weeks yet, suggesting that new records could still be set since the end of the melt season generally occurs between the middle and the end of September.

Here is a NASA image showing how this year's ice minimum is far smaller in area than the average minimum over the period from 1979 to 2010 as shown with the orange line:

The areal extent of Arctic ice on August 26th, 2012 was 1.58 million square miles, nearly 2 percent smaller than the previous record low of 1.61 million square miles reached in September 2007. Scientists have noted that, on average, over the last thirty years, each decade has seen a 13 percent decline in the minimum summertime extent of sea ice cover.

NSICD data shows that over the last six years, the six lowest ice extents in the satellite record have occurred. Here is a graph showing the average Arctic sea ice extent over the period from 1979 to 2000 (solid black line), the extent in 1980 in orange, the extent in 2007 (green dashed line) and the extent this year (solid blue line):

Normally at this time of year, sea ice is retreating at a rate of about 15,000 square miles per day. This year, the extent of sea ice declined very rapidly in early August and is now retreating at an average of about 29,000 square miles per day, nearly twice the average.

I realize that satellite coverage of Arctic ice conditions goes back only three decades, making it difficult to prove that current changes in ice extent are long term and irreversible. That said, many scientists believe that the polar regions act as the "canary in the coal mine" and that the impact of potential climate changing anthropogenic activities may be reflected first in the Arctic and Antarctic ecosystems.

A Burning Hot Summer

2012-08-27T12:43:00.000-03:00

An press release from the National Interagency Fire Center (NIFC) gives us a perspective on just how dry this summer has been. NIFC was created in 1965 by the Bureau of Land Management, the U.S. Forest Service and the National Weather Service to co-ordinate national fire planning and operations. Since then, the National Park Service, the Bureau of Indian Affairs, the U.S. Fish and Wildlife Service and the U.S. Fire Administration - FEMA have joined.

Here is a chart showing the 10 year fire statistics up to August 21st for each year since 2003:

Notice that, while the number of fires is the second lowest over the past decade, the number of acres burned is now at a 10 year high of 6,971,729. On average, over the 10 year period, to this point in the year, there are 54,236 fires involving 5,385,441 acres. At this point, 21 percent fewer individual fires have burned an area that is 29.5 percent larger than the 10 year average. Right now, 39 active large fires are under management covering 1,401,968 acres.

Here is a map showing fires that are currently burning that are larger than 100 acres in areal extent:

Here is a map showing the Wildland Fire Potential Outlook for the month of August:

Here is a map showing the Wildland Fire Potential Outlook for the months of September through to November 2012:

The Outlook report notes that Pacific Ocean sea surface temperatures continue to rise, suggesting an increasing likelihood of El Nino conditions by the end of summer. Current climate projections by the Climate Prediction Center suggest that most of the U.S. will experience above normal temperatures over the period from September to November for the eastern two-thirds of the nation.

Here, in closing, are two interesting maps from the High Plains Regional Climate Centre at the University of Nebraska. The first shows the departures from normal temperature over the past month with the yellow to orange colors showing above normal temperature and the greens showing below normal temperature:

The second map shows the percent of normal precipitation over the past month with the yellow to red colours showing lower than normal precipitation and the green to purple colors showing higher than normal precipitation:

While the data in this posting is hardly sufficient to conclude that global climate change/global warming is on our doorstep, it is just another in a set of observations that cannot and should not be ignored. As a scientist, I know that there will be sufficient observations that eventually, will result in a scientifically sound conclusion. Unfortunately, by the time that climate science offers proof positive that human activities are leading to permanent changes, it will likely be too late to anything about it.

Letting Three Dollars Speak For You...Or Not

2012-08-24T07:30:00.000-03:00

Since 1976, public funding has paid an important role in Presidential elections. In 1971, both the Federal Election Campaign Act of 1971 and the Revenue Act established the Presidential Election Campaign Fund (PECF); at the time, this allowed American taxpayers to designate one whole dollar of their tax owing to finance Presidential elections. For those of my readers that aren't American, this voluntary donation is made by checking off a box that asks if "...you want $3 of your federal tax to go to the Presidential Election Campaign Fund?" on individual U.S. income tax returns. In 1994, Congress generously increased that amount to the current level of $3. Payouts to campaigns are indexed to inflation but the taxpayer contribution levels are fixed, at least until Congress sees fit to increase them again.

Funds raised from checking off this little box are transferred from the Treasury to the Federal Election Commission which is responsible for administering the PECF. The funds distributed are used to finance both presidential and general election campaigns and national party conventions. Originally, the PECF was implemented to reduce a candidate's dependence on large contributions from individuals and special interest groups, something that the 2010 Citizens United Supreme Court decision pretty much took care of on its own.

In the program's infancy, a significant portion of taxpayers checked off the little box on their tax returns however, as the years have passed, the number of participants has decreased markedly as shown on this graph:

Participation is down from a peak of 28.7 percent in 1980 to a low of 6.4 percent for the last full year of 2011. That's a drop of 77.7 percent. In case you were wondering, so far in 2012, only 5.1 percent of American taxpayers checked off that little box, making this the sixth year in a row with record low participation.

Here is a graph showing the dwindling size of total annual contributions since 1994 when the amount designated was increased to $3:

Since 1994, annual receipts peaked at $71.317 million in 1994 and have dropped to a full year low of $39.574 million in 2011, a drop of 44.5 percent.

How has the PECF disbursed the funds that it has collected? Here is a look at how much has been spent during each Presidential election cycle:

1976 - $69,467,521.18

1980 - $101,427,115.89

1984 - $120,149,768.18

1988 - $158,560,804.63

1992 - $153,191,152.59

1996 - $210,395,091.09

2000 - $210,015,000.45

2004 - $178,044,734.74

2008 - $106,559.804.59

Notice the jump in expenditures from the 1992 to the 1996 cycle after the donation level was raised? See, if you give it to them, they will spend it!

You will also notice that there was a huge drop from the 2004 to the 2008 cycle. This decline in spending was because both Barak Obama and John McCain chose not to participate in the primary matching fund program. By not doing this, the two campaigns were not bound by the expenditure limits that would otherwise have been imposed. John McCain did avail himself of $14.778 million back in 2000 and Joe Biden accepted $2.027 million in 2008.

Here is a chart showing which candidates have received more than $1 million in primary matching funds since its inception:

The largest Presidential campaign recipient was Bill Clinton who received a total of $25,948,332. Next up was George H.W. Bush who received $24,767,864 followed by Ronald Reagan who received $22,519,172, keeping in mind that $22 million back in the early 1980s was worth far more than it is today. Other notables that have received in excess of $15 million were Bob Dole ($21.164 million), Pat Buchanan ($20.693 million), John Edwards ($19.531 million) and Al Gore ($19.309 million).

As I noted at the beginning, the PECF funds can be used to finance the Republican and Democratic Presidential nominating conventions. How much is spent on these confetti-flinging, sign waving, light and sound shows? In 2008, approximately $133.6 million in federal/public funds was used to support the two Presidential conventions. This was funded through a combination of PECF grants and security expenditures which are used to cover the cost of state and local law enforcement. Additional Secret Service and other security costs are not included in the $50 million security expenditure that goes to each of the two parties. Keep in mind that these are not the total costs associated with the conventions; the Center for Responsive Politics estimated that 80 percent of the funds for the Democratic and Republican conventions in 2008 came from private sources.

It is interesting to see just how much American taxpayers are on the hook for the cost of federal elections, especially party nominating conventions, particularly in this time of near-record deficit spending. It is also interesting to see how the number of taxpayers that are willing to allocate three of their tax dollars to this "worthy cause" has dwindled to a tiny fraction of what it was back in the halcyon political days of the 1970s and 1980s. Perhaps voters are becoming just a tad jaded. On the upside, however, as I said before, when you see that wonderful light and sound show and all of those attendees hopped up on Red Bull (among other things), please remember, "We did that!". Well, at least part of "that".

Presidential Debt Accumulation - And The Winner Is...

2012-08-23T19:53:00.001-03:00

A little over a year ago, I posted an article that looked at the last ten Presidencies and examined which Presidents were the most fiscally responsible by looking their record of adding to the national debt. Since the U.S. is now in the thick of the election cycle and both sides of the political spectrum are tossing about their ideas for fiscal realignment and debt and deficit responsibility, I thought that it was time for an new look at whether the Republicans or the Democrats have historically been the most responsible spenders.

I looked back over the past 50 years at the debt issues that faced the last 10 administrations. For my source material, I took data from the Treasury Direct website and used their very handy monthly search function to examine the debt history for the years and months in question. To ensure that you understand how I used the numbers, for example, for the beginning of President Nixon's term as the President, I took the debt recorded on January 31st, 1969 as linked here. Since there is not a daily breakdown that gives us an accurate debt figure for January 20th, 1969, the debt at the end of President Johnson's term was assumed to be the debt figure recorded for January 31st, 1969 just as it was assumed to be the debt figure for the beginning of President Nixon's term. Where Presidents did not finish their terms (i.e. JFK), I used the debt to the end of November 1963 as his final debt number as in the case of Nixon.

Here's the chart showing the Presidents in chronological order with the debt at the beginning of each President's term, the debt at the end of the term, the amount in nominal dollars by which the debt grew, the total percentage that debt grew over the President's full term and the length of the President's term (in years and months expressed as a decimal):

Note that I also threw in a somewhat less commonly used but more accurate growth calculation, the compound annual growth rate or CAGR. This shows the compounded growth rate of the debt accrued each year over the entire term of a given President if the growth rate was steady over every year of his term as defined using this equation:

Here is the same data but placed in order of compound annual growth rate from least to greatest:

Lastly, here is the same data but placed in order of the size of nominal debt added from least to greatest:

It's surprising to see that, despite the massive arms buildup related to both the Cold War and the Vietnam War along with growing expenditures for the space race, that both the Kennedy and Johnson administrations come in with the lowest compound annual growth rate. As well, the same factors plus the added costs of a very poor economy (think Middle East oil crisis) affected the Nixon era and yet, the compound annual growth rate of the debt was less than half its current level. Not surprisingly, a few years of budget surpluses in the later 1990s helped the Clinton administration keep debt growth to a paltry 37 percent over its entire tenure in the White House.

I was taken back by the fact that the Reagan administration had, by a wide margin, the largest overall growth in debt as a percentage and using the compound annual growth rate. During the eight-year term of Ronald Reagan, the debt grew by a massive 188.84 percent or a compounded annual growth rate of 14.18 percent. While many Democrats blame the Bush II administration for debt accumulation, the compounded annual growth rate is actually firmly in the middle of the pack. The same cannot be said for the Bush II additions to the nominal debt (second highest) and overall debt growth rate over the entire term (also second highest). President Obama now has the distinction of having broken the record for the highest nominal debt increase, however, as a percentage increase, he is sitting in fourth place after Presidents Reagan, George W. Bush and George H.W. Bush.

It is interesting to look back at the last 50 years and see where America's debt problem began to blossom and under which political party the debt saw its greatest growth. I hope that this helps you put into historical context some of the spending and revenue programs that the current Presidential candidates are offering voters.

Bush Tax Cuts - What Have They Done?

2012-08-22T10:23:00.002-03:00

We all know that the GOP is standing for fiscal responsibility on the spending side of the equation and that they'd prefer to leave the revenue side well enough alone. Under the previous administration, President George W. Bush was responsible for two tax cuts known as the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.

What did these cuts do to tax rates? The top four marginal tax rates were all reduced as shown on this chart in 2001:

In addition, the tax rate on capital gains, dividends and estate taxes were either reduced or phased out. As well, a new bottom tax rate of 10 percent replaced the old 15 percent rate and the Child Tax Credit was raised from $500 to $1000 per child. These cuts were expected to expire at the end of 2010 but were extended by the Obama Administration.

On top of all of this, the Tax Increase Prevention and Reconciliation Act of 2005 further sought to extend the Alternative Minimum Tax reduction and extend the reduced tax on capital gains and dividends.

The folks at the Center for Budget and Policy Priorities (CBPP) calculated how much the 2001 and 2003 tax cuts added to the deficits between 2001 and 2008. Including extra interest costs resulting from the additional debt, about $1.7 trillion was added to the deficits over the aforementioned period. Looking forward, over the decade between 2009 to 2018, if the tax cuts were made permanent, an additional $4.4 trillion would be added to the deficits.

Here's another interesting but not terribly surprising fact threesome from Vote Smart:

Mr. "Deficit Hawk" Ryan voted for both Bush tax cuts and was a co-sponsor of House Resolution 2 in 2003 and House Resolution 3 in 2001 which became HR 1836. Yes, I know that there is more than one way to balance a budget, however, it is interesting to see that Mr. Ryan seems to be far better acquainted with one side of the budget equation than he is with the other.

Divorcing Europe - How Hard Can It Be?

2012-08-20T09:00:00.000-03:00

A recently published paper entitled "Leaving the euro: A practical guide" by Roger Bootle, an economist with Capital Economics answers the following question:

"If member states leave the Economic and Monetary Union (i.e. leaving the euro), what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?"

I realize that this is a rather lengthy posting, however, it is an issue that one way or another will impact all of us. In light of that, let's open by looking at the debt-to-GDP levels for Europe's Member States to the end of 2011 to put the issue into perspective:

In order to answer Mr. Bootle's question, we must first look at the economic problems facing the Member States and how these problems could be tackled by breaking up the eurozone. Once departed, the former Member State must adopt a new currency, re-denominate wages and prices and then rely on the world's currency markets to set the value of the new currency which would most likely result in a substantial devaluation. Mr. Bootle suggests that there could be more than one scenario; first, the eurozone could break up because of the departure of one or more strong economies, second, there could be a division of the eurozone into a "hard" and "soft" euro and third, there could be the departure of at least one weak country. No matter which scenario occurs, the countries that remain under the euro umbrella will find themselves weaker with a less valuable currency, higher inflation and a weakened banking system.

Mr. Bootle examines in some detail the scenario where a weak country leaves the euro and makes the assumption that Greece is the first to leave and that its new currency is called the drachma. That said, he notes that any of the other so-called PIIGS debtor nations could also be vulnerable and that any of them could well be the first nation to leave.

As we know too well, the biggest problem facing the eurozone is the over-indebtedness of some Member States which have unsustainably high public and private debt levels as you could see in the graph above. Many of these nations have costs and prices that are high relative to other nations in the EU, resulting in a loss of competitiveness. This results in a shortage of demand which results in high levels of unemployment which worsens the debt situation. Unfortunately, austerity through the cutting of deficits alone will not work because it will result in reduced demand which again, will worsen the problem. Price deflation will not work since it will increase the real value of the debt, adding to the nation's debt burden. Basically, it's a "damned if you do, damned if you don't scenario".

Leaving the euro and letting the value of a new currency fall (i.e. devaluation) would be a solution that would result in increased net exports (because the price of the exports would be more competitive) without increasing the debt-to-GDP level. That said, history is rife with examples of devaluations that failed; Argentina in 1955, 1959, 1962 and 1970, Israel in 1971 and Brazil in 1967. The author suggests that the following devaluations may be required in new currencies:

Greece and Portugal - 40 to 50 percent drop in exchange rate

Italy and Spain - 30 to 40 percent drop in exchange rate

Ireland - 15 to 25 percent drop in exchange rate

The biggest problem with devaluation lies in the fact that because of the current multi-state monetary union, the exiting country's debt is denominated in euros and, if the new currency devalued, the debt problem would worsen, likely resulting in a default. While this would be quite painful over the short-term, it may, in reality, be no worse than if the debt transgressing nation stayed within the euro. Over the long haul, the remaining Member States may find that their combined economies are stronger with the departure of their weaker counterparts.

Which European countries would form the core of the "new euro"? Mr. Bootle suggests that economically, it is important to retain a core of northern European countries including Germany, Austria, the Netherlands, Finland and Belgium and possibly France. The remaining southern European nations would not form a "southern euro" since they have relatively little trade with each other, rather, they would develop their own independent currencies and economic policies. Mr. Bootle notes that it is interesting to see that nations like Spain, Portugal and Italy are attempting to make it clear to the world that they are NOT another Greece. So much for "union"!

The formation of a "new euro" by the stronger northern Member States could result in a flight of capital from the weaker, departing southern Member States. Departure could also result in a run on banks, plummeting asset values (i.e. real estate), large rises in interest rates on bonds and negative impacts on consumer and business confidence. These issues would most likely rise if the departure were planned in secret rather than involving the public in a democratic decision-making process, however, even if a departure was well known by the voting public, there is no guarantee that there would not be mass bank withdrawals for example. Here is a graph showing dropping deposit levels for the PIIGS nations between 2007 and 2012, suggesting that the problem of a run on banks is far from remote, particularly for Greece and Ireland who have already suffered from a major drop in bank deposits:

Mr. Bootle makes the following very interesting suggestion about the departing nation:

"...leave quickly. Once it has become clear that a country needs to leave the euro-zone, it should waste no time doing so. Accepting more and more bail-outs before finally deciding that membership is impossible, then leaving and defaulting, could be far more damaging than simply leaving immediately. So far, best practice has certainly not been followed on this front. There is already clear evidence that the core euro-zone governments are tiring of Greece‘s financial requirements and would perhaps prefer a speedy exit."

He notes that the shock of a sudden euro departure announcement is probably less damaging to a nation's reputation and international standing than the financial cost of bailouts in a long-winded exit.

With all of that in mind, here are his seven recommendations for exiting nations:

1.) Honour official debts (as far as possible).

2.) Pre-warn other governments.

3.) Co-ordinate planning with other eurozone and EU Member States.

4.) Stay within the European Union, even if it is only for the short-term.

5.) Leave quickly (as noted above).

6.) Stay within existing EU laws and treaties.

7.) Manage the media by stressing that the departure was amicable. Basically, even though we're now estranged from the EU, we're still best of pals.

One of the issues facing Greece (or whoever) would be printing up a new currency and establishing a value. Mr. Bootle notes that physical coins and notes are not as essential to an economy as they once were, however, small transactions by private citizens are frequently consummated using physical currency. If new notes and coins are not immediately available, this could be overcome by using a dual-pricing system where items would be priced in both the new currency and in euros. The only negative issue with this scheme is that if the new currency is devalued and people are allowed to pay a lower price using euros, the system could be drained of euros very quickly since that would be the preferred means of completing a transaction.

In closing, let's look at one of the big issues that will face the departing country; the collapse of the banking sector. As I showed in the graph above, both Greece and Ireland saw a collapse in the funds on deposit in their domestic banking system as their debt crises deepened. Right now, the ECB is providing liquidity to these banks so that they can keep functioning, however, this may not go on forever. Here's where the author gets into a rather frightening scenario:

"Accordingly, it would be advisable to prevent people from withdrawing more money from the country in the run-up to exit by effectively bottling it up within the domestic economy. In particular, when the redenomination was announced but before notes were available, cash machines, or ̳ATMs‘, would need to be shut down. Otherwise, realising that the euro would become more valuable than the drachma, most Greek residents would attempt to withdraw as many euros as possible from their bank accounts. The maximum daily withdrawal at ATMs in Europe is typically around 300 euros. If every Greek citizen of working age withdrew that amount, this would amount to 2.3bn euros per day, or a reduction in banks‘ assets of 3.5% per week. In practice, banks would soon run out of notes."

Mr. Bootle suggests the imposition of a bank holiday in which all banking transactions were prevented and all ATMs were shut down. I don't know about you, but I can't imagine that this would make any citizen of any country very happy and, once the banks reopen for business, a delayed bank run could still occur.

As you can see, the issue of a European state divorce is extremely complex. There is really no way of foreseeing the repercussions of an unprecedented departure from what appeared to be such a strong economic union just 10 short years ago. I can remember much discussion about the euro replacing the United States dollar as the world's reserve currency; no one foresaw the collapse in the value of one of the world's key currencies and certainly no one was discussing the demise of Europe as a union.

As Star Trek's Spock once said "...logic dictates that the needs of the many outweigh the needs of the few". Apparently, the writers of the Wrath of Khan were way ahead of their time. Perhaps a European divorce is the answer to one of the 21st century's great dilemmas even though the impact of such an event is far from clear and the issue is extremely complex with many unforeseen consequences.

Presidential Campaign Fundraising - August 2012 Update

2012-08-19T19:24:00.002-03:00

Date of FEC Report - July 31, 2012

I find that sometimes the mainstream media tends to focus on the big donors to the Presidential campaigns rather than looking at the bigger picture. In this posting, I'll be sourcing my data from OpenSecrets, a website maintained by the Center for Responsive Politics which takes a hard, non-partisan look at campaign financing.

Let's open by looking at individual contributions to the Obama and Romney campaigns and what portion of those donations is coming from large and small donors current to the Federal Election Commission data release on August 6th, 2012, noting that donations that are $200 or less are considered "small" since campaigns do not have to register any personal information about these donors:

The Obama campaign is getting 39.2 percent of its donations from small individual contributors and 60.7 percent from large individual contributors. In sharp contrast, the Romney campaign has received only 19.1 percent of its donations from small individual contributors and 80.3 percent from large individual contributions.

Let's look at a few additional details about the current President's donors.

Here are the four largest donor states, their total donation and percentage of the total:

Donors from New York City have donated $15.304 million, Washington D.C. $12.775 million and Los Angeles $10.273 million.

The top five industries donating to the incumbent are retirees ($27.065 million), lawyers and law firms ($15.394 million), education ($9.178 million), health professionals ($4.976 million) and business services ($4.548 million).

Here is a list of the top ten organizations who have contributed to the Obama campaign this cycle, noting that the money came from the organization's PACs, individual members, employees or owners not the organization itself:

Thus far, the Obama campaign has spent $262,968,849 and has $87,747,678 on hand. Of that, $109.1 million was spent on media expenses, $71.3 million was spent on administration, $19.1 million was spent on campaign expenses and $9.1 million was spent on fundraising. GMMB was the biggest beneficiary of this spending, receiving $71.947 million thus far in the 2012 cycle. In case you wonder who GMMB is, here's what they say about themselves:

"We are societal problem solvers. Engineers of social change. Activists. And realists. We have a point of view that keeps our compass pointed in the direction of progress. If we're working with you, it's because we're passionate about what you believe—we believe it too. It's what drives us in everything we do."

Whatever.

Now, lets look at a few details about the Romney campaign donors.

Here are the four largest donor states, their total donation and percentage of the total:

Donors from New York City have donated $9.574 million, Washington D.C. $6.890 million and Boston $5.452 million.

The top five industries donating to the Romney campaign are retirees ($26.159 - damn those wealthy retirees again!), securities and investment ($11.458 million), lawyers and law firms ($6.797 million), real estate ($6.501 million) and miscellaneous finance ($4.373 million). It is interesting but not surprising to see that Mr. Romney's former financial industry comrades-in-arms are among his biggest donors.

Here is a list of the top fifteen organizations who have contributed to the Romney campaign, noting again that the money did not come from the organization itself:

I added a few more than just the top ten since I wanted to show you where Bain Capital fit in. It is interesting to see that this list is composed of a who's who of Wall Street and the fraction of a percent of Americans who represent the banking industry, you know, the one that just about caused the world's economy to implode four short years ago requiring a trillion dollar taxpayer bailout.

Thus far, the Romney campaign has spent $163,205,427 and has $30,181,373 on hand. Of that, $43.1 million was spent on media expenses, a whopping $34.6 million was spent on fundraising, $28.6 million was spent on administration and $23.2 million was spent on campaign expenses . I must say that I was rather surprised to see that 26.4 percent of all funds spent were used to help raise more funds, a far cry from the Obama campaign's fundraising expenditures of only 4 percent of the total spent. American Rambler Productions LLC was the biggest beneficiary of all of this spending, raking in $40.891 million. American Rambler is a Delaware-registered consultancy that manages multiple strategists from its office in Beverly Massachusetts. Apparently, according to this website, American Rambler was a firm that was set up to do Romney's advertising and media buying. Other than that, very little information is available; try Googling American Rambler Productions and see how little information is out there! Even this link to American Rambler's website is secure, requiring a login.

It is interesting to see how American campaign financing has become big business, especially for some of the firms on the receiving end of campaign dollars. I hope that you enjoyed this little trip down campaign lane. As time passes, I will update and repost this information because an informed voter is a better voter.

How To Pay Uncle Sam Less

2012-08-16T19:35:00.000-03:00

The Institute for Policy Studies (IPS) recently released their 19th Annual Executive Pay Survey entitled "The CEO Hands in Uncle Sam's Pocket", a look at how American taxpayers are subsidizing executive pay. Here are a few of the highlights.

1.) Of last year's 100 highest paid American corporate CEOs, 26 took home more pay than their companies paid in federal income taxes, up from 25 the previous year, receiving an average of $20.4 million in total compensation. This was up 23 percent over the previous year.

2.) On average, these 26 corporations were very profitable, earning more than $1 billion in average pre-tax income. On those hefty profits, the corporations received average net tax benefits from the Federal government of $163 million.

3.) These tax benefits were largely received because each of the 26 corporations has an average of just under 21 tax-haven based subsidiaries.

The Bush-era tax breaks have greatly benefitted America's corner office dwellers. On top of what should be considered an ample base salary, most of these gentlemen receive compensation boosts through the issuance of stock options, performance shares and other very creative stock-based pay that is preferentially taxed compared to "ordinary" income. This could well be termed "executive privilege" since most of us who sweat while we work do not receive the vast majority of our compensation in company stock.

Here is the entire list of companies that paid their CEOs more than they remitted to Washington:

Notice that two of the corporations have more than 100 tax haven subsidiaries. In total, the 26 CEOs made $531,594,681 in compensation while their federal corporate tax remittances totalled negative $4.25 billion on profits of $99.631 billion. Must be nice if you can get it.

Let's take a detailed look at two CEO's who received compensation that is in excess of what their firms remitted in federal income taxes last year.

1.) Citigroup - refunded $144 million in taxes in 2011

CEO Vikram Pandit - received $14.9 million in compensation for 2011

Citigroup exists only because of the largesse of American taxpayers and TARP; estimates show that Citi gleaned nearly half a trillion dollars in total assistance, the most of all American banks. Mr. Pandit received $38.2 million in compensation in 2008 and agreed to take only $1 in salary until Citi became profitable. Citi offered Mr. Pandit $14.9 million in 2011 which was voted down by just over half of all shareholders; unfortunately, as of July, Citi's board had not revealed whether or not they would be bound by the non-binding vote.

2.) American International Group (AIG) - refunded $208 million in taxes in 2011

CEO - Robert Benmosche - received $13.9 million in compensation for 2011

AIG was the insurer behind the near implosion of the world's economy back in 2008; that's why American taxpayers still own 60 percent of the company. At that time, the company received a bailout of $182 billion and a decision from the U.S. Treasury that allowed it to retain losses to offset against future profits. This has allowed AIG to report more than $19 billion in tax-free profits in 2011. CEO Benmosche has seen his compensation rise like a phoenix from the ashes; from $2.7 million in 2009 to $13.9 million in 2011, a rise of 415 percent.

As I wrote earlier, stock options (aka performance-based pay) are largely responsible for overly inflated executive compensation (although, I'd like an opportunity to try living on their base salaries of a million dollars plus per year for a few years!). A loophole in stock option accounting allows corporations to reduce their tax bills; IPS has estimated that the annual cost of this loophole is $2.5 billion in lost federal tax revenue with the biggest beneficiary in 2010 being our old friends at Apple who, in 2010, deducted $743 million and received a $260 million tax subsidy thanks to Main Street taxpayers. Incidentally, new CEO Timothy Cook set a new pay record of $374 million in 2011. Here are some of the other big beneficiaries of this particular loophole:

While it's all wonderful that the Presidential candidates are talking about fiscal responsibility and debt and deficit reduction, it is more than a bit off-putting when one sees that it is quite obvious where tax reform needs to take place. Unfortunately, those that we elect seem myopic when it comes to tax reform that may impact their donors and/or future/past employers.

Dragging One's Political Knuckles

2012-08-15T18:23:00.000-03:00

Please spend a minute and watch John Boehner talk about Paul Ryan on Fox News:

In case you missed it, here it is in black and white:

"I mean, I think that he's a practical conservative. He's got a very conservative voting record, but he's not a knuckle-dragger, all right? He understood that TARP, while none of us wanted to do it, if we were going to save -- save our economy, save the world economy, it had to happen. I wish we didn't have to do it, either, but he understood that."

Remembering that the Tea Party was strongly against the Troubled Asset Relief Program or TARP, one would have to assume that Mr. Boehner was referring to them.

It's interesting that he chose the words "knuckle-dragger", an inference that those who opposed TARP are not as high on the evolutionary scale as Mr. Ryan since, the dictionary defines a knuckle-dragger as "Holding beliefs, or having attitudes thought to be primitive or uncivilised; hence apelike."

Wrong words to use for a group that generally has creationist leanings! I would think that's a good way to alienate at least part of your grass roots.

Cost Shifting - Taxpayers are Gonna Pay One Way or Another

2012-08-15T07:30:00.000-03:00

A recent study by the Centre on Budget and Policy Priorities has taken a deeper look at the Paul Ryan Budget in a report entitled "Deficit-Reduction Package That Lacks Significant Revenues Would Shift Very Substantial Costs to States and Localities". In this report, CBPP looks at how a federal budget that cuts deficits without increasing revenue would make deep cuts in funds that support both state and local governments. It is these lower levels of government that provide us with the everyday services that taxpayers use; education, our roads and bridges and law enforcement among others services.

The fiscal picture of state governments has been grim since the Great Recession. In total, states have seen budget shortfalls of nearly $600 billion since fiscal 2009 and have been forced to make spending cuts in an attempt to bridge the funding gap. As shown on these two graphs, state and particularly local governments have shed a total of 697,000 jobs since their peaks in 2008:

By way of comparison, the Federal government has seen the number of its employees rise by 57,000 over the same time frame as shown here:

Odd, isn't it?

The Ryan budget would shift costs to the state and local level by doing the following:

1.) Cutting Medicaid Funding: The Ryan Budget would cut federal funding for the federal - state Medicaid program by 34 percent by 2022 and by larger amounts in later years compared to current law.

2.) Cutting non-Defense "Discretionary" Funding: The Ryan Budget would cut non-entitlement funding by 22 percent in 2014 and later years on top of Budget Control Act (BCA) spending caps. About one-third of discretionary funding is given to state and local governments to pay for services including education, law enforcement, disaster response, housing, public health care services and water treatment. On top of BCA cuts, the Ryan Budget cuts would amount to nearly $28 billion in 2014, adding up to $247 billion between 2013 and 2021.

The Ryan budget cuts would reduce discretionary state and local grants to an estimated 0.6 percent of GDP by 2021, less than half the average of the past 35 years as shown on this graph:

Lastly, here is a chart showing how the estimated cuts in discretionary grants under the Ryan Budget will impact the federal discretionary grants that each state receives between 2013 and 2021:

State and local governments would be forced to make up this cost shifting by either cutting services or raising revenue simply because politically paralyzed Washington would rather achieve a semblance of fiscal balance through spending cuts rather than revenue increases. Shifting the costs of services from one level of government to another is not saving anyone anything, however, it may make those in Congress feel positively heroic. Either way, taxpayers are going to pay. You'll just be making out your check to a different payee.

Who Is Insuring CMHC Mortgage Insurance?

2012-08-14T15:31:00.000-03:00

Now that CHMC is suggesting that Canada's housing market is not in for a major correction and that it expects that housing prices will actually grow more slowly than they have recently in certain markets, I thought that it was time to take a look at CMHC, also known as "The Canadian Taxpayer" since ultimately, it is our wallets and purses that are responsible for backing CMHC because it is a Crown Corporation.

Let's open by looking at house price indices in some of the world's advanced economies between 2000 and 2007 and 2000 and 2010:

Notice that Canada is right up there with Australia, the United Kingdom, Spain and France, all of which have experienced modest to very large price readjustments in the past two years.

Here is a look at the price-to-rent ratio for four major Canadian centres from 1988 to 2010 which suggests that housing is well over-priced:

Here is a look at who is insuring Canadian mortgages at the end of 2010 according to the IMF:

Nearly 50 percent of Canada's outstanding pile of mortgages are insured by CMHC but, even more interesting is the fact that in terms of total volume of insured mortgages, CMHC is estimated to have a 70 percent market share. At the end of the first quarter of 2012, here is the composition of CMHC's mortgage portfolio:

Notice the $569.6 billion number? The value of mortgages that CMHC insures is actually nearly as high as the current federal net debt.

Between 2000 and 2010, the residential assets of Canadian households grew by an annual average of 7 percent. During that same timeframe, mortgage liabilities grew by an average of 8 percent as shown on this graph:

Against this backdrop, CMHC has seen its mortgage portfolio increase more than 1200 percent during that same 2000 to 2010 timeframe.

While I'm not a huge fan of the IMF, in this case I agree with their analysis:

"Our econometric findings suggest that house prices are higher than the levels consistent with current fundamentals in a number of Canadian provinces and that a correction in house prices would have measurable effects on consumption and output through wealth effects. As discussed in the staff report, the authorities have appropriately taken macro-prudential measures to curb the growth of household debt. Given the unsettled global economic environment that could trigger adverse shocks on the Canadian economy, the authorities should remain vigilant to the developments affecting household balance sheets; further macro-prudential measures may be needed if the debt build-up continues."

CHMC is a ticking time bomb. Effective in April 2012, it is now overseen by the Office of the Superintendent of Financial Institutions (OFSI) like Canada's banks and, given the importance of its role in the Canadian housing and mortgage market, this oversight is probably too little too late. This is particularly important since it is likely that CMHC will come, sooner rather than later, begging hat in hand for an increase to its $600 billion insurance limit, all of which we are ultimately responsible for. That is, unless real estate prices rocket downwards, decreasing the average size of a mortgage required to buy an average house.

Stupid Spending: Government Waste In Action

2012-08-14T07:30:00.000-03:00

Now that spending hawk Paul Ryan is in the national consciousness on a full-time basis, I thought it was a good time to take a look at U.S. Senator Tom Coburn's 2011 Wastebook: A Guide to Some of the Most Wasteful and Low Priority Government Spending of 2011. This report outlines $6.9 billion worth of spending that was completely unnecessary. While $6.9 billion out of total spending of $3.6 trillion in 2011 seems insignificant, it is evidence of the mismanagement that takes place when an organization gets so overwhelmingly labyrinthine that it can no longer control or track its own spending.

Here are a few of the more interesting examples of the creativity involved in wastefully spending your hard-earned and painfully remitted tax dollars:

1.) The Presidential Election Campaign Fund (PECF): This year, both political parties will receive a total of $35.38 million from taxpayers to pay a significant portion of convention costs. There are minimal restrictions on how PECF funds are spent; they must be used to defray expenses incurred with respect to a presidential nominating convention". So, when you're glued to the television later this month and again in early September, watching the Democrats and Republicans release balloons, wave placards and flags and throw confetti, "you did that!". Just in case you forgot, in 1994, Congress increased the amount that you can voluntarily donate to this worthy cause from $1 to $3. In 1980, 28.7 percent of taxpayers checked off the magic donation box on their tax returns; this dropped to only 6.6 percent in 2010. Unfortunately for the party-goers, if you don't donate, they don't get balloons and confetti.

2.) The Alaskan "Bridge to Nowhere": A 2.7 mile long bridge that would connect Anchorage to a small Alaskan community will cost between $650 and $700 million. This year alone, $15.3 million of federal funding was spent on the Knik Arm Crossing Bridge and, in total, taxpayers have ponied up more than $65 million including $57,390 for a 14 minute long promotional video. Here's an animation showing you where your money was spent:

3.) Paying the Dearly Departed: Every year for the past five years, the folks at the U.S. Office of Personnel Management have sent an average of $120 million in retirement and disability payments to deceased former (I assume) federal employees. Over the past five years, over $601 million of your tax remittances have gone to pay those who are no longer with us.

4.) Preserving Your Junk Toys: The International Centre for the History of Electronic Games located in Rochester, N.Y. received over $113,000 in federal funding to preserve video games. The center has over 37,000 items, arguably the most comprehensive public assemblage of electronic games in the United States. Admission is $13 for adults but children under two years of age get in free! The second largest collection of outdated electronic games just happens to be located in my basement. Admission is free. If you wish to help the Center out in addition to your tax donation, they will accept donations of used equipment or money.

5.) Remaking a Television Classic: In fiscal year 2011, the United States Agency for International Development (USAID) provided $10 million to Rafi Peer Theatre Workshop, a Pakistani arts organization, to create "130 episodes of an indigenously produced Sesame Street". The show will be renamed "SimSim Humara" and is set in a village in Pakistan. In case you care, here is a promotional video for the show:

You're welcome.

6.) Home Energy Efficiency Tax Credits Gone Awry: Based on a sampling of tax returns, the Treasury Inspector General for Tax Administration estimates that nearly 30 percent of American taxpayers who claimed tax credits for increasing the energy efficiency of their homes had no record of actually owning a home. The Treasury Inspector General for Tax Administration estimates that as much as $1 billion or more was claimed fraudulently, including claims made by children under the age of 18 (and as young as three) and hundreds of rather clever inmates who were incarcerated at the time. It's nice to see that people are still creative, isn't it?

While it's great that Mr. Ryan wants to cut spending and achieve some sort of fiscal balance, the system does not appear to lend itself willingly to controls. It's not just over-spending that's the problem, it's stupid spending that's a significant issue. Senator Tom Colborn's report contains one hundred examples of the finest in ill-advised spending by the federal government, just the tip of the waste iceberg. Administrations have made repeated and fruitless efforts to control this issue by passing legislation that will curb waste, unfortunately, it seems that when you are not spending your own money, it flows uncontrollably like water between your fingers.

Getting to Know Paul Ryan

2012-08-13T07:30:00.000-03:00

Now that Paul Ryan has been declared as the Republican candidate for Vice President, I thought that it was time to take a quick look at his voting record. Fortunately, Project Vote Smart did all of the heavy lifting for me! While I realize that most of my American readers are well acquainted with Mr. Paul's leanings, readers outside of the U.S. are less likely to be aware of his stance on some of the hot button issues.

Project Vote Smart allows users to sort the voting records for Mr. Ryan organized by issue. Let's look at a handful of issues and how Mr. Ryan voted.

1.) Campaign Finance and Election Issues:

Bill HR 5175 - Campaign Finance Disclosure Requirements - Voted NAY

Bill Passed June 24, 2010 - 239 to 160

This bill established new disclosure requirements for political advertisements transmitted through radio and television that are not authorized by a candidate or political committee. Individuals and organizations that are significant funders (greater than $10,000) that pay for the communication must state their name and organization name during the political advertisement. Even more interestingly, HR 5175 also prohibits individuals that hold or seek to hold leases for drilling for oil and gas in the Outer Continental Shelf from directly or indirectly contributing to any political party, committee or candidate for public office or to fund any electioneering communication.

Bill HR 2356 - Campaign Reform Act of 2001 - Voted NAY

Bill Passed February 14, 2002 - 240 to 189

This bill reformed the ways that politicians could raise money, banning soft money contributions to national politics and limited contributions to candidates for Senate and House elections and raised the limit on contributions that individuals could make to PACs and political parties. Bill HR 536 also prohibited corporate and labor union funds from purchasing and running issue ads that specified individual candidates 60 days prior to an election.

2.) Environmental Issues:

Bill HR 3534 - Offshore Drilling Regulations and Other Energy Law Amendments - Voted NAY

Bill Passed July 30, 2010 - 209 to 193

This bill established various bureaus within the Department of the Interior and amended regulations for non-renewable resource management in light of the BP Macondo Gulf of Mexico blowout. Among many proposals, Bill HR 3454 established a fine of $200 million for every 1 million barrels of oil spilled into the Gulf of Mexico, required blowout preventers to have two sets of blind shear rams and established that a company that bid or requested a permit to drill on the outer continental shelf that had caused more than 10 fatalities at its facilities or was in violation of the Clean Air Act or Federal Water Pollution Control Act would be prohibited from either bidding or operating.

3.) Abortion Issues:

Bill HR 3 - Prohibiting Taxpayer Funding of Abortion - Voted YEA

Bill Passed May 4, 2011 - 251 to 175

This bill prohibits any federal funds from being used for the purpose of providing abortions except in the case of incest, rape or the life of the pregnant woman is at risk. The bill goes further to prohibit the recipients of an abortion from using the medical expenses associated with an abortion as a tax deduction.

4.) Gun Control:

Amendment 215 - 24 Hour Background Check Amendment - Voted YEA

Amendment adopted June 18, 1999 - 218 to 211

This amendment reduced the time required for a firearms acquisition background check to 24 hours. It also increased the penalty for committing a crime using a gun with a large capacity magazine to a minimum of 15 years. Amendment 216 which was rejected by the House on the same day (Mr. Ryan voted NAY), proposed to increase the time allotted for background checks to 72 hours.

5.) Gay Rights:

Amendment 356 - Adoption Restrictions Amendment - Voted YEA

Amendment rejected July 29, 1999 - 213 to 215

This amendment would have banned federal funding in the District of Columbia for couples who wanted to adopt a child but who were not related by blood or marriage.

6.) Stem Cell Research:

Bill S5 - Stem Cell Research Act of 2007 - Voted NAY

Bill Passed June 7, 2007 - 247 to 176

This bill required the Secretary of Health and Human Services to support research that utilized human embryonic stem cells, regardless of the date that the cells were derived from a human embryo. The ethical requirements in the bill stated that the stem cells used must be derived from embryos that were donated to in-vitro fertilization clinics for the purpose of fertility treatments and that they were deemed in excess of the clinical need for individual treatment and that said embryos would otherwise be discarded. As well, the individual donating the embryos did so without receiving compensation.

While most voters already have a sense of Mr. Ryan's political and moral leanings, I always find it fascinating to dig a little deeper into the voting background of our politicians to see, in black and white, how they really function on a wide variety of issues that impact all of us.

As this election cycle endlessly winds on, I will continue to visit the Vote Smart website to see if I can glean anything else that sheds some light on the darkness that is D.C.

A Million Thanks

2012-08-12T15:45:00.000-03:00

At long last.

I started this blog and named it Viable Opposition largely because I live in a two political party jurisdiction where we badly need a viable third party option. It was a way for me to vent my feelings, lower my blood pressure and, hopefully, get a few people thinking before they take the time to vote. I began by dealing with local issues and quite quickly learned that it was akin to crapping in your own backyard so, I changed my focus to national issues. While that was fun, there was a huge international audience out there and, as Europe's crisis began to wind up and BP fouled the waters of the Gulf of Mexico, I thought it would be interesting to learn about issues that were out of my comfort zone and deal with some that I knew something about. In July 2010, I began to write about international issues that were either not as heavily covered by the mainstream media or where I thought that my knowledge as a scientist would offer a different and perhaps deeper investigation. As those of you that read my musings regularly know, I very, very rarely quote from media sources, rather, I head right to the source material. I guess it's my science training; I strive to be as error-free as possible. As I spend time viewing the online versions of newspapers around the globe, I have found it interesting to see how little original writing there is out there; most of what we read in our local newspapers is sourced from a handful of writers around the English-speaking world. This means that we, as consumers of news, are hardly getting an unbiased and original viewpoint.

Since I started this blog two and a half years ago, I have set goals for myself as a way to stay motivated. As many bloggers know (right MP?), motivation is difficult for those of us with non-commercial blogs. Yes, I do have Google Ads but the income from those click throughs basically pays for the electricity that I use to keep my computer monitor lit so that's hardly enough to keep a blogger motivated. When I first started out, I was trying to post something every day. That didn't last; it was just taking up way too much of my day and, other than friends who I basically begged to read my musings, I was getting very few hits. My next goal was to achieve the 5000 page hit target. Next up was the magic one hundred hits a day; that first happened during the G-20 Summit held in Canada during late June 2010. It was a weird experience watching my counter rise past my usual 25 to 30 hits per day and, quite frankly, a bit creepy. By Christmas 2010, I'd hit the 100,000 hit mark, a personal blogging watershed moment. As time went on, I kept thinking that it would be great to get 250,000 hits then 500,000 and so on.

Last night, my Google page hit counter looked like this:

Finally, I have reached my goal. There were days went it seemed like it would never happen.

In case you are interested, this is where most of my page hits came from:

I'd like to take this opportunity to thank everyone who has clicked on my blog deliberately or inadvertently, those who have taken the time to post a comment because, after all, this endeavour is about creating dialogue and getting people to think, those who have added their names to my Followers list and those who have clicked on a Google Ad. My sincere hope is that you have all learned something. I know that I have. While I haven't met any of you and don't always respond to your comments, I read every one of them and respect your opinions, whether we agree or not.

Thanks again for your support. It is humbling.

The Perfect Health Care Storm

2012-08-11T11:30:00.000-03:00

A brief opinion by Gary Burtless of the Brookings Institute entitled "With Huge Health Care Costs, the U.S. Is a Huge Outlier" provides a few interesting facts about the level of health spending per person and the percentage of income that is devoted to the provision of health care in America. With the announcement of spending and health care hawk Paul Ryan as GOP Vice Presidential candidate, the intense debate that surrounds the Affordable Care Act (ACA), the aging population and the growing level of public debt, this issue is not going to disappear any time soon, if it ever does. With both of those in mind, I thought that it was time to take a look at just how much America is spending on its health care system, especially when compared to its peers. Please note that in many cases, the most current data from the studies that I used is from 2009 even though the studies are well less than a year old.

Over the past four decades, the share of GDP that America spends on health care has widened when compared to other countries. In the 1970s, the share of the American GDP that was devoted to health care was 40 percent higher than other wealthy countries. This gap continued to widen and, by 2010, U.S. health spending was 70 percent higher than other economies with similar incomes, reaching 17.4 percent of GDP in 2009, up from 9 percent in 1980.

Here is a graph showing the per capita spending on health care for a variety of advanced economies showing how much of an "outlier" the United States really is:

U.S. spending on health in 2008 was 51 percent higher than Norway, its closest competitor and nearly double the average of $3923 for the 15 countries on the graph.

Here is a graph showing the public and private health care expenditures for all OECD nations, once again showing that the United States is by far the largest spender:

The 2009 average spending on health care for all OECD nations was 9.6 percent of GDP with the United States spending 5 percentage points more than the next two countries; the Netherlands (12.0 percent) and France (11.8 percent).

While this extra spending would be justified if it led to improved health outcomes, it does not appear that American health outcomes are any better than its OECD peer group. On top of having high per capita spending, America's spending growth on health care is rising at a far faster rate than its peers as shown on this graph:

Here is a graph breaking down total spending on United States health care in 2009, showing how total spending of $2.486 trillion was $572 billion above expected spending when compared to healthcare expenditures in other developed economies:

These extra expenditures were based largely on comparably higher outpatient care costs, drug costs and health administration and insurance

When adjusted for inflation, cumulative real per capita spending on health care has grown by 4.9 times as much as GDP since 1960 as shown on this graph:

While the Great Recession did slow down the growth rate in spending on health care, certain categories saw very small reductions in spending growth, particularly long-term and home care and outpatient care as shown on this graph:

With the first baby boomers hitting their mid-60s this year, unless the upcoming senior cohort is willing to live in squalor, eat cat food and change their own Attends, annual spending growth of only 6.6 percent on long-term and home care is going to seem positively reasonable.

What is particularly concerning about all of this is that spending on American health care is showing no sign of slowing down at the same time as rising debt levels of government is showing no sign of slowing down. Washington relies very heavily on individual income taxes with nearly 85 percent of its revenue coming from the voting masses. With personal income growth stalling and people leaving the workforce in droves either out of frustration or because they are retiring, unless Washington feels like committing political suicide by raising personal taxation levels, revenue levels will not grow at the pace needed to fund health care costs that are rising at 7 percent annually ad infinitum.

Is it just me or does it look like America could well be entering the perfect health care storm? Two things are obvious, first, the current scenario is not sustainable and second, this issue alone will make it extremely difficult for Washington to cut its outlays.

Extreme Rain and Snow

2012-08-09T08:04:00.001-03:00

An interesting report that can be found on the Environment America website caught my eye, especially in light of the rather odd weather this past year. "When It Rains, It Pours" by Travis Madsen and Nathan Willcox, takes a look at the increase in extreme precipitation events from 1948 to 2011. I found this research most interesting, especially in light of this map which shows this year's drought conditions throughout the United States:

Here's what the D0 drought designation means:

Here's the FDA's crop disaster loss map for the 2012 crop year:

It certainly looks like the federal government is planning for major crop losses across most of the contiguous United States, doesn't it? That's why I found the report from Environment America so interesting.

The authors of the report analyzed more than 80 million daily precipitation records from thousands of weather stations across the United States over the last six decades. With the 24 hour news cycle, consumers of the media are exposed to a litany of "one in a hundred year events" from across the United States and around the globe. Did the authors find that there were actually more high volume precipitation events in recent years than there were two generations ago or is it just an artifact created by the media looking to fill vast periods of empty air time?

The authors' analysis showed that extreme precipitation events, including both snow and rain, have become increasingly frequent since the late 1940s. Basic high school geography taught all of us that warmer temperatures causes more evaporation and transpiration, an important part of the water cycle that ultimately ends with precipitation. As well, we all know that warmer air is capable of holding more moisture. Using satellite data, scientists have found that the water content of the atmosphere is increasing at a rate of about 1.3 percent per decade, a number that is in line with what would accompany the 2 degree Fahrenheit increase in temperature over the past 5 decades.

Fuelled by higher water vapour content, weather systems now contain more moisture that falls to the earth as snow, rain and hail. Scientists have noted that there have been a significant increase in the number of very heavy precipitation events around the world, however, there are some areas that appear to be bearing the brunt of the increase. One of these areas is the mid-latitudes of the United States.

Scientists have made four interesting observations about precipitation in North America:

1.) The average amount of rain falling on days with rainfall has increased for all of North America.

2.) Overall precipitation across North America has risen over the last 50 years (a 7 percent increase in the United States) and extreme downpours have become more common with the amount of precipitation falling in the heaviest one percent of rain events increasing nearly 20 percent.

3.) Extreme downpours were 20 percent more frequent in 2007 than they were in 1950.

4.) The most intense, large downpours have become more frequent toward the end of the 20th century.

Here is a graph showing the number of extreme precipitation events per weather station per year from 1948 to 2011:

If there were no increase, the dashed orange line would represent the frequency of extreme storms (i.e. there would be no change with time). The data shows that the number of extreme precipitation events has actually increased around 30 percent over the six decades. The top five years with the greatest increase in the number of extreme events have all fallen in the last fifteen years including 2008, 1996, 1998, 2010 and 2004.

Which parts of the United States have seen the greatest increase in severe precipitation events over the past 60 years? Here is a chart showing the percent increase in storm frequency and how the time between major events has changed:

Lastly, let's take a look at a map showing the frequency of extreme storms at various weather stations across the United States:

On average, the biggest storms in 2011 produced about 10 percent more precipitation than the biggest storms 60 years earlier. While that may not seem significant, again, the amount varies greatly across the United States. New England saw a 26 percent increase and the Middle Atlantic region saw a 23 percent increase.

At the state level, New Hampshire and Vermont saw total precipitation from the biggest precipitation events rise by an average of 34 percent over the six decades and Massachusetts, New York, Maine, Pennsylvania, New Jersey, Connecticut and Delaware all saw increases of 20 percent or more. In total, 43 states saw a significant increase in total precipitation from their largest annual storms.

Extreme storms are now responsible for an increasing percentage of total annual precipitation across the nation. In the late 1940s, extreme events were responsible for around 8 percent of total annual precipitation. This has risen to just over 10 percent by 2011 but what is most concerning is that, since 1975, the amount of precipitation from severe weather events has risen at an increasing rate.

If, indeed, there is veracity to the spectre of global warming, given the fact that atmospheric moisture content is so closely tied to air temperature, it is likely that the trend towards increasingly severe precipitation events will continue to grow. This will impact all of us; food prices, insurance rates, the necessity for stronger building codes to withstand flooding, infrastructure replacement rates etcetera will all be related to the occurrence of severe weather.

The Never-ending Costs of the Iraq War

2012-08-08T15:08:00.002-03:00

I spend a bit of time most days perusing through the online versions of the world's major mainstream media outlets and every so often, I cross paths with something that I find interesting. Today was no exception.

I'll open this posting by giving my readers a bit of background about the Royal Jordanian Air Academy. You'll see why later.

The Royal Jordanian Air Academy or RJAA was established in 1966 with its main campus in Amman, the capital city of Jordan with a satellite campus in Aqaba. The Academy is considered to be one of the leading aviation training centres in the Middle East and it trains both private and commercial pilots as well as maintenance technicians. RJAA is privately owned by the following individuals and companies:

RJAA's major shareholder and Chairman, Mohammed Abu Ghazaleh, originally from Palestine, now lives in San Francisco. Arabian Business magazine considers him to be one of the world's most influential Arabs. His net worth in 2011 was $2.4 billion and, rather surprisingly, he is the Chairman and CEO of Fresh Del Monte Produce Inc., purveyors of bananas and pineapples among many other things.

Now you ask, what does this have to do with anything?

Well, it seems that American taxpayers will be forking over hundreds of millions of dollars to one of Mr. Abu Ghazaleh's enterprises, the aforementioned Royal Jordanian Air Academy. According to a release posted here on the U.S. Department of Defense website, the U.S. Air Force has awarded RJAA a firm, fixed-price contract to provide Type 1 Special English language and technical aviation training for Iraqi Air Force technical personnel between now and August 8, 2013. The total amount of the contract - $370,779,589 for the year, which works out to $1.02 million per day. Note that this contract is not for pilot training, just for English language and technical learning.

Interesting, isn't it? The costs of war seem to never end, do they?

A New Deficit Record for Washington

2012-08-07T16:12:00.001-03:00

The latest Monthly Budget Review from the Congressional Budget Office is now out and it contains a mixed bag of news. In this posting, I’ll briefly look at the overall picture, followed by some detail on the data for the month of July and close with a more detailed look at total receipts and total outlays for the first ten months of fiscal 2012.

Overall, the CBO reports that, to the end of July 2012, the deficit was $975 billion, $125 billion less than the $1.1 trillion deficit incurred for the first 10 months of fiscal 2011. Revenues rose by $114 billion and outlays dropped by $11 billion as shown on this screen capture:

The deficit in July alone was $71 billion, down $58 billion from a year earlier, however, if one eliminates one-time shifts in payment, the deficit for the month of July 2012 would only have been down $22 billion from the same month a year earlier.

Revenues in July were up 15 percent from the same month a year earlier, largely because of increased receipts from individual income and payroll taxes. While that looks good on paper, about half of the increase was due to an additional work day in July 2012.

Outlays in July were $35 billion lower than a year earlier, unfortunately, once again because July 1, 2012 fell on a Sunday, about $36 billion in payments that would ordinarily have been made in July, were made in June. Basically, eliminating yet another one-off, outlays in July 2012 were $1 billion higher than in July 2011.

Now, let’s look at the entire 10 month period starting with revenues and closing with outlays.

Here is a screen capture showing revenues for the first 10 months of this fiscal year:

Revenues were up 6 percent on a year-over-year basis with the largest increase coming from corporate taxes which grew by $42 billion or 30 percent. This is largely a result of changes in tax rules which govern how quickly firms can deduct their capital expenditures. Individual tax receipts grew by only 4.1 percent with much of the increase due to growth in wages. Total receipts grew from $1.893 billion in 2011 to $2.007 billion in 2012, an increase of 6 percent. There was one interesting drop in revenue; receipts from the Federal Reserve dropped by $6 billion largely due to lower interest rates and the shift to lower-yielding less risky assets which resulted in smaller profits and thus, smaller payments to the Treasury. See, there is another unintended consequence of the Fed’s actions!

Here is a screen capture showing outlays for the first 10 months of this fiscal year:

Spending through July was down less than 1 percent on a year-over-year basis. Allowing for one-off events, Department of Defense spending dropped by 2.6 percent, Medicaid spending dropped by 11.4 percent while Social Security spending rose by 6 percent and spending on Medicare rose by 4.3 percent net of receipts. By far, the largest year-over-year percentage drop in spending was for unemployment benefits which fell 21.1 percent from $104 billion to $82 billion despite the fact that the number of unemployed only dropped by 8 percent from 13.908 million in July 2011 to 12.794 million in July 2012. As we all know, long-term unemployed Americans are simply falling off the statistical radar screen.

In closing, let’s take a quick look at two of my favourite numbers starting with the debt-to-the-penny and closing with the interest owing on the debt for the end of July 2012:

The total debt on July 31, 2012 was $15.933 trillion compared to $14.342 trillion on July 29, 2011, a rise of 11.1 percent. The interest owing on the outstanding debt for the first 10 months of fiscal 2012 is misleading because of a one-time accounting adjustment. Without the $75 billion adjustment, the total interest owing thus far this year would have been just over $398 billion. Despite the fact that interest rates on Treasuries are at or near all-time lows, it looks like the interest owing on the debt for 2012 will come very close to hitting a new record, somewhere in the $450 billion range without the one-time event. To put this into perspective, that’s roughly what Washington will spend on Medicare for all of 2012.

In closing, as most of us expected, Washington is headed for its fourth year in a row of trillion dollar plus deficits, a new record even when adjusted for inflation. While the deficit is down from the levels “achieved” between 2009 and 2011, the only thing saving the current administration’s bacon is ultra-low interest rates on the outstanding debt. If interest rates were to rise to a historically normal level of 5 percent, the amount of annual interest owing on the debt would swell to nearly $800 billion, more than what is currently spent annually on Social Security. That pretty much puts things into perspective, doesn't it?