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Generational Dynamics Web Log for 4-Jan-2011
4-Jan-11 News -- Republicans say they'll cut government spending

Web Log - January, 2011

4-Jan-11 News -- Republicans say they'll cut government spending

Palestinians to submit anti-settlement resolution to U.N. Security Council

Republicans say they'll cut government spending

Now that the Republicans are in the substantial majority in the House of Representatives, they're planning to cut spending, in order to reduce the budget deficit.

Here's what the Republicans plan to do, according to an analysis in the Wall Street Journal (Access):

"House Republicans are pledging to cut spending, and one early sign they're serious is the rules package they are bringing to the House floor tomorrow. More than the last time it held power, the GOP is changing the rules to make it harder to tax and spend. ...
In their new rules, Republicans are giving paygo the heave-ho and substituting a rule called "cut as you go." From now on, increases in mandatory spending—for new or existing entitlements—will require that spending be cut by an equal or greater amount elsewhere in the budget. ...
These new rules are ... a welcome sign that Republicans understand their November mandate and are thinking strategically about how to fulfill it."

The article lists a few more rules changes that I've omitted, in order to avoid tedium.

So the Republicans are "pledging to cut spending," but nowhere in this sympathetic analysis is anything that points to any places where actual spending will be cut. The most that can be said is that in a few trivial cases, some small spending increases will be avoided.

In 2008, I wrote the article, "One, Two, Three ... Infinity," in which I compared to the ever-increasing government spending plans to a book by George Gamow that I read in school in the 1950s.

My use of that particular phrase was to convey the idea that American debt was on an exponential growth path that would not be stopped except by a major financial collapse and crisis.

A few rules changes will not stop the deficit's exponential growth path. The whole idea is a big joke, typical of the jokes that we always see in Washington.

It's easy now, at the beginning of 2011, to fantasize reducing the deficit. But it's politically impossible to cut any government spending program or to increase taxes. Therefore, the deficit will only increase.

Furthermore, there's no way of knowing what crises will occur during 2011. The global economy is far more fragile today than it was a year ago.

In the US, the shadow inventory of foreclosed and distressed real estate has grown to something like 7-8 million homes. Those foreclosed homes are being held off the market by bankers who are waiting for home prices to increase. Once it sinks in that home prices are only going to decrease, there's a possibility of a full scale panic, with a million or two homes suddenly dumped on the market.

China has a massive real estate bubble that could burst at any time. China's quantitative easing program has pushed up the prices of real estate and commodities, and I understand that food prices have increased 30% in the last year.

Europe's financial crisis has been out of the news for the holidays, but few people believe that there won't be major crises coming, like the ones that Greece and Ireland experienced last year, requiring bailouts. Pundits have also been pointing out that US states like California and Illinois may also go bankrupt in 2011.

As far as I can tell, the assumption that almost everyone is making is that the economy is going to take off in 2011. The next assumption is that this will cause all financial problems to simply melt away. But as we've said many times, what they're hoping for is a reflating of the real estate and credit bubbles of five years ago, and that cannot happen.

One way that we know that a major financial crisis is yet to come is because no serious effort is really being made to reduce the budget deficit. However, the deficit budget must come down, one way or another, and therefore a major financial crisis of some kind, probably forcing a US Treasury default, must occur.

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The Palestinians are drafting a carefully worded resolution, to be presented to the U.N. Security Council, declaring that Jewish settlements in the West Bank are a major obstacle to ending the Palestinian-Israeli conflict. The wording of the resolution will mirror criticisms of Israel by the Obama administration in recent months, so that the U.S. will be politically unable to veto the resolution in the Security Council. "It's a very moderate resolution by design because we don't want the U.S. to veto it," Palestinian chief negotiator Saeb Erekat said Sunday. "We want the international community to tell Israel that the settlements are against international law." LA Times

Following Saturday's bombing of a Coptic Christian church in Egypt, killing 21, Germany's Coptic Christian community has also reported receiving threats from radical Muslims. Spiegel

The government of Greece plans to build a 206 km (128 mile) wall along the land border between Greece and Turkey, in order to keep out unwanted migrants. Each month, thousands of migrants, many from Africa and Asia, have been crossing from Turkey into Greece, using it as an entry point into the European Union. Many of them have been put into detention camps that have been called "degrading." The fence will be modeled along the 1,050 km fence along the U.S. border with Mexico. EU Observer

(Comments: For reader comments, questions and discussion, see the 4-Jan-11 News -- Republicans say they'll cut government spending thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-Jan-2011) Permanent Link
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Generational Dynamics Web Log for 4-Jan-2011 4-Jan-11 News -- Republicans say they'll cut government spending

Republicans say they'll cut government spending

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Generational Dynamics Web Log for 4-Jan-2011
4-Jan-11 News -- Republicans say they'll cut government spending