Infinite Credit Card Update: The Obama Budget
/Our President has now proposed a budget for the upcoming fiscal year. It's a few months late, but I guess that's better than just blowing off the job completely, as the Senate has done for the past few years.
To read reports from the President's cheerleaders in the press, the big news is his proposal to use a somewhat modified index for adjusting Social Security payments for inflation, otherwise known as "chained CPI." That's supposed to save about $340 billion over the next ten years, hugely back-weighted to the later years of course. That would be maybe a 3 - 4% savings on the cash-basis deficit, if you think the cash-basis deficit is a meaningful figure.
But just to see if they're at all serious about their job, let's look at a few other programs running on autopilot on the infinite credit card.
Student loans: Now over $1 trillion, essentially all guaranteed by the Federal government in an off-balance sheet item not reported as part of the debt. Any problem there? If you follow this at all, you've probably seen delinquency rates of between 5 and 10%. Well, in late February 2013 the New York Fed held a briefing on the latest status of the student loan situation. This link will take you to a full deck of the power point slides. At page 11 we learn that the delinquency rate has gone from about 9% as of 2004 to 17% as of the most recent data in 2012. Oh, but wait -- on page 12 we learn that some 44% of the student loans are not in "repayment status," either because the student is still in school or has some kind of deferment. The 17% "delinquent" is of all student loans. What percent is that of the remaining 56% who are supposed to be repaying? The answer is that over 30% of the student loans in "repayment status" are delinquent. And rising rapidly. They will be very lucky to get back half of the trillion dollars of student loans. Meanwhile, they continue to make more of them, and the trillion is growing rapidly. And the students who will be defaulting on the half trillion or so face a future of personal financial disaster. Nothing I can find in the President's budget to address this. Hey, it's off balance sheet!
PBGC. How exactly the Federal government thought it was a good idea to guarantee all private defined benefit pensions, I will never understand. Where is that now? An article here from the website "Top 1000 Funds" about a year ago (April 13, 2012) says that the "funding shortfall" of those top funds was $1.415 trillion.. That of course comes from their official reports. You can believe the number if you want, but I have strong reason to suspect that they are valuing their liabilities using wishful thinking discount rates of 7 and 8%, some even higher. Suppose you used a more realistic 5%, or even 4%. You would need lots of terabytes of data to do an exact calculation, but a back-of-the-envelope estimate tells me that the real "shortfall" (all guaranteed by the PBGC) is in the $5 trillion range. Anything in the President's Budget to deal with this? Yes! Deep in the Budget at page 127 it says that they propose "to give the PBGC Board the authority to adjust premiums . . . ."; and then they credit themselves with a $25 billion deficit reduction for that over 10 years. Nothing to it! In reality defined benefit plans are in a death spiral, and the PBGC with them. From Walter Russell Meade today: "If these estimates are accurate, the PBGC itself could run out of money within 15 years, and much sooner if two particularly large troubled funds become insolvent." Well, in the great tradition of politicians everywhere, Obama will be gone.
Food Stamps. This is the program that has nearly doubled from 26 million to 48 million recipients in four years of Obama, and now runs at close to $80 billion per year. Is that just going to double again in the next four years, or are there going to be some efforts to bring it under a semblance of control? Other than a two-word reference to "program integrity," I don't find anything meaningful about trying to bring it under control. At page 61 of the Budget, we find that we will now provide what appears to be an additional $7.6 billion in "discretionary nutrition programs" including for the WIC programs for "women, infants and children." My bet is on continued explosion.
Disability. A few days ago I noted that this program has about doubled under Obama and now runs at about $124 billion per year. Since then I have seen several articles pointing out that the true cost of the disability program needs to include the fact that disability recipients become entitled to Medicare coverage after two years, even though they are under 65. That adds another $80 billion, so the actual cost of the disability program is now over $200 billion per year. And growing like a weed. Anything in the Obama Budget to bring that under control? Nothing that I can find.
And I haven't even started to look at the numbers for Medicare, Medicaid, and Obamacare. The overall impression is that they think that handing out the free money is a good thing. Deficits are projected to decrease somewhat because the explosion of commitments is way underestimated and then covered over by decreases in defense spending. But I seriously doubt that it will be possible to continue to hide the problems for the full four years.