Obama's Social Engineering Plan Doomed to Fail

I fully expect to see President Obama’s social engineering plan collapse in late calendar year 2009 and thus all of the debate over the plan will become moot. The collapse will occur because the President has succumbed to the very trait that he accuses CEOs of having in the private sector---overreaching for short-term goals to the detriment of the long-term picture.  In his zeal for instant success for his social engineering agenda, he and his team overlooked some basic numerical facts.

Obama has larded up the budgeted operating deficit for the fiscal year ending September 30, 2009 to the astronomical amount of $1.75 trillion (about $5,700 additional federal debt for each American adult or child)---but he has overlooked the fact that he won’t be able to raise the money to pay for it

That is because the President’s budget for fiscal year 2009 calls for covering the $1.75 trillion deficit and certain other items via a highly unrealistic $2.6 trillion (45%) increase in one fiscal year in the federal debt held by the public, from $5.8 trillion at September 30, 2008 to $8.4 trillion as of September 30, 2009.

So how is the President’s debt financing plan doing as of March 25, 2009? Answer: only a $0.9 trillion increase to $6.7 trillion of debt held by the public.  I suspect most of that $0.9 trillion increase in basically the first half of this fiscal year ending September 30, 2009 represents a temporary flight from the stock market to federal securities, as $0.5 trillion occurred in October 2008 before Obama’s election.

Even though it is to his temporary political advantage to do so, I seriously doubt that even Obama-magic can scare another needed $1.7 trillion from the stock market into federal securities in the remaining slightly more than six months before September 30, 2009.

About one-half of the federal debt held by the public is in the hands of foreign countries, the principal holder being China.  China expressed its strong displeasure in March regarding the projected huge increases in our federal operating deficits and public debt.  China also has started bandying about the specter of a global reserve currency to replace pegging to the US dollar.  Thus there appears very little hope for increased foreign investment in federal debt in the next few months.

So apparently the only alternative left is for the Federal Reserve (a legal entity separate from the federal government) to buy more federal government debt.  The Federal Reserve recently declared its intention to buy at least $300 billion of federal government debt.

But that purchase, and any others necessary to achieve the $8.4 trillion debt level sought by September 30, 2009, will have to be done via the Federal Reserve printing more money.  That is because the combined capital of all the Federal Reserve banks was only $46.2 billion (yes, only billions) at March 25, 2009, per the Federal Reserve banks’ weekly information release.

However, it is a certainty that any really significant printing of dollars will trigger inflation, and printing enough dollars for the Federal Reserve bank to buy enough debt to reach the targeted $8.4 trillion in federal government debt by September 30, 2009 probably will collapse the US dollar and set off a very disastrous hyper-inflation to go with this severe recession (I think it already is the beginning of a depression).  The US economy might never recover from such a blow.

Our only hope is that the President will rein in his unrealistic and highly costly social engineering plans before hyperinflation goes off in 2009.

But even if Obama’s wobbly social engineering plan survives 2009, the federal government’s financial instability will be worsened even more in that the President’s budget calls for the federal government to run operating deficits totaling $7.0 trillion for fiscal years 2010-2019, resulting in $15.4 trillion of federal debt held by the public at September 30, 2019. 

Worse news, the Congressional Budget Office now estimates that the President’s budget grossly understates the problem in that the federal operating deficits for fiscal years 2010-2019 will actually total about $9.3 trillion and the federal debt held by the public actually will be more like $17.3 trillion by September 30, 2019. 

And that is without addressing the already huge funding crisis regarding Medicare and Social Security (more details later). 

The preceding makes it evident that it is past time for Obama and the media to begin fully delivering on his promise of full disclosure regarding the finances of the federal government---particularly in this fiscal year 2009 where he has budgeted an operating deficit of $1.75 trillion that will be 80% of its $2.19 trillion revenue.  How many companies would you invest in that lose 80 cents on every dollar of revenue?  None. 

Here are some of the needed disclosures, direct from the audited financial statements of the federal government for its latest fiscal year, ended September 30, 2008:

  • Using the accrual-basis of accounting, which most all companies in the private sector are required to use (i. e., record all of your assets and liabilities, not just cash receipts and disbursements), the federal government’s true operating deficit for fiscal 2008 was $1.01 trillion, not the $0.46 trillion cash-basis operating deficit for fiscal 2008 used as the takeoff point for calculating the fiscal 2009 budgeted cash-basis operating deficit of $1.75 trillion.  The true accrual-basis of accounting for the budgeted operating deficit for fiscal 2009 will be much greater than the budgeted cash basis deficit of $1.75 trillion.  That is because, for many years, the US government’s liabilities have been greater at the end of each year than at the beginning.
  • At September 30, 2008, the federal government’s $12.2 trillion liabilities were six times its assets of $2.0 trillion, creating an accumulated operating deficit of $10.2 trillion since the creation of this great country.  About $1.0 trillion (one-tenth) of the $10.2 trillion accumulated deficit was created in just fiscal 2008.  And fiscal 2009’s operating deficit will surely top $2 trillion (twice 2008’s $1.0 trillion), on the accrual basis of accounting.
  • As of September 30, 2008, the US government had an unrecorded liability of $43.0 trillion representing the total present value of future required expenditures for social insurance (Medicare, Social Security, etc.) for all living Americans---in excess of funds set aside at September 30, 2008 plus legally required future funding, plus projected future earnings on such assets.
  • If the unrecorded $43.0 trillion under funded liability at September 30, 2008 for social insurance were added to the September 30, 2008 accumulated operating deficit of $10.2 trillion, that computes to an approximately $174,000 liability owed, in effect, by every American adult and child.
  • And all of this is occurring in a financial reporting environment where:
    • The comptroller general of the US Government Accountability Office has had to deny an opinion on the US government’s financial statements every fiscal year since the law began requiring such an audit, commencing with fiscal year 1997.  The opinion denials have been due to material weaknesses in internal control. 
    • The comptroller general also stated that “The federal government did not have effective internal controls to determine the full extent to which improper payments occur and to reasonably assure that appropriate actions are taken to cost-effectively reduce improper payments as intended by the Improper Payments Act of 2002”.  Of those agencies that did report, “their estimates of improper payments, based on available information, totaled about $72 billion for fiscal year 2008, which represented about 4 percent of $1.8 trillion of reported outlays for the related programs”.
    • The comptroller general stated that for fiscal year 2008, the federal government’s books were out of balance by $29.8 billion.

 

These sickening disclosures expose the total fiscal ineptness of our elected officials and the federal government, to go with the now exposed fiscal naiveté of Obama and his leadership team. 

So how can they have the unmitigated gall to propose to overhaul the private sector of our economy?  They have already demonstrated they can’t run even one company, AIG.

It is glaringly evident that it will be necessary for the private sector, not the federal government, to pull this country out of this severe recession, if not already a depression.

Surely there are many tremendously skilled people out there in the private sector to lead us out of this, like Lee Iacocca, former savior of the Chrysler Corporation, and David Walker, just retired comptroller general of the GAO.

The private sector leadership team needs to be formed now and be ready to step in when the Obama plan fails late this year.

TexasGOPVote
 

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