The late North Carolina Senator Jesse Helms once told a story of a defense planner in the early years of World War II, who was tasked by his colleagues to figure out how the United States could supply England. He thought for a while, and then proposed that we should drain the Atlantic Ocean and drive the provisions over by truck. When his colleagues protested that this plan was hopelessly unrealistic, the planner responded, "I'm the big picture guy. Implementation is your problem."

There is some measure of this problem in just about every budget-deficit-reduction plan. The budget is big and complex. Many claims of budget savings are very hard to verify. Yet if the individual pieces do not pan out, the much bigger whole will break apart.

by Joe Minarik, CED Senior Vice President and Director of Research

Sadly, we have seen the end of the Supercommittee. It failed to meet its deadline to report a deficit-reduction bill to the Congress.

But equally sadly, we have not seen the end of the issue. The exploding cigar of debt is still lit and burning. And we do not know precisely where in the cigar the charge is located. We are living on borrowed time – as well as borrowed money.

In the near term, the national sport – at least in Washington – will be the blame game. (In St. Louis, it's still baseball.) It will be an exciting game, because there is so much blame to go around.

Now that Republicans and Democrats on the Joint Select Committee on Deficit Reduction have exchanged "plans" to reduce deficits and meet at least their $1.2 trillion to $1.5 trillion goal, the time has arrived to assess where the supercommittee is going and where it should go.

by Joe Minarik for Bloomberg Government

By now just about everyone understands that the root cause of the federal government's budget problem is health care, driven mostly by the $555 billion a year Medicare program.

 

While popular opinion fixates on Social Security as the big "entitlement" problem, health care is by far the bigger cost driver. Between now and 2085, Social Security spending is likely to increase from 4.8 percent of the gross domestic product to 6.4 percent, according to the Congressional Budget Office. That's an increase of 1.6 percentage point in 74 years.

 

Net health-care spending, meanwhile, is expected to increase from 5.1 percent of GDP to 17.2 percent in 2085, or more than a three-fold leap. CBO says the program will cost taxpayers $903 billion by 2020.

 

The enormous projected growth in health-care spending has led many elected lawmakers to the obvious conclusion: Forget about everything else, just focus on health care. Such a policy recommendation is airtight, except for one problem: It's wrong.

By Charles Kolb for the Huffington Post

The current price of a share of publicly traded stock reflects the discounted net present value of that company's expected future earnings. That's how an economist explains the value of a publicly traded American company. The company's aggregate value -- its market capitalization -- is the total value of all those outstanding shares, which reflect the stock market's value of the company's future earnings. That amount is discounted, of course, because a dollar's worth of future earnings is worth less than a dollar in hand today.

By Joe Minarik for Bloomberg Government

(Bloomberg) -- It's a bird. It's a plane. No...it's Supercommittee! And as it begins its work after Labor Day, we'll see whether it's able to leap a tall building -- the U.S. Capitol -- in a single bound.

The Joint Select Committee on Deficit Reduction, or supercommittee, was created by the debt-reduction law enacted in August to increase the debt limit. The law included $917 billion worth of reductions in annual appropriations over the next 10 years. The supercommittee is charged to take that to the next level by adding another $1.2 trillion in spending cuts or new revenue.

Like the comic-book Superman, the supercommittee is endowed with certain unnatural powers. A simple majority of its 12 members -- three from each party in each chamber of Congress -- can write a bill that must go directly to the floor of each chamber and be granted an up-or-down vote, without amendment, with no procedural votes or points of order allowed, and subject to a time limit, which means no filibuster in the Senate.

This is unprecedented authority. The Base Realignment and Closure (BRAC) act to shut down unneeded military bases came close by requiring Congress to vote on a commission's recommendations without amendment. In the end, BRAC was just a vehicle for a large, unaffected majority in the Congress to beat up on a small, greatly aggrieved minority.

The supercommittee is shooting with real bullets. Its decisions will affect virtually everyone in the country, and certainly every state and every House district. And that's why its powers may well be necessary to achieve a painful and fundamental shift in budget policy.

By Charles Kolb and John Arensmeyer for the Huffington Post

Headlines have dubbed it "unthinkable," and businesses small and large have urged
lawmakers for months to agree soon to ensure the country doesn't default on its debt.
But next week's August 2 deadline to raise the federal debt ceiling looms, and a recent
deal that could have resolved the issue fell through because some lawmakers couldn't
abide elimination of special tax breaks used mostly by the most affluent. It's alarming
that lawmakers have taken the debate so close to the wire, considering the havoc a
default would wreak on small businesses and the economy as a whole.

By Joe Minarik for Bloomberg Government

(Bloomberg) -- Avoiding a debt crisis requires squaring an ideological circle. Republicans say they will not accept tax increases; Democrats will not accept entitlement cuts unless Republicans give on taxes. 
There's no Gordian Knot solution to this dilemma. If it's to be solved -- and we had better pray that it is -- it will be with some transparently theatrical device at whose awkwardness the two sides will wink and nod.
Senate Minority Leader Mitch McConnell of Kentucky put such a clever device on the table, though conservative House Republicans continue to protest that it allows debt-limit increases through the next election with no deficit reduction whatsoever. So what else might work?

on Bloomberg TV

Minarik speaks with Deirdre Bolton and Erik Schatzker on Bloomberg Television's "InsideTrack" about about negotiations among lawmakers on raising the U.S. debt ceiling.
Watch the interview...

By Charles Kolb for Huffington Post

The Obama administration is now out of ammunition: neither monetary nor fiscal policy options are available to stimulate economic growth, reduce unemployment, and encourage consumer spending.

Since December 2008, the Federal Reserve's overnight federal funds rate (the interest rate the Fed charges banks for short-term loans) has been at 0.25 percent. With modest inflation, that interest rate becomes negative. The Fed is paying banks to borrow, and yet borrowing is minimal. Banks are still not lending, and consumer spending has not rebounded to anywhere near pre-Great Recession levels.