October 19, 2009

Year-end Deficit Report, Part 1: AP’s Crutsinger Ignores Effect of Accounting Change, Growth in National Debt

ObamaAndRedInkTownhall0309Though its $1.4 trillion red-ink result was mostly known well ahead of its final issuance, the Treasury Department either conveniently got its year-end accounting work done in time for a Friday afternoon release of the final Monthly Treasury Statement, or held it until that time. Last year’s report was released on Wednesday, October 15.

The final statement shows receipts of $2.105 trillion, “outlays” of $3.522 trillion, and a “deficit” of $1.417 trillion. That is $962 billion higher that last year’s “deficit” of $455 billion.

The terms “outlays” and “deficit” are in quotes for reasons I will explain in this post.

There is good news and bad news about the reporting on the results by the Associated Press’s Martin Crutsinger. The good news is that after at least three months of obsessing over how the wars in Iraq and Afghanistan were contributing to the massive increase in this year’s “deficit” compared to fiscal 2008 when they have been almost completely if not totally irrelevant (here, here, and here at NewsBusters; here, here, and here at BizzyBlog), Crutsinger correctly dropped them from the discussion. Of course, that means he was repeatedly wrong to cite those wars or even defense spending as a whole as a contributing factor in the first place. But don’t wait by the phone for Martin’s apology.

The bad news follows.

First, Crutsinger didn’t explain that an accounting change having nothing to do with fiscal frugality was probably the major reason why the “deficit” came in lower than the $1.75 trillion he cited as the administration’s February prediction. Additionally, though it was an ideal opportunity to do so, he didn’t inform readers that the reported “deficit” is nowhere near the amount by which the national debt increased during the fiscal year.

Here are key paragraphs from Crutsinger’s report that apparently go final until Saturday morning:

The federal budget deficit has surged to an all-time high of $1.42 trillion as the recession caused tax revenues to plunge while the government was spending massive amounts to stabilize the financial system and jump-start the economy.

The imbalance for the budget year ended Sept. 30, more than tripled last year’s record. The Obama administration projects deficits will total $9.1 trillion over the next decade unless corrective action is taken.

As a portion of the economy, the budget deficit stood at 10 percent, the highest since World War II, according to government data released Friday.

President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling. But economists worry the government lacks the will to make the hard political choices to cut spending and raise taxes to get control of the imbalances.

Administration officials noted that as large as the $1.42 trillion deficit was, it had been projected to be even higher. The administration forecast a $1.75 trillion deficit when Obama sent his first budget proposal to Congress in February, a figure that had been trimmed to $1.58 trillion in an administration update issued in August.

The lower figures reflected in large part the fact that spending from the $700 billion bailout package turned out to lower than originally anticipated.

…. Failure to curb runaway deficits could trigger a financial train wreck that would push interest rates and inflation higher, and send the dollar crashing if foreigners suddenly started dumping their holdings of Treasury securities.

I must cite a few things before getting to Crutsinger’s key omissions:

  • Crutsinger’s first sentence acts as if the government really has given the economy a “jump-start.” American workers who have continued to lose jobs to the tune of hundreds of thousands per month are surely wondering where the evidence of a jump-start is.
  • Note the reference to “the Great Recession,” capitalized, in the fourth paragraph. Though I have seen usage of the term pick up elsewhere since early this year, I believe this is the first use of the term at AP, and it certainly is by Crutsinger when covering Treasury’s monthly report. I believe this is an attempt to establish a historical marker, in the optimistic hope that it will be understood as the Great Bush Recession, especially if it is ultimately declared to have ended during the third quarter. Readers at BizzyBlog know that pinning the recession solely, or even mostly, on George W. Bush, who nonetheless contributed to it, is absurd. I have been saying so since July 2008.
  • Also note the reference to “hard political choices” and “raising taxes” that same paragraph. I sense that the press is getting ready to tell us, “Oh gosh, he really hates to do it, but Dear Leader is going to have to raise taxes on everyone.”
  • His opening mention of the year-over year decline in receipts understates its significance and incorrectly blames it entirely on the recession. Part 2 will deal with that matter separately.

Now to Crutsinger’s two big omissions.

The “deficit” is as “low” as it is because effective with April’s Monthly Treasury Statement, the government began accounting for its “investments” in financial institutions, General Motors, Chrysler, and other entities on a “net present value” (NPV) basis. In other words, even though lots of money has been laid out, that money is not part of “outlays.” At the time of the change, the impact was to reduce “outlays” through March 2009 by over $175 billion.

Since then, the government has laid out additional billions first to get GM and Chrysler to limp into bankruptcy, followed by even more billions to help the companies emerge from it. NPV accounting requires you to write down such “investments” to their realizable value. I haven’t seen any evidence that any such writedowns, which would serve to increase the reported deficit, have occurred, even though almost no one believes that Uncle Sam will ever see a full return of all of the money has thrown at the two companies. If someone is aware of a writedown, I’d like to know about it.

The bottom line is that, even after considering repayments of TARP funds made by some banks, the reported “deficit” would have been a lot higher than $1.42 trillion had the government not moved to NPV accounting. Though NPV has its place, it never belongs in what it supposed to be a cash flow statement.

The second omission has to do with a problem that I have begun calling the “unreported deficit.” It has admittedly been present for years, but it has ballooned to gigantic levels during the past two fiscal years.

In normal bookkeeping, you would expect the change in the national debt net of cash assets to be equal to the amount of surplus or deficit reported. But the U.S. government doesn’t do things the normal way, and hasn’t been since LBJ made Social Security part of a “unitary” budget in the 1960s. For the past 20-plus years, the reported “deficits” were lower than the increase in the national debt largely because the rest of the government has raided Social Security surpluses and spent the money on other things. This year, though, the Troubled Asset Recovery Program (TARP) and other items were added into the “off-budget” mix.

The past two years’ unreported deficits have been bigger than the reported “deficits” by stunning amounts (go here to verify the numbers that follow):

  • During fiscal 2008, the reported “deficit” was $455 billion, while the national debt increased by $1.017 trillion ($10.025 trillion minus $9.008 trillion) — a $562 billion difference between reported and actual.
  • During fiscal 2009, the reported “deficit” was $1.417 trillion, while the national debt increased by $1.885 trillion ($11.910 trillion minus $10.025 trillion)– a $468 billion difference between reported and actual.

These differences are now so big that they really shouldn’t be ignored by reporters genuinely interested in informing readers and viewers about Uncle Sam’s true fiscal situation.

Crutsinger, of course, did ignore it. I expect that he and the vast majority of his establishment media colleagues will continue to do the same. From this point on, I don’t plan to, especially given that even the reported national debt doesn’t fully reveal the true extent of this nation’s financial peril.

Cross-posted at NewsBusters.org.

Monday Night Short: ‘Make Mine Freedom’

Filed under: Economy,Scams,Taxes & Government — Tom @ 7:54 pm

Nicely done, and at least as relevant now as it was in 1948 when it was originally made (HT to an e-mailer):

IBD: It Could Be Loral All Over Again

The Obama administration is apparently intent on partying with the Chinese communist government like it’s the pre-1999 Clinton administration.

Here’s Investors Business Daily, as usual reporting news that the establishment press must not have deemed important:

Selling China The Rope To Hang Us

National Security: On the eve of a visit by China’s No. 2 ranking military officer, the Obama administration loosens export controls on technology that will benefit Chinese missile development. It’s deja vu all over again.

The Pentagon has announced that Chinese Gen. Xu Caihou will visit the United States and meet with Defense Secretary Robert Gates on Oct. 26. Xu is vice chairman of the People’s Liberation Army Central Military Commission. While here, Xu will visit American military installations around the U.S., including the U.S. Pacific Command.

Perhaps Xu will bring with him a note of thanks for the administration’s decision to shift authority for approving sales of missile and space technology from the White House to the Commerce Department. As Bill Gertz points out in the Washington Times, the little-noticed “presidential determination” made Sept. 29 alters a key provision of the 1999 Defense Authorization Act.

That provision required that the president notify Congress whether a proposed transfer of missile and space technology to China would harm the U.S. space-launch industry or help China’s missile programs. It was enacted after a Clinton-administration scandal in which U.S. companies were allowed to transfer technology that jump-started a troubled Chinese missile program.

After the failed launch of a satellite built by Loral Space and Communications Ltd. and attached to a Chinese rocket in February 1996, Loral provided 200 pages of data to China’s Great Wall Industry Corp. to correct the guidance system problems of their “Long March” rockets, which blew up 75% of the time. Hughes Electronics was also involved in the technology transfers.

On March 14, 1996, the Clinton administration transferred licensing responsibility for technology exports to the Commerce Department from State and Defense and, as a result, our formerly strict export controls were effectively eviscerated. This transferring of licensing responsibility was made after a request from a man who would be the Democratic Party’s largest donor in 1996 — Loral Chairman Bernard L. Schwartz.

A May 1997 classified Pentagon report concluded that Loral had “turned over expertise that significantly improved China’s nuclear missiles” and that “United States national security has been harmed.”

So the mechanism is in place for the same thing to happen again. In the late 1990s, it helped make China a player. This time, it could easily make it an equal, or given the size of its population and our debtor status, a conqueror.

There IS something treasonous about giving technology capable of ultimately destroying us to an ideological enemy, isn’t there? Or maybe it’s that with Barack Obama, Anita Dunn, and others running, the show, this administration and congress don’t consider communists ideological enemies any more. Maybe we’re all comrades now.

Wanna bet?

Climate Change and ‘Cap & Trade’

Filed under: Business Moves,Economy,Environment,Taxes & Government — Tom @ 12:15 pm

It’s hard to underestimate the dangers if enviros get their way. Here’s a vid that does a great job in a relatively short amount of time (give it a few seconds to load):

Climate Chains from Vimeo.

Lucid Links (101909, Morning)

Filed under: Lucid Links — Tom @ 10:27 am

Doubling Down on Deception — From Noel Sheppard at NewsBusters –

On Sunday, ESPN host and sportswriter Michael Wilbon said conservative talk radio personality Rush Limbaugh is “univerally reviled by African-Americans.”

As amazing as it may seem, this was at least the second time Wilbon made this statement on national television.

Uh, not exactly, Mikey. Watch this O’Reilly Factor segment guest-hosted by Juan Williams:

As you’ll see, Williams first had some choice words for a previous guest who aimed an Uncle-Tom barb at him (“you can go back to the porch”). Williams also noted that DeMaurice Smith of the NFL Players Association, one of the most outspoken critics of Limbaugh’s potential involvement in NFL team ownership, has strong ties to the Obama administration.

Here’s the relevant portion of the transcript that nuked Wilbon at least 36 hours before he repeated his lie (internal link added by me):

Williams: Joining us now from Seattle, Washington is Reverend Ken Hutcherson, a former NFL linebacker and a personal friend of Rush Limbaugh. …. If you’re a black man, and you stand up and say something that’s not politically correct, defend a Rush Limbaugh, and you’re his friend, you see what they did to me. You must know what they will do to you.

Hutcherson: Well you’ve got to understand something, Juan, and it’s very important for everyone listening to understand this. I want to be extremely clear on this. This is extremely personal to me. You see, to you Juan, this is a news story, a big news story. …. This is more than a news story. Rush and I are friends, close friends. And when you talk about being close friends, I don’t see Rush as a white man. He’s my friend. I don’t see him as a talk show host, a very famous talk show host. He’s a very close friend. That overrides my political views and everything. So this attack is about a friend of mine who has been lied upon, and I don’t care what others think about it.

…. I’m a Christian. I’m a pastor. I lead a very large church. And what they’re doing to Rush? This isn’t about just Rush. It’s about attacking conservative values in America. I’m not going to put up with it because he’s a friend ….

The Williams segment aired Friday evening. Michael Wilbon nonetheless repeated on Sunday what had by then been objectively proven to be a flat-out, total lie.

The Williams segment vindicates my Thursday characterization of the whole sordid episode as Stalinist, and expands its scope well beyond the “hard-news” press.

My guess is that Rush had no idea that Rev. Hutcherson was going to go on Fox to defend him, or that if he knew, he tried to talk him out of it. But what Hutcherson did is what real friends do. Well done, Reverend.

Shame on you, Michael Wilbon.

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Today’s Positivity post is yet more proof that adult stem cell research (ASCR) is making far, far more progress than the embryonic variety (ESCR). ASCR also happens not to take human life in the process, while ESCR does.

In a March post, I noted that President Obama issued an Executive Order that not only opened up federal funding to ESCR but also revoked President Bush’s Executive Order that encouraged the pursuit of ASCR.

The practical effect of the EO is that the Obama government is betting on the wrong horse. The political point is that this is yet another in a long, long line of examples where the President and his supporters proactively favor measures that make the taking of innocent human life easier, while opposing laws that would make it more difficult. The moral point is that this administration is clearly in the camp of those who have no problem taking human life in the name of supposedly “higher” values.

Obama himself even opposed the Illinois equivalent of the Born Alive Infant Protection Act when he was an Illinois senator …. FOUR times (HT Pro Ecclesia):

All of this shows that giving these people the kind of control they they want over the day-to-day administration and provision of health care is far too dangerous to even contemplate.

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Meanwhile, Obama’s Afghanistan dither continues.

Gateway Pundit, who has just moved to First Things, contrasts the current limbo with what Obama said while campaigning last year:

“His plan comes up short. There’s not enough troops, not enough resources and not enough urgency. What President Bush and Senator McCain don’t understand is that the central front in the War on Terror is not in Iraq and never was. The central front is in Afghanistan and Pakistan where the terrorists who hit us on 9-11 are still plotting attacks seven years later.”

So why the holdup on what McChrystal wants?

Positivity: Scientists Closer to Making Safe Patient-Specific Stem Cells Without Killing Unborn

Filed under: Life-Based News,Positivity — Tom @ 5:56 am

From LifeNews.com (paragraph breaks and internal links added by me):

Scientists are a big step closer to their long-term of goal of creating patient-specific stem cells that are safe to use and don’t require the destruction of embryos.

Induced pluripotent stem cells – also known as iPS cells – are all the rage in the nascent field of regenerative medicine. Like embryonic stem cells, they have the potential to become any type of cell in the body and could be used to grow replacement parts, such as insulin-producing beta cells for diabetes patients or nerve cells for repairing spinal cord injuries. Even better, they can be made by reprogramming skin or other cells from the patients who need them. That not only eliminates the need to use embryos, it ensures that the replacement tissues made from iPS cells are genetically matched to patients and won’t be rejected by the body’s immune system.

But there’s still a big catch: In order to rewind adult cells to a pluripotent state, researchers have to turn on a set of dormant genes that have the potential to cause tumors. So do the viruses they use to activate those genes. So researchers have been looking for ways around this problem.

One approach is to snip out the genes and viruses once the reprogramming is complete. Another is to use DNA sequences called transposons in place of viruses, then delete the transposons after they’re no longer needed. One group of researchers has even used genetic engineering to modify the key genes so that they can enter the skin cells without requiring viruses or transposons.

But many scientists think the safest approach is to replace the genes altogether with so-called small molecules. In a study published online today in the journal Cell Stem Cell (abstract here), researchers from the Harvard Stem Cell Institute report that a single compound they dubbed RepSox can replace two of the four key reprogramming genes. “We’re halfway home, and remarkably we got halfway home with just one chemical,” senior author Kevin Eggan, a professor in Harvard’s department of stem cell and regenerative biology, said in a statement.

The Harvard Science and Engineering announcement is here.