What’s the largest Federal expenditure? (Hint: not defense)

The majority of the federal expenditures are to take money from one American’s pocket and put into another American’s pocket. You can see that in the federal government’s published numbers.

The Statistical Abstract of the United States has been published since 1878. The control page for federal finances is on-line.

In Table 454, for 2008, you can see that H&HS (Medicare, Medicaid, ADFC, and other entitlement programs) costs $709 billion. Social Security is $596.5 billion on-budget and $60 billion off-budget. Treasury – interest on the national debt – is now almost as large, $590 billion. Defense has gone up sharply in recent years because of the Iraq War, $583 billion.

So to summarize:

Medicare and Handouts	$ 709 billion
Social Security	656.5
Interest	590
Defense	583

The cost of TARP is unknown.

So the big ticket items are Medicare, Medicaid, Social Security, and interest on the national debt. The latter will be going up as the Obama and Democrats passed a budget with trillion dollar deficits as far as the eye can see. Fortunately, the Chinese government deprives its people of the right to consume, and with the savings of the Chinese and other countries, spending can continue in the United States.

You can learn more here:

The gateway to all Census Bureau statistics

The portal for all US government statistics

All tables may now be downloaded as Excel files so you can do your own analysis.

FHA to go bankrupt?

I wrote earlier that the FDIC is headed to bankruptcy.

The Federal Housing Administration, guarantor of so many bad loans, reports that capital reserves are only 0.53% of its total loans. The statutory requirement is 2%, so they are well below that. Meanwhile, the FHA states that it is “now helping to facilitate the market’s recovery.”

FHA Secretary Shaun Donovan states, “FHA is playing a critical role in restoring health to the housing market by helping working families access mortgage finance when private capital is tight.” That’s newspeak for “We are still making bad loans.”

I expect that the FHA will be standing in line at the Fed’s printing press.

California makes taxpayers give it a loan

Politicians found a new way to take money from taxpayers. The State of California Franchise Tax Board gave notice that tax withholding will increase 10%. Taxpayers can expect a larger refund when they file their income tax, but won’t earn interest on the money that they are forced to loan to the State of California. I predict that workers having less take-home pay before the holidays guarantees a weaker retail season in California. Expect fewer part-time retail hires for Christmas in Califormia, and more layoffs after the holiday season

Gold hits record (?) $1,092

Today, gold hit $1,092 per ounce. This is reported as a record. It is a record, but only in nominal prices.

One must always distinguish between nominal prices and real prices. Nominal prices are not adjusted for inflation. Adjusted for inflation, gold won’t be in record territory until it reaches the $2,000/oz. level.

The reason for the uptick today is the news that Central Bank of India bought 200 metric tons of gold last month.

Two conclusions can be made from this: (1) central banks don’t want to hold dollars and prefer a hard asset, and (2) speculators who think gold will continue to rise as the dollar depreciates should consider silver. Silver mining companies are often very leveraged and have the potential to have huge returns if a rising price of gold pulls silver with it.

Seven in one blow: the FDIC’s big week-end

I predicted in April that 100 banks would fail this year. Little did I realize that the 100 would be reached in October.

This past Friday, the FDIC closed seven banks. Interestingly, two of the notices of closure are in Spanish. It is only fair that those who are colonizing the USA should be notified in their language.

FDIC closes number 99, and the Community Reinvestment Act rolls on

San Joacquin Bank in Bakersfield CA failed on Friday. That’s the 99th bank to fail.

Meanwhile, the Community Reinvestment Act enforcement continues. That’s the law that requires banks to make loans to marginal borrowers. The CRA required banks to make sub-prime loans. The bill is now being paid. The FDIC publishes bank compliance with a law that should be repealed.

Do Deficits Matter? Thoughts on the “Laffer Curve”

Supply-side economists rely heavily on “The Laffer Curve.” A Laffer Curve in economics shows that two levels of taxation, one high and one low produce the same level of tax revenue to government. However, the lower one will create more investment and employment in the economy.

I am reading Brian Domitrovic’s Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity . It’s the first history book, by an historian, on the topic of supply-side economics.

Arthur Laffer never claimed to have created the “Laffer Curve.” Wall Street Journal reporter Jude Wanninski wrongfully attributed the curve to Laffer. Laffer himself writes that the idea originated with a 14th century Arab economist, Ibn Khaldan, and provides a quotation. Laffer also quotes Keynes’s General Theory, that after a certain point, increased taxation results in lower revenues.

Laffer claims that deficits don’t matter. Once he said that in 1988, in reference to voters who don’t care about the deficit, they care about employment and interest rates in their daily lives. More recently (2005), he was invited to talk to the Council of Foreign Relations on “Do Deficits Matter?” He argues current-account deficits don’t matter: “…. from about 1640 till about 1870, that’s a couple of years, we ran trade deficits that whole 230-year period, approximately. We built our country through foreign capital.” He also argues the budget deficit doesn’t work for stimulating economic growth; cuts of the marginal tax rates are what matter for economic stimulation. Laffer was a stronger supporter of Bill Clinton’s campaign and Clinton Administration’s cut of marginal tax rates in the 1990s, arguing that is what caused the economy to grow strongly. (He doesn’t mention that the Republicans had control of the House beginning in 1994, and all tax and spending bills have to start in the House.)

Don’t look for university professors to like Laffer. Laffer was one of the architects of Proposition 13 in California. That Proposition cut the tax support for public universities.

FDIC Headed to Bankruptcy?

The news today that the FDIC is demanding banks prepay their insurance contributions for 2010, 2011 and 2012 can only be interpreted as a desperate measure. If the FDIC can collect these fees from banks which may be in danger of collapse, it would be $45 billion more into the reserve fund. Those funds would be available to cover losses at the coming bank failures.

Once the $45 billion is spent, what would the FDIC do for funds next year? And in 2011 and 2012? If the FDIC runs out of money, will the government borrow from the Chinese, or will it print the money to pay off insured depositors?

I predicted in April that 100 banks would fail this year. So far the score is 95 banks insolvent.

The real unemployment is 16%

Mr. Dennis P. Lockhart, President and Chief Executive Officer of the Federal Reserve Bank of Atlanta recently gave a speech. In that speech, he stated,

“If one considers the people who would like a job but have stopped looking—so-called discouraged workers—and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent. “

It’s nice to have frank talk from a Federal Reserve official. We are at Great Depression levels of unemployment. While out-of-work labor and idle factories show there is no chance of wage-pull inflation in the future, inflation of commodity prices is likely to be the future of the US economy, because the money supply has expanded so quickly.

It’s only two years of GDP: Report by the Special Inspector for TARP

The Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky, has issued a report on the TARP money.

The highlights are that since the financial crisis began, Congress has created 12 programs, spending $3 trillion. Besides the bank system, the Federal government has poured money into automobile manufacturers, automobile suppliers, and guaranteed the warranties for these automobile companies. There was money for the Small Business Administration and to bailout homeowner mortgages. There were two programs just to save Citibank.

The Office of the SIGTARP has audits in process, but as an auditor, I am certain so much money was spent so quickly, that billions were wasted and stolen.

A great failing of this monstrosity is that there is no regular reporting to the public on how all this money is spent.

Most troubling is that with all the guarantees that the federal government has made, the potential liability to the Federal government is $23.7 trillion. The entire GDP is $14 trillion, so this is close to two years of the economy in promises. This is in addition to the regular budget items.

(Finally, don’t you love the acronym “SIGTARP?” Sounds like a shadowy Cold War operation.)