A new faith in Cronyism

Jan 20, 2014

Baltimore, Maryland

How do you like those pols? The shackles of sequester were beginning to chafe their ankles. So, what do they do? Get out the files and bolt cutters, of course!

Yes, dear reader, we can stop worrying. The feds have no intention of cutting back the zombies. The Fed has no intention of tapering off. And the big crisis that was on the horizon has no intention of going away.

Yes, hold onto your gold. You're going to need it.

The problem is too much spending and too much debt. It's a problem that gets worse every day. The US federal government has made promises to the voters that it can't keep. It if honors its commitments, spending will outstrip tax receipts basically from here to kingdom come. Or until lenders come to their senses. Whichever comes first. Then, there will be only one source of funding left - the Fed. Already, the Fed provides enough to fund the entire US deficit, and more, with the excess pushing up asset prices. If it keeps buying assets at the present rate, by about 2080, it will own everything in America...every house, every bond, every company, every shopping mall, and every baby stroller.

In short, the feds are on a crash-course with reality. They can't spend more than they take in forever. And they can't fund the deficit with printing press money forever either.

But forever is still a long way off. But eventually, someone, somewhere, sometime, somehow will have to come to grips with it.

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And there are two ways to do so. Voluntarily. Or involuntarily. The Fed took a baby step towards a voluntary solution when it began to taper off its QE program. You already know our opinion: it won't continue.

And Congress took a small step in the right direction, too, when it voted to stop spending so much money by automatically 'sequestering' part of its outlays. But last week, the pols got together and made a $1.1 trillion deal that effectively undoes the sequester provisions. Veronique de Rugy of George Mason University reports:
    Celebrated as a bipartisan victory, the omnibus bill Congress approved Thursday is yet another example of lawmakers' propensity for overspending. The massive $1.1 trillion spending package funnels more money that it should to defense and other domestic projects. Following the outline set by the Ryan-Murray plan, the bill spends above the levels set by the 2011 sequester and wastes loads of money on special interests.

    ...the big winners of this bipartisan spending orgy are the Pentagon and the military-industrial complex. Thanks to Congress' willingness to renege on its commitment to cut spending through sequestration, the Department of Defense won't be subjected to the cuts that had been planned for the next two years.

    A document prepared by the staff of Sen. Tom Coburn, R-Okla., shows the omnibus bill is also stuffed with funding for weapons not even requested by the Pentagon, including $90 million for Abrams tank upgrades to maintain "critical industrial base capability," $1.2 billion to the Navy's request to fully fund a second Virginia-class submarine in fiscal year 2014 (the Navy had requested partial funding), and eight additional MQ-9 Reaper UAVs on top of the 12 the Air Force requested. The Coburn document also shows that the omnibus funds research not requested by the Pentagon, including $6 million for human, social and culture behavior modeling, $46.7 million for weapons technology, and $70 million for common kill vehicle technology.

    But it gets worse, since the military not only scores more spending through its regular budget, but as a bonus it gets a raise through its Overseas Contingency Operations budget (the OCO or "war" budget). Indeed, although the troop levels have gone down from 60,000 to 30,000 over the past year, the omnibus bill provides more spending for the war effort -- $85.2 billion. That's an almost $5 billion hike over what the spendthrift Pentagon asked for...
Of course, the zombies at the Pentagon aren't the only winners:
    The bill, for instance, includes $4 million for alcohol and substance abuse research, $12 million for Alzheimer's research, $120 million for breast cancer research, $10.5 million for lung cancer research, $20 million for ovarian cancer research, $80 million for prostate cancer research, and more - all of which are nondefense activities and overlap research performed by the National Institute of Health.
Thank you, dear Congress. You've reaffirmed our faith in cronyism.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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