By Alyssa A. Lappen
FrontPageMagazine | Mar. 23, 2009

On March 3, days after President Barack Obama grandly unveiled a $3.6 trillion 2010 budget overview, Office of Management and Budget (OMB) director Peter Orszag testified to the House Budget Committee that this budget is “fiscally responsible,” and doesn’t constitute “big spending.” The Congressional Budget Office (CBO) disagrees. On March 20, it predicted that the Obama budget would generate some $9.3 trillion in new red ink by 2019—and unsustainable, significantly greater annual deficits than the Obama plan projected. The U.S. House Budget Committee had not yet responded.

Moreover, the 2010 budget process has only begun. The budget could still end up harboring billions in earmarks—those pet projects Congressmen slip to buddies who miraculously avoid competitive bidding or oversight. The White House and OMB “blueprint” introduced February 26 isn’t a true, line-by-line 2010 budget, explains Taxpayers for Common Sense (TCS) vice president Steve Ellis. Incumbent presidents unveil budgets in February. Until April, Obama benefits from the traditional “pass” Congress gives new administrations. Only then will his full budget appear. In May, Congress will start writing the bills that will fund the budget, Ellis says. This spring and summer, thousands of new earmarks will very likely bloom.

Indeed, the outline makes it seem that the 2010 budget will provide fertile ground for earmarks as Congressmen and Senators grapple over which cities and states will land the funds. The $4.5 billion Community Development Block Grant, for example, is supposed to rely on a new program formula “to better target economically distressed communities.” It doesn’t specify who will write the formula or decide who gets the money. The Budget likewise proposes new Department of Housing and Urban Development funding to preserve “1.3 million affordable rental units” in multifamily properties.

And such housing grants have been massively abused in the past (along with many other department budgets), TCS’ Ellis notes. Obama should know. As both a State and U.S. Senator, he blessed state and federal legislative aid for several developers who then received more than $700 million in grants, loans and tax credits for their projects. His Chicago law partner Allison Davis, Syrian developer Antoin “Tony” Rezko (now incarcerated on 16 political corruption charges) and Chicago slumlord Cecil Butler, for example, all profited greatly from federal funds to provide thousands of Chicago low-income apartment units—all of which were condemned or foreclosed within 10 years. Obama’s 2010 budget overview offers nor regulatory or oversight measures to prevent such situations.

Obama campaigned heavily against Washington’s heavy use of earmarks. Yet the $410 billion Omnibus law he signed on March 11 offers substantial evidence that billions of dollars in budgetary abuse could follow in 2010. The new law reportedly contained “only” 7,991 earmarks, to cost at least $5.5 billion. In fact, it includes more than 9,282 earmarks, TCS reports. The Senate had March 3 defeated Senator John McCain’s proposal to strip over 8,500 original earmarks and $32 billion from the bill. Consequently, the law added 8% to fiscal 2009 spending, increases that bought less transparency than before. Congress publicly disclosed $500 million fewer juicy earmarks than last year, according to TCS. The visible earmarks are not comforting. Senate Majority Leader Harry Reid, for example, carved out $100 million in earmarks for Nevada, including $951,000 for Las Vegas “sustainability” (whatever that means) and $1.7 million for Las Vegas and Reno “dropout prevention.” By comparison, only three other cities got “dropout prevention” grants—Riverside, Ca. ($476,000); Scottsdale, Az. ($143,000); and Jackson, Ms. ($95,000). It’s strange—unless Nevada’s cities unaccountably cornered the U.S. market for high school dropouts.

TCS provides extensive lists of earmarks appropriated through U.S. departments overseeing agriculture, commerce, justice, science, defense, energy, water, financial services, homeland security, interior, U.S. legislature, military construction, Veteran’s affairs, foreign affairs, and transportation. Hundreds of millions of earmarks for the Labor, Health and Human Services and Education departments alone take 211 pages to list. Thus we find that Nevada’s $100 million in earmarks included $6 million from the Department of Education, for example, $143,000 for Reno to develop a comprehensive online encyclopedia—although many comprehensive online encyclopedias already exist—and $143,000 for a natural history museum in Las Vegas, whose horizon is neon.

Obama grandly promises to keep the 2010 budget transparent, “pay-as-you-go,” and return the U.S. “to honest budgeting.” But every federal budget is ripe for earmarks, says TCS V.P. Ellis. “People think budgets are about numbers, but they are about priorities. Where you put money shows where the priorities are. All program funding provides an opportunity for abuse.” This proposal, moreover, also has problematical “robust growth in spending” 10 years out, and increasingly enormous deficits, Ellis says.

It also suggests a reliance on nonprofit organizations. The $1.3 billion in loans and grants “to increase broadband capacity and improve telecommunication,” education and health services in rural areas—a laudable goal—could end up a nonprofit boondoggle. So could a “Social Innovation Fund” proposed to back “innovative non-profits” addressing serious national problems. Unfortunately, the 2010 budget outline offers no oversight on who decides “what works” or how Obama will control nonprofit spending.

Obama’s February overview proposes new oversight mechanisms for financial institutions and markets, for-profit corporations and government agencies. Yet nonprofits clearly also need strict oversight—which this proposal does not provide. The Washington Post this week exposed a $250 million in earmarks to Electro-Optics Center—a supposedly innovative defense research non-profit, founded 10 years ago by Democratic Rep. John Murtha at the Pennsylvania State University to create new industry and jobs in Western Pennsylvania. Instead, Electro-Optics spent much of that funding at companies supporting Murtha. Likewise, the Omnibus law allocates $190,000 to a new New Orleans community center to be constructed by a nonprofit. Founded by Sen. Mary Landrieu’s brother, that nonprofit organization no longer exists.

Unfortunately, Obama’s $3.6 trillion plan also includes no strategy to limit the very haphazard way Congress “throws money at infrastructure, agriculture, energy, health care” and so on. In fact, the plan may well encourage more haphazard spending, which goes hand in hand with earmarks. So, don’t expect earmarks to disappear soon.

Will Obama’s proposed budget kill the patient?

By Alyssa A. Lappen
Right Side News | March 19, 2009

President Barack Obama wants Americans to see his $3.6 trillion 2010 federal budget as a long term bail out for the sick U.S. economy. Yet it focuses on key budgetary and economic issues only at the margins—through an ancillary hit list designed to overhaul health care, education and energy policies, and abate a purported global climate crisis that evidence totally debunks, according to over 31,000 scientists.
No, the economic turmoil originated in two decades of “irrational exuberance,” as former Federal Reserve Chairman Alan Greenspan correctly termed excessive market optimism in December 1996. Social spending can’t resolve the mess, no matter how hard Obama wishes.

“In just 50 days, Congress has voted to spend about $1.2 trillion” on the $787 billion so-called stimulus and $410 billion omnibus spending bills, noted Senate Minority Leader Mitch McConnell of Kentucky. “[T]hat’s about $24 billion a day, or … $1 billion an hour — most of it borrowed.” Those astronomical sums, moreover, followed a host of 2008 spending and relief programs that cost the government $2.3 trillion—including the February $168 billion Economic Stimulus Act and October Trouble Asset Relief Program to buy $700 billion in distressed securities. Since late September, U.S. debt has risen to nearly $11 trillion. In January, the Congressional Budget Office (CBO) projected that the U.S. deficit would rise to more than 8% of the gross domestic product (GDP) later this year.

The new budget, however, proposes to add more to the national debt “than all previous presidents—from George Washington to George W. Bush,” according to Stanford University economics professor Michael Boskin. Obama promised that 95% of Americans will see no tax increase. Yet his budget proposes to raise earnings taxes over the current payroll cap of $106,800, the top marginal rates to nearly 40% and capital gains and dividends taxes to 20%. That means, as Boskin notes, Obama is cutting average Americans’ work and savings incentives—most heavily impacting the middle class, not the super-rich.

Undoubtedly, Obama’s economic maneuvers will worsen matters, something reflected in Obama’s speedily declining popularity. Obama’s support already undercuts that of President George W. Bush at an equivalent moment in 2001, reports the Wall Street Journal. Roughly 83% of Americans worry that Obama’s financial measures will fail, and things will get worse. Two thirds wanted Obama to spend less. And most Americans expect to pay higher taxes, despite assurances to the contrary. Obama has lost much Independent, and virtually all Republican support, and has lower approval than any elected 20th century president at comparable points. Finally, while slightly more Americans have overall faith in Obama, 45% have no confidence in him, an increase since his January inauguration.

Americans especially disapprove of Obama’s costly proposal to generate at least $646 billion in “climate revenues” through 2019—from a “cap and trade” tax for every ton of carbon emitted. These expenses would be dispersed throughout the economy, falling on every consumer large and small. Within ten years they would make “climate revenues” the 6th largest federal revenue stream after individual and corporate income taxes, Social Security and Medicare payroll, and excise taxes. Of that, Obama proposes redistributing $15 billion annually to subsidize alternative fuel and $65 billion to subsidize workers who frequently pay no income taxes.

Worst of all, this proposed “climate tax” wealth redistribution mechanism results from a bogus global warming theory completely debunked scientifically. Human activity generates only 4% of atmospheric carbon, which totals only 2% of the vast global oceanic carbon sink, according to Resource and Environmental Geology Professor Tom Segalstad at University of Oslo. Moreover, atmospheric carbon emissions linger only five to six years—before the calcium-rich oceans absorb them, he says.

Nor will Treasury Secretary Thomas Geithner’s proposed new financial regulations—including new capital requirements for the largest 10 banks, increased Federal Reserve Board economic risk monitors, tightened bank regulatory oversight and stricter control over inter-bank money flow—outweigh the mass of negative budgetary factors. The U.S. stock and bond markets last week booed Obama with several consecutive days of decline. Even Federal Reserve Chairman Ben Bernanke is now on the defensive: In a CBS 60 Minutes interview aired Sunday March 15, Bernanke claimed the economy will recover, albeit not until the financial markets and banks stabilize. That gave small comfort to Americans who have lost roughly 50% of their wealth since November 2007.

Yet the vast majority of world leaders at the January World Economic Forum in Davos, Switzerland were stuck in what Harvard economics professor Niall Ferguson labels a “Great Repression,” that is, deeply anxious yet “fundamentally in denial about the nature and magnitude of the problem.” They reflexively reach for “dog-eared copies of John Maynard Keynes’ [1936] General Theory,” an economic theory prescribing heavy government spending to offset market instability in periods of high unemployment. And they almost universally prescribed issuing more debt to cure a global economic crisis caused by—an overabundance of easy credit and debt.

This fundamentally delusional mindset trusts that “a crisis of debt can be solved by creating more debt.” Yet, the West’s harsh repressed reality, Ferguson observes, is its current “crisis of excessive indebtedness”—-overly leveraged households, corporations and governments, alike. Average U.S. household debt is now 141% of disposable income (that is, income after taxes); in the U.K. it’s 177%. Some of the best known U.S. and European banks have overextended balance sheet debt to “forty, sixty or even a hundred times the size of their capital.” In short, they’re largely under water. Meanwhile, the U.S. federal budget deficit could easily hit 10% of GDP in 2009, Ferguson believes, and the CBO grossly underestimates the ultimate impact of that U.S. national debt explosion.

The only obvious solution, Ferguson correctly opines, is less debt, not more. Two methods ostensibly exist to reduce that debt—artificially inflating the U.S. dollar or renegotiating the debt. The first option is not currently feasible. While most economists eye inflationary pressure, deflation has already significantly eroded prices—and with them, opportunity to print enough money to escape a crisis this big. In the last quarter of 2008, deflation cut the consumer price index by a seasonally adjusted 12.7% per annum. The only remaining solution is restructuring. Bank shareholders must face their losses; bondholders must exchange debt for stock—at a negotiated discount—and governments must re-capitalize financial institutions after writing down their assets.

In the 19th century, Ferguson concludes, governments repeatedly exchanged higher-yielding bonds for lower-yielding securities. Bonds yielding 5% were swapped for 3% bonds, for example, without a whiff of default. Thus, homes could be refinanced, banks recapitalized and privatized, and the U.S. economy reset.

But time is wasting. Obama should quickly take Ferguson’s dark warning seriously to heart: “If we are still waiting for Keynes to save us when Davos roles around next year, it may well be too late.” Otherwise, his popularity is sure to plummet to unheard of lows.
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Alyssa A. Lappen, a freelance investigative journalist, is a former senior fellow of the American Center for Democracy, former senior editor of Institutional Investor, Working Woman and Corporate Finance and former associate editor of Forbes. Her work has also appeared in FrontPage Magazine, the Washington Examiner, Washington Times, Pajamas Media, American Thinker, Human Events, Right Side News, Midstream and Revue Politique. Her website is https://www.alyssaalappen.org/