The deficit is a real problem and Simpson Bowles is still the key to the solution

A week or so ago, I set about to write more about the fiscal cliff, the real one, not the one manufactured by Congress and I posed  questions to Ted Muftic,  financial consultant and chief investment officer  for private equity firms and our family’s resident Harvard MBA with over 15 years experience on Wall Street.  He is a contributor to the Muftic Forum Blog

MY QUESTION:

This bit of using debt ceiling and continuing resolution as a bluff or irresponsible threat to force the admin to bend to their will on the sequester is still really mostly a bluff, I think.  The results would be too horrible for the economy if the GOP carries through. What I would like to do is to talk about other Sword of Damocles ...that have more meaning to solving the  deficit problem. Down grade of credit rating, resulting  in higher interest rates suppressing economic growth?  More quantitative easement (treasury just printing more money) would result in inflation later?  Unlike Greece, we can just print more money; they couldn't.  I recall that in the 1980's, we did pay for the Viet Nam War and the Great Society, so afterwards, the interest rate soared to 15% plus, resulting in the election of Ronald Reagan.  Is my memory right?  I was head of the foreclosure process in Denver and I recall the foreclosure rate quadrupled every year in lock step with the increase of interest rates.  There are two perspectives: short and long term and are we already at the backfire of the long term?

HIS ANSWER:

The debt problem is deadly serious.  It is difficult to grow our way out of it.  We need to do more and Simpson Bowles is  the key.

The path that we are on should be enough to want to cause politicians to act on debt and deficits if they were doing their job.  However,  it is much easier for them to promise everything instead of doling out pain that would cost votes.  The analogy I like is that if we were really concerned about our health, wouldn't we rather want to have regular annoying visits to the doctor instead of  the inevitable  pain of chemo to fight a cancer that could have been diagnosed earlier? Without taking regular small steps now, we could be heading to Greece-like pain later.

The U.S has a debt problem and it is not just a federal issue. Consumer, mortgage, corporate, local and state debt combined dwarfs federal debt, and our growing medical costs are causing are federal debt to explode! Total U.S indebtedness is 3 or 4 times bigger than our annual economy.  That is like making 50k a year and having 200k of debt.  If rates are low enough, maybe you can meet monthly payments. But what if lenders got too concerned about the economy and your job stability , refused to roll over  your debt ,and the only lender said” yes I'll lend you money, but your rate is going to double or triple”? How would your lifestyle change? What would you have to sacrifice? Your house, your children, your health? What if all the lenders to the US (China, Japan, oil-rich countries, pension and saving plans) said enough is enough?)That is the danger. That would be a real fiscal cliff that would have profound impacts on the veritable peace and stability of our society. It is like the fall of the Roman Empire - and I am dead serious.

Can we grow our way out of the debt problem? Excluding growth caused by inflation.( real growth),  it is possible so long as we pay down debt and not expand our lifestyle or make other investments.

Furthermore, given the current anemic level of growth, it would take years to make any kind of dent in the debt and we would have to effectively freeze ALL government spending and curtail entitlements a lot too.

What other countries have done is to inflate their way out of a debt problem. Debasing our currency would greatly minimize the cost of our fixed-rate debt a lot. Indeed, the Fed has been trying to stimulate growth and inflation through just about every means possible, most drastically through quantitative easing. A little bit of inflation is fine. But massive inflation like we had in the late seventies would not be good. And frankly, there is only so much they can do when there is no corresponding fiscal policies to help. Yes...that means stimulus,  which is a dirty word in DC these days. Sadly there is no fiscal flexibility left, there is no political flexibility. There is very little monetary flexibility  to grow the economy and control debt and deficits at the same time. The policies of the Bush years leading up to the Great Recession and the ire of the Tea Party afterwards have severely limited political courage and policy innovation. n

Simpson Bowles would represent a sensible way to unleash the economy and reduce debt and deficits. In particular, radically altering the tax code, getting rid of loopholes and arcane tax policies in favor of lower, simpler and fairer taxes would, in my view, breathe new life into business activity, investments, and to consumer confidence. In addition, modifying or making sensible changes to entitlements such as extending the ages of eligibility and more means testing, applied to people say under 50 now, would be good ideas. Policies geared to just changing more tax rates on the rich will eventually become unpopular. The benefits are just not large enough to really make any meaningful difference.  

Without bold thinking and big ideas on both sides of the aisle, I fear that we will lurch from manufactured crisis to manufactured crisis with the predictable effects of diminished American relevance in the global economy, frustratingly slow growth, consistently high unemployment, and debt levels that at any moment could create a real crisis that is  not of our politicians' makings.

Colorado's approach to keeping guns out of the hands of the mentally ill

While the nation, the White House, and Congress are coming to grips with proposals to curb the carnage of mass shootings, there is one sub issue with a meeting of minds: mental health and how to keep guns out of the hands of the mentally ill.

There are two thrusts: One, to improve the reporting to data banks of those deemed by the courts to be a danger to themselves and those around them, and the other is to give greater access to mental health services. None of these alone is a silver bullet, but together they will help save lives and reduce the frequency of such gun violence.

Thanks to the horrors of Columbine and the Aurora Movie Theater tragedies, Colorado has become an icon for mass shootings. Our state is also leading the way in seeking solutions. Gov. John Hickenlooper made some key proposals in December and in his State of the State address. Obamacare, which will be fully implemented in 2014, will also make access for all to some affordable mental health services a reality.

We thought we were safer than we are. We thought courts that ruled someone a mental health danger reported the names to a data bank, but we learned that Colorado only updated information twice a year. We thought closing the gun show loophole in Colorado, requiring background checks before purchase, had resolved that problem. Now we learn 40 percent of the sales conducted in private are not subject to such checks.

We thought that when laws required employer-provided insurance and Medicaid to cover some mental health services, we had solved the access issue. However, we learned through the Colorado Health Institute that over 640,000 adults in Colorado were uninsured by anyone (24 percent of Grand County). And then we wondered why those who were mass shooters appearing to be mentally disturbed still committed their crimes with ever increasing frequency and death tolls.

Obamacare will help make access to mental health services affordable to all in Colorado. Those who do not have health insurance now will be able to buy insurance at rates according to their income levels in 2014. Colorado has just agreed to add 160,000 of the currently uninsured to Medicaid beginning in 2014. This means an individual earning $14,856 or a family of four earning up to $30,657 may qualify for Medicaid, which includes mental health services.

The expansion of Medicaid under Obamacare includes a series of measures designed to bring down the cost of Medicaid while improving health outcomes, according to the National Mental Health Association - Colorado. Over the next 10 years, according to the governor and the state's director of Healthcare Policy and Financing, Sue Birch, the expansion and other reforms will save Colorado taxpayers up to $280 million.

Gov. Hickenlooper has also proposed the state spend $18.5 million in the 2013 state budget to provide a crisis response hotline and walk-in crisis centers around the state, to expand jail-located mental health beds, and to provide housing and short-term residential facilities for those transitioning to the community. The proposal would align various laws for civil commitments for treatment, clarifying options for providers of mental health and substance abuse services.

In addition, reporting of mental health records sent to the Colorado Bureau of Investigation would be made in real time instead of twice a year to provide up to date background checks. In his State of the State address, the governor urged “universal background checks” for all purchases of firearms.

The question is will the legislature and the public, including 2nd Amendment advocates, put their money where their mouth is or will Hickenlooper's proposal end up in the budget cutting heap in these times of tough public finances. We should hope not.

This is my column today in the www.skyhidailynews.com

For more, visit www.mufticforumespanol.blogspot.com

Warning to the GOP: don't overplay your hand in the March fiscal cliff

In the winter of 1995-1996 there was a death with repercussions lasting a decade. The deceased was the Newt Gingrich Republican Revolution.

It was a self-inflicted wound. The weapon used to commit suicide was the shutting down of government for days, used as a GOP bludgeon in arguments over the budget. So angered were the voters that in the next election cycle, Bill Clinton was re-elected easily.

In 2011, the GOP used the debt ceiling as a bargaining chip again and the economy took a measurable dip. In 2013, the debt ceiling, continuation of the resolution to fund government, sequestered spending cuts, and raising the debt limit unite in a perfect storm of entangled issues in March. The GOP should know from past experience if they overplay their hand, they risk a public backfire and a dent in economic growth.

The compromise avoiding the fiscal cliff on Jan. 2, also delayed debate on sequestered spending cuts for 60 days. The GOP is threatening to use disapproval of raising the debt limit and shutting down government as bargaining chips to get their way. They think they have a hot one, too. Hot, indeed.

What they may have done is set up the possibility of some of the most important Supreme Court decisions of the past 125 years, addressing the fundamental question of the separation of powers. Just how far does the GOP want to take their “leverage?” Are we now headed for a constitutional crisis, too? Do they really want to default on our loans if we do not raise the debt ceiling and imperil the economy to get their way over the debt ceiling? A wiser Newt Gingrich called this strategy a “dead loser” last week. Or is this just more brinkmanship bluffing?

While not precluding reduction in spending or more revenue enhancement, the president made it clear in remarks Jan. 2 he would not allow the GOP to use the debt ceiling to get their way on future spending cuts. The president staked his legal claim that Congress voted for the expenditures and he had the obligation to pay bills as they came due. That is indeed a major constitutional issue the Supreme Court could decide: Can Congress keep him from his duty as the executive branch to pay bills Congress had already authorized?

The president could also choose to tap the 14th Amendment, daring the GOP sue him and throw the issue to the Supreme Court. The president could continue to make good on payments on bonds (treasury notes) even if Congress forbids him from doing it. At issue is the 14th Amendment to the Constitution regarding the executive's power to pay bonds as they came due. Legal experts are divided so the outcome could be risky for both parties.

The question is not whether the debt problem should be tackled: Both the GOP and the Democrats know it must happen to avoid a credit rating downgrade or future economic problems. The issue is how. That “entitlements” need trimming is also acknowledged by both sides of the aisle and the Pentagon budget also needs close scrutiny. It is a matter of coming up with ways acceptable to a bipartisan coalition large enough to get it through Congress.

The GOP is laboring under a questionable belief they have the public mandate because they were re-elected to be the majority in the House. Some 2011 gerrymandering resulting in more safe districts for conservatives may have been greater factors. Public opinion polls in November 2012 showed more than 60 percent supporting balanced taxing and cuts. Public opinion also counted in the mid-90s when the GOP shut down government and the Republicans paid the price in the next election.



This is my column that appeared in the www.skyhidailynews.com today

For more, go to  www.mufticforumespanol.blogspot.com

Is there an emerging pragmatic middle, a coalition of the willing to compromise?

The painful Congressional machinations to avoid the fiscal cliff and defaulting on our loans up to now had been an irresistible force meeting an unmovable object. What we have needed is the emergence of a strong, pragmatic middle, a coalition of the willing to compromise. Whatever middle is born this week will be on life support through March. Debates on tax policies, budget cuts, defense spending, Medicare, Medicaid, and Social Security, and debt reduction will take place in a series of votes on the fiscal cliff, dire budget cuts, debt ceiling, and in “the continuing resolution” to avoid a government shutdown. Just what we need: a government shutdown, the final evidence of a dysfunctional democracy.

These votes will signal whether a pragmatic middle has grown strong enough in Congress to control the political process and to marginalize those unmovable objects, straight jacketed by ideology, pledges, campaign promises, and lobbyists.

Recently I heard liberals tagging Tea Party members of Congress as “extremists”. I reached for my dictionaries. General consensus is that someone is extreme if they are out of the mainstream of thought. Common wisdom is that we are so polarized, there is no mainstream. We are all extremists: Anti tax on one side and pro unaltered social programs on the other and nothing in between.

However, exit polls in November showed over 60 percent of all voters, more than voted for Pre. Obama, supported increasing taxes on the rich and a balanced approach of some cuts, some tax increases. This may be an emerging new mainstream that is somewhere in the middle of the political spectrum. The question is will the new mainstream be reflected in Congress to be sufficiently powerful in the next couple of months to overcome filibusters and parliamentary tricks.

The fundamental problem is that compromise has become a dirty word, yet It is the heart of our political system. Our founding fathers hammered out many compromises in formulating our Constitution and the amendments. They constructed a government they had hoped would balance power, protecting the minority from absolute rule of the majority, while allowing the majority to rule. They gave us a Congress with a platform to work out differences. Since then, Congress has established rules that have allowed a minority to be the tail wagging the majority dog by abusing the filibuster, certain party caucus practices, and denying votes on issues. Those rules are compromise killers and stonewall enablers.

To make the process even more dysfunctional, the Tea Party caucus and fellow travelers are not only anti-tax, they are anti-compromise. They have been throwing a monkey wrench into the gears of our Constitutional government dependent on compromise. They seem to be willing to kill economic recovery in the name of tax protesting ideological purity, opposing a 4 percent tax increase on 2 or 3 percent of the rich, no matter what ratio of cost cutting to tax increases the Administration offers them. The Congressional Budget Office estimated that raising such taxes on the top would not hurt the economy, in spite of Tea Party claims.

To their credit, the left has been a bit more pragmatic. While grousing about any tinkering with “entitlements,” they so far seem unwilling to vote against compromises the President makes. If the cliff and debt ceiling debates result in deadlock, and our economy crashes, the Tea Party is more likely to get the blame. They can hide in gerrymandered safe districts. However, those from more diverse districts who join them should fear voters' wrath in the next election cycle.

The laurel leaf of voter approval in the future will be awarded to members of a new moderate coalition formed from both parties to solve our problems in a balanced, fair way. Democracy based on compromise will then function again.

This is a column that appeared in the www.skyhidailynews.com today

For more, visit www.mufticforumblog.blogspot.com and www.mufticforumespanol.blogspot.com