Saturday, July 9, 2011

From Debt Crisis to National Security Crisis

Friday, July 8, 2011 | Dylan Jovine

Whether you agreed with President Obama or not, many believe he had to run deficits during his first two years in office, given the severity of the financial crisis he inherited (and yes, he did inherit the financial crisis). 

Fair enough…

But soon after his most recent budget proposal for 2012, S & P made a historic announcement -- it placed U.S. government debt on “negative watch” for a possible downgrade. 
What did S & P see in Obama’s budget that caused them to threaten to downgrade our debt?

That’s the question I asked myself when I decided to read the President’s budget. 

I felt I owed to myself as a patriot, a parent and a financial publisher to understand the budget as well as, if not better than, most elected officials in Washington…

Given the gravity of the crisis, the last thing I wanted were political hacks on either side of the aisle taking to the airwaves to “explain” (spin) the budget to me. 

This issue is far too important for that routine.

This way I could explain the facts to you as both a financial publisher and as a professional investor…

Only then will you understand why S & P was so alarmed by the President’s budget that they downgraded our debt

Only then will you learn that our country is facing a national security crisis, hidden behind a debt crisis, that threatens our very way of life. 

We Don’t Have a Country Problem we have a Leadership Problem

Barack Obama U.S. President Barack Obama pauses as he makes a speech at the National Archives May 21, 2009 in Washington, DC. Obama made his case on the closing of Guantanamo Bay detention facility after the Senate and the House have both voted no to grant his request.  (Photo by Alex Wong/Getty Images) *** Local Caption *** Barack Obama
By the time I was finished reading his budget from cover to cover, I realized why S & P was threatening to downgrade our debt:

Sadly for the American people, the President responded to this most crucial and dangerous time in American history by proposing a budget that actually increased entitlement spending. 
Here are some highlights from the non-partisan Congressional Budget Office (C.B.O.):  

  • Under the President’s plan, debt held by the public would grow from $10.4 Trillion (69 % of GDP) at the end of 2011 to $20.8 Trillion (87% of GDP in 2021), about $2.8 trillion more than the amount under the CBO’s baseline projections.
  • Just interest alone would quadruple to 3.9% of GDP or $800 Billion each year.
  • Expenses under Obama’s proposals would exceed the CBO’s baseline projections of $1.3 Trillion over the 2012 – 2021 period.
  • The President’s Budgetary proposals would have effects on the economy -- from 2012 to 2016 our GDP would shrink by .7 percent. “Over time, however, the president’s proposals would reduce real output by 3.8 percent in the long term.”
I do not exaggerate when I say that it is truly unfortunate for our country to have a President in office that may go down as the only President in American history to turn a debt crisis into a national security crisis. 

(Now, of course, in a stunning flip-flop from his budget only 4 months ago, he’s playing the “fiscal austerity” card in the budget negotiations). 

But the President’s actions didn’t really shock me. As New York Times columnist David Brooks recently wrote, “As president, Obama has proved to be a very good Senate majority leader -- convening committees to do the work and intervening at the end.” 

That’s really too bad given that this country could have really used a progressive President in the mold of Teddy Roosevelt. Or Franklin. Or Reagan. Anyone with the courage to lead from the front (as opposed to letting the corrupt “legislators” bend over to their special interests on everything from finance reform to the budget). But that’s another story…

What truly angers me is that virtually nobody in the mainstream press picked up on Obama’s out-of-touch budget nor S & P’s threat on our sovereign debt. 
Given the national security ramifications of both, I would have thought the alarm bells would have sounded across the national media like a forthcoming attack on Pearl Harbor. 

But nothing. 

The truth is there is something terribly wrong with this country, isn’t there? 

Dylan Jovine
The Tycoon Report