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How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

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July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

Justifying Cuts: A Well-Used But Misleading Medicaid Statistic

“Cash-strapped states are also feeling the burden of the Medicaid
entitlement. The program consumes nearly 22 percent of states’ budgets today, and things are about to get a whole lot worse.”

— Sen. Orrin Hatch (R-Utah), June 23, 2011, at a hearing of the Senate Finance Committee

“Medicaid is the lion’s share of that spending burden as it now consumes about 22 percent of state budgets now and will consume $4.6 trillion of Washington’s budget over the next ten years.”

— Former Kentucky governor Ernest Lee Fletcher (R), June 23, 2011, at the same hearing

“Across the country, governors are concerned about the burgeoning cost of Medicaid, which in fiscal 2010 consumed nearly 22 percent of state budgets, according the National Association of State Budget Officers. That’s larger than what states spent on K-12 public schools.”

— Washington Post front page article, June 14, 2011

When a statistic is universally tossed around as a certified fact, it’s time to get suspicious.

Such is the case with this oft-cited statistic that 22 percent of state budgets is being gobbled up by Medicaid, the state-federal program that provides health coverage for the poor and the disabled. Medicaid supposedly is even dwarfing what is spent on educating children and teenagers.

But note the phrase “state-federal.” There’s billions of dollars in federal money involved, and the “22-percent” statistic obscures that fact. Let’s dig a little deeper into the numbers.

The Facts

Medicaid was a central part of President Lyndon Johnson’s “Great Society” initiative in the mid-1960s. Each state administers its own Medicaid program, but with federal oversight, federal requirements—and plenty of federal dollars. On average, the federal government provides 57 percent of Medicaid funds.

Initially, Medicaid was focused low-income Americans, but elderly nursing home care has also become a big part of it. The new health care law would also greatly expand eligibility to people up to 133 percent of the official poverty line.

There’s no question that the recession has put pressure on Medicaid spending, as more people lost jobs or income and so became eligible for coverage. The new requirements of the health care law also will boost Medicaid spending.

The assertion that Medicaid is 22 percent of state spending, and thus now exceeds education spending, comes from an annual survey of the National Association of State Budget Officers (NASBO). But if you dig into the report — if you just go to page
one — you will see that this number includes the federal contribution, in what
is known as “total funds.”

If you want to see what states themselves are spending on Medicaid —“general funds” — you have to use another set of statistics.

As NASBO says on page one, “For estimated fiscal 2010, components of general fund spending are elementary and secondary education, 35.7 percent; Medicaid, 15.4 percent; higher education, 12.1 percent; corrections, 7.2 percent; public assistance, 1.9 percent; transportation, 0.8 percent; and all other expenditures, 27.0 percent.”

In other words, without the federal dollars included, Medicaid falls to second place, far behind education. It turns out that on average, states spend 15.4 percent of their funds on Medicaid — not 22 percent.

Brian Sigritz, NASBO’s director of state fiscal studies, said, “You are correct that there are several different ways of looking at Medicaid spending that you can use. If you consider just general funds, K-12 easily remains the largest component of general fund spending, as it historically has been.”

Indeed, when you look at NASBO’s historical data (table three of this report), it becomes clear that Medicaid spending, as a proportion of general funds, has remained relatively consistent since 1995 — about 15 percent — in contrast to the popular image of being a drain on state budgets.

Sigritz said that the two figures provide a different picture of state spending. “General funds gives you a sense of spending deriving from state revenue, while total funds gives you a sense of total state expenditures,” he said.  “Typically when you discuss overall state budgets you examine the various funding sources that go into them including general funds, other state funds, bonds, and federal funds.”

The Office of the Actuary for Medicare and Medicaid makes this distinction. The 2010 Actuarial Report for Medicaid notes the broad figure, but then takes pains to add: “This amount, however, includes all Federal contributions to State Medicaid spending, as well as spending from State general revenue funds and other State funds (which for Medicaid consists of provider taxes, fees, donations, assessments, and local funds).” The report concludes: “When only State general revenues are considered, however, Medicaid spending constitutes an estimated 16.2 percent of expenditures in 2009, placing it well behind education.”

Antonia Ferrier, a spokeswoman for Hatch, defended the 22-percent figure, noting its wide use. “It is part of their budgets, and there are many different streams of funding that fund those state budgets (including federal funding, taxes, etc.) that fund their many programs,” she said.

But Colleen Chapman, a spokeswoman for the Georgetown University Center for
Children and Families, a policy and research center, said, “In the current budget debate, the data are being misused to argue that the Medicaid program in states is out of control and needs to be cut dramatically, when in fact, Medicaid is still much less of state spending than education and has not grown, as a portion of state budgets, in any way close to the mammoth way that others argue it has.”

The Pinocchio Test

We will label this with one of our rarely used categories: TRUE BUT FALSE.
(We still need to get an appropriate icon for this one — suggestions are welcome.)

Yes, the 22-percent figure is a valid number. But it is being used in an inappropriate way, and therefore is misleading. Hatch and Fletcher are only the latest in a long line of public figures — and news outlets — who have seized onto this number without apparently realizing that it is the wrong statistic to use. If people want to understand the impact the Medicaid is having on state budgets, politicians should begin to use the 15-percent figure — or at the least offer a caveat to the 22-percent number. Otherwise, there might be some Pinocchios in their future.

 

By: Glenn Kessler, The Fact Checker, The Washington Post, July 5, 2011

July 5, 2011 Posted by | Conservatives, Deficits, Economy, Education, GOP, Health Care, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Republicans, State Legislatures, States | , , , , , , , , , , , , | Leave a comment

Why Polls Are Sinking For New GOP Governors Like Scott Walker

If you’ve  been wondering lately who’s been writing the Republican playbook, I think I’ve  found him. It’s none other than Lenny Dykstra.

Back in his baseball  playing days, Dykstra was a tough as nails leadoff hitter famous for filling  his cheeks with huge wads of tobacco and crashing into outfield walls.  After his playing days were over, he wowed the world with his stock-picking  acumen. Made millions. Drove fancy cars. Owned an $18 million  mansion. He even had a sink that cost $50,000. (It’s true.)

And then, it all came  tumbling down. He went bankrupt. His house was  seized. He was indicted.  And what did he do? He broke back into his old  house … and stole his  prized sink.

Back in November, a new  breed of Republican governor was enjoying its own “wow” moment. Rick  Snyder was the “one tough nerd” to get Michigan’s financial house in  order. Scott Walker was about to take a blow torch to Wisconsin unions.  Florida’s Rick Scott won perhaps the most coveted prize on the presidential  election map. They were supposed to be the leading edge of the Republican  revolution, finally doing what conservatives have long held Americans want  their leaders to do: fundamentally recalibrate the way government operates in  the public square, and disentangling it from the everyday lives of ordinary  people.

But in Sunday’s Washington  Post, Norman Ornstein of the right-leaning American Enterprise Institute took a  moment to detail the woes these boy wonders have since encountered. Rick  Snyder’s approval rating is at 33 percent. Scott Walker’s is 43  percent. Rick Scott: 29 percent.  [Read the U.S. News Debate: Should Congress Raise the Debt Ceiling?]

Seven months ago they were  the toast of the town. Now, milquetoast. What happened?

Well, as Ornstein  describes it, the governors launched initiatives aimed at “cutting benefits for  the poor and middle class while adding tax breaks for the rich” while also  trying to get rid of collective bargaining. As you might imagine,  that wasn’t very popular with a lot of people (for instance: the poor and  middle class). And, shockingly, it hasn’t done much to balance their state budgets either. So now, according to Ornstein, “the only areas left for  meaningful budget reductions are education, Medicaid, and prisons.”

Let’s see: Your approval  numbers are in the tank, and all you’ve got left are gutting schools, letting  out convicts, and taking healthcare away from disadvantaged kids.  I’m guessing, as a re-election strategy, that leaves something to be desired.

In other words: fellas, it  ain’t working. And what’s so surprising about all of this is that for  some, it’s so surprising. Is it really so hard to figure out that one of  the reasons government is its current size and shape is that people have needs  that they want their government to try and meet? It doesn’t always work,  of course. But frustration over government spending on programs that  aren’t working isn’t the same thing as saying people no longer want good public  schools. Understanding that distinction is the difference between doing  the hard, more complicated work of reforming something that isn’t working as  well as we would like, and becoming fixated on an ideological goal that doesn’t  end up fixing anything at all.

Which brings me back to  Mr. Dykstra and his beloved sink. Now, in fairness, those of us who have  been consigned to using standard-issue sinks can only dream about the  hydrological wonders of the $50k variety. Perhaps it dispensed nothing  but delicious milkshakes. More likely: Even as his world was crashing down,  Dykstra couldn’t take his eyes off the one thing he coveted the most. Now  it looks like he’s going to prison.

Republicans may be in for  a similar electoral fate. Instead of helping the people they were elected  to serve, they’ve gone about ruthlessly pursuing an elusive conservative holy  grail. Dismantling government—it’s the GOPs $50,000 sink. And they can’t  take their eyes off of it even as their house burns down around them.

By: Anson Kaye, U. S. News and World Report, June 13, 2011

June 14, 2011 Posted by | Bankruptcy, Collective Bargaining, Conservatives, Democracy, Elections, GOP, Government, Governors, Health Care, Ideologues, Ideology, Labor, Lawmakers, Medicaid, Middle Class, Politics, Public Employees, Republicans, Right Wing, State Legislatures, States, Voters, Wealthy | , , , , , , , , , , , , | Leave a comment

The GOP Health Care Assault On Planned Parenthood Exposes The Hypocrisy Of The Pro-Life Movement

I tend not to get involved in discussions on abortion because I have never been able to resolve the conflict which comes from understanding both sides of this difficult issue. I understand those who believe in the pro-choice approach. Certainly, a woman wants, needs and deserves to be in control of her own body and make the decisions that she believes are best.

But I also get the pro-life movement. If an individual believes that a life is ‘in being’ at the moment of conception, I can well appreciate the distress such a person would feel over such a life being terminated.

What I cannot understand is how the very people who are so profoundly committed to the pro-life movement seem to lose all care, concern and compassion for that life once the child is born into the world.

Nowhere is this hypocrisy more prominently on display than in the current war being waged by the GOP on Planned Parenthood – the organization that spends 97% of their efforts and money providing millions of impoverished American women with critical front-line health care, essential medical testing to discover disease before it is too late to successfully treat a patient, and the very family planning and sex education services that might help women avoid an unwanted pregnancy and thus moot the question of abortion.

Yes, the remaining 3% of the Planned Parenthood budget is dedicated to providing abortion services but, contrary to what the anti-abortion forces would have you believe, not one cent of taxpayer money – federal or state – pays for so much as an IV needle used in an abortion procedure. The legal prohibition against taxpayer money being spent on abortions is as clearly enforced as the Roe v. Wade decision that confirms a woman’s right to choose in the United States.

Despite the important work done by Planned Parenthood – and the lives they save – the GOP has made it a cornerstone of their social agenda to put this vital service to the working and non-working poor out of business.

Should you doubt that the organization does, in fact, save lives, take a look at this letter written by Maggie Davis of Saratoga Springs in response to her Congressman’s voting to defund Planned Parenthood.

I am writing this in answer to Congressman Gibson’s vote against the funding for Planned Parenthood. I have no idea why he did this. Regardless of the pro and con of Planned Parenthood, they do save lives. I speak from experience.In the early ’70s I went to Planned Parenthood here for a checkup and they found something that was wrong and advised me to see my doctor right away. I did and within one month I had to have surgery to save my life. I would not be here today writing this letter. If it were not for Planned Parenthood and Dr. Streit of Saratoga, I would be dead. I will always be thankful to Planned Parenthood for discovering something and telling me to go to my doctor.

Mr. Gibson, I think you should take another look at how many lives Planned Parenthood does save. When we voted for you, we expected you to work for the taxpayers who pay you.

Maggie Davis, Saratoga Springs

Via The Saratogian

So, how do the pro-life forces defend their position that Planned Parenthood must go because, on occasion, they perform medical procedures that end what these folks perceive to be lives in being while fully understanding that closing the organization’s doors will result in the loss of lives of women we know are in being?

How did the 240 Members of the House of Representatives (a total which included 10 Democrats) justify their votes when they passed a bill in February to defund Planned Parenthood knowing that while their vote may or may not have resulted in a few less abortions had the Senate agreed (they did not), that same vote would also take the lives of people like Maggie Davis as a result of the legislation?

Had the House had their way, how many additional abortions would result – under conditions one shudders to contemplate – due to the loss of the counseling services designed to help women avoid unwanted pregnancies?

Now, as we watch the GOP assault on Medicaid – the federal and state funded health program relied on by over 40% of women who visit Planned Parenthood – one is left to wonder just how much of this drive to destroy the state-based medical safety net is based on actual budgetary concerns or whether budget difficulties are simply a cover for the effort to win the battle against legal abortion.

And while we are looking at the questions, maybe someone can answer how the eleven states that have either passed or introduced legislation this year designed to ban groups like Planned Parenthood from receiving family-planning funding or prevent them from contracting with the state for payment for services provided by these organizations, justify their own actions?

The simple truth is that there is no rational way to conclude that these alleged pro-life forces are, in fact, pro-life as it is difficult to fathom how one can desire to protect the life of the unborn by sacrificing the life of the already born. If you believe in protecting the unborn, does it not necessarily follow that you are equally as concerned about protecting the lives of those already here in the flesh.

What I can work out is how pro-life politicians are, in reality, ‘pro’ their political careers and are more than willing to sacrifice the lives of the poor who rely on the services of Planned Parenthood to burnish their anti-abortion credentials.

Seriously, does it get any worse than that? Making the matter even more despicable is the reliance upon religion as the basis for the pro-life consciousness. I fully understand and respect that religions teach that taking the lives of the unborn is morally wrong just as I understand and respect that it is up to each individual to hear those teachings or not. This is the way we roll in America.

Yet, I am aware of nothing in any of the competing religious tomes suggesting that while is it essential to protect the unborn so that they may have life, protecting those currently here so that they might continue life is no big deal. I’m also pretty sure that the Bible does not endorse allowing people to get sick and die because ‘we can’t afford it.’

Here’s a thought for those dedicated GOP ‘fighters for life’ – show a little consistency and maybe you’ll have more success in convincing the public that your closely held religious beliefs are something more than just the worst kind of cynical and despicable politics.

Show you are as concerned for the lives and health of those already walking the planet as you profess to be for those who have not yet arrived. Then, and only then, can any one willing to scrutinize your motives view you as the God fearing, compassionate human beings you pretend to be.

Failing the same, even the most religious and zealous among us should not, in good conscious, avoid the fact that our elected officials are picking and choosing between the lives they save and the lives they sacrifice in the name of good politics.

If your beliefs lie with the pro-life side of the abortion issue, I respect that. I encourage you to continue your fight just as I heartily support both your right and need to do so.

But don’t effectuate that fight by requiring the taking of the lives and health of others because you have not yet won your battle.

While you may be right that compassion for life must begin with conception, there is no logical or emotional basis that suggests that the same compassion should end with birth.

Tell your elected representatives to back off on Planned Parenthood. Then, and only then can you truly be among those who are pro-life.

By: Rick Ungar, The Policy Page, Forbes, June 13, 2011

June 14, 2011 Posted by | Abortion, Anti-Choice, Class Warfare, Congress, Conservatives, Democracy, Equal Rights, GOP, Government, Health Care, Human Rights, Ideology, Lawmakers, Medicaid, Planned Parenthood, Politics, Pro-Choice, Public Health, Republicans, Right Wing, State Legislatures, States, Women, Women's Health, Womens Rights | , , , , , , , , , , , , , , , | Leave a comment

Gov. Chris Christie: Earn $6,000 A Year? No Medicaid For You!

If you live in the state of New Jersey and are earning $118 a week, congratulations!

According to Gov. Chris Christie, you have escaped the bonds of poverty and no longer are in need of the state’s Medicaid program.

Never mind that $118 a week is but a fraction of the poverty line as defined by the United States of America. Pay no attention to the fact that New Jersey battles California for the mantle of having the highest cost of living of any state in the nation.

Chris Christie, everyone’s favorite no-nonsense, “tell it like it is” governor, has decided that you can manage quite nicely on this paltry sum while remaining fully capable of paying for your own medical care.

Sound like a joke?

It’s not. And it is difficult to imagine anything less humorous. Under the Christie plan, adults with a family of four who earn more than $6,000 a year would no longer qualify for the state’s Medicaid program. Currently, the cut-off to qualify is $30,000.

Think about that for a moment.

A single mother raising three kids on a weekly salary of $118 will no longer be eligible to take advantage of the medical social safety net should she fall ill.

I can hear my conservative friends rising in chorus – mom should have thought about that before having all those kids she couldn’t afford! Maybe she should have. If only there were some place these women could turn to for family planning advice so that they might avoid this problem.

But wait – there is such a program in New Jersey. Or, to be more precise, there was such a program in New Jersey. It turns out that women’s clinics are disappearing from the New Jersey landscape as Governor Christie uses the budget pen to wipe out women’s health programs that might also provide abortion services as a small part of what they make available to women so badly in need of their health care and counseling services. This, despite the fact that no state or federal taxpayer money went towards paying for any such abortion services long before Christie began his assault on women’s health.

In his last budget, Christy sliced $7.5 million from family planning clinics – a cut his new budget proudly continues. As a result, health and planning services so vital to low income women are becoming very hard to find in New Jersey- not to mention the many other states where Governors are using the budget to enact their social, anti-abortion agenda’s.

What do we call powerful people when they pick on the weakest among us?

We call them bullies. And Governor Chris Christie exemplifies the modern-day bully. Is it any wonder, then, that the GOP sees Christie as the man they would so gladly follow into the 2012 election battle?

Christie’s proposal to cut over $500 million from the state’s Medicaid program would not only affect parents earning far too little to support their families. Some of the deepest cuts would leave seniors, who require full-time, in-facility nursing home care, literally out in the cold as the funding that supports their ability to get the medical attention they need disappears.

I suppose these elderly can move back into the homes of their children – many of whom are the ones earning over $6,000 a year, but well below the national poverty line, who will no longer be able to care for their own health needs let another find a way to pay for the care of their sick parents.

There is some good news in this otherwise bleak story.

Come 2014, when the federal government steps in to play a larger role in financing the state Medicaid programs (they already pay for about half of the costs), it will be illegal for these people to be denied care. Accordingly, all these folks need do is see to it they do not get sick between now and 2014.

How hard can this be?

As New Jersey U.S. Senator Robert Menendez put it, “The state is effectively telling these families to wait until 2014 to get coverage again. Unfortunately, there is no
such thing as a waiver for getting cancer.” Certainly, some deal can be cut between man, woman and God resulting in that cancer scheduled to show up next year holding off until 2014 when care will be available.

And how much damage can uncontrolled diabetes really do when untreated for a three year period? So, maybe you lose a couple of toes as the diabetes ravages your body.

As Chris Christie would no doubt remind you, forfeiting a few digits for the common good of wealthy millionaires for whom Christie continues to cut taxes, is a small price to pay.

After all, those tax cuts might just result in your getting a better job in the future – assuming you’re still alive.

And if you aren’t, at least you will die in the knowledge that you will have given your life to improve Chris Christie’s chances of becoming President of these United States some day.

So, at least you’ve got that going for you.

By: Rick Ungar, The Policy Page, Forbes, June 12, 2011

June 13, 2011 Posted by | Affordable Care Act, Class Warfare, Conservatives, Consumers, Elections, Equal Rights, GOP, Gov Chris Christie, Government, Health Care, Health Reform, Ideologues, Ideology, Medicaid, Middle Class, Planned Parenthood, Politics, Public Health, Republicans, Right Wing, Seniors, States, Taxes, Under Insured, Unemployed, Uninsured, Wealthy, Women, Women's Health, Womens Rights | , , , , , , , , , | 1 Comment

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