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March 13, 2010
Issue 87  -  Rushing Into the Vortex
 
A headline that should concern every taxpayer: 
 
Dems seek agreement, quick vote on health care

Mar 12, 4:18 PM (ET)

By DAVID ESPO
 
WASHINGTON (AP) - Under White House pressure to act swiftly, House and Senate Democratic leaders reached for agreement Friday on President Barack Obama's health care bill, sweetened suddenly by fresh billions for student aid and a sense that breakthroughs are at hand.
 
 
The idea that the majority of the populace is against this legislation, and yet, congress insists on pushing it through is very troubling.  Not only because we are already bankrupt, but because the process is being molded to suit the needs of the democratic leaders without any concern for the whole body's preference.  I was asked to go into the reconciliation process to help explain what is happening.  It's complicated, but I'll try.
 
The first thing to remember is that the founders set up the congress to move at a glacier like pace.  This was to make things HARD to change.  They didn't want some group to swoop into the Washington and change everything at once.  Slow and really steady was the idea here.  Reconciliation was a process started in 1974 with the Congressional Budget Act.  The purpose was to improve the fiscal position of the government.  (Gee, that's worked out great, huh?)  It was all about making sure that fiscal impacts of new bills were reconciled with the current budget resolution.  New spending had to be offset by cuts.  Here is a short explanation:
 
 When congressional observers talk about the reconciliation process, they mean the budget reconciliation process. Originally a way to expedite the process of merging the first budget resolution the Congress passed at the beginning of each year with the second budget resolution it passed near the end, reconciliation has drifted far from its origins and now means one thing to both sides: 50 votes. No filibuster.
 
It didn't start that way.  It was a originally a good way to make sure the budget plan was followed.  Of course, as with any good idea, there were those that found ways to circumvent the process and turn it to their favor.
 
Before moving on, I'd like to explain the position of Senate Parliamentarian.  The position is a non-partisan judge of the rules and procedures of the Senate.  Their word is advisory only and he has no enforcement capability.  That being said, his/her ruling is nearly always followed as a precedent.  (some parliamentarians have been removed from post for giving unfavorable (to the majority) rulings)  
 
The reconciliation act limited debate to 20 hours and was to apply to one fiscal year only.  Here is how the perversion came:  (From Wiki)
 
 Former Parliamentarian of the Senate Robert Dove has stated that reconciliation

was never used for that purpose. But in 1975, just a year after it had passed, a very canny Senate committee chairman -- Russell Long of Louisiana -- came in to the Parliamentarian's Office, and he kept having trouble with his tax bills because of the Senate rules. People were offering amendments to them that he didn't like. They were debating them at length, and he didn't like that. And he saw in the Budget Act a way of getting around those pesky little problems. And he convinced the Parliamentarian at the time -- I was the assistant -- that the very first use of reconciliation should be to protect his tax cut bill. [3]

This then led to people abusing the Act and forcing bills through with this now, loophole.  This led to a "fix" called the Byrd rule:  (Wiki)
 
Byrd Rule
Further information: Sunset provision: The Budget Act and the Byrd Rule

Reconciliation generally involves legislation that changes the budget deficit (or conceivably, the surplus). The "Byrd Rule" (2 U.S.C. § 644, named after Democratic Senator Robert Byrd) was adopted in 1985 and amended in 1990 to outline which provisions reconciliation can and cannot be used for. The Byrd Rule defines a provision to be "extraneous" (and therefore ineligible for reconciliation) in six cases:

  1. if it does not produce a change in outlays or revenues;
  2. if it produces an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions;
  3. if it is outside the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure;
  4. if it produces a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision;
  5. if it would increase the deficit for a fiscal year beyond those covered by the reconciliation measure, though the provisions in question may receive an exception if they in total in a Title of the measure net to a reduction in the deficit; and
  6. if it recommends changes in Social Security.
 
Now obviously this makes it much more difficult to play the game as all changes in reconciliation must adhere to the list of rules.  Objections can be raised and the parliamentarian can rule yes or no.  This makes the process fairly benign and prevents large changes. 
 
Backing up a bit in the process, a bill is introduced in both the House and Senate.  With amendments the two bills will be different.  After they are passed by both the Senate and House, reconciliation is used to make a bill that is the same.  Then the House and Senate vote again.  This is nearly always a  slam dunk vote as the changes are mostly minor.  This health bill is different.  The differences between the two bills is so large, that the process could get bogged down in constant challenges.  The Parliamentarian is by no means predictable either, they have made rulings that were unexpected.  This could lead to a bill that is not what is intended....by either party.  It is definitely risky for the democrats. 
 
It seems President Obama is going all in:  (from CBSnews)
 
Schieffer was unequivocal about the motive behind Obama's change of plans: "The bottom line is they don't have the votes" to pass the Senate version of the bill.

"It is almost unprecedented for a president to postpone an overseas trip for a domestic legislative agenda item," noted Ambinder, adding that Mr. Obama would spend the next few days chewing "the ear off recalcitrant house Democrats."

There "is a lot of horse trading going on," Ambinder said. Lawmakers "need to hear specific pledges and promises about what will and won't be included in the sidecar reconciliation package."

"The fundamental dynamic is mistrust between House Democrats and Senate Democrats," added Ambinder.

Schieffer agreed, noting that House members "want some kind of assurance from the senators that indeed they will act on the reconciliation."

The reluctance of lawmakers is also a reflection of the uncertainty surrounding the reconciliation measure, argued Condon. "Everything is up in the air in terms of what is possible procedurally. The parliamentarian will play a big role in saying what the Senate can do and thereby what the House can do," she said.

Yesterday, Senate Republicans claimed that Parliamentarian Alan Frumin had ruled that Congress would not be able tackle a second bill until President Obama signs the current version into law.

However, "this morning the parliamentarian's office is backing away from that interpretation," Ambinder noted.

In spite of the procedural obstacles, Mr. Obama was pushing the health overhaul with a newfound tenacity this week. As Ambinder noted, "the White House has put all their chips in on health care."

 
Yes, it does seem like he's putting his whole presidency on this one issue.  Arm twisting to pass a bill that the majority doesn't approve seems odd to me.  Oh well, if it passes it will just hasten our demise as more and more debt is piled on our nearly collapsing foundation.  This can be seen clearly in this updated chart from contraryinvestor:
 
 
Looking at this chart is scary.  Look close and you will see that if social security and medicare liabilities were included, the chart would stretch up to 500%!  If you think we are getting out of this hole as easily as some are saying, you are fool.  But what about those sinking credit card levels?  Well it seems they aren't what they seem:
 
 
What credit-card payoff? Consumers are dumping debt
Steep drops in credit-card balances driven by companies charging off bad debt
By Jennifer Waters, MarketWatch
CHICAGO (MarketWatch) -- Credit-card debt has been falling for 16 straight months but consumers aren't paying off their financial obligations as much you might think. Instead, they're walking away from the debt, forcing credit-card issuers to write off as much as 90% of that reported drop, according to a new report by CardHub.com.
 
So the drops aren't really people paying off debt, just companies writing it off.  Essentially admitting they aren't going to get paid.  So the "good" news is really bad.  The written off debt is usually sold to collection agencies at pennies on the dollar.  They then harass debtors with less than scrupulous tactics.  A seedy business to the say the least.  Luckily, these guys don't call the United States, because if they did, the phone would be ringing off the hook:
 

Monthly U.S. Debt Hits a New Record
By JOSEPH LAZZARO Posted 3:00 PM 03/10/10 Economy

Mixed news for the U.S. economy Wednesday, as the nation's monthly budget deficit hit a record $220.9. billion in February, the U.S. Treasury Department announced.

Although a record amount, it was lower than expected by analysts. Equally significant, revenue in February rose 23% to $107.5 billion -- the first year-over-year revenue increase since April 2008.

Economists surveyed by Bloomberg News had expected the U.S. government to post a $223.0 billion deficit in February, following a revised $42.6 billion deficit in January and a $91.4 billion deficit in December. The federal government ran a $193.9 billion deficit a year ago, in February 2009. It also posted a record $1.42 trillion deficit in fiscal 2009, following a $454.8 billion deficit in fiscal 2008. The $1.42 trillion 2009 deficit was nearly three times the 2008 deficit due mainly to the bank bailout and $787 billion fiscal stimulus package.

 
Now correct me if I'm wrong, but an increase in revenues is IRRELEVANT if your debt increased by more!  These business "writers" are just grasping for straws.  These numbers are equivalent to a household raising their monthly income from $8,700 to $10,700 but at the same time spending $32,800!
This is just silly stuff.  There is no "mixed" news here.  IT'S ALL BAD!!!!!  Do those numbers look mixed to you? 
 
This next chart shows why things are not going to get better anytime soon:
 
 
 
 
This shows the municipal debt which counts states and local communities totaled.  This chart is on a ski slope type rise.  Eventually this will turn down and that will create a huge drag on the economy.  This will intensify any problems we have.  The housing market, which has improved, is also much shakier than headlines might suggest.  This story tells why:
 

Up to 7 million homes are potentially eligible but haven’t been repossessed
By Renae Merle
The Washington Post
updated 4:52 a.m. CT, Fri., March. 12, 2010

WASHINGTON - The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners.

And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.

This is a disaster coming our way.  It basically means that there are millions of homes just waiting to come on the market.  This will bring downward pressure to houses.....again. 
 
Now from the "watch what they do, not what they say" file:
China Says Gold Is 'Unlikely' to Be Primary Investment
2010-03-09 11:12:42.408 GMT
March 9 (Telegraph) -- China has disappointed gold investors today after arguing that the yellow metal is 'unlikely' to be a primary investment as it diversifies its $2.4 trillion of foreign-exchange reserves.
Gold, which has risen in price for 10 straight years, is 'unlikely' to be a primary investment, Yi Gang, the head of the State Administration of Foreign Exchange, said at a press briefing in Beijing today, Bloomberg reported.
The price has "had handsome gains in recent years," Yi said. But, "if we look at the past 30 years, it had big ups and downs."
China has lifted its holding of gold by 454 tons to 1,054 since 2003, leaving it with the world's fifth-biggest holding. After India, China is the biggest consumer of gold and, according to MrYi, increasing its reserves of gold will "push up prices" and "hurt Chinese gold consumers."
 
Now I didn't just fall off the turnip truck and I can see that someone saying that gold might not be a primary investment while buying a bunch of the stuff is pretty contradictory.  If I were you, I'd follow what the next world power is doing, not what their saying, and with prices still down from the peaks, it's as good a time as ever to add to your holdings. 
 
I'll close this week with a poker video.  Even if you don't play, this is, as the title suggests, amazing.  Have a great week!