Because the plans have been in a constant state of flux, and because President Obama did not release details of ongoing discussions, it has been difficult to properly analyze the credibility of the recent proposals.
However, on Monday the CBO chimed in on Boehner's latest phased-in proposal.
Dear Mr. Speaker:There you have it. Boehner has proposed a $850 billion reduction over 10 years, a minuscule $85 billion a year on a deficit of $1.4 trillion.
As you requested, the Congressional Budget Office has estimated the impact on the
deficit of the Budget Control Act of 2011, as posted on the Web site of the Committee on Rules on July 25, 2011.
...
In total, if appropriations in the next 10 years are equal to the caps on discretionary spending and the maximum amount of funding is provided for the program integrity initiatives, CBO estimates that the legislation would reduce budget deficits by about $850 billion between 2012 and 2021 relative to CBO?s March 2011 baseline adjusted for subsequent appropriation action.
As requested, CBO has also calculated the net budgetary impact if discretionary savings are measured relative to its January baseline projections. Relative to that baseline, CBO estimates that the legislation would reduce budget deficits by about $1.1 trillion between 2012 and 2021.
Bear in mind it is far worse than it looks because it is heavily back-loaded. The 2012 reduction is only $4 billion.
ZeroHedge Comments As CBO Scores Boehner's (Laughable) Deficit Cut Plan, Jay Carney Admits Obama Still Does Not Have An Actual Plan
Boehner's plan is an abysmal joke, with $4 billion in discretionary spending cuts in 2012 growing mysteriously to $111 billion by 2021, and $0 billion in debt service reduction for 2012 and 2013 (growing to $37 billion in 2021), for a combined cumulative deficit impact of $850 billion, which on a NPV basis is more like $50 billion, but at least it is a plan.$1 Trillion Budget Gimmick
In the meantime, here is what is going on on the other side of the spectrum.
From the NRO: After bobbing-and-weaving for nine minutes, Carney [Obama's Press Secretary] finally says what everybody knows: the president won?t put his plan on paper because he doesn?t want it to become ?politically charged? before a compromise can be reached. In other words, you?ve got to pass it to find out what?s in it.
House Budget Chairman Paul Ryan writes about Senator Reid's Trillion-Dollar Gimmick
The $2.7 trillion debt-limit increase proposal offered by Senate Majority Leader Harry Reid contains a $1 trillion gimmick meant to disguise the plan?s shallowness on spending cuts. Supporters of the Reid plan are measuring their savings against a baseline that assumes the continuation of surge-level spending in Iraq and Afghanistan, even though the President has neither requested this funding nor signaled that he might request it. Instead, the President has signaled the opposite: a troop drawdown over the next few years. In other words, the Reid plan is claiming credit for ?savings? that were already scheduled to occur, and for ?cutting? spending that no one has requested.Ryan's article included a humorous flashback to a March 12, 2009 article at Washington Post, Paved With Magnificent Intentions.
Writing on the credibility of Obama's budget assumptions in 2009, George Will concludes ...
Although only a small fraction of the supposedly countercyclical stimulus will be spent by the end of the year, the budget assumes that by then the economy will have perked up, and that it will grow robustly -- 3.2 percent, 4 percent and 4.6 percent -- in the next three years. Growth supposedly will cut the deficit in half -- growth and the $1.6 trillion "saved" by first assuming, and then "canceling," a 10-year continuation of the surge in Iraq.Obama's Growth Estimates
Why, one wonders, not "save" $5 trillion by proposing to spend that amount to cover the moon with yogurt and then canceling the proposal?
- 3.2% 2009
- 4.0% 2010
- 4.6% 2011
How credible was that?
Veto Credibility
The president has vowed to veto deficit cutting legislation if it contains a balanced budget amendment or if it does not go past the 2012 elections.
How credible is that threat? The correct answer is not at all. The veto threat is nothing but hot air because Reid will see to it that such bills will never make it out of the Senate.
Whatever does make it out of the House and Senate, Obama will sign. Thus, a veto is an imaginary threat.
With that backdrop, it's time to rate the Obama, Reid, and Boehner Deficit reduction plans on a credibility scale.
10-Point Credibility Scale
- Golden
- Rock Solid
- Fudge
- Jello
- Marshmallow
- Cream Puff
- Nauseous
- Gaseous
- Imaginary
- Delusional
Scoring the Proposals
- Given a $1.4 trillion deficit, the latest plan from Boehner to cut a minuscule $85 billion a year (and back-loaded at that) is somewhere between nauseous and gaseous. It's no wonder that various Tea-Party members will not vote for it.
- Obama's plan is imaginary or delusional depending on whether or not the President actually believes he has a plan, when he doesn't.
- Parts of Senator Reid's plan are gaseous and the rest is clearly imaginary.
- In contrast, the gang-of-six $4 trillion deficit cutting plan has something of the consistency of Jello, fudge, or marshmallow depending on details that were never disclosed.
$4 trillion sounds like a lot but it is only $400 billion a year, while the deficit is $1.4 trillion. Thus it's tough to give that plan a rating higher than Jello, and impossible to give it a rating higher than fudge.
At this late juncture, the best one can reasonably hope for is a nauseous resolution. Unfortunately, the odds now favor something between gaseous and imaginary with delusional a distinct possibility.
The higher the score, the lower the credibility, and the better for gold.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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