Budget Buster: Pentagon Unable to Account for Trillions in Spending

They Don't Even Know How Much US Government Debt "We" Owe

How Much US Government Debt Do We Owe?

The United States military budget accounts for over 40% of the world’s annual military expenditures and, at around $700 billion per year, more than 20% of the federal budget. The Federal government wants to curb that spending as part of deficit reduction.

Last week’s deficit deal calls for up to $350 billion in cuts over the next decade on the departments of Defense, State, Homeland Security and Veterans Affairs, among others. And, if the debt “super-committee” fails to reach a deal on $1.2 trillion in budget cuts, it will automatically trigger an additional $500 billion in cuts over the next decade.

Cutting in a bureaucracy as large and convoluted as the Pentagon is no easy task, but Stephen Glain author of State vs. Defense: The Battle to Define America’s Empire says there are three issues at the heart of their spending problem.

Growing obligations: Much like other public sector groups, the Pentagon has growing liabilities coming from pension and medical insurance plans. It’s “very much a microcosm” of the problems facing the country, says Glain. The Pentagon’s liability for civilian employees is currently $60 billion and the “rate of growth is enormous,” says Glain. The figure was $15 billion a decade ago.

Accounting Problems: You think Enron’s accounting was troubled? The Pentagon has very little accountability when it comes to its books. Since first submitting financial accounts in 1991, the Pentagon “has been unable to account for trillions of dollars, well over almost $10 trillion by my own account,” says Glain. Conspiracy theorists suggest this is CIA money being laundered through the Pentagon, a claim Glain has some sympathy for.

Ending the Wars: Ending operations in Iraq and Afghanistan will instantly save the defense department $180 billion per year. According to Joseph Stiglitz the wars have cost the government $3 trillion and counting.

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Gold Prices Spike as Recession Worries Spread

NEW YORK — Gold prices soared again Wednesday, closing in on $1,700 an ounce, as worries that governments won’t be able to grow their way out of debt caused a rush into the safe haven asset.

Gold for December delivery rose $21.80 to settle at $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,675.90 and as low as $1,654.40 while the spot gold price was a bit less enthusiastic adding only $3.50, according to Kitco’s gold index.

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Silver prices closed up $1.66 to $41.75 an ounce.

The US Dollar index was down 0.69% at $74.02 while the euro was up 0.75% vs. the dollar.

David Cay Johnston, says, The Rich Get Richer

The Rich Get Richer

The rich, thanks to government handouts, are getting richer at everyone else’s expense. At least that’s what David Cay Johnston claims in the book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)

“This enormous growth of incomes at the top is not the result of market forces — there’s some market forces — but it’s largely the result of all these rules nobody knows about,” he tells Dan and Aaron in this clip.

The problem starts with government subsidies, says Johnston, a Pulitzer Prize-winning journalist. States are spending around $70 billion on government subsidies, he estimates. That doesn’t include the hundreds of billions more doled out in federal subsidies.

“Is that capitalism?,” he complains. “Go compete in a competitive arena. Don’t go to Washington and say ‘give me money’ either by saying ‘I don’t have to pay taxes’ or forcing other people to pay taxes that go to me. Go earn your money in the marketplace.”

The wealth gap in America is outpacing much of the world. “Income inequality in the United States has soared … with 1 percent controlling 24 percent of American income in 2007,” New York Times columnist Nicholas Kristof recently wrote. Kristof notes that’s worse than “historically unstable countries like Nicaragua, Venezuela and Guyana.”

What’s even more striking is that many of these unfair advantages are given to the biggest political contributors. The Wall Street bailouts are a perfect example.

“There’s been a massive turnover of money to people who didn’t have to face the consequences of the market,” Johnston says. “Goldman Sachs got its bad bets paid off at 100 cents on the dollar. I’ve never seen the government do that for me.”

If the trend continues the next crisis could be a lot worse than 2008 and 2009, Johnston warns.

Niall Ferguson says, Paul Krugman’s Advice Will Lead USA To Depression

One of the hottest feuds in economics today is the one between Harvard Professor Niall Ferguson and Nobel Laureate Paul Krugman. The debate represents austerity vs. stimulus, with Krugman, of course, arguing that the U.S. needs to do way more to save the economy.Ferguson notes that his dispute with Krugman isn’t even so much about economics — it’s about history. Ferguson is a history professor. And history says pretty clearly that countries with this level of sovereign debt eventually go bust.Ferguson isn’t convinced we’re totally doomed just yet. And he’s not calling for overly violent cuts that will leave us eating cat food. Instead, he just wants to see credible commitments to get spending under control down the road to assure investors that our debt is good, and to convince businesses that they can hire and invest today without worrying about massive tax hikes down the road.

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Richard Suttmeier: Home Prices Could Fall Another 50%

Home Short Sales Bring Real Estate Prices Down

The housing market continues to deteriorate.

Thursday’s report on May pending home sales was down 30% from the prior month and nearly 16% vs. a year ago.

The market weakness spans the country. Sales in the Northeast, Midwest and South fell more than 30%, the bright spot, the West, only fell 21%.The news comes after last week’s record low new home sales in May, which plummeted nearly 33%. Experts say the expiration of the new homebuyer tax credit is to blame for the sudden market softness.

Unfortunately, the market could get worse and prices could fall further, says Richard Suttmeier of ValuEngine.com. High unemployment and struggling community banks are two main causes. Saddled with bad housing and construction loans, local banks will continue to restrict lending.Plus, the failure of the Obama administration’s mortgage modification program means a steady flow of short sales. “People are going to be surprised when they see there have been short sales,” which negatively impact appraisals in the local community, says Suttmeier.How low can prices go?Using the S&P/Case-Shiller index as his guide, Suttmeier suggests homes across the country could lose half their value. “If it gets back, like stocks, back to the 1999-2000 levels, that’s another 50% down in home prices,” he says.

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Richard Suttmeier says, “Forget the Double-Dip,” We Won’t Kick the Recession Until We Start Creating Jobs”

The stock market continued its sell-off Thursday as investors await Friday’s June unemployment report. The consensus estimate among economists is for a loss of at least 100,000 jobs and the unemployment rate to inch up to 9.8%.The jobs data we have already received this week also doesn’t suggest positive news. This week’s initial jobless claims were worse than expected, growing by 13,000 to 472,000. The four-week moving average is now 466,500. That’s well above normal levels, even during a recession. “350,00 is the recessionary threshold,” says ValuEngine.com’s Richard Suttmeier.The private sector is still not creating enough jobs to make a dent. Wednesday’s ADP report counted a disappointing 13,000 new jobs in the private sector in June. Remember, the government’s data only showed 41,000 new private sector jobs in May.The poor job market is proof the economy remains in a prolonged recession, says Suttmeier, noting that in December 2007, when the recession began, the unemployment rate was below 5%. “Forget the double dip, we’re not out of the first dip, based on that statistic alone.”There is one shred of silver lining, at least when it comes to stocks, Suttmeier tells Aaron in this clip. “The market reaction to the negative side has already occurred this week, so you may get a relief rally,” even if the jobs data is weak.

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“The Worst President in My Lifetime”, Howard Davidowitz on Obama

President Obama is having a rough go of things lately. As noted here last week, for the first time in his presidency, more Americans disapprove of Obama (48%) than approve of him (45%), according to the latest WSJ/NBC poll. And 62% say the country is headed in the wrong direction.“The American people are right,” says Howard Davidowitz of Davidowitz & Co. A critic of Obama’s, from the start, Davidowitz refers to him as the “worst” President of his lifetime, even worse than of Jimmy Carter, based on: * — The War in Afghanistan: Davidowitz doesn’t see the point. As far as he can tell, after 7 years, hundreds of billions spent, and thousands of U.S. lives lost, the Afghans still can’t defend against the Taliban. Plus, the Afghan government is stealing billions in aid from the U.S. The WSJ reports, $3 billion in U.S. aid has been loaded onto planes by corrupt officials and flown out of the Kabul airport since 2007. “If they can’t be trained, if they’re stealing all our money, all our soldiers are dying. I don’t understand how any of this is logical,” proclaims Davidowitz. * — Out of Control Spending: Davidowitz thinks Obama has wasted time and taxpayer money pushing ‘Obamacare’ into law at a time when the debt-to-GDP ratio is expected to hit 62% by year’s end. “We’re going broke because of Medicare, Medicaid and everything else. He added another benefit, health-care. Can you explain that to me?” * — BP Oil Spill: “It could destroy the country,” he says. Davidowitz fears the continued loss of hundreds of thousands of barrels of oil per day will drive gas prices higher, further choking and already struggling consumer. Meanwhile, he questions why the President waited 50 days to contact BP executives. Davidowitz recognizes Obama was handed a difficult hand upon entering office, and admits the political system is dysfunctional. Actually, in the many times Davidowitz has appeared on Tech Ticker he’s rarely had a nice thing to say about any politician, regardless of party. What he’d like to see is a return to fiscal responsibility, lacking these days. “Ross Perot did a huge service to this country when he ran because all he talked about was the budget and what was going on and it forced Clinton to deal with it,” Davidowitz says.

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