Unsurprising news

The Associated Press reported today the US deficit for the first ten months of the 2018-19 fiscal year has increased by 27% over last year’s ten month deficit. The $867 billion deficit is in line to pass $1 trillion for the year ending September 30, 2019.

This is not a surprise as the tax law passed in December, 2017 is projected to increase the debt by $1.5 trillion over the next ten years. That is on top of the expected increase without change of $10 trillion. And, to make matters worse two spending bills in 2018 and 2019 have increased spending, with the latter increase yet to be felt.

Expenses are up 8% and revenue is up only 3% with such a good economy. As mentioned before, we should be paying down the debt in good times, but the tax bill reduced the revenue from where it would have been.

Politicians, including this president, have an unhealthy focus on short term results. The long term impact can be blamed on future politicians, in their minds. We have a ticking time bomb, where our $22 trillion debt will be closer to $35 trillion in ten years sans change.

Some poor president and Congress will have to step up to solve this problem. And, they will unfairly get blamed.  It will take both spending cuts and tax increases to get us there. And, to show how frustrating harmful action is, a Senator from Florida yesterday said we need a tax cut to spur the economy with the pending recession – really? More debt is the answer?

We need fiscal stewardship and leadership. We are not getting it from these incumbents. And, that is a dereliction in duty.

 

Sustainability

Sustainability is an underappreciated word. It is essential to most aspects of life, such as exercise, relationships, saving, or business or governmental decisions.

Beginning with exercise as an example, you need to start out like you can put out. Think what you are trying to accomplish and do sustainable exercises. I used to jog often, but my efforts would wane and I would need to start again.

Now, I exercise daily after I shower for about fifteen minutes altering the routines each day. They are a series of Yoga, Pilates, isometrics and light weightlifting. I balance that with 2 to 3 mile walks or hikes and yard work. My goal at age 59 is to be flexible and toned able to get around on my own for the rest of my life.

The same holds true with financial decisions. A word of advice is pay over time what your budget can support. Save with each paycheck to create a dollar averaging effect that is not hinged on stock market rises and falls. Be wary of buying on ego – buy on sustainability (master bedroom downstairs will become a must at some point and most cars and SUVs look similar no matter the price).

Our government could learn this as well. We are borrowing from our future to make a long running pretty good economy a better one. We are on an unsustainable path toward debt and we have exhausted a few measures that would let us recover from the inevitable fall.

We are reversing a trend of treating our environment better by removing some needed regulations and allowing polluters to pollute more. We are peeing in our own swimming pool. At some point, there is a financial and health reckoning with these environmental degradations.

Sustainability is the key. It may be a boring word, but it is an essential one. Start out like you can put out.

Budget, budget, budget

Now, that agreement has been reached on setting a budget for the current fiscal year which is seven months old, I have three comments. First, bipartisan collaboration is the reason this budget passed. Thus far, the House has been trying to pass legislation arguing amongst Republicans. Bipartisan legislation is how John Boehner got bills passed.

Second, it is interesting how we are celebrating Congress for doing its job. This is one of the easier, substantive things they do, yet it should not take seven months into the fiscal year. Keeping the lights on is the most important thing they do, yet they can’t do even this well.

Third, I have witnessed yet again a Congressional candidate to replace now budget director Mick Mulvaney tout he is in favor of a balanced budget amendment. Folks, we have $20 trillion in debt. We need more revenue than expenses. And, we cannot cut our way there. We need to increase revenue. It should be noted the President’s tax plan is estimated to increase the debt from $2 to $6 trillion.

We need more serious discussions than this President and Congress are prepared to do. We must roll up our sleeves and add wisely to revenue and cut wisely our expenses, as both efforts are required. If someone tells you otherwise, mention the $20 trillion debt figure.

We step over quarters to pick up nickels around here

I was struggling for a title for this post, as it started out with a concept I call “dialing for dollars.” What do I mean by that? In publicly traded companies, at the end of every quarter, the accounting staff goes dialing for dollars. Each year, various departments or “responsibility centers” set up an estimate of their expenses for the year. These amounts are typically accrued over the course of the year as expense items. At the end of each quarter, the accountants call you if you have not spent the money accrued for that quarter or year-to-date.

Why do they do this? They are looking to reverse excess accruals into income for the quarter. The company is having difficulty meeting the expected Earnings Per Share performance for the quarter, so they are looking to make the number any legitimate way they can. When a company does not meet their short-term expectations, even by a penny or two, the capital markets may reduce their share price. Yet, this unhealthy focus is usually harmful to longer term success, as it shortens the focus of the leadership. It makes leaders more like managers and usually waters down risk taking, as you don’t want to not meet your goals.

I have a friend in retail company who summed it up this way. He said “we step over quarters to pick up nickels around here.” Investments are often not made if the results are not profitable in the same fiscal year. Think about that for a second. You may have a great idea for the company that will produce profitable results either through revenue gain or expense reduction, but if it is not “accretive to earnings” (meaning adds to earnings) in the same year, it may not get done. So, the company would rather step over a quarter that will be earned next year for a nickel today.

The key reason is most incentive plans are short term in nature. Coupling that with impatient investors who read analysts’ expectations, leaders do not have the time to overcome an error that hurts earnings and causes them to miss estimates. They become more pensive and take fewer risks. This is one reason so many companies are sitting on cash these days as a leader does not want to invest poorly. When you hear their reasons, you have to take them with a grain of salt and a healthy does of skepticism. The CEO might say I am not investing because of uncertainty in the economy, because of Obamacare, or because of regulations. Excuse making like this has gone on for years and is largely poor-mouthing gamesmanship. The leaders do this, so when they achieve success, they can appear to have overcome obstacles.

Yet, I digress. The focus on short-term profits hinders progress toward long term goals. This happens not just in publicly traded companies, but in other enterprises as well. A good example is investing for a cleaner energy future. The profits in “drill baby drill” are huge for fossil fuel companies, so they are riding that horse for as long as they can. However, that is not the best answer long term, as the cost of not moving more quickly to alternative energy will outweigh the short-term benefits these companies gain now.

One of the hardest parts of this equation is the costs and profits are not always borne by the same entities. Developers want to get in, make their money and get out. Their typical modus operandi is to leave the problems for someone else. Fracking is a great example, where the fracking company makes a huge profit and the land owner makes a nice nest egg, but the problems are left for the community at large through less usable water, poisoned water, air quality concerns, and landscape degradation. We are only beginning to see the negative results of fracking which will be a gift that keeps on giving in a negative way.

So, we need leaders to be leaders and look longer term. How can we create sustainable earnings? How can we be good community citizens and help the lives of everyone? How can we make money without harming others? If we allow them to continue focusing on short-term, the long term problems will not get solved. And, then it will cost more money to fix things. Eventually, someone will have to pay the fiddler while we dance to the music today.

The GOP has screwed the pooch

If people are horrified by the verbiage of this headline, please know that it is a term used by test pilots in the Air Force and was used heavily during the book and movie called “The Right Stuff.” The term “screwed the pooch” is a term given when a test pilot pushed his aircraft too far and the mistake would cause the loss of the aircraft or, worse the loss of his or her life. The erroneous test pilot was said to have “screwed the pooch.” Unfortunately, these brave men and now women, often paid dearly for their test pilot efforts, which was a recurring theme in the movie.

I use the term to portray what the GOP has been doing to itself over the past few years culminating in the current state of affairs where a few are holding the country and their own party hostage with demands that are so strident, others in their party are balking. In fact, the GOP leadership is close to its wits end as they are being pushed by the US Chamber of Commerce, business leaders and conservative columnists and papers to cease the charade and come to the table. They have screwed the pooch.

I was somewhat hesitant to use this term as it was used with brave and daring test pilots who were paid and loved to fly jets to their outer limits and beyond. They called it “pushing the envelope.” I find no bravery in the Tea Party as I see a stubbornness that has arisen from a faulty data, misinformation and unlimited funds from a few key donors. These donors have heavy ties to the fossil fuel industry, so from my view and that of other independent voters, the donors are using the passion in Tea Party group for a cause that the group is unaware.

These donors want to perpetuate the fossil fuel profit making engine by any means possible. They want to dismantle environmental regulations and gain full access to dig, drill and exploit. Even as we speak, the GOP is considering the push for environmental restrictions being lifted as part of the debt ceiling and budget bill. Why would they do that at a time when the United Nations sanctioned International Climate Change Group scientists have just noted they are 95% sure global warming is man-influenced and the folks in China are having a hard time seeing the sun and breathing clean air is becoming a luxury.

The stubborness tracks to the position on Obamacare which is largely a GOP idea. The exchanges, in particular, are right out of a GOP playbook that wants more competition for insurance coverage in a state. And, one of the biggest Tea Party proponents lives in Texas, which is where the most uninsureds in America exist. They are dead last by having the highest tally of uninsureds. I get back to a simple question – why aren’t you in favor of Obamacare? And, why won’t you expand Medicaid, as well?

But, I guess one of the troubling aspects in the budget deal is the current proposal passed by the Senate has the GOP preferred sequestration restricted budget baked in. In other words, the GOP has garnered approval from the Senate on a major concession and that is to continue fairly capricious cuts. If the House voted for this Senate bill right now, it would pass with enough GOP Congressional representatives joining the Democrats. One GOP Congressman said if the vote was confidential, 150 GOP members would vote for it. That is almost 70% of the GOP representatives. What does that tell you?

Obama has made some concessions with this budget. He is not going to unwind his healthcare law. And, in spite of the overall like/ dislike of Obamacare, since the GOP disinformation campaign has been so effective, people don’t know what it is, including some representatives, senators and governors. Yet, if you ask about the features of Obamacare, people like the features in the majority. What has already been made effective – extending coverage to age 26 for adult children, elimination of lifetime limits, elimination of preexisting conditons on kids (the adult part is effective 1/1/14), limiting insurer profits on premiums, and improving senior drug coverage – are well received. The exhanges are a good idea and will let people have access to coverage.

I have written numerous letters to my GOP representative to stop siding with the Tea Party and start being a reasonable steward. The Tea Party has screwed the pooch and per conservative columnist David Brooks is on the downward side of their success.The GOP has screwed the pooch as well, but they still have time to remedy this and make a course correction. Let’s hope for our country they do. Speaker are you listening?