Adentures in Neverland

 

 

 

“All the world is made of faith, and trust, and pixie dust”

 

Peter Pan

 J. M. Barrie

Most all of us have some memories of our youth reading or watching Peter Pan. Myself, I rank Peter Pan up there with The Wizard of Oz as classic movies I can see time and time again, and never tire of them. The Lost Boys from Peter Pan were a group of boys who lived in Neverland, a place most young lads would have loved to be a part of. No school, no work, no responsibility. It was a great life for a young boy. Then again, the story was a fairy tale and did take place in Neverland.

 

Today, I feel like we are all living in a different kind of Neverland. In fact, living in Neverland is one step removed from living in denial. Rather than a group of young boys whose motto was "We will never grow up!", our Neverland is made up of adults in Washington who have a new motto - "We will never face facts!". I was somewhat bemused to see the stock market go up over 200 points on nothing more the optimism that agreement can be reached on the "fiscal cliff". Not to be a downer, but if you truly look at the hard lifting which needs to be done, we have miles to go.

 

An old saying is "bad news does not get better with age". Amen to that. It has taken us decades of financial malfeasance to get into this mess, and it is going to take more than a handshake and pat on the back between the President and the Speaker to get us out of it. The longer we have waited, the harder the fix will be.

For example, consider the following:

• The National Debt clock shows our debt at $16.125T and climbing. In October of this year, rather than our debt slowing down, it sped up.
• In November of 2011, the last time the debt ceiling was due to raised, agreement was not reached. The fall back to keep our credit rating from taking a dive or defaulting on our obligations, was to install a "fail safe" a sequestration so to speak. Starting in January of 2013, and going for the next ten years, a total of $1.2T will be equally reduced from defense and discretionary portions of the budget.
• Even with these draconian cuts taking place starting in January of 2013, by March we will again be up against the debt ceiling. Once again, we will be faced with either raising a boat load more of revenue, or having further cuts in the defense and discretionary potions of the budget.
• Many of the "Progressive" Democrats are dead set against touching entitlements such as Social Security and Medicare. As most truth tellers know, the "real money" rests in entitlements. Failure to address this portion of the budget, will mean we can't tax enough or cut enough to put a meaningful dent in our mountainous debt.
• Closing the top 10 loopholes would pull in an extra $834 billion a year - not enough to eliminate annual deficits. Those 10 loopholes are:
  1) Exclusion of employer-sponsored health insurance -- $164.2 billion
  2) Exclusion of employer pension benefits -- $162.7 billion
  3) Mortgage interest deduction -- $99.8 billion
  4) Exclusion of Medicare benefits -- $76.2 billion
  5) Lower capital gains rates -- $71.4 billion
  6) The earned income tax credit -- $58.4 billion
  7) Deduction of state and local income taxes -- $54 billion
  8) Exclusion of gains at death and the gift carryover exclusion -- $51.9 billion
  9) Deduction of charitable contributions -- $51.6 billion
  10) Exclusion of employer benefits under so-called cafeteria plans -- $43.8 billion
• Going back to the Clinton Era rates for the highest income earners will result in at most $100B. Still not enough to keep from running a deficit.

The above items were just about addressing our deficit - not the debt. Our debt of over $16.T comes with a staggering interest charge which we all have to pay every year as part of our budget. In Fiscal 2012, the interest on our debt was $360B. It would have been higher if not for the fact that interest rates are at almost historic lows. As our debt grows, so grows the portion of the budget needed to service it.

Back to Neverland. One of the best weddings my wife and I went to was over 30 years ago. After the wedding was over, and the reception started, the groom and the groom's men took off their wedding attire are put on t-shirts which read "I will never grow up" - the slogan for the Lost Boys in Neverland. It was fun to see these young men at a wedding acting like mythical characters from a fairy tale.

However, it is not fun nor funny to see our leaders in Washington do the same. It is time to grow up. It is time to leave Neverland. The game is over, the adventure is done, lets get back to reality and do the heavy lifting. Once the real work is done, and results can be seen, then the stock market can have a meaningful rally.