Kum-Ba-Ya State of the Union
Research for Online Investors

by John Dalt

1/25/11

It looks like we are all going to be treated to a real Kum-Ba-Ya moment tonight.  President Obama is going to try to thread the needle of painting himself as a deficit hawk while proposing the country make “investments” in a variety of programs and initiatives to build a future that fits his vision.

Some are promoting an idea that congressmen should sit together regardless of party, rather than republicans on the right and democrats on the left.  What a sweet thought.  I can’t wait to see Rep. Peter King sitting next to Rep. Anthony Weiner.  Those two remind me of Yogi Bear and Boo-Boo.

The very act of congress sitting together gives Oh! Bama the appearance of bi-partisanship.  Somehow, we are supposed to think, he has brought together the parties to work on what is best for America.  This fits nicely with his plan to position himself as an arbiter in the people’s interest.  We have described his strategy of wearing out the republicans as a Rope-A-Dope.  He will let them exhaust themselves trying to cut the budget while he maneuvers the government around them.

Reuters says Americans are worried about the current year $1.3 trillion budget deficit and the $14.3 trillion federal debt limit.  Eric Cantor, the number two republican in the House said the republicans will outline cuts to the current budget around February 14.  Just in time for Valentine’s Day!  It appears they will propose cuts to the current year spending of about $100 billion.

The current budget authority expires on March 4, 2011.  The House and Senate will have to pass a continuing resolution by midnight on that day to avoid a government shutdown.  The government is currently operating under a continuing resolution passed on Dec. 21st.  This continuing resolution increased spending over 2010 budget levels by $1.16 billion.

Speculation is that republicans will use this opportunity to start cutting certain programs, and deny funding for agencies to enact regulations.  Targets will be the EPA writing regulations for carbon dioxide emissions, Health and Human Services regulations that are needed to enact Obama care, funding for Public Broadcasting, National Endowment for the Arts, and the Internal Revenue Service that must hire additional agents to enforce new tax laws as part of Obama care.

According to the Republican Study Committee, here are the proposals for the Spending Reduction Act of 2011.  This will form the basis of the continuing resolution offered by the house republicans.  It will cut the Federal budget to 2008 levels except for defense, security and veteran’s benefits.  You can read the complete (two pages) list of cuts.  One of my favorites was the cut in Federal Government Travel Budget of $7.5 billion annually.  Much of that has already been accomplished by taking away Nancy Pelosi’s military 757!  She ‘needed’ this large a plane so she wouldn’t have to stop for fuel when flying home to California.

These cuts will be painted as draconian by some.  To blunt that critisizm, the republicans also plan to reduce spending to 2006 levels for the new 2012 budget!  It will be interesting to hear partisans attack them for being mean spirited with their cuts while also blaming them for spending money when they were in a majority.  These plans are expected to reduce the budget and save $2.5 trillion dollars in the next ten years.

That is not enough, but it is a start.  We believe the current softness in precious metals and other commodities can be traced to a widening belief that the U.S. Government may start to control spending.  If the house republicans are not successful, we will be back in precious metals.

Quote:
My reading of history convinces me that most bad government results from too much government.--Thomas Jefferson

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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