1/9/2013 7:45 PM ET|
Why $16.4 trillion debt isn't enough
We have to pay the bills and fix the economy, but we also need to set a course for a solvent future. As the debt ceiling and other crises loom, Washington doesn't seem up to the task.
Despite what Wall Street thought, the last-minute, middle-of-the-night fiscal cliff deal was a dud. Not only did it raise taxes on nearly 80% of Americans and ignore the spending that's the root cause of the deficit and long-term debt problem, but the animosity it engendered also dropped more poison into the dry well of bipartisanship in Washington.
Count the victories: Lower- and middle-income Americans avoided a $120 billion income tax hike this year but will be hit with a $120 billion payroll tax hike instead. The rich face a $70 billion income tax hike. The $100 billion or so in spending cuts, the "sequester," was delayed by a measly 60 days.
But now America faces an even larger precipice: a combination of the debt ceiling, the sequester and the end of the continuing resolution funding the government in lieu of an actual budget. The fun is set to start as soon as Feb. 15, which is the earliest the Bipartisan Policy Center believes the U.S. Treasury could exhaust its cash reserves -- forcing us to raise the debt ceiling, default on the national debt or sharply cut discretionary spending.
We're on a collision course with fiscal reality. There is no more pretending it isn't there -- the Pentagon says the problem is so big that it jeopardizes our national security. For too long, rhetoric has alternated between Democrats promising goodies and Republicans promising to not make us pay for them. There are no easy solutions left; the bills have come due.
The least-disruptive option, of course, is to raise the $16.4 trillion debt limit. America will, at least in the short term, need to borrow more. Part of this is because the economy is deficient and in need of critical investments from the government. And part of it is because Washington is a long way from addressing the root cause of the problem.
And as a result, the country's debt -- which totals more than $52,000 for every man, woman and child in this country -- just isn't enough. It's not even close.
But we also need to wake up to the fact that the time to fix this is short. The credit agencies and our foreign creditors grow increasingly impatient with our budget petulance.
Washington just doesn't get it.
President Barack Obama and the Republicans in Congress are preoccupied with pointing the finger at the other party -- not fixing the structural problems of a weak, debt-hobbled economy and out-of-control health-care costs, both of which have been decades in the making. Slivers of hope during the fiscal cliff negotiations, including discussions of changing how Social Security benefits are calculated (by changing how inflation is measured) and raising the Medicare eligibility age (to match the Social Security full retirement age), were quickly abandoned to focus on the old tropes of the rich versus the middle class, paying "fair shares" and punishing job creators.
The result was a deal that merely delayed the pain without changing the long-term debt trajectory. The chart above shows our course quite clearly.
The Congressional Budget Office estimates that, compared with the full force of the fiscal cliff (had we gone over it), the deal adds $4.6 trillion to budget deficits over the next 10 years -- a deficit the CBO believes will total nearly $10 trillion, enough to take the national debt to an incomprehensible $27 trillion by 2022.
By then, according to Credit Suisse estimates, almost all of America's tax revenue will be going to entitlement programs and interest payments on the debt. Spending on everything else -- including bullets and jet fuel -- will add to the debt load. A weaker-than-expected economy or higher-than-expected interest rates will bring the day of reckoning closer.
Troublingly, the bickering has already started anew.
Before he even signed the fiscal cliff deal into law, Obama said he wouldn't negotiate over the Treasury's borrowing limit and that any new spending cuts would need to be offset by additional tax hikes. Over the weekend, Senate Minority Leader Mitch McConnell, R-Ky., delivered a riposte, saying that Republicans are "done raising taxes" and that any increase in the debt ceiling would need to be accompanied by significant entitlement cuts. House Speaker John Boehner, R-Ohio, echoed these sentiments.
In other words, both sides have returned to their corners to pout and fold their arms. Meanwhile, most Americans are starry-eyed from the stock market's rise, focused on the jump in small caps represented by the iSharesRussell 2000 Index (IWM), and blissfully unaware of what's coming.
The farce will end soon. The deadlines we now face cannot be delayed as easily as the earlier ones. And even if they were, the credit-rating agencies have threatened that, without action to at least stabilize the trajectory of the national debt, they will downgrade us -- setting the stage for a repeat of the August 2011 market meltdown caused by the loss of America's AAA rating from Standard & Poor's.
No easy answers
Why is the task of balancing this budget so hard?
For one, part of the deficit is "cyclical" and caused by the weak, credit-addled economy, bombed-out home prices and a subpar jobs recovery. Tax revenues are low, not only because we've been enjoying the Bush tax cuts and Obama's payroll tax cuts, but also because the employment-to-population ratio has fallen to levels last seen in 1981. Moreover, growth is weak because business owners and executives aren't investing enough in new equipment and employees -- in large part because of fears of higher taxes.
And the government has been running huge deficits, not just because of Bush's stimulus checks and Obama's $787 billion stimulus spending, but because it's been facilitating the deleveraging of the rest of the economy. Overly indebted households passed losses to the banks via mortgage defaults, which passed the losses to the government via the $700 billion bank bailout and FDIC-funded bank closures.
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The most common cliché that most people have bought into is that the Republicans are all about spending cuts and “giving take breaks to the rich”, while the Democrats are all about increased spending, entitlements, and having “the rich” pay their so-called “fair share”. A simple translation from politics into plain, vernacular English is as follows (for gullible dummies only):
Republican = Ebenezer Scrooge (Baa Humbug!!)
Democrat = Santa Clause (come and get it!!)
If you’re the type of person who blindly buys into these clichés then I genuinely feel sorry for you, since YOU are exactly the type of gullible and ill-informed person that the politicians are catering to. Ignorance is bliss, and the less you know and understand, the better. They just want your vote!
From a rational, common sense standpoint most of us know how important it is to have some sort of personal household budget. Simply stated, if you don’t manage what you earn and what you spend then the end result will a disaster. But instead of "living within their means" some of us fall into the trap of spending beyond their means without an eye to the future. And if you don’t pay your credit card bill on time those finance charges will soon become oppressive, indeed…until the wolf comes knocking at the door. And yes, most of us DO understand this concept on a personal level, but when it comes to our government behaving in the same fashion we all of a sudden are dumbstruck with our heads buried in the sand. Why? Because we can’t relate to such things as the “national debt level” or the “budget deficit” on a personal level. It’s all too abstract for us to understand personally, so we subconsciously dismiss it and focus instead on “what's in it for me now”. After all, the government can always "print more money". We’ve been through this sort of thing before, so why should I have to worry about future generations footing the bill? It’s not my problem as an individual. The “rich” (or someone else) will pay for it! The “rich” must pay their “fair share”. The expression “fair share” is so subjective and vague...intended to evoke an emotional, visceral response from those of us who don’t know any better. What’s “fair” to one person may not be “fair to someone else. It’s all political fluff with little or no meaning or substance.
And finally, exactly what does “rich” mean anyway, and where exactly do we draw the line? Why even bother trying to become “rich” or successful if all there is at the end of the tunnel is a tax bill to sustain an endless onslaught of irresponsible spending that’s run amuck without rhyme, reason, discipline, or a reasonable eye to the future.
In an imperfect world I would want to select from tens of thousands of different Masters than 1 monopoly government to rule me. I can fire my Boss. I can not fire my Government.
Why would anyone ever want to surrender freedom to choose to any Government?
If you are unhappy or having problems economically try looking at the cause, the man in the mirror. You did not keep your career relevant, you took on too much debt, you smoked hash, you bought too much useless crap, you got divorced, you did it to yourself, no one else.
We have a huge spending problem in our country, but in my opinion, that Fiscal problem is nothing compared to the monetary problem we have. With the Fed reducing the value of the dollar on a daily basis, we have the rich getting richer and the average person spending more of their money to heat their house and feed their family. Of course, those costs don't count in "inflation" numbers, but they're the most impactful to a family.
The Fed plows more money into our monetary system to fight deflation, which artificially inflates commodities (gold, grain, oil). So the prices of those go up, while our wages don't (because we're in a recession). So we have inflation while we're in a recession and should be experiencing deflation in prices to match the stagnant or retreating labor/wage market.
When we finally do get back to a point that wages increase, inflation will happen again naturally and the prices of commodities will rise even more. This causes a larger gap between prices and wages than existed before the recession.
Don't get me wrong, we have a spending problem as well. But even more so, we have a jobs problem. I think we could help ourselves out by, instead of spending on more unemployment and all these other programs that supposedly help out, by putting out contracts to help rebuild our infrastructure. It's needed, and so are the jobs and tax revenues that'll come from them. It'd be much more ROI then just putting cash in peoples' hands.
I still believe the Fed is what's really doing us in, though. Once the bond market finally says they aren't willing to accept such low interest rates to lend us money, what then? Where will we borrow from? Our payments on the interest of our debt alone could increase substantially.
Not one red cent and wind down government guarantees of any kind. For all the blame and finger pointing over the meltdown, it had one core cause. The government guarantee of mortgages which incentiveized lenders to make risky loans knowing the government had their back and consumers getting into loans they didnt qualify for.
They are still doing it-check out Fannie and Freddie.
every body crys about all this crap,and it is all to easy to fix.this is what happens when you let the rich run this country for 30 some odd years they get richer and we get poorer.
all this mess is not all his problem this all started way back in the late 70s,then the 80s came and we had sht cars and trucks made buy the big 3 auto makers,then the 90s came and gone with every bodys heads up there own assess not caring about what was happening to this country.
then 9/11 came and we wanted blood for what happen and we got blood.
you all want GOD to bless the U.S.A. but why should he; you all let them take him out of the schools,
work place,the government and out of your lives. then this nation goes out and commits murder
and turns its back on him so why in the hell would he blessed this nation.you all need to get your head out of each others asses and start doing some thing about this problem just sittin at home and talking about it will not get the job done.every american needs to go to washington dc at once and together and tell them that we had enough of this bull and that they are fired.
AMERICANS SHOULD BE ASKING FOR OBAMA TO BE IMPEACHED FOR LYING TO THE
AMERICAN PEOPLE ABOUT THE STIMULUS BAILOUTS AND HIS GREEN ENERGY AGENDA!
THE REGULATIONS HAVE PUT A STRANGLEHOLD ON CHEAP ENERGY AND FUEL ENERGY
AND FOOD PRICES ARE ALMOST TRIPLED SINCE HE'S IN OFFICE! IF THIS WAS BUSH THE
LEFT WING MEDIA WOULD BE GOING CRAZY! HE LIED ABOUT BENGHAZI AND FAST AND
FURIOUS AND RAISING TAXES ON MIDDLE CLASS THEN TURNS AROUND AND GIVES ALL
HIS BIG UNION GE GMC HOLLYWEIRD AND FRIENDS AND FAMILY TAX BREAKS THEN AS A
SLAP IN THE FACE OF MIDDLE CLASS GIVES CONGRESS A RAISE AND JETS OFF TO HA,.
WHERE IS THE FAIR MEDIA? ONLY ON FOX NEWS! PMSNBC IS NOTHING BUT A BIG LEFT
WING OBAMA LIBERAL PROPAGANDA NETWORK! STILL DOING STORIES ON ROMNEY???
NOW BIDEN AND JAY CARNEY THREATENING AMERICANS WITH GUN CONTROL LAW???
...Obama is the WORST.........
He's president of the United States....not president of his constituents that are the bottom 47%. The bottom line is that there are too many free hand-outs and not enough money. With 16 Trillion in debt...it's due time to massively cut expenses and live within our budget. When you borrow 40% of your money to fund programs....it's time to do the right thing and cutback.
Raising the debt ceiling even higher is insanse and fiscally irresponsible. Obama needs to reduce expenses....but he won't because he wants to feed the ghetto with enless welfare, food stamps, free cellphones and never charge them any taxes. America is more socialist than ever before in our history.
Cutting spending means cutting jobs. ThIat makes UNemployment go up. Less people working means less collected in taxes and more unemployment benefits. That's not good. Collecting more through taxation means less money for consumers to spend on goods and services. That means companies make less money through sales which means they employ less people. That's not good. If we cut social programs like Medicaid, food stamps etc the lower income people will suffer greatly. Young children will be be undernourished, older citizens will have no heat in the winter etc. That's not good. This dichotomy of American values where we Americans will donate, assist in times of disaster like the effort being made for Sandy victims and yet will kick and scream if we are asked to contribute more in taxes.
We want a strong military or at least we are lead to believe we need one and want one. We want police protection and we want good roads and we want...we want ...we want.
We DON'T WANT to pay for it. Hello? Now the world WANTS us to pay our debts and not by printing up more money. Now, that is a joke, a BAD joke.
The longer this inequality of wages goes on the more and more civil unrest and violence will continue to get worse. We want employment but who is going to give the workers who need a job work? Our companies are focused on the bottom line and not on individuals. Capitalism is founded on profit. The dark side of profit is that it breeds greed. Maybe its time for companies who are wildly profitable to just start hiring people. It will hurt productivity which is measured in how much money is made per worker and maybe the bottom line, and stock price, of large companies will be hurt. Maybe it is time for these corporations to join us in this "shared sacrifice" and not be so focused on profit(greed). . Novel thought there, isn't it??
If world credit markets see definitive decisive action being accomplished our credit rating and the US dollar would benefit. Every cloud as a bright side and a dark side. A stronger dollar means our exports become more expensive for other countries to buy and our imports become cheaper. American companies need to sell more of their goods to American consumers. That employs American workers. A stronger dollar means we can BORROW money at a cheaper rate. Borrowing is what got us into this predicament in the first place. We borrow heavily to finance our military conflicts and the world lends us money to finance the wars. The trouble is that means we are the UNPAID policeman of the world. Calling us "policemen" is the kinder way of regarding us. Some call us bullies or "war mongers" but that is a whole other debate.
Congress keeps putting out deadlines for being fiscally responsible and then fails to meet the deadlines. We need to experience the pain just like a family who overextends their credit cards needs to experience the pain needed to repay them. Its a "cancer" which threatens to destroy our way of life. The longer it goes untreated the worse it gets. Lose a foot now or lose both of your legs and an arm later.
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