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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Mitch McConnell, Eric Cantor and The Boehner, had no problem raising the debt ceiling 5 times to pay for their government expansions During the Bush Realm. They all voted " Yea " 5 times.
$450 billion in 2002
$900 billion in 2003
$800 billion in 2004
$781 billion in 2006
$850 billion in 2007
They had no problem voting for $4 trillion in increases to pay for millionaire tax cuts, over $400 billion per year in added military spending, added agencies and new entitlements they added, leaving our nation with a $1.3 trillion dollar deficit in 2009. Turns your stomach, doesn't it ?
OldGeezer...I wonder about it too. This is,sory to say,an economic H-bomb.
There is no way the current administration will ever cut their pet projects and bail out the irresponsible citiizens. All common sense I'm afraid isgone with most of America.
And, our great president simply lies out of his a** No taxes on the middle class? Somedays I wish I would have died with my heart attack in 08 and have had to see this happen to America.
This one pretty sad country,if you ask me.
Now you know why it is the saying, once you go black you never go back,,, They never Go back to anything good and clean for sure,,
The sign in this hand should not say, IOU, it should say, I screw you,, AGAIN. bend over Americans the big black one is being pushed in you a ss again
Itnm, That's the problem, Bush isn't gone. Just like a man who gets divorced, even though the wife is gone the damage still remains, you get stuck with years of massive credit card balances, like child support you have to pay for the added agencies TSA, HLS, and added entitlements Medicare D. Like alimony you still have to pay for 10 years of wars over $2 trillion and counting and just like the Republican Congress your wife is making everything as difficult as possible.
No No No Itnm, Bush is far from gone and it will take a decades to repair the damage he did to our nation.
Why do we have raise the debt ceiling ?
2001 $237 billion in the black
8 years of Republican borrow and spend later,
2009 $1.3 trillion in the red
Only Cave Men and Republicans, don't get it.
"will be hit with a $120 billion payroll tax hike instead"
Baloney, they'll be asked to start paying for their SSA benefits at the rate required by law which should've never been lowered to inflate the economy because of the liars loans used to inflate housing bubble and defraud most US citizens by banks and Wall Street hedge funds.
We can fix the debt quite easily. Cut Defense budget back to 3% of GDP saving $160b a year. Cut Department of Education back and eliminate all student loans. Reduce deductions for everyone making over $200 a year to 10% of income. Raise to Medicare age to match SS which should be increased by 1 month per year for the next 24 years for everyone 50 and younger. Problems solved.
We can complain all we want on these boards. Until a few hundred thousand people march on Washington (with more than a sign in hand) the idiots who have ruined this country will turn the other cheek.
Get rid of the Party's. No Democrats No republicans, Just vote for the person and what he or she represents. Get rid of the special interests.!!! we need people with the Balls to make the hard decisions!! Forget the politically correct stuff!!
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