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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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!!
THE FLEECING OF AMERICA,LETS STOP BLAMING OUR NEIGHBORS I KNOW SEVERAL PEOPLE FROM INDIA WHO ARE COLLECTING SSI AND LIVING IN INDIA,ONE FAMILY IN PATICULAR BOTH PARENTS ARE COLLECTING SSI AND MEDICARE AND LIVE IN INDIA ,THE COME BACK EVERY 6MTHS TO RENEW GREEN CARD STATUS,OH,AND THEY GET FOODSTAMPS WHICH THEY SELL IN A RELATIVES STORE AND THEY SEND THERE KIDS HERE TO THE UNIVERSITY OF ALABAMA TO GET EDUCATIONS FREE ON THE BACKS OF AMERICANS ,CONSTANT ARGUING BETWEEN THE TWO SIDES OF AMERICA AND THE PROBLEM SHOULD BE LOOKED AT AS SOME KIND OF REFORM PROBLEM GETS TO ME .
Start out by getting rid of Obamacare. That is the biggest reason why businesses cannot afford to refit and rehire people. Period!
Old Geezer: You know you live in a country run by idiots: When idiots keep voting in Democrats.
Find out who John Galt is, also Fredric Hayek and Fredric Bastiat, for starters
"Spending is not the problem"
WOW - these lefties are INSANE AND/OR BEGGARS ON THE DOLE WHO JUST DON'T GIVE A SHEET AS LONG AS THEY GET THEIRS. Take your pick.
When you take in ever so slighly more than you pay out, you can bet the ranch SPENDING is the problem.
Obuma added 4 Trillion to the debt AFTER proclaiming he was going to cut back on the Bush level.
Every American now owes $52,000 and it's still growing.
EVERYONE seems to be avoiding one fact;
They say we swapped 120 billion payroll tax increase for a 120 billion income tax increase that has hit 80% of the people.
What is not being said is the government workers pay no social security tax, so THEY are the ones with no tax increase.
In fact is, if Social Security is not a retirement program, then self employed pays a 12% higher tax rate, followed by private workers at 6% extra, followed by government workers.
We have become the soviet union of the 1970's
You wish to blame both parties, it is a very common notion. It makes one appear objective.
You are more on mark to blame the American people. Romney may have not said it correctly or was foolish to say it but he was still correct in that 30 some or 40 some or 50 some or 60 some percent of the American people vote for stuff. They vote to steal other people's money in hopes of getting stuff. Therefore they vote for the Democrats. The Democrats know this is true as very election is about "the Republicans will reduce your SS or your Medicare or your food stamps . It is stupid to deny this is true.
So teh problem the Republicans have is that they too know that if they do "TOO MUCH of what is right and necessary for the country" they will not be elected and will not be able to restrain the insanity of the left. So they spend more than they should. I think the prescription drug deal under Bush was Bush's way to try to become Democrat-lite if you will. Wrong wrong wrong, but a fact.
But if people take and honest look at it, Republicans WANT to control spending. Under Bush you had a transportation bill, a farm bill, a Prescription drug bill, and homeland security bill, and on EACH AND EVERY ONE OF THOSE BILLS the Democrats said the bills were too small, they spent too little. Review the facts. Democrats want to spend more. Think were we would be if they had had their way then.
And today Republicans say WE HAVE A SPENDING PROBLEM!!! Obama has flat out said NO WE DON'T.
So it si polite to say both paries are the same and both to blame, but the facts are one is trying to do the right thing and the other is either in denial of is truely bent on creaating an entirely different and less properous nation.
Independence in Congress would be fine, but really a massive majority of Republicans woud fix this problem, BUT ONLY IF THE AMERICAN PEOPLE REALIZE THAT THE GOVERNMENT WILL NOT ENRICH THEM BUT LESS SPENDING AND MORE SELF RELIANCE WILL! Without teh people's support Republicans can only fix so much and will OBAMA i n office even less.
Forget who is John Gault
The real question is WHO is--
Harrison J Bounel ?
Barry Soetoro ?
Social Security is not an Entitlement...Wallshington took the monies for Social Security in the same fashion as Bernie. We need to call an apple an apple and sue the feds for this fraud and replace our abscounded Funds !!!
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