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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All the noise about cuts last year as part of the debt limit increase and following sequester are amusing. Debt limit was extended by $2.1 T and it will be exceeded in 17 months. Even if impending sequester is allowed to go through, spending with reduce by $120 B a year. All the developed economies are printing money and targeting 2% GDP growth, currency devaluation may no work either. Sooner or later, I hope sooner we need have solutions that lead us to living within our individual means and the role of the government is returned doing it constitutional duties. History is full of failure resulting from Robin Hood economics and centrally planned governance. Principles and values that made this country a beacon of hope for mankind need to be revived and cultivated! Individual liberties and accountability for responsibilities are at the core of such journey!
Have a Garage Sale. Put all the money into paying off the 16 trillon debt. Sell 16T. worth of USA assets, gold, oil rights, air wave rights, old airplanes, boats, bombs, whatever we have collecting up around here and pay off the national debt.
We are all talking on the margin, This game is over, the only way out is default - we are running trillion $ deficits and will continue. The USA is no different than a heroin addict. We crave ( entitlement programs but don't want to get a job pay for them - we just want the high). Either we do a structural default which will then force the USA to stay within it's budget or the bond vigilantes will do it for us. Either way it's not if , its when. So maybe we should just spend other peoples money and enjoy the party until the game of musical chairs runs out - Plato was right -
There is no way out. It is simply not possible to raise tax rates enough to reduce the deficit without damaging the economy so much that the decrease in economic activity (caused by tax hikes) would actually decrease tax revenues.
It is also not possible to cut spending enough to reduce the deficit without crushing economic activity.
There are two ultimate resolutions: default on the debt, or print trillions of dollars and simply pay off the debt with essentially worthless dollars. (worthless because of massive inflation priting would cause)
The only way this will be fixed is by the people, those that understand the problems, RISE UP and say we are mad as hell, and we are not going to take this anymore. (que seen from NetWork). That is when people will notice. March on DC, the Capitol and take this country back.
Obama wants to destroy the very fabric of this country. If you do not see that now, you are blind.
Stupid is as stupid does. It's the greed folks [don't you get it]. The top management people,politicians,preachers,police,insurance salesmen, wallstreet,sports,hollywood, bankers and rich greedy s****ing investors,drug heads, lazy do-nothings; all these produce nothing in our society. They are like bellybutton fuss, always around but useless. The workers of America who produce products and make things happen are the backbone of finances for any productive country. We have let them sell our jobs to other countries for them greedy profit. Quit buying products from overseas. "Buy American"
Most of life's staples, gasoline, milk, cars have increased 2 to 3 times since 1980. A college education cost has increased 10 times. Anyone paying property taxes knows how often schools seek additional money through ballot measures. I suspect a lot more of the increase in Federal Spending from 1.6 Trillion in 1996 to 3.8 Trillion in 2012 has to do with the cost of maintaining public employee wages and benefits (both union and non union) than anyone realizes.
You just couldn't resist inserting at least one mention of the holy "job creators," could you?
The national debt will never be paid down. We spent nearly a billion looking for weapons of mass destruction in Iraq and amazingly didn't find any. If the Fed were to raise interest rates enough so that savers could get a little return on their money then also we would have to pay more on that 16.4 trillion we have already borrowed. The country can't afford that so that means many of you old savers are just out of luck and looking forward to running out of money and moving in with one of your children if you have one that is capable enough to take care of you. Interest rates on savings will stay at near zero for as far down the road as is is possible to predict.
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