USA on the Brink

Some have called August 2 "Financial D-Day." That is the date, according to
Treasury Secretary Geithner, by which either Congress raises the debt ceiling
or some government disbursements will cease.

Multiple proposals have been floated for budgetary reforms to be made in
exchange for raising the debt ceiling. A partial list includes: Rep. Paul
Ryan’s (R-WI) plan to add $4.4 trillion less to the national debt than current
trends project; the GOP "Cut, Cap, and Balance" plan, which aims for $6
trillion of future spending cuts; and the so-called "Gang of Six" Plan that
proposes $3.7 trillion less debt than now projected.

Whatever compromise is eventually adopted, you should be aware that the
national debt will continue to grow and that the vast majority of promised
spending cuts will be scheduled for after the next election, when those
promises can easily be forgotten. None of the proposed reforms would reduce
debt; they would merely increase it less than now planned.

Also, notice how fishy the numbers seem to be. For example, the press release
for the GOP "Cut, Cap, and Balance" stipulated $111 billion of spending cuts in
Fiscal Year 2012 and to cut next year’s projected $1.1-trillion deficit in
half. This is the best they can do?

Democrats resist spending cuts, but massive cuts are imperative. Last year, the
U.S. Treasury incurred $3.3 trillion of new debt to finance the government’s
on-budget and off-budget spending. This $3.3-trillion deficit cannot be closed
with taxes. The total income of Americans above the $250,000 threshold that
President Obama uses to designate "rich Americans" amounts to approximately
$1.4 trillion. If the government taxed it all, we would still be around $2
trillion short. There literally is no other way to close the deficit than to
slash federal spending drastically.

The Democrats have been particularly irresponsible in their handling of this
issue. (For the record: I publicly criticized Republicans for their
overspending during the Bush-Hastert years, and I opposed both the Bush
stimulus plan and Bush’s Big Bailout.) As other commentators have observed,
despite controlling both houses of Congress during President Obama’s first two
years in office, the Democrats (in defiance of the law) failed to pass a budget
that funded their ambitious spending plans. President Obama himself proposed a
budget earlier this year that was so out-of-touch that the Democrat-controlled
Senate rejected it 97–0. Since then, the president has not proposed a single
specific spending cut. In fact, at his press conference on July 11, President
Obama announced, "I’d rather be talking about … new [spending] programs" than
deficit reduction.

On July 13, the president angrily told Republicans, "This [his willingness to
scuttle any deal] may bring my presidency down, but I won’t yield."

One would hope that, instead of couching this in terms of re-election
prospects, the president of the United States would spare the American people a
wrenching economic upheaval.

Obama knows that no president can spend funds that Congress has not raised by
taxes or authorized the Treasury to borrow. As president, he should have in
place contingency plans with clearly defined priorities (e.g., interest on the
national debt so there is no default; Social Security, defense, whatever) for
deciding what federal spending would be continued or discontinued if Congress
said "Enough!" to runaway spending and refused to raise the debt ceiling.
Whenever the debt-ceiling issue is temporarily patched over in the coming days
or weeks, Congress should hold hearings to ferret out the truth. Did President
Obama have a contingency plan in place? If he didn’t, he was derelict in duty;
if he did, his plan could prove useful in identifying what federal spending is
nonessential. And was cutting off Social Security payments really near the top
of his list, as the president implied when he raised the prospect of those
checks not going out on August 3, or was that a cynical attempt to scare senior
citizens?

Another unseemly aspect of this ongoing drama is how the administration managed
to postpone "Financial D-Day" to August 2, even though the debt ceiling was
first reached in May. Secretary Geithner tapped the retirement funds of federal
employees. Naturally, those funds (over $100 billion) will have to be repaid.
As he did by tapping into the Strategic Petroleum Reserve, the president’s
administration has misused important reserves set aside for future needs for
(in my view) political advantage.

Bottom line: Whatever deal is struck now will not solve our long-term fiscal
problems. The ongoing political maneuvering has given us glimpses of how sick
our political system is.

— Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow
for economic and social policy with [2]The Center for Vision & Values at Grove
City College.

[3]www.VisionAndValues.org | [4]www.VisionAndValuesEvents.com

References

1.
http://www.visionandvalues.org/2011/07/going-to-the-brink-the-aug-2-debt-ceiling-deadline/
2. http://www.visionandvalues.org/
3. http://www.VisionAndValues.org/
4. http://www.VisionAndValuesEvents.com/
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