White House and Congressional efforts to reach a Grand Bargain are merely a distraction. The basis for such a bargain – reduce spending so the debt limit can be raised – is fraud and folderol. Nothing that we’ve seen suggests the government’s even pretending to solve the debt problem.
Last week’s discussions, before they fell apart, centered on deficit cuts of $4 trillion, $2 trillion or $1.5 trillion over 10 years. These proposals are nonsense. For example, $2 trillion in deficit cuts over 10 years amounts to a deficit reduction of just $200 billion per year.
The government’s current deficit is $1.65 trillion. So under that proposal the government would have to borrow $1.45 trillion per year rather than $1.65 trillion. What this means is, either way, over the next 10 years the national debt will double. Moreover, what this means is the big charade going on in Washington is not addressing the debt problem.
Major news organizations are not reporting this. They are too enamored with the politicking going on…and who’s walking out of meetings. The problem, you see, is not the need to increase the debt limit. The problem is the government’s finances have reached and exceeded total debt saturation. Any proposal from the government that does not address this, that does not balance the budget, is reckless and irresponsible.
Kicking the Can into a Debt Trap
The big standoff in Congress to reach an agreement to reduce spending so they can raise the debt limit only kicks the can into the future. It doesn’t solve anything. In fact, it makes things worse.
For example, if a friend of yours has a monthly income of $3,000 and monthly expenses of $5,000, reducing their spending by $500 a month and getting a new $10,000 line of credit does nothing to solve their debt problem. It just kicks the can 6 months into the future and piles on more debt that will have to be repaid.
The biggest money pits of government spending are Medicare, Medicaid, and Social Security. These programs all pay out more than they collect in tax revenue. These programs are not sustainable. Until the government does something to restructure them they will just be kicking the can further into a never ending debt trap.
Compounding any attempt to really address the debt problem is the fact that the voters don’t want the government to cut Medicare, Medicaid, and Social Security. The baby boomers, the largest voting bloc, are nearing retirement. They’ve paid into these programs their whole career and should be entitled to their benefits. Unfortunately, what they will rudely discover is that the politicians sold them a bill of goods.
Yesterday’s politicians promised voters miracles that today’s politicians can’t possibly provide. So far they’ve delivered by papering over the problem with debt. Papering over the debt problem with more debt is not a solution. It’s a trap that tightens down upon the taxpayer with each increase of the debt limit.
Broken Promises Broken Dreams
The government is out of options. Real action is needed. Yet they continue to kick the can into the debt trap. This latest hullabaloo is just a sideshow distraction. The President and Congress want to kick the can out past the 2012 elections.
The voters want a quick painless fix. There is no such thing. Sooner or later, they will get it good and hard.
For the baby boomers the dream of a twenty year retirement at the standard of living they are accustom to will not be possible. The reason for this is the government will have to break the promises they made to them. People are counting on these promises…they will not get them.
They will either be overtly broken with massive benefit payment reductions or, even worse, they will be covertly broken with payments in confetti money. We don’t like either of these scenarios one bit. But these are the choices kicking the can has left us with.
Any Grand Bargain that increases the debt limit will only serve to make the problem worse. Remember this when the politicians and major news media stand up and celebrate the 11th hour Grand Bargain to raise the debt limit. All they will have done is kick the can.
When voters finally understand this, they may have a chance. When voters finally boot the status quo politicians out of Washington and elect those with the resolve to enforce large scale federal government budget cutting, we can finally begin to back our way out of the debt trap.
Given the sorry state of the leaders in government, and the delusionary state of the electorate, that day may never come.
for Economic Prism