Bar Time For Big Spenders

Having a good time yet?

There is a political cartoon that shows Republicans and Democrats sitting at a tavern celebrating and toasting each other for working hard on this year's bloated Federal budget.  The celebratory mood is in stark contrast to a taxpayer who stands outside the Big Spender's Tavern with empty pockets and growing impatience.

As I've mentioned in earlier posts, the United States is currently running a Federal deficit of $14.3 trillion dollars. Just what does that mean?  In simple terms, it means that we owe a lot of money to creditors (individuals, businesses, governments and other organizations) who own U.S. government treasuries.  We are in this predicament because we have spent more than we take in.  And since we continue spending more,  selling more treasury bonds and increasing the deficit even further.  It's a never-ending cycle that feeds on itself.

This is important because Congress is about to debate raising the country's debt limit again (allowing us to borrow more).

Big Spenders

As you would expect, the political party currently in the White House (led by President Obama) will be voting to raise the limit, while Republicans will likely fight against it.  Not ironically, when Bush was in the White House, Republicans voted for raising it, and the Democrats against it -- with Senator Obama calling it a "failure of leadership."

In an early indication of the fight looming, House Speaker John Boehner said "It's true that allowing America to default would be irresponsible.  But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."  The Speaker added, "Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase.  And the cuts should be greater than the accompanying increase in debt authority the President is given."

In simple terms, the Speaker is saying that he wants cuts in spending equal to the increase in the debt limit.  Is this even remotely feasible for the GOP?  They struggled mightily to pass a simple cut of $38 million a few weeks ago.  If the debt limit is raised $2 trillion dollars as Obama has asked, how are they possibly going to find the cojones to cut $2 trillion?

The response to Boehner's speech was predictable:  "Economic Armageddon!" as stated by the Treasury Secretary Tim Geithner, allies on Wall Street and the mainstream media.  And Federal Reserve Chairman Ben Bernanke said, "... failure by Congress to raise the debt ceiling is a risky approach that could result in an increase in interest rates that would worsen the nation's economy.  The worst outcome" he added, "would be that the nation's financial system becomes destabilized again."

So, like it has for the past five decades of debt raising, (the debt ceiling has been raised 78 times since 1960) one political party is preaching fiscal responsibility and the other is predicting catastrophic economic consequences.  When are these people going to stop putting their own re-election first and do something about Washington's out of control spending?

First off, this much I know.  Not raising the debt ceiling wouldn't necessarily lead to defaulting on U.S. obligations.  It would require Washington to use the money it's getting to pay toward that debt, but by itself wouldn't lead to defaulting on those loans.  The difficulty would be in paying for other things that are currently on the docket -- like defense, social programs and payrolls.

My hope is that a compromise (I know an ugly word these days) will be reached where Republicans force through significant spending cuts and raise the debt ceiling, but only to pay for existing obligations.  It would be like paying off debt before adding to it --no new furniture until the kitchen appliances are paid for.

Our U.S. Constitution (the 14th Amendment) prohibits us from defaulting on our country's financial obligations.  In particular, it must continue to make payments, interest and principal to countries like China and other holders of U. S. treasury bonds.  But this requirement doesn't mean we need to add new debt, and that's where necessary spending cuts could be made.

It is too early to say if Boehner and the House Republicans will be able to muster the courage to cut the $2 trillion mentioned earlier -- alright, it's not going to happen -- but I'd be happy with a smaller amount that could be reviewed periodically.  At least through the next year and a half until the 2012 elections are in the books, putting pressure on President Obama to stop his "change you can all believe in."  It would also remind the American people -- 60% who oppose raising the debt ceiling -- to demand more spending control from whoever wins the White House, Senate and House of Representatives.

It was recently announced by the government that Social Security and Medicare are running out of money sooner than the government had projected (shocking!).  When was the last time they were ever correct about anything?  Unemployment numbers?  Jobs?  Economy?

Medicare won't have enough money to pay full benefits starting in 2024, five years earlier than last year's estimate.  Social Security's cash to pay full benefits will run short in 2036, a year sooner than the 2010 projection.  Why not tie raising the debt ceiling to changes in both programs, forcing change to these entitlement programs that have been "off limits" for so many years?

House Budget Committee Chairman Paul Ryan, Republican from Wisconsin, has proposed serious budget cuts and changes to the way Washington spends our money.  The response from Democrats, with help from the liberal mainstream media, has been to mock, denigrate and dismiss such proposals as a budget "that rips apart the safety net" for the poor and elderly.  Their answer?  Raise taxes, a non-issue with Republicans.  The longer we wait to address this elephant in the room -- entitlement programs, the more painful it is going to be for us, our children and their children.

A great president, Thomas Jefferson, once said, "no generation can contract debts greater than may be paid in the course of its own existence."  Let's hope that future presidents (and enough in Congress) feel the same way.