…without a deal to cut short and long-term spending. Here is the deal that I would favor:
1)A major cut in the 2012 budget (in the range of at least $500 billion out of a $3.8 trillion budget if not more).
2)A cap on future spending.
3)A balanced budget amendment that limits future spending except in times of extreme emergency (a declared war, for example).
For more details, you can read about the cut, cap and balance pledge here.
Interestingly, LDS congressmen are leading the charge on this issue. I count two senators (Utah’s Orrin Hatch and Mike Lee) and three members of the House who have signed the pledge (Jason Chaffetz (UT), Raul Labrador (ID) and Jeff Flake (AZ)).
So, here’s the background: The debt ceiling is at $14.3 trillion. President Obama wants authority to increase it to $16.8 trillion in 18 months, putting us in debt another $2.5 trillion. Fiscal conservatives refuse to allow an increase in the debt ceiling without a plan to pay down the debt.
It is worth pointing out that there are very respected Mormon intellectuals who see this as a false issue. On my Facebook page, I have debated this with Nate Oman, Jason Nelson-Seawright and others. Nate’s point seems to be that we definitely need to do something about spending and entitlements, but the debt limit is the wrong time to have the debate.
As I said there, this is probably the only time to have this debate until 2013, which means another two years go by of spending like drunken Baptists (joke!). Nate laid out a scenario where either hyperinflation or a severe slowdown will get Congress to become serious about the debt and entitlements, but frankly I think that’s too long to wait.
We need to act now. Few investors are buying long-term U.S. treasuries because the return is too low. Bill Gross from Pimco (the largest bond-buying company) says real US debt is closer to $100 trillion when you look at the entire balance sheet of what is owed future generations. What we need to do is to change this balance sheet by changing the entitlement structure where we lower future costs. This means massive budget cuts and entitlement reform.
People like Nate say they recognize the need for entitlement reform (all serious economists do). The issue is: when? Can we afford to wait another two years, or three years?
The answer is no. The Fed announced yet another round of stimulus today. This means more money-printing. This means more inflation in the months ahead.
Meanwhile, unemployment is 9.2 percent and underemployment is above 16 percent. We have not seen this combination of rising prices and unemployment since the 1970s.
There is only one way out: don’t raise the debt ceiling without a long-term deal to lower debt. What would happen then?
1)Lower government spending would spur the private sector to action. This is what happened in the early 1920s when we cut government spending, and it happened again in the late-1940s. It even happened in the late-1990s when we slowed the rate of government spending. It would happen again.
2)The bond market shows no sign of panicking. Yes, we would need to point out that we will be paying our debts. Obama in a political maneuver has been doing the exact opposite in an attempt to continue to spend like a drunken Baptist (joke!). We get about $200 billion a month in revenue. We could pay off the debt, Social Security, the troops, Medicare, Medicaid and many other government projects out of the revenue we receive. Here are the numbers. The bond market knows we will pay our debts, so all of those claims that we will be ruining the “full faith and credit” of the United States are a lot of hooey.
3)Anybody who says that we cannot raise the debt ceiling without some real spending cuts and real restraint on future spending is lying to you if they don’t say we are entering some uncharted waters politically. The WSJ today had an editorial basically calling for Republicans to cave because the political costs are too high. Obama and the Dems are going to demagogue this issue to death. There is a big potential for some political fallout. So, if you are a partisan Democrat reading this, you should know that many people agree that this issue is extremely risky for Republicans. But I’ve got news for you: I could give a hoot about the Republican party. The Republican party got us in this mess by setting the precedent of huge deficit spending in the 1980s. Then Bush made things 100 times worse. The Republican party has been the party of “slower growth of government” instead of “decrease the size of government.”
There is an old maxim that applies here. Herbert Stein said, “if something can’t go on forever, it will stop.” The deficit spending cannot go on forever. Everybody reading this knows this. Because of the debt, the economy will completely implode at some point. Let me tell you what that means.
–You will probably lose your job.
–Your 401k will disappear.
–You may lose your house and car depending on your debt level.
–Rioting in the streets as we are seeing in Greece (remember, Bill Gross says we are already worse off than Greece).
The longer we wait to take on our debt, the worse the implosion will be. And I believe that if we took steps now by insisting not to raise the debt ceiling without certain conditions, people will trust us in the future.
So, short term not raising the debt ceiling without serious cuts is a very risky strategy politically. But long term, we regain credibility. Independents disgusted by the Republican party will flock to people with integrity.
And if we all agree that we need to tackle the debt and entitlements, can somebody please suggest a time better than right now to do it?