By Bill Wilson – A late deal struck by House and Senate leaders to raise the debt ceiling — with spending cuts that won’t balance the budget anytime soon, if ever — is a sad commentary on the state of affairs in Washington. There is no solution to the problem in sight.
It leaves the American people short-changed; who in 2010 voted to rein in government at all levels, most importantly, from spending far more than it takes in. While families struggle with their monthly balance sheets, the federal government has been on an unprecedented spend-a-thon that would wipe out anyone else who tried it.
Since Barack Obama had his first budget passed (accounting for two years of spending), he has accumulated $2.4 trillion in new debt. That’s over $1 trillion a year in new debt, a number that will continue unabated through 2021 when the debt reaches $26 trillion.
That is, if the government’s rosy economic projections turn out as everyone hopes, with a robust economic recovery and millions of new jobs created. If the projections are wrong, and the economy does not double in size in the next ten years, revenues will fall far short of expectations.
Aside from the lack of spending cuts, an essential feature of any plan a family would follow to reinstate fiscal prudence, the other essential ingredient missing from the deal is a recipe to get the economy growing again. It will do nothing to reduce the exorbitant cost of doing business in America, with corporate taxes among the highest in the developed world. Where the federal regulatory overkill threatens to shut down millions of more jobs. And where the new costly healthcare entitlement, ObamaCare, threatens to topple the federal treasury once and for all.
With 0.4 percent revised growth in the first quarter, and an anemic 1.3 percent increase in the second, the economy is already falling well short of expectations. Barack Obama promised that unemployment would not get higher than 8 percent, but it went much, much higher. In fact, this is the longest period of sustained high joblessness since the Great Depression.
House and Senate members who wish to turn the Ship of State around can still take a stand in opposition to a deal that will neither get the economy moving again nor avert a Triple-A downgrade by credit rating agencies, including S&P, which was looking for a plan at least $4 trillion in size.
By issuing their warnings, some criticized the rating agencies for previous failures. But, rating debt is not science. It is prospective. Markets were pounding European debt auctions long before raters issued further downgrades on troubled sovereigns. Greece was just downgraded again as the situation continues to deteriorate.
But these private companies do serve an important function to their customers, who understand that risk assessment is not 100 percent and can never be. What they can get is an assurance that certain bonds are more likely to pay out than others through objective, independent means.
Which is the sort of scrutiny Washington wants to avoid. Any frank accounting of the federal books would find that we are not meeting our obligations honestly now. In the past two fiscal years, the government only made ends meet with a printing press, selling three-quarters of Treasuries to the Federal Reserve, according analysis done by one of the biggest bond-buyers, Pimco.
If we are indeed downgraded, it will be on the heads of every politician in Washington who accepted this deal, or who signed it into law without putting the structural reforms necessary to affirm our creditworthiness through the future.
Republicans in effect have ceded their only leverage for the next two years to have restored order to the nation’s fiscal house. They are to be credited with extracting the spending cuts they did, which may save a little less than $1 trillion over the next ten years. But those savings will most likely be made irrelevant by weak economic growth and less-than-expected revenues.
In the end, what will matter for the American people is whether they get their finances back in order, or if they deteriorate beyond reckoning. A brave few will stand up and say, “No deal,” to their leaders in Washington, but they will not be enough to stop the debt from growing unabated.
The danger is that the debt is already too large, and will be a permanent weight that slows the economy down and restricts desperately-needed job growth. We needed a solution, but instead just got another cockamamie deal that won’t stop the spending.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
