Saturday, August 6, 2011

On the debt ceiling

There should be no surprise that Congress decided to raise the debt ceiling. The drone soldiers that pass for politicians have repeatedly demonstrated that they are not there to do what must be done, but to continue the charade of central planning and a government propped up economy. Even the TEA Party freshmen, all their conservative rhetoric notwithstanding, are not willing to grab their nuts and make some legitimate spending cuts.

But the purpose of this article is not to rehash what has been obvious for quite some time now, but to examine the implications of the new debt ceiling deal that was announced on August 1, the day before the ceiling would be breached, in the a straightforward, simple and honest way that has seem to elude the mainstream media in examining this issue.

To find out what lies in the deal, we turn to the Wall Street Journal: “The agreement, struck late Sunday, raises the debt cap by up to 2.4 trillion in three steps. It cuts 917 billion in spending over 10 years and creates a congressional committee to close the deficit by an additional 1.5 trillion.

Now then, this is really nothing new as it is very similar to the various deals proposed months ago. However, notice the trickery woven into the narrative. When I first read that they would cut 1 trillion over ten years, I merely assumed they would cut somewhere around 100 billion every year for ten years. But since I am both reasonably good at math and economics, after a few minutes reflection I concluded that this is simply not the case. Note that they said they will cut SPENDING by a trillion, not reduce reduce the ANNUAL BUDGET by a trillion. If you think about it, all that would have to be done to “cut” 1 trillion of spending over ten years would be to lower the budget by 100 billion, and then keep it flat for the next nine years, and so in total you would have spent 1 trillion less than you would have in the ten years. But putting it in the actual numbers makes it seem far worse.

Annually, government spending is a little over 3 trillion. Without any changes in the budget, the government will spend approximately a total of 30 trillion in 10 years. So, a trillion dollar cut would reduce it to 29 trillion. 29 instead of 30, what a tremendous deal! And the majority of so-called tea party conservatives voted for this?

But moreover, the cuts are actually smaller than it appears. Because the Government assumes a growing economy and thus more revenues, it makes planned projections about how much it will spend in the following years. So if it spends 3 trillion this year, it plans on spending closer to 3.1 trillion next year, and 3.2 the year after. ( These are raw estimates; I’m to too lazy at the moment to dig up the actual figures, but they should suffice to demonstrate the point) As it happens, simply not spending as much as the planned increase is considered a “cut.” So if the government keeps its expenditures flat the next year instead raising it to the expected increase, it would be considered a 100 billion dollar cut. In light of these unscrupulous accounting methods, the government can actually increase spending while saying it is cutting it!

Of course, we don’t even know that they will make these meager cuts. The price of procrastination is future delegation. In the bill, spending cuts were pushed over to a committee that doesn’t even exist yet. And most of the cuts will be initiated after 2013, with a different congress. Don’t let anyone fool you, this congress has no authority over the next one. By kicking the can down the road, our current congressmen have merely relied on the votes of the future ones.

It was pretty obvious why they felt they had to raising the debt limit. Thanks to the contraction of the private economy, the government has had to take unprecedented measures to keep the overall economy from plummeting. The 2010 deficit was 1.7 trillion, this year’s one should be similar. If the Government ran into its ceiling and was forced to balance its budget, there would be an instant 1.7 trillion reduction in GDP. That’s over 10% over the Gross Domestic Product, which would put us well into depression levels. By raising the ceiling, congress has bought the economy some time. But sooner or later it must stop; it mathematically must stop.

This is precisely why we must hit the ceiling now and take the pain that goes with it. President Obama and Chairman Bernanke think they are averting a depression, but they are simply moving its appearance to a future date, thereby ensuring that it will be even bigger once it arrives. Oh let it be known, the Great Recession will turn into another Great Depression. Don’t let the optimists deceive you. Their mindless cheerleading only serves to maintain “consumer confidence.” But the problem is much bigger than that.

I don’t pay much attention to politics, except for when I’m in those rare moments in which I am fettered by self-insecurity. Watching these elites meander ineptly in the dark, it allows me to rest secure in the knowledge that while the light may be elusive, my stumbles simmer in comparison to the trainwreck that the central planners have almost flawlessly navigated.

But there is no reason to lower your head over this. It is not always the happy-go-lucky times that testify to the truth of ourselves; it is the difficult times as well. Many men and women have relished the heroic opportunities presented by arduous times such as these. And out of the ashes may there emerge a bright and magnificent Phoenix. A creature that builds rather than destroys. With every problem there is always an opportunity to fix it. It may be an incredibly risky and dangerous endeavor to do so, but it is almost always worth taking.

No comments:

Post a Comment