It's just about time for the next increase ($1.2 trillion) in the debt ceiling that was agreed to in a deal last August between Congress & BO. You may remember that Congress agreed to the formation of the deficit-cutting Super Committee, & when it failed, to automatic spending cuts over 10 years conveniently starting in January 2013 - right after the 2012 election. Making this deal even worse is that the spending cuts are really only decreases in planned increases & of course most of them will not even begin until years nine & ten if then. Total spending will still increase as a result of this pitiful arrangement. If this is the best Republicans can do what do we need them for?
The current portion of the deal concerning raising the debt ceiling starts when BO notifies Congress in writing that Treasury is within $100 billion of the current debt ceiling. Congress then (symbolically) votes on whether or not to increase the debt ceiling & of course if they don't increase the debt ceiling BO will veto the legislation & the money will become available unless there is a veto overriding majority which there won't be.
The above provides a capsule summary of the projected spending increases that will be made under the guise of deficit reduction. Please remember the real enemy is not the deficit but spending. Professor Friedman would rather have a budget of $1 trillion with a $500 billion deficit, than a budget of $2 trillion with no deficit. He taught that the burden borne by the American economy is measured by what government spends & disposes of, not by whether it calls its receipts "taxes" or "proceeds from bonds."
Click on this link that illustrates the problems America faces if we don't have a mindset change to fiscal responsibility.
I do not always agree with you, but this time I do.
ReplyDelete2013-2014 are years when the camel's back is broken: Bad times.
Now both parties blame each other for rising deficits - makes good reading in the papers.
I pray I am wrong.
Doug - This professor (Krugman)does not agree with you. Maybe he does not read the news.
ReplyDeleteOr should he be hit with the stupid hammer - my fingers know how it feels.
RTE - Most people start to produce wealth for themselves when they go into debt like buying a house with 20% down & an 80% mortgage. At the end of 30 years they have some real wealth that started with debt so debt is not a bad factor when it is a reasonable size compared to the income a person or country has. The problems with debt start when spending is too great as Professor Friedman taught. More simply – just live within your means to avoid trouble.
Very relevant post - Total debt has been growing almost 10% a year since 2008 while our GDP in 2011 Q4 just recovered to level prior to recession. Projections are our GDP will only grow 2% a year while spending and debt grow at almost 10% a year. Sooner or later our creditors will realize that financing our debt is not a great way to preserve capital. All hell will then break loose. So what can US do?
ReplyDelete1 - across board 30% cut from our 3.8 trillion budget over 2 years or 15% per year. This will cut 1.2 trillion annually from 1.6 trillion projected annual debt increase. Bring spending back to 2007 levels adjusted for inflation.
2 - implement Fair Tax for at least 2 reasons -- A- reward success, grow economy, improve GDP to debt ratio. B-- save 430 billion per year with replacement of IRS. Use this to reduce debt. This added to 1.2 trillion above reaches target projected annual deficit increase of 1.6 Trillion.
3 -- use Canada as an economic best practice. They safely drill for energy (oil, shale, gas, coal, frac, etc) and have a 6.5% unemployment rate. Our economic growth depends on energy. Greater domestic supply will decrease imports adding to our GDP.