Default, Insolvent, Bankrupt, & Defunct

"Putting the debt on a sustainable path will ultimately require increases in taxes or cuts in government benefits or services for people who consider themselves to be in the middle class."  Douglas Elmendorf – director of the Congressional Budget Office (CBO) earlier this month

 

click on graph to enlarge

 

Since large government projects always wind up with the middle class paying for them you can imagine how I feel when far too many people I know naively tell me that they "have nothing to do with politics" – if they understood the above Elmendorf quote they would realize that politicians have plenty to do with them from trying to outlaw the size of drinks they can buy, to not allowing drinking water in public containers on Somerset County golf courses, & now they hear that all this debt & budget mumbo jumbo will affect them.  Hard to go bowling tonight & enjoy it with this in the back of your mind isn't it?

 

For the first time in nearly four years, the Senate Democrat Majority (led by Patty Murray - WA) produced a budget proposal this past week.  This budget does not ever balance, raises taxes by $975 billion over ten years, & mandates another $100 billion in additional economic 'stimulus' funding.  BO, whose own annual budget was due the first Monday in February, immediately endorsed the Senate product.  Source – Congressman Frelinghuysen

 

In addition the Democrat budget proposal specifies no definitive spending cuts but does make it clear that in general Defense spending will be lowered.  But the key to understanding the Democrat mindset is that their budget document eliminates the sequester cuts that just about every Democrat would do anything to get away from because it is the only game in Washington that will actually reduce some spending – meager as it is over the next ten years.  

 

The result of both the Ryan Republican House budget introduced earlier in the week & the Murray budget is that spending will increase meaning that government will continue to grow & the government dependent mindset will not even start to be changed let alone reversed.  The sequester is the only mechanism going that gives us a chance @ a needed mindset change.

 

Now just what are our elected reps supposed to be doing regarding all of this - Article I of the U.S. Constitution grants Congress the power to raise money for the Treasury, to pay the country's obligations enumerated in the Constitution, & from time to time to publish statements of all financial transactions.  Specifically the Congressional Budget Act of 1974 (CBA) requires Congress & the President to write a budget each year.  BO's proposal for Congress's consideration was due on February 4 & is now projected to be delivered the week of April 8.  Congress is directed by the CBA to draft its own proposal & both Chambers are required to agree to a budget resolution by April 15 so that the country has one expression of our governing philosophy.

 

Now of course it is hard for anyone to remember when anything of this sort happened.  I have to go back to the time after the Revolutionary War when our debt was 40% of the young economy.  Hamilton & Madison, who detested each other, worked for the good of the country & not their personal political agendas to solve this problem to effectively liquidate this debt.  How far we haven't come.

 

Both the Ryan & Murray budgets are frauds & not just because they make different assumptions over the ten years they each project revenues & spending for but because they both don't address the financial problems we have & yet pretend to do so.

 

Murray's budget is not worth discussing because it provides few details – it is not even a shadow of what is required because it leaves the spending trajectory right where it would be if Murray did nothing – @ $46,000 billion over the next ten years.

 

Ryan claims to lower this trajectory to $41,600 billion but it is so filled with contradictions & political impossibilities that are absurd.  For instance, Ryan defunds ObamaCare (40% of his total spending reductions) – see all the zeros in Table S-3 below from Ryan's budget plan.  Next Ryan shows a spending reduction of $1,837 billion – see Table S-4 below.  This total defunding will never become law in the next four years meaning that Ryan would have to reduce spending by another $1,837 billion to really balance the budget as he claims his budget does if the rest of it was real – which it is not. 

 

In addition, following the goal of preparing a balanced budget Ryan keeps $716 billion of make-believe Medicare cuts in payments to doctors, hospitals, & drug companies (like he wanted to do in the campaign before Mitt overruled him) that are part of ObamaCare as well as other tax increases that are part of the law.  Congress always goes for the "docs fix" @ the last minute so the Medicare cuts won't happen either.  Ryan also keeps the $600 billion that made up the fiscal cliff tax deal on New Year's night.  At least Ryan does not eliminate the sequester cuts like Murray does.

 

Another part of this current disingenuous Republican House financial story is that when they recently voted to extend the Continuing Resolution (CR) that funds many government agencies they did not touch the administrative parts of ObamaCare that they really could have defunded.  Very sad indeed how they play us for fools – but then again it is only because we let them & actually encourage them.

 

In summary there is not enough difference between Ryan's & Murray's budget plans for either of them to help us.  Some of the savings they both are finding are figuratively tantamount to things like calling a spending cut money left over from the 2010 census or finding money in a drawer that was not spent on the Spanish-American war. 

 

Republicans will make a big mistake if they enter into a grand bargain deficit reduction deal with BO because it will result in no change or business as usual including letting BO off the one hook he has fastened onto – namely the sequester, which remains our best chance of effecting a national mindset change.  By now you would think Republicans would know they can't negotiate with BO because his agenda is not one of helping America but rather transforming America to a one party socialist nation for starters.

 

To help our country 1) the entitlement mindset has to be changed & 2) the entitlement cost curves have to be bent down.  Both of these goals can be accomplished by implementing a premium support plan not indexed for inflation for Medicare & by changing the determination of the initial benefit to one based on the CPI instead of the average real wage index for Social Security.

 

Absent the above entitlement fixes, implementation of Ken Blackwell's Cut, Cap, & Balance plan, & enactment of the FairTax the effects shown on the above graph will soon be felt if they aren't already – i.e., the entitlements & interest on the national debt will crowd out all other government programs like Defense as year after year the red bar keeps getting closer & closer to the horizontal dotted line.  As this continues the citizenry in our apathetic society who think they have nothing to do with politics will one by one become familiar with the meaning of the terms default, insolvent, bankrupt, & defunct.  

 

 

click on tables to enlarge