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Monday, August 1. 2011
The deal between the Congressional leadership and the President is much ado about nothing, in that – contrary to the kudos, rationalizations or moans – it actually does and will do little to affect the rapidly rising federal deficits and debts. It is less than trivial in the next year that it actually affects and almost entirely a lie over the next decade as future Congresses and presidents work around or ignore it.
The deal will cause increased demoralization among the citizenry both over its lack of real content and as politicians wrangle vigorously over scraps treated like whole cloth. It will also cause a new sobriety, already in painful motion, among the citizenry who have lesser prospects than before this deep recession and little reason to believe the future will personally be much better. Consumption will be restrained.
It is clear that the status quo is continued, for now at least and likely into the foreseeable future.
Spending is not reduced. It only promises a reduction in the present trendline of forecast spending, a fraction of the increases that will actually occur. And, there is little reason to believe that either Medicare or defense spending will be more than trimmed slightly in 2012. Part of that trendline, as scored by the Congressional Budget Office (CBO) is a $multi-trillion increase in taxes as the Bush tax-cuts are allowed to expire right after the 2012 elections. There is little reason to believe that such a drastic increase in taxes will be allowed to occur. Longer term, even if a trillion$ or three-$trillion dollars of spending were most optimistically avoided over the next decade, that’s a hundred to three-hundred $billion per year, a small fraction of federal spending.
If, as seems likely, the 2012 elections result in a Republican president and both houses of Congress, there will be more trims to spending, a good thing surely but likely to increase the howls of real and defensive pains and hardly likely to actually reduce the deficits significantly. The Cut, Cap and Balance that the Republican House passed is likely, and decidedly a better thing, yet as tides and lobbies weigh in will be weakened and end-run over time.
Fears about the crash of the dollar are overblown, as there is no viable alternative in a euro-myth euro or speciously corrupt Chinese renminbi. Lenders will demand higher interest rates and that will increase the deficits worldwide. Fears about more global conflict are not overblown. Enemies of order or Western civilization will continue to probe and attack. Reducing mental and defense preparedness by the US will encourage such foes and increase the needs to confront, which will be less successful and more costly to servicemembers and foregone goals.
So, long story short, the status quo will continue. It will be perceived as or really be painful for all, even under the best of circumstances.
One can argue that far more severe governmental actions or changes would reverse this. They are unlikely to occur. There will be more restraints on deepening the hole, but the hole remains. We’ve already dug it by a generation or two of profligacy and excuses. Only a generation or two of serious reduction in personal and government spending, plus economic recovery that must depend upon lessened government regulation and interference, will begin to maybe return us to realistic optimism.
I predict that the demoralization will be temporary and the new sobriety will ultimately triumph and set us right. The path will be long and hard to dig out of several generations of delusions that we could spend our seed-corn, requiring perseverance and sacrifice of self and illusions, but it is well marked.
BTW, I'm encoraged that the cautious and knowledgeable Mitt Romney is opposed to the debt deal, both as an economic realist and political positioner. The debt deal will pass anyway but he will be demonstrated as correct during the coming election season. That may not win him enough points to score, but does indicate a will among Republican moderates that together with the more conservative and Independent centrists -- as polls presently show -- will lead to the next vital step up with a Republican White House and Congress. The road of a thousand steps begins with the first. We've taken the first and 999 remain.
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This is exactly how I've been describing the deal. It's a meaningless patch that stops a dribble from a bucket that is leaking quarts.
Until someone with real guts steps up and stops the madness, this drama will play out over and over again.
The one thing I disagree with you on is the role of the dollar. For NOW, your instincts are correct. However, over time, even the dollar is going to look meaningless as people turn to gold, silver or any other precious metal. We have a ways to go before it reaches that crisis proportion, but once we hit 120% of GDP with our debt - be sure that precious metals are going to see skyrocketing values.
Debt goes up, actual spending goes and taxes go up. A big win for Obama and the socialists.
Because this proposed deal fails to stanch the excessive government spending, it pretty much guarantees that the rating agencies will downgrade the US debt in short order, which means that the costs of borrowing by the Treasury to rollover the current debt and cover Obama's new debt will rise, which means that the deficits in the out-years will go up, which means that the sham "savings" in the bill will be wiped out, which means that any of the faux budget "cuts" included in the agreement will be suspended by a future Congress with the argument that to do otherwise would imperil the recovery of the economy, which means that we will be right back where we are now---EXCEPT for the fact that we will be an additional $4-8 trillion dollars in debt.
We got a short one-page letter from our investment adviser on Saturday saying they are advising all their clients to immediately get out of Treasuries and other forms of federal bonds and securities. They said that for clients that still wanted to be invested in government securities, they should buy Canadian ones. So that's how they are reading what is happening.
Of course, they would not have known about the "deal" at that point, but I suspect they would say it didn't matter what the government agreed, they were giving the same advice. It will be interesting to see what happens over the coming weeks.
From what I can discern of the New Deal, it sounds totally like a sham.
When my mother went off to college in 1940, my grandfather warned her about socialist-leaning professors: First, they convince you they can run production, the economy, education and commuications better than the citizens. Then, they make sure everyone is dependent on them for a govenment job or welfare. Then, they talk about Utopia -- everyone gets the same rewards regardless of skill, time or energy invested. Then, they try to trade God in for Government. She found it very true, so...
I got the same lecture in 1962, and it was much more apparent in both the professors and my fellow students. So...
My kids got the lecture in the '80's when the teachers in K - 12 were becoming skilled at the rhetoric, not to mention those on college campuses.
Now I see that Alan West (R-FL) is listing those four points when he addresses various publics. Might have found my candidate.
This charade will continue until one of the states wakes up and realizes that it can protect it's citizens from future debt obligations by seceding and repudiating those debts. If things continue as they have it will be better for a state to be out of the Union than to be in it. I'm thinking about a ten year time frame if things don't change.
In any case you can count on a massive capital outflow form this country and all of the economic devolution that results. Money no longer has to remain in one place for the convenience of looters.
So, where was Romney during the debate? Palin was there. If Romney spent less time calculating and more time engaging he would look a lot more like a leader. I sure hope we find someone better before the next election.
Well, the ship of state is still churning disasterously towards the rocks, but someone has actually started to turn the wheel and slow the engine revs ... and the ship's speed actually seems to have slightly slowed a tiny bit.
All necessary but not sufficient to correct the problem.
The big "debt ceiling budget battle" has been like like a short sharp artillary exchange before the real fight. The armies are still massing, the officers are still manuevering their units for tactical advantage. We're a long way from being done with this, despite the MSM attempt to saturate everyone with the same narrative to the point of indifference, build a story based on a false ending, and to frame the battle in terms favorable to their tax and spend friends. This is an endurance event, and managing exhaustion and enthusiasm are critical.
A public discussion of the priority surrounding the issues of government debt and deficit is pretty much the extent of the progress achieved with this bill. Maybe there is also the beginning of a public realization that not all the people (programs) that want to can fit into that (tax revenue) phone booth. Some people (programs) will either have to lose weight or just stand outside looking in.
Part of the problem regarding the moaning and groaning at conservative blogs and pundits is that, unfortunately, the Dems control two of the three institutions (Senate and Presidency) involved in hammering out a compromise. Under these conditions any thought that meaningful progress on the debt/deficit problem could be achieved is the equivalent of assuming the tail can wag the dog. Patience and persistence will be required to win this war.
I agree, the Republicans are fighting from a weaker position in which they control only one half of one third of the government. However, they control the House, which is the chamber that has the primary Constitutional responsibility for initiating annual spending bills, and a truly SMART group of politicians would know how to leverage that authority effectively. Unfortunately, the Republicans, as always, are not smart.
By signing on to the debt ceiling bill in a mindless panic, they have signed away any real influence they would have over the size of the 2012 budget. Now, instead of being in a position to refuse to accept the huge budget deficit that will now come, or to refuse to pass a continuing resolution without some concessions on spending cuts from the Democrats, they are powerless. They have squandered an opportunity to force any fiscal discipline on the Democrats in order to compromise on a debt ceiling bill that purports to avert a "default" that was not about to happen anyway unless the President himself decided to sacrifice the nation's well being for the sake of his re-election. Letting the President off the hook, they are now part-owners of 2.5 years of financial mismanagement of the economy that up to this point was owned exclusively by the Democrats.
To my mind, this debt ceiling agreement ranks up with the Red Sox trade of Babe Ruth to the NY Yankees as one of the worst deals ever made. It takes a special kind of stupidity to pull it off.