by Joel Bowman
“Are you paying attention, Fellow Reckoner? What may well go down as the greatest tragicomedy in history is playing out right before our very eyes. Lucky us! Some time today – or was it yesterday? And does it even matter? – The United States of America will crash through its so-called “debt ceiling,” the somewhat arbitrary $14.29 trillion dollar mark above which it must implement “extraordinary measures” in order to keep the lights on and its “services” running. Such are the extraordinary times in which we live. The event – which inspired little more than a rather sanguine “Humph” in the markets yesterday – sets in motion what The Wall Street Journal describes as an “uncertain, 11-week political scramble to avoid a default.”
No doubt about it. The Leviathan is starving, unable to sustain the cost of output the modern welfare/warfare model requires of it. Flailing and squealing under the weight of its own self-imposed obligations, the beast portrays a curious, almost pitiful kind of incompetence, like a slug writhing in the middle of the road on a hot summer’s day. We almost – almost – feel pity for the poor, wretched thing. Then we remember what it is, what it does, and we are happy to see it firmly, resolutely marching down the road to perdition.
This year alone, the US Government has committed to pay out $3.7 trillion. Yet it will only take in between $2.1-$2.2 trillion in tax “revenues.” As such, its available funds will barely cover 60% of the state’s 2011 operating budget. The difference, the budget deficit, will total around $1.65 trillion. Expressed another way, the budget shortfall for this single year is equal to about 12% of total GDP output. Gross federal debt, mind you, is already well over 100% of GDP…and ticking ever northward.
How did it come to this? You’d think the state – being able, as it is, to write its own tax code and to issue its own, legally unchallengeable currency – would have enough of an unfair advantage to keep its head above water. This is not rocket science. All it has to do is spend less than it steals. Any common crook ought to be able to manage that. Ahh…but the government is no common crook. It is a crook of the commons, feasting on the toils of the productive economy only to pour the accumulated wealth and value into the bottomless vortex of its own engorged belly.
One need only take a cursory glance at the absurd debt reduction “solutions” being proposed to understand the mentality required to squander such an exorbitant advantage. Let’s start with a proposal from the head of the beast: “President Obama says he wants to ‘trim’ $4 trillion from the federal budget over the next 12 years,” observed Eric Fry in yesterday’s Daily Reckoning (“Borrowing More Money: A Short-Term Solution to a Very Long-Term Problem”). “To most Americans, that sounds like debt reduction. But it’s not. It is only a cut in planned spending, the effect of which would make the planned budget deficits slightly less obscene. In other words, Obama’s ‘money-saving’ budget proposals would cost America trillions of dollars – trillions that the government does not possess, that taxation alone could not raise and that foreign creditors would be increasingly unlikely to provide.”
According to analysis by the Congressional Budget Office (CBO), the president’s budget would produce average annual deficits of nearly $1 trillion over the next 10 years. Total indebtedness would soar by a massive $10 trillion over that timeframe, as total annual spending would surge 57 percent – from $3.7 trillion this year to $5.8 trillion in 2021. In reality, these deficit numbers would probably be much higher still. “The CBO’s terrifying projections include an array of hopeful assumptions,” continued Eric, “the most significant of which are that interest rates remain near generational lows and that tax revenues climb at a robust pace. The president is counting on tax revenues to double over the next ten years.”
Adding his two cents to the dearth of intelligent discussion emanating from the nation’s halls of power, former Treasury Secretary Robert Rubin had this to say on the matter: “I think the failure to meet any commitment would be viewed by the markets as default and would be deeply unnerving.” “We don’t know” what would happen in the event of default, warned Rubin, who is perhaps best know for raiding pension funds during the Clinton era in an effort to maintain the appearance of an honest budget. “But I think it is totally irresponsible to take the risk of trying to find out.”
Apparently escaping the former secretary’s mind is the irresponsibility of continuing to add more debt to a system already unable to meet its current obligations. Had the US simply defaulted during his tenure as Secretary, it might find itself in a more credible situation today…possibly without a decade and a half of reckless malinvestment piled on top of the already shaky foundation he helped to erect in the first place.
To be fair, living within one’s means can at times be difficult. It is responsible, yes. And it is honest. But it can be difficult. Nevertheless, this is what the market requires, to one extent or another, of all non-governmental entities. Spend more than you earn for too long and you go broke. Try it if you don’t believe us.
Of course, the government is not a non-government entity at all. Ergo, rather than tighten its belt, rather than do what is responsible and honest, the state simply extends the limit on the national credit card, rolling over old debt with newly borrowed money…money to one day be repaid by people who are not yet born and who, conveniently for the state, therefore have no say in the matter whatsoever. To hoodwink the living is easy. To steal from the future…ah, that takes a concerted application of moral depravity.
In fact, Secretary Timothy Geithner is already engaging in various “extraordinary measures” to stave of the Day of Reckoning. Reports The Washington Post: “Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers.” But not to worry. The Feds are “legally required to reimburse the program,” writes the Post. Hmmm… The maneuver, employed in tandem with a few other accounting sleights of hand, only buys Geithner a couple of months, according to the Post. Then what?
When asked why he robbed banks, Willie “The Actor” Sutton famously replied, “Because that’s where the money is.” Now… Where might a greasy mitted bureaucrat find a fat, juicy pile of someone else’s cash to pilfer? Any guesses?”