The debt ceiling vote was consummated on August 2, 2011 just in time to avoid a technical default on US government obligations. I’ve been tracking this issue of the US hurtling toward bankruptcy for the entire year and this is a more current update to my initial post predicting how this whole charade would play out – and I was pretty close. But rather than pat myself on the back, let’s look at the actual debt ceiling deal details, winners and losers and what the media isn’t talking about:
Here’s What the Mainstream Media ISN’T Talking About
I’ve been hearing a lot about how anyone who pushed fiscal restraint in the US is a terrorist. The Tea Party, Republicans, and Americans – terrorists are among us! This is what MSNBC and activists are regurgitating and it’s really quite amusing. I mean, they actually PREFER that we continue to spend ourselves into oblivion? Oh wait, we’ll keep spending like there’s no tomorrow, but then just tax the rich to pay for it. Well, that’s not gonna work. We need to reign in the spending. But our past debt and our current spending isn’t the real issue. Look at this chart, courtesy of BusinessWeek. This is the real issue:
(click to enlarge)
While much of the debate, and the vote centered around discretionary spending cuts, setting up more committees to figure stuff out later (let’s see how that pans out) and minor tweaks other programs, nothing was done to address the real issue – future promises which are unfunded – primarily Social Security and Medicare.
$211 Trillion… I Said Trillion
What the analysis shows is that concluded that the fiscal gap—which is the NPV of all future expenses minus all future revenue— amounts to $211 trillion. So, while Congress was quibbling over a trillion here and a trillion there, going out further in time,
we, our kids are completely screwed. And what is being done about those future entitlements? Nothing.
If this concerns you and you want to stay abreast of what’s going on with our nation’s finances, developments in tax law and fiscal austerity (both of which are a mathematical certainty), make sure to subscribe free to RSS or Email updates;
…and below, you’ll find the original post in its entirety from January 2011:
The US debt ceiling is about to get a lot of press. As you may be aware, we’ll soon be celebrating a new milestone – $14 Trillion in debt! In order for the US to continue spending at our current pace, finance our debt, and meet all the obligations, entitlements, discretionary spending and everything else required to run our government, we need to borrow roughly $1 Trillion annually just to keep up. These deficits continue as far as the eye can see:
No Debt Ceiling Vote Without a Fight
While the debt ceiling needs to be raised to continue with the status quo, apparently, Republicans are threatening to disallow such an increase, which may very well result in another strategic showdown like we just saw with the 2011 Tax Deal enacted during the lame duck Congressional session. In return for their vote to increase the debt ceiling, expect to see major spending cuts forced into the deal.
Paul Ryan, who will be heading the House Budget Committee has stated that he wants to see $100 Billion in cuts targeted right off. This would bring us back to 2008 levels, which seems reasonable at a distance. But given the massive expansion in government payrolls, regulatory bodies, stimulus programs, and other spending programs, it may be a daunting task.
Without getting political on you, the key point here is, there’s a very big showdown coming again in February, and now that Republicans have overtaken many seats in both the House and the Senate, they may be able to extract some significant spending cuts. Personally, I feel ALL facets of the budget must be cut – everyone should share the burden. As soon as you say there’s a single “sacred cow”, then the politics begin in earnest. “How can you cut education while we’re bombing so-and-so; how can you cut Social Security 50 years from now, etc.”. Politicians may be forced to make some rather unpopular choices – or just maintain the status quo to better their chances at reelection by doing nothing.
So, buckle up and await the next big showdown you’re going to be hearing a lot about. Last time around, Republicans were able to extract a massive payroll tax holiday, freeze tax brackets for all and get a reasonable inheritance tax enacted.
Should We Increase the Debt Ceiling With No Strings Attached?
Or Extract Spending Cut Concessions?