Saturday, July 30, 2011

Watching Rome Burn

Why Everyone Should Be Ashamed About the Debt Limit
So, here we stand. 72 hours before the Treasury Department says that the government will run out of money to fund the operations of the Federal Government. And there is no deal in sight. No one has proposed a plan that would even remotely balance the budget for this year. The budget compromise, agreed to by all sides just a few months ago, is off by over 40 cents on the dollar. Even the most aggressive spending reduction plan out there, the Ryan plan, wouldn't come close to balancing the budget anytime in the next 10 years. Yet there is no deal in sight.

This is a very high stakes game of chicken. Over $750 billion worth of wealth has been wiped out in the past week as stocks have faltered, fearing a US default may actually happen. All other policy discussion in Washington has been put on hold for this debate. And no one is leading.

The GOP criticizes the Obama Administration for not proposing a detailed plan for deficit reduction. They are 100% right. In fact, the lack of any meaningful administration attention to our disaster of a balance sheet was the primary reason that I voted Republican in the mid-terms in 2010. The GOP taking of the House did succeed in bringing the issue into focus, but has not sparked the grand compromise that all sides should want. I would further criticize Obama heavily for pushing very hard for the Erskine-Bowles deficit reduction commission, then largely ignoring their very good proposal for months, rather than pushing for adoption at a moment in time when he had broad bi-partisan support from the center for a package that included sensible spending cuts, tax reform that would increase revenues and make the tax system far more efficient and necessary entitlement reforms. In other words, entitlements from the left and taxes from the right becoming third rails is entirely Obama's fault because he did not seize the moment. Finally, Obama literally handed the GOP his best leverage in this discussion by agreeing to an awful tax cut bill at the end of last year while not even asking for a debt ceiling hike at the same time.

Oh, my friends at the GOP, where do I start? Taxes are the lowest they've been since the Eisenhower administration, yet they oppose eliminating special tax breaks for Exxon Mobil? If that isn't an extreme point of view, I don't know what is. And other than the freshman, where exactly where these spend thrifts when federal spending grew by 15% (as a % of GDP) during the Bush administration while taxes were cut by 25%? The people who signed up for Medicare Part D and two wars while asking the American people to pay LESS are suddenly offended when the check comes? What a joke.

The world won't end if a bill isn't passed by August 2nd. The Federal government may have a few more days than the original estimate, thanks to higher than expected tax revenues. And if we do breach the limit, there are short-term options. In leaks to the press, it appears clear that the Obama Administration would avoid the worst catastrophe, failing to make payments on US Bonds, but they would do so at a brutal price to the most vulnerable, delaying social security and unemployment checks and other payments that can be deferred. But don't think for a second that the consequences won't be severe. We have a very fragile economy, which has been teetering on the verge of a double-dip recession and heightened interest rates as well as income lifeline being cut off to the working class could very easily plunge us back into recession, which would ultimately make the deficit problem a whole lot worse.

Let's hope that there is a deal this weekend. Almost any deal is better than no deal. And let's hope eventually the GOP gets serious about compromise and Obama gets a real plan.

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