“We’re spending $3.7 trillion. We’re taking in $2.2 trillion,” Sen. Jeff Sessions said, “That’s a stunning number, and one of the reasons it’s so out of control is that we don’t have a budget.”
I couldn’t have said it better. Washington’s overall budgetary condition has gone from ridiculous to shear lunacy. Without a drastic course correction the loons steering the ship are going to take us and our economy down with them. (Since most of them have platinum-plated pensions, they will NOT go down with the ship).
By some strange alchemy of mendacity, arrogance, and deliberate ignorance, the United States Government continues to follow the financial lead of Italy, Portugal, Greece, and Spain…. and I might add Japan. For good examples of fiscal sanity we need only look at countries like Australia, Brazil, China, and South Africa.
US debt trends alarmingly up with no apparent end in sight. Failure to acknowledge these facts is a failure of leadership. The lengths the US Government is willing to go to continue this economic farce would likely be criminal if employed by corporations. (Ever heard of fiduciary responsibility?) Rhetoric like “there’s no problem with Social Security or Medicare… they are solvent”. Wasn’t the same being said about Freddie Mac and Fanny Mae a short few years ago? I wish President Obama and the US Congress would read some of the best investing books.
Every good rant deserves to deliver some solutions. And solutions, I’ve got in spades:
- Cut Federal spending. Start the debate at 2008 spending levels, and look for further cuts. Phase out entire programs. Freeze federal salaries until unemployment drops below 5%.
- Acknowledge that Social Security for people currently under the age of 40 will be aggressively means-tested. Folks under 40 (that includes me) don’t count on much unless you are in poverty during retirement.
- There are only two kinds of infrastructure with real, lasting economic impact. Interstate highways and the US power grid. I’m not talking “Smart Grid”… leave that to local utilities. I’m talking about new, improved, robust, high-voltage, DC power transmission across the United States. If Canada and Mexico want to sell their power, let them participate (via treaty).
- Let US oil and natural gas companies drill. Charge a 10% profit surcharge on new domestic (and offshore) production if you must, but approve the permits and get out of the way. [But raise the liability cap for disasters.]
- Embrace the Canada-to-US oil pipeline.
- Simplify the C-corp (corporate) tax structure by eliminating ALL “loopholes” and reducing the rate from 35% to 21%. Exempt the first $250,000 from C-corp taxes, and charge 10% for earnings of $250,000 to $5 million to encourage small business investment.
- Eliminate the self-employment tax on the first $50,000 of small business earnings.
- Strike down and reverse most provisions of ObamaCare.
- Rein in the EPA on faux “pollutants” like CO2 and modest levels of methane. Instead focus on true pollutants like carcinogens, harmful particulates, and toxins.
- Get out of the way. The private sector is a dynamo on steroids and is ready to roll when the regulatory restrictions are lifted and relaxed. Anti-trust and anti-monopoly rules still serve an important roll. Workplace safety is important too, but measure results as much as adherence to OSHA procedures.
Believe me, I’m writing with kid gloves. Tell me where you think I’m wrong. Please add your suggestions. I look forward to publishing both.
The current debt ceiling is set at $14.294 trillion, and according to CNN Money we are days away from reaching it. Treasury Secretary Tim Geithner estimates he and his team can keep the US out of default until early August.
I appreciate the increased attention on the US nation debt. My concern is the the US is beginning to flirt with danger: increasing risk of a debt crisis. US debt is a fair ways removed from the debt crises of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain). However, the current trend of debt as a percentage of GDP is ominous.
A US debt crisis would look a bit different from that of the PIIGS because the US is not bound to a multi-country currency like the Euro. Devaluation of the USD is likely to be a component of (or reaction to) a US debt crisis. So are austerity and tax increases.
The danger is that buyers of US debt will demand higher and higher interests rates to compensate them for taking on three key risks, inflation, devaluation, and default. As debt increases so do these risks. As the US refinances debt for expiring Treasurys it does do at greater and greater costs. As the government raises taxes to combat debt (and pay higher borrowing costs) the US economy is increasingly depressed and tax raises do not result in nearly as much federal revenue as hoped. Eventually only austerity and devaluation (via the printing press and increases in money supply).
The way I see it, playing brinksmanship now with the debt ceiling in an effort to but the brakes on the US deficit is a reasonable risk. The current trajectory of the US debt is unsustainable and reckless. With US debt 90% of GDP and closing in fast on 100%, we are in jeopardy. This number puts the US next to the troubled Ireland and not far from Italy as shown in this table.
It is time for Congress to get its fiscal act together. Time is rather short. I hope we can start making some sort of progress.