Waving The White Flag On Debt Reduction

President Obama gives his State of the Union speech tonight.  The Washington Post is reporting that we won’t be hearing much about debt reduction.

In fact, the President believes that our goal should be to “stabilize” the debt, rather than actually reducing it.  In short, he’s just aiming to slow the incredibly rapid rise in our debt to a slower rate of increase.  Under the President’s approach, our debt would continue to grow — just at the same rate as the economy generally.

Moreover, the President says that, with the tax increases that took effect recently, we’re more than halfway toward the goal of debt stabilization.  Of course, such confident statements about progress toward “debt stabilization” are based upon long-term forecasts about how the economy will perform, how it will be affected by the tax increases, and other guesswork.  How accurate have the Administration’s economic predictions been over the past four years, and why should we believe them this time around?

It’s disappointing that President Obama thinks we should simply accept our huge existing debt and a scenario in which that debt continues to grow, and grow, and grow until the end of time.  He’s like the employee who sets minimal workplace goals — say, 50 percent attendance — to ensure he can ultimately say they were accomplished.  Actually cutting spending and achieving a balanced budget is hard work; reframing the objective to be “stabilization” of a debt that will continue forever sets a much easier target.  And perhaps the President believes that if he says it often enough, people will believe it really means something.

The problem, of course, is that more debt is more debt, and interest on the debt must be paid.  In 2012, the U.S. paid $220 billion in net interest on the debt.  As our “stabilized” debt grows, our interest payments will necessarily grow as well, and if investors begin to grow skittish about our mountain of debt and being to insist on higher interest payments (which is what has happened in Europe) the interest component of our budget will grow faster still.  Erskine Bowles, one of the chairs of the Simpson-Bowles Deficit Reduction Commission that made recommendations the President ignored, says our interest payments could reach $1 trillion annually by 2020.  That’s not just $1 trillion that could be used for other purposes — or that could remain in the pockets of taxpayers — it’s also simply not sustainable.

So, let the President wave the white flag on debt reduction and try to convince the credulous that “debt stabilization” will do the trick.  I’m not buying the snake oil.

Fickle Finger of Fate

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Back in the late sixties and early seventies there was a television show called Rowan and Martin’s Laugh In. During the show they would often give the award shown above, the Fickle Finger of Fate award to some government entity or some famous person based on their dubious achievements.

Anyone who reads our blog with any regularity knows that one of Bob’s biggest concerns is the deficit and government spending. Keeping this in mind President Obama is in agreement with Bob on this issue and has appointed a Deficit Commission. The commission is to report its findings to the president on or before December 1.

With December 1 rapidly approaching I have already decided that the Fickle Finger of Fate award goes to …….. both Alan Simpson, former Republican Senator from Wyoming and Erskine Bowles, Chief of Staff to former President Clinton. In case anyone doesn’t know these two gentleman are leading the commission charged with identifying policies to improve the United States fiscal situation in the medium term and to achieve financial sustainability in the long term.

Earlier this week a poll was done asking Americans their opinions of some of the ideas that have been floated by the two gentlemen. First of all, only 25% of respondents thought the commission was a good idea and forty percent thought it was a bad idea, not a good sign. Two thirds of respondents said that they wanted government spending cuts made though and said that was the major reason why they voted the way they did.

Unfortunately when pressed respondents decided on the following:

70% were uncomfortable with cutting spending on Medicare, Social Security and defense,

60% were uncomfortable with raising taxes on gas, limiting home mortgage deductions and changing corporate tax rates,

and 60% were uncomfortable raising the retirement age to 69 from 67 over the next sixty years.

Well there you go, we want spending to be cut, but we don’t want any of the programs that are causing our debt problem to be cut. Oh and by the way 50% of respondents want the Bush tax cuts for the wealthy to expire. If that’s the case then on January 1 more of Bob’s hard earned money will be going to help the government reduce the deficit, I hope !