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.

Guns, Guns, Guns . . . And Distraction

Your daily newspaper and your favorite news websites have been dominated recently by news about guns and gun control.  Since the awful shootings at the Sandy Hook elementary school, where a heavily armed lunatic murdered more than two dozen children and adults, our political leaders have been talking a lot about firearms and what we can do to prevent another horrible massacre.

In an odd way, the opportunity to talk about guns must be a kind of welcome relief for our politicians, because the gun control debate lets each party retreat to safe, time-honored positions that appeal to their bases.  Democrats understand that most of their voters will support attempts to license gun owners, register all weapons, and restrict or even ban ownership of “assault weapons” or other firearms.  Republicans, on the other hand, know that their supporters will cheer vigorous defenses of the Second Amendment right to keep and bear arms and stalwart opposition to overly zealous attempts to regulate gun ownership.

I suspect that all of the talk, talk, talk about guns is, in part, a means of distracting voters from other pressing issues.  Members of Congress and the Obama Administration would rather stay snugly in their gun debate comfort zones than deal with the spending, tax, and budget deficit issues that have far more long-term significance for our country.  With all the talk about guns, how much discussion of those core economic issues have you heard recently?  When those issues are in the forefront, and feet are being held to the fire, there are no easy, pat answers and no rote appeals to political bases.

As terrible as the Sandy Hook shootings were, we shouldn’t let our political leaders divert our attention from the federal debt time bomb and other issues that are restraining our economy.  Yesterday we received an unpleasant reminder of these problems when it was announced that gross domestic product dropped in the fourth quarter of last year.  Imagine:  our economy actually shrank during the hottest shopping season of the year.  It’s time we remind Congress and the President of the paramount need to focus on the hard budget and economic issues, before our economy plunges into another recession.

Congratulations, Mr. President, And Good Luck

President Obama was re-elected last night, narrowly beating Mitt Romney.  I congratulate the President on his victory and wish him success.  In my experience, a successful President usually means we have a successful America.

Democrats kept control of the U.S. Senate, while Republicans kept control of the House of Representatives.  In short, the United States is in for more divided government.  After two consecutive “wave” elections, the message of this election seems to be to maintain the status quo.

Divided government is not necessarily a bad thing.  The Constitution, with its complex system of checks and balances, contemplates divided government, where one man or the passions expressed in one election can’t fully control the direction of the nation.  Our system — wisely, I think — contemplates compromise and collaboration to accomplish legislative goals.  Our problem lately is that we haven’t had meaningful compromise, or perhaps even meaningful attempts at compromise, from the President or the two Houses of Congress.  Perhaps that unwillingness to compromise was due to the rapidly shifting views of the electorate and the looming presence of the 2012 election, but with that election now one day behind us that rationale no longer exists.

With more divided government a reality, President Obama and the congressional leaders of both parties need to figure out how to compromise, because only through compromise will we be able to address the huge problems confronting our nation.  We all know what those problems are:  the “fiscal cliff” of self-imposed cuts and tax increases that will take effect in less than two months, trillion-dollar deficits that extend into the foreseeable future, adding to a dangerous amount of national debt, and entitlement programs that are on the road to bankruptcy unless reforms are instituted.  All of these issues, and others, have reached the point of criticality.

We can no longer afford drift and inaction in the face of these challenges.  It is time for President Obama and Congress to grapple with these issues and to reach the kinds of rational compromises that people of good will, but different political viewpoints, can find acceptable.  It will be a big task that requires leadership, bipartisanship, and a recognition that the needs of the country must take priority over momentary political advantage.

When I left our house at 5 a.m. today for the morning walk with Penny and Kasey, I noticed that some of our neighbors of both parties who had put candidate signs in their yards had removed them already.  They recognize that the election is over and it is time to move on with our lives.  We need some of that same attitude at both ends of Pennsylvanian Avenue.

Why I’m Voting For Mitt Romney And Paul Ryan

On Tuesday, I’ll walk in to the polling booth at the church in New Albany where we vote and touch the screen for Mitt Romney and Paul Ryan.  I recognize that that decision won’t come as much of a surprise for loyal readers of our family blog.  I think it’s only fair to explain why, if only to add one more person’s perspective to the national conversation about this election.

In my view, the most important issue confronting our country is our federal deficit and national debt — the latter of which has passed the $16 trillion mark.  I care about other issues, of course, but I view our debt as the most fundamental issue of all because it involves basic concepts of national sovereignty.  Our debt is so large, and has existed for so long, that we tend to think of it as a kind of abstraction . . . but every dollar of that debt is a real obligation of our country, reflected in an instrument sold by the U.S. treasury to a willing buyer who will be paid a specified interest rate.  With each additional bit of borrowing, we give those people from whom we are borrowing leverage that may allow them to dictate terms — at first, the terms of the debt instruments, by insisting on higher interest payments, and then eventually the terms of how our government operates, by dictating whether we need to adopt austerity measures in how our country operates if we hope to obtain additional loans.  At that point, our national sovereignty is at stake.

We know this to be the case, because over the past few years we have seen it occur in Iceland and Ireland, and in Greece and Portugal.  Those countries borrowed irresponsibly and saw the interest rates on their debt instruments rise as investors became increasingly concerned that the debts might not be repaid and demanded higher rates as the price for accepting that risk.  And, ultimately, outside forces — the International Monetary Fund, European Union bankers, and others — went to each of those formerly sovereign nations and told them what they needed to do if they hoped to continue to borrow money.  Those governments accepted the conditions and agreed to the austerity measures imposed by outsiders because they had no choice.

I don’t want to see that happen here — yet, over the last four years, we have seen the United States move down that very same path, with annual trillion-dollar deficits that have taken our total debt past the unimaginable sum of $16 trillion.  We also passed a significant milestone on that road to perdition when our national credit rating was downgraded.  I don’t think that downgrade has received the attention it deserves.  Imagine!  Credit rating agencies presuming to raise questions about the credit of the leader of the free world, a country so stable that its currency gave rise to the now-antiquated phrase “sound as a dollar.”  But the ratings agencies are so presumptuous, and we are kidding ourselves if we think our many lenders aren’t also carefully considering our credit-worthiness.

I don’t want to wake up one morning and see that our political leaders are having to dance to the tune called by teams of grey-suited bankers from the IMF, or China, or Germany.  If that happens — and if we continue to rack up trillion-dollar annual deficits, it inevitably will — we shouldn’t kid ourselves about what it would mean.  Does anyone think federal funding of NPR or contraceptives, to identify only two of the issues being discussed during this campaign, would survive under the austerity measures forced upon us by creditors?  Does anyone think the bankers would hesitate to require fundamental changes in entitlement programs like Social Security and Medicare?  Does anyone think our country could continue to function as a world leader, and a force for good, as a debtor nation struggling to deal with its overwhelming credit problems?

I recognize this is a dire scenario, and some believe it just can’t happen here.  My response is to look at what has happened in Europe, to countries that have just been ahead of us on the irresponsible fiscal policy curve.  Their experience shows, I think, that it can happen here — and it will, if we don’t do something about it.  I’m too proud of this country and what it has accomplished to let that happen without trying to change course.

I don’t think President Obama places a high priority on grappling with our deficit and debt problems.  He’s talked about them, but his actions speak louder than his words.  He continues to propose budgets that would result in trillion-dollar debts for years into the future, and continues to propose the creation of new federal agencies and federal programs as the solution for every problem.  He hasn’t used the bully pulpit of the presidency to encourage Congress to act.  I’ve seen nothing from President Obama to indicate that his performance over the next four years on this crucial issue of national sovereignty would be any different than his performance over the past four years.

Mitt Romney and Paul Ryan, on the other hand, do focus on the issue of our deficit and our debt and have proposed approaches.  I think they understand the fundamental nature of the problem and would make working with Congress to address the issues in a meaningful way their top priority.  I want someone in the White House who will tackle the debt problem, not let us drift into catastrophe.  That’s why I’m voting for Mitt Romney and Paul Ryan.

President Obama Gets The Last Word — For Now

President Obama brought the Democratic National Convention to a close last night with a much-anticipated speech accepting his party’s nomination for re-election.  As always, the President gave a well-delivered address that addressed concepts that have become familiar from the 2008 campaign and his four years in office, and that sought to stir some of the same emotions that made his 2008 a crusade for so many people.  The burden for the President, I think, is that every speech he makes is compared to some of his prior addresses to rapturous audiences; for many it will be hard for him to approach, much less equal or exceed, his efforts four years ago.  He has set a high bar for himself.

The President’s speech reminded me of President Clinton’s speech the night before in that it was heavy on brief references to a host of issues and policy concerns.  The President mentioned a number of matters — job training, renewable energy, investment in education, climate change, women’s health, oil and gas exploration, and countless others — and then moved on quickly.  The speech included lots of round-number goals (“100,000 math and science teachers” or “a million new manufacturing jobs”) and future dates (“over the next decade”).  It was as if the President wanted to touch every conceivable base.  It certainly seemed that he did so, but talking, however briefly, about disparate issues makes it more difficult to knit together and present broad, unifying themes.

The President acknowledged the difficulties in achieving his promises from the 2008 campaign, without getting into specifics of discouraging data on  unemployment, foreclosures, and the federal deficit.  He spoke of “hope tested by political gridlock,” said he never said it would be easy, called our recent economic issues the “Great Recession,” and added that it is clear that it will take more than a few years to solve the problems.  He referred to his failings, and said he was moved by the hope that ordinary Americans gave to him, not the other way around.

The speech was more pointed in its criticism of his opponent than you typically hear in addresses by incumbents, who often attempt to appear above the fray and largely ignore their adversaries.  He said Republicans don’t want Americans to know their plans, which consist only of lower taxes and reduced regulations as the remedy for every malady.  He noted the lack of foreign policy experience of Mitt Romney and Paul Ryan, accused them of being in a “Cold War time warp,” and chided Romney for purportedly “insulting” Great Britain, “our closest ally,” during a recent visit to that country.  From such remarks, I think we are safe to say that we are in for a hard-fought, and probably personal, campaign.

The President sought to address the charge that he views more government as the solution to every problem.  Not all of our problems can be solved by government programs, he said — but our problems can be solved.  Thereafter, however, every proposal and solution he offered seemed to involve some form of government program, benefit, or subsidy.  He talked about “nation-building here at home” through construction of roads and bridges, which sounded like a pitch for another “stimulus” effort.  It’s tough for President Obama to argue that he isn’t for bigger government, because he obviously believes that, as he says,”government has a role.”  That belief makes it difficult to convince him that some government programs don’t work and that government spending often is wasteful.  Last night, at least, there was no talk of eliminating any specific programs or spending as part of a plan to balance our budget.

The overarching challenge for the President is that, as he observed at one point during his speech, “I am the President.”  Unlike 2008, he has a performance record to explain and defend, and it is hard to sound lofty themes when your opponents are constantly bringing the debate back down to earth with statistics about unemployment, home foreclosures, or declining median family incomes.

This year the Democrats had the luxury of following the Republicans, which gives President Obama the last word — for now — but Republicans will have their say soon enough.  For all of their apparent differences, President Obama and Mitt Romney do seem to agree on one thing:  to use President Obama’s formulation from last night, this election offers the “clearest choice in a generation” between candidates with “fundamentally different visions of the future.”  With the conventions done, we now move into the final phase of this ridiculously long campaign — a time of more rallies, more attack ads, and eventually debates that will let the competing candidates go toe-to-toe.

The Race Rolls On, And The Big Issues Linger

The Republican presidential primaries, already seemingly endless, roll on.  With Newt Gingrich’s big win in South Carolina, the race is in disarray.  Gingrich is on the rise, Mitt Romney’s shield of inevitability has been dented, and Ron Paul and Rick Santorum are hanging on.

The focus now moves to Florida.  As has come to be the pattern, that means another debate tonight (No!!!!!!), lots more negative ads, and probably some new revelations before Florida goes to the polls on January 31.  We’ll hear lots of buzz words and scripted retorts and talking points, but what we probably won’t hear is much substantive talk about exactly how the remaining contenders are going to tackle the budget deficit.

You can argue about how we select a President in our country, and whether beginning with states like Iowa, New Hampshire, and South Carolina makes any sense.  The early primary voters never seem to share my perspective on the big issues of the day, but perhaps that is just a reminder that ours is a large and diverse land where people have many different views.  In Iowa, social issues always seem to take center stage.  In South Carolina, the votes for Gingrich seemed to be motivated, at least in part, by anger — anger at the news media, and anger at President Obama — and a desire to select a candidate who, the voters believe, will cut the President to ribbons in debates.

Social issues just aren’t on my radar screen, I’m not mad at the news media, and scoring debating points with glib jabs at the President isn’t important to me.  Instead, I just want to hear how specifics about the candidates will cut our spending, balance our budget, resolve our debt issues, and get our economy growing again.  Those are the issues that are most important to me and, I think, most important to our country.  Maybe — just maybe — some Floridians share that view.

Anticipating Supercommittee Failure

The news about the debt supercommittee — the Joint Select Committee on Deficit Reduction — is not good. According to the Washington Post, the supercommittee members have gone on the Sunday talk shows to effectively concede they won’t succeed and to begin to prepare for the impending failure.

We can expect that each side will blame the other.  Congress might not be able to make hard decisions, but they are peerless in shirking responsibility for failure.  Even more sad, yet predictable, Congress also is talking about deactivating the automatic spending cuts that were supposed to make a grand compromise more likely.  If they do that, of course, the entire supercommittee charade will be exposed as a silly sham that has done nothing except demonstrate that our leaders lack the discipline and the will to make tough choices — even when the grim example of countless debt-ridden Eurozone countries shows clearly what ultimately will happen if our constant deficit spending habits are not curbed.

We are seeing an amazing lack of leadership in Washington, D.C., from the President on down.  Hang on to your hats tomorrow; if the financial markets get the idea that the supercommittee will fail and that no cuts of any kind will be made, we may be in for a serious stock market meltdown.

The President’s Bill Goes Down — Now What?

Last night the United States Senate — in one of those weird maneuvers that make sense only to Senators — took a vote that killed President Obama’s “jobs” bill.  A majority of Senators voted in favor of moving the bill forward, but there weren’t enough votes to overcome a threatened filibuster.  Every Republican opposed it, as did two Democrats, and other Democrats stated that they would have voted against the bill on its merits even if it had cleared the procedural hurdles.

So, the President’s speeches, radio addresses, and instructions to “pass this bill right away” failed to drum up support for his bill.  No shocker there!  Any request for another half trillion dollars in “stimulus” spending and tax increases was never going to pass Congress with Republicans in charge of the House, although it may be surprising that the bill couldn’t even get the unanimous support of Senate Democrats.  In any case, the President can now rail against a “do-nothing” Congress during next year’s campaign — which may have been part of his motivation for proposing the doomed measure in the first place.

The Republicans have claimed that President Obama’s proposal was just campaign politicking.  So what?  Does anyone really think the President is above partisan politics?   The problem with the President’s proposal is not that it was “political,” but that it did not generate much public support and the moderate Democratic Senators realized that.  The Republicans therefore demonstrated that there is no appetite in the country for hundreds of billions of dollars in more spending and more taxes to pay for it — which probably was their goal from the beginning.

So, each side likely has the political argument that they wanted out of this process.  Bully for them!  No doubt the “talking points” have already been drafted and distributed, and the insiders can lean back in their chairs and breathe a sigh of satisfaction at a job well done.  But, despite this tremendous exercise in careful political posturing, unemployment remains too high, the federal debt is skyrocketing, and the economic is becalmed.  For the rest of us outside the confines of the Beltway, the question is:  “Now what?”

Speechifying

The debt ceiling remains unraised.  Talks between the sides have broken down.  The Republicans in the House have submitted a proposal, and the Democrats in the Senate have done likewise.  All the while, the days before the August 2 deadline slip silently past.

So, what to do to try to end this apparent impasse?  Why, give a speech, of course!  President Obama will address the nation at 9 p.m. tonight to discuss the debt ceiling issue, and Speaker of the House John Boehner will present the Republican view immediately thereafter.

I’m all in favor of a good speech, but what is giving a speech a few days before an important deadline supposed to accomplish?  It’s an opportunity for each side to trot out their spinmeisters, of course, but aren’t we awfully far down the road for that?  Is highlighting the parties’ differing positions supposed to reassure the jittery markets?  Are the members of Congress supposed to focus on the polling numbers after the speech to decide how to vote on this issue?  If the numbers say Americans liked the President’s speech better than the Speaker’s, or vice versa, does that carry the day?

This all seems like political posturing to me, as each side tries to set the other up to take the blame, rather than a legitimate effort to bring an end to what has often been a pathetic and embarrassing process.

Our Senate, Our Shame

It is all so predictable, and yet still so infuriating.  Yesterday Senate Democrats unveiled a $1.1 trillion omnibus spending bill that would fund the government through fiscal year 2011.  The bill numbers 1,924 pages.  It includes more than $8 billion in earmarks for some 6,000 pet projects for Senators.  According to the Washington Post report on the legislation, it includes the familiar litany of pork barrel projects — millions for non-profits associated with deceased politicians, hundreds of thousands of dollars to study port dredging and swine management, and on and on.

In this instance, the Senate has failed to pass individual appropriations bills, which is one of its most basic responsibilities.  So, Senate Democrats have followed their game plan from the appalling debacle of the “health care reform” legislation, have combined a dozen individual spending bills into one massive bill that no outsider has had a chance to read, and then have announced that the legislation has to be enacted by the end of the lame duck session or the government will shut down due to lack of funds.  Why not?  Process and public scrutiny be damned.  They are the Senate, after all, and they can do what they want.  They obviously believe that they don’t need to concern themselves with the unmistakable message in favor of fiscal restraint that the voters sent on Election Day, or the effect of this tawdry, trillion-dollar exercise in vote-trading on the United States and its staggering debt problems.

The Senate used to fancy itself “the world’s greatest deliberative body.”  Those days are long since past.  As led by Senate Majority Leader Harry Reid, the current Senate appears to be a motley collection of political hustlers who avoid the hard work of legislating in favor of cheap theatrics and gimmicks designed to increase their leverage for getting federal money for their cronies.  At bottom, they just want to get theirs, and this obscene omnibus budget maneuver gives them a shot at doing so.  They have the souls of pirates, rather than the souls of statesmen, and our beleaguered country is suffering mightily as a result.

Red Herring Anyone

As a semi-retired person the current economic environment has made it very hard to get any kind of return on my money and I would like to see interest rates begin to go up sometime soon. With interest rates at virtually zero, money market accounts and certificates of deposit are paying close to nothing at all.

During the coming week, the Federal Reserve as this article points out is going to announce plans to print more money (QE2) in a effort to boost the economy, create jobs, avoid deflation and thus keep interest rates low. How much more money the fed is going to print has yet to be determined.

The thing I found quite interesting about this article is the writers premise that he believes the “true purpose of QE2 is not to do what’s mentioned above, but to disquise the decreasing ability of the treasury to finance its debts because global demand for our debt is falling.”

Lets face it, we all know that sometime in the future (if not already) China is probably going to scale back their purchases of our debt and when that does happen as the author says “if the truth be known a real panic would ensue”. 

One of the amendments added by independent Bernie Sanders from Vermont, to the Wall Street Reform Bill passed earlier this year, was to have the General Accounting Office audit the fed periodically, but the language was watered down and the audit now only applies to emergency spending by the fed.

So much for government transparency !

Debt, Debt, And More Debt

Recent figures from the Treasury Department shows that the national debt of the United States is now $13.665 trillion.  It is an unimaginably large amount.  In numeric form, it comes out to $13,665,000, 000,000. How are our kids and grandkids going to pay off such a huge sum?

There is plenty of blame to go around for this appalling debt predicament.  According to the Treasury Department, during President George W. Bush’s eight years in office, the national debt increased by $4.9 trillion.  During President Obama’s two years in office, the debt has increased by another $3 trillion.  Both parties bear responsibility — or more accurately, irresponsibility — for this glut of debt, which has turned the United States into a debtor nation and imposed soaring interest costs that will make it virtually impossible to balance our budget and pay down that debt in the future.

Everyone seems to agree that our debt and constant borrowing is unsustainable, but no one seems to be doing anything about it.  President Obama apparently is waiting for the recommendations of a bipartisan commission, and every other politician is too busy running for office to take any action.  The  lack of action on even basic appropriations bills this past session shows that, for this Congress, hard work and hard choices on the federal budget is just not a priority.

What does all of this mean for the upcoming election if you are a voter who, like me, thinks there is no more important issue for our nation than bringing the federal budget under control?  I think it gives rise to the “throw the bums out” view UJ noted in his recent post.  Democrats control the White House and have huge majorities in both Houses of Congress, and they’ve failed to take any meaningful action on what should be our highest priority.  Why not give the Republicans a chance and then, if they fail, try something else?  Nothing that has happened in the last two years indicates that a Democratic-controlled Congress will tackle federal spending or debt issues, and if we wait too much longer to do anything about the debt issue it may be too late.

 

Low Standards

The White House has issued a report stating that the stimulus spending, so far, has occurred on time and under budget, with fewer claims of outright fraud and abuse than some people expected.  The report also argues that the stimulus spending has been an economic success story.

There is no need to comment on the latter point, because the economic statistics and the common experiences of average Americans tell the tale.  What I find humorous about this latest report is the suggestion that we should be grateful that the process of spending hundreds of billions of dollars was “relatively free” of claims of outright fraud.  Well, thank goodness!  We’ve managed to avoid rampant criminal behavior!  Should that really be the standard by which we judge the effectiveness of a federal spending spree that has contributed mightily to enormous budget deficits and a sickening rise in our national debt?

Debt Commission Deception

The Debt Commission established by President Obama to recommend ways to reduce the federal deficit has begun its discussions and deliberations.  Its first meeting produced the expected round of sound bites.  Erskine Bowles, one of the chairs, said the federal debt is “like a cancer” that would “destroy our country from within.” Fed Chair Ben Bernanke said the federal budget is on an “unsustainable path.” And, with the Commission’s discussions taking place against the backdrop of plummeting credit ratings for EU countries like Greece, Portugal, and now Spain, the debt reduction effort in America should have a special urgency.

So why does the concept of a Debt Commission leave me cold?  Because I think the Debt Commission is just another exercise in deception.

Recently, we have seen what Congress can do when it tries.  I agree with at least one part of Richard’s recent post — if you are going to control Congress, at least try to do something with that control while it lasts.  The dogged Democratic efforts to pass the “health care reform” legislation shows what Congress and the Administration can accomplish when they are fully committed to doing so — even though, in that case, I strongly disagreed with the solution.  If Congress has the will to enact a bill that is thousands of pages long, that regulates and restructures an enormous and extraordinarily complex slice of our economy, surely Congress could substantially reduce the deficit through a similar effort.  What the Debt Commission really tells us is that Congress doesn’t have the stomach for that deficit reduction effort.

Sure, we’ll hear the sound bites from the unelected, ultimately powerless people on the Debt Commission . . . and it will avail us naught.  Congress likes to giveth — a subsidized health benefit here, a new consumer financial regulatory agency there — but doesn’t like to taketh away.  Until circumstances force Congress’ hand, deficit reduction will always be on the back burner.

Greece Fire

Standard & Poor’s has cut Greece’s credit rating to “junk” status.  In so doing, the ratings agency indicates that it considers it unlikely that investors who purchase the bonds will ultimately be paid the principal amount of the bonds and all required interest payments.

What is the meaning of this for the United States?  The fact that some other country’s debt is considered likely to default is not earth-shaking news; this article notes that bonds issued by Egypt and Azerbaijan have the same rating that has now been assigned to Greece.  No, the risk is that Greece’s unrelenting troubles — and the corresponding reduction in the credit rating of Portugal — will inflame general investor skittishness about the massive governmental debt among European countries and the U.S.A.  If investors perceive greater risk of non-payment, they are going to insist on higher interest payments to bear that risk, and higher interest rates mean more deficits and a spiraling debt problem that becomes increasingly difficult to solve.  The yield on Greece’s 2-year bonds is now trading at about 15%.  Imagine if the United States, or debt-ridden states like California, had to pay 15% interest on their borrowings, and an ever-growing portion of the federal budget therefore had to be devoted to debt payments to overseas investors.

The lesson to be drawn from Greece’s predicament is that deficits must be addressed, non-essential spending must be cut, and budgets must be balanced.  As Greece has now demonstrated, constant deficit spending and borrowing is the path to perdition.