Tuesday, August 2, 2011

The debt crisis – Did I miss something?

In the recent debate and resolution of the debt crisis, it seems that all sides have declared victory. How is this possible? Naturally, if all the big spenders are not harping then we all should be suspicious. The deal raises the debt ceiling by a whopping $2 trillion while cutting spending by the same amount. Some intriguing questions arise. First, two trillion dollars seems like a lot. The reason the debt ceiling was reached was that in this fiscal year, the amount remaining to be spent out of appropriations would have required the Treasury borrowing in excess of the debt ceiling. That amount is not $2 trillion but a number far less. The question is why didn’t the debt ceiling rise by just that amount? The answer is that the spending is slated to increase by larger amounts over the next two years and the congress did not want to revisit the issue at the start of the next fiscal year. Second, if the borrowing authority increased by $2 trillion and spending was “cut” by $2 trillion, then doesn’t that create considerable slack between the ceiling and the actual debt? The answer is no. The major sources of the increase in spending are in social security and medicare. Those have not been addressed. Third, the enormous increase in spending over the past four years have been baked into the cake and are part of the base. If that spending were temporary, then at least $2 trillion would have gone away meaning there would have been no crisis. That the politicians allowed $2 trillion to be put into the base line is obscene. Fourth, all of the hand wringing is just another charade. Remember when we had that “crisis” last year that forced Obama to prolong the Bush tax cuts and “cut” $300 billion in spending? As I pointed out then, $300 billion is a rounding error. The same can be said for the $900 billion in “cuts” that are to occur immediately and the $1.5 billion in “cuts” that are supposed to come later. If these were truly cuts, then the debt ceiling would have only had to be raised by the amount necessary to get through the fiscal year - a much smaller amount.In reality, despite the rise in the debt ceiling and the supposed "cuts", US debt is still projected to rise by $7 trillion over the next decade instead of rising by $9 trillion. We have been had.

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