Running Out of Time To Deal with Budget Deficits

March 14, 2010

In the economic dream world of President Barack Obama and his advisors and congressional allies, increasing spending in the trillions of dollars and debt into the stratosphere seem to be simply amusing sidelights to a (they hope) unstoppable program to establish a fascist-socialist political and social structure in the United States. Obama and his spokesmen make it sound like everything is perfectly reasonable and under control. The economy, they assure us, has been pulled back successfully from the brink of the abyss.

Many trillions of dollars in present and future spending (over the next decade), they tell us, will alleviate a lot of suffering and make health insurance and health care readily available at lower cost and without such annoying restrictions as lifetime dollar limits and refusal to cover pre-existing conditions.

I’ve written quite often on the “health care reform” proposals, and also some on cap and trade. These are major parts of Obama’s grand program.

But how can even his fellow Democrats not wonder how this agenda is going to avoid a serious day of reckoning fairly soon, with very high inflation and possible default on the national debt, leading to a historic currency crisis and massive loss of wealth for the American people? Obama, who often mentions his desire to benefit the middle class, is actually on his way to destroying the middle class. I have to wonder why he can’t see this.

There are too many unanswered questions in our economy for businesses, banks, or consumers to have a good level of confidence. Will we have Obamacare? Cap and trade? It is uncertain whether Obama will ever do anything serious regarding the deficit. He mentions it sometimes, but he has huge spending plans waiting in line for consideration. There apparently won’t be any spending cuts during his presidency, but there will be many increases. New entitlements will be added to the already unaffordable and doomed programs we already have.

I saw one website with a “clock” display showing the Social Security Trust Fund as rapidly increasing in value, and suggesting that this shows that the program is not in trouble. What it fails to mention is that the Social Security Trust Fund is worthless, having effectively no tangible assets. What it has are IOU’s in the form of non-negotiable government bonds which will never be paid. The “trust fund” aspect of Social Security has been a fraud since the beginning. This isn’t Obama’s fault, but it must be considered in the context of our unending deficits, even though these liabilities (tens of trillions of dollars) are not included in the published deficit figures.

As politically difficult as it would be, there must be a bipartisan effort to fix this before many more years go by. I have suggested phasing out Social Security and Medicare over a 25-to-30-year period, and encouraging younger people to provide for their own health care and retirement. In fact, I don’t think there will be any choice.

Missed It by That Much!
AFP reports: “Obama has underestimated the government budget deficit for the 2011-2020 period by 1.2 trillions US dollars and the public debt by 1.8 trillion US dollars, the Congressional Budget Office said.” [1]

How can our expert economists miscalculate by such an astronomical amount? Also, how reliable are the CBO estimates? To paraphrase the old joke, a trillion here and a trillion there, and first thing you know, you’re talking about real money!

National Review Online: “The president likes to say he inherited a mess. He did in fact enter office during a deep recession that sent deficits soaring on a temporary basis. But his policies have unquestionably made an already difficult medium- and long-term budget outlook much, much worse.” [2]

There seems to be the idea in Washington that federal spending can be done in an almost unlimited fashion, with deficits to be dealt with later. But at these rates, dealing with the deficits and the national debt may become impossible before the spending spree stops. Debt has to be dealt with every day, and with interest rates certain to rise fairly soon, the cost of servicing the debt will balloon to new heights from its already very expensive level. When will America’s creditors lose confidence in our ability to pay? How much loss of wealth and purchasing power will Americans have to endure?

There remains a closing window of opportunity to get this monster under control. It’s a question of changing direction on spending, and taking some politically nearly-impossible steps. But the politicians would be better off dealing with this crisis (and it is a crisis) now, rather than explaining later why they let the collapse happen, when all the warning signs were before them. If you want a case study, look at Greece, now and over the next few months. See if you notice any similarities to our own situation.

[1] P. Parameswaran, “US deficit, debt to exceed Obama forecasts: CBO,” 03/06/2010, AFP article at The Sydney Morning Herald, smh.com.au.


[2] James C. Capretta, “The Obama Budget: Spend, Entitle, Borrow” 03/10/2010, The Corner, National Review Online.

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