Debacle of a Debt Deal
New polls indicate that 57% believe taxes will rise and government services will be cut to balance the federal budget.
The above may be a compromise solution to ‘save’ our economy. However, the #1 priority must be cuts and these cuts must be validated.
The recent debt deal was an utter debacle. It immediately increased our debt limit by 16% with expectation that in early 2013 it will rise again. Meanwhile laughable cuts comprising 2/10 of 1% of our debt were to be completed by end of 2012. An additional $2.2 Trillion in unspecified but mandated cuts are to be legislated by end of this year but implemented starting 2013, when – guess what – we will increase the debt ceiling again.
From 2003 – 2011, federal spending jumped by 60%. The US now borrows 43 cents for every dollar spent, to be 46 cents by 2013. Every day on average the US borrows $4 – $5 billion dollars a day. Advocating increase of spending money we do not have as essential to economic health is incomprehensible. This is how we got into our current mess. Advocates include NY Times and economist Paul Krugman.
Congress failed drastically by not cutting no brainers such as privatizing the money loosing Post Office and Amtrak, eliminating Education and Energy departments which respectively have not improved our education nor increased our domestic energy. Substantial defense cuts are warranted also; otherwise our foreign creditors (ex: China, Saudi Arabia will refuse to buy our debt as we fight 2 wars and support Israel and Taiwan).
Our total debt is now 100% of GDP. Meanwhile Congress congratulates itself that the debt deal will render total debt at 120% of GDP instead of 125% in 2021.
All financial products (ex US Treasuries financing our debt) must compete for investors. VP Biden likely was cognizant of this 2 weeks ago while in China. There were rumors that Biden begged the Chinese to continue purchasing our Treasuries. The debt deal seriously weakened Biden’s stature in China. Therefore, Congress can and must revisit our debt position immediately. Failure to do so risks a dollar collapse and economic catastrophe. As soon as majority of investors realize that the US has no intention of repaying debt but just continue expanding debt, investors will consider US Treasuries toxic and avoid them. Congress must act now.