PrintFebruary 1, 2011
Stop the Fraud -- Freeze the Debt Ceiling
The upcoming battle over raising the debt limit is a microcosm of the fraud that government has become.
This Kabuki act is performed every time Federal debt approaches its legal limit. The stage play is always the same:
- Politicians admit that spending is unsustainable and speak about cuts -- only in generalities and never specifics.
- The party in power always argues how important it is to increase the debt ceiling.
- The party out of power argues how doing so is irresponsible.
- The demagogues in power then warn about world-ending damage if the debt limit is not raised.
After this drama plays out, politicians reluctantly (that is their marketing term, not mine) raise the debt ceiling. This political act is then mothballed until the new debt limit is approached. By that time, the protagonists may have changed positions. For example, then-Senator Obama in 2006 voted against raising the limit, stating:
The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. ... Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. [Quotes available here.]
Why his reversal? Simple: George Bush was president then. Today, Obama and his administration argue that not raising the debt ceiling would be "irresponsible" and "catastrophic."
Both political parties are filled with scoundrels for whom politics is merely a game with few rules. These unprincipled parasites are concerned only with furthering their political careers. Concern for the public is important only to the extent that it furthers political interests. Good policies don't matter -- only good politics. Harmful policies are good politics if the public perceives them as beneficial.
Cuts are not politically viable in our democratic welfare state. Generations have been conditioned to "gimme" politics. As a result, no politician can run and win on a platform of "vote for me and this is what I will take away from you." That is why cuts never come and spending rises inexorably. That is why the debt limit will be raised again (and again and again) until the dollar and economy collapse.
President Obama's State of the Union message was typical of the nonsense that passes for leadership. Depending upon your viewpoint, he either insulted the intelligence of the people of the country (difficult but not impossible) or exposed the level of his own intelligence. The speech was gibberish, promising a freeze on discretionary funding while advocating new programs.
Our fiscal situation is desperate. The deficit this year is estimated to be $1.5 trillion, the largest in history. No one believes the out-year budget estimates that show the deficit being reduced, albeit not by much. The country likely will not last long enough to determine how absurd these out-year projections are.
Mr. Obama's proposed freeze covers about 17% of government spending. It is meaningless, especially when the other 83% of government spending expands like a California wildfire. To better understand, assume Mr. Obama is an individual making $50,000 per year and spending $75,000. This is the approximate relationship between government revenues and expenditures.
Mr. Obama is tapped out in the sense that he is unable to borrow money. His only solution is to lower his spending to his income, or preferably to below his income. Instead of recognizing this situation, Mr. Obama focuses on approximately $15,000 of his spending problem. Even here, he intends not to cut spending, but to limit it at this excessive level. The other $60,000 of spending he plans to increase.
Any individual who believes that he can sustain a personal financial problem with such a plan should be adjudged delusional. Just as it would be for an individual, Mr. Obama's belief is delusional, and disastrous for the country.
The debt ceiling is a key to stopping the political insanity. It can prevent a collapse of the dollar and the economy. It must be used to enforce restraint on the cowards in Washington. It is a less desirable solution than a limit on government spending, but it is a stopgap measure. Any limit represents an improvement over the feckless pretend negotiations that politicians engage in.
A freeze in the debt limit puts responsibility for out-of-control spending squarely on the backs of the political hacks. It is no different from putting a teenager on an allowance, other than the fact that most teenagers have more sense and self-control than most politicians. The message sent by adopting such a measure is simple and unequivocal: "Here is your money. That's it! Spend it wisely. Screw up, and you will be voted out of office. Good luck!"
Robert Murphy makes the best case for not raising the debt ceiling:
Perhaps the strongest argument for not raising the debt ceiling is that the United States is bound to default - whether explicitly by reneging on payments, or implicitly by massive inflation - at some point anyway in the next decade or two. The government's own projections show the debt quickly rising to alarming levels under certain assumptions, and none of their models deals with the possibility of a continued depression and a collapsing dollar.As others have noted, a firm debt ceiling would be a "balanced-budget amendment with teeth." Politicians notoriously cannot recommend particular budget cuts for fear of alienating powerful interest groups. But if the newly elected budget "hawks" really wanted to impress us, they could refuse to raise the debt ceiling. Then they and their colleagues would have no choice but to start slashing.
A vote on increasing the debt ceiling represents a litmus test as to whether a politician is serious. Any vote for an increase should target that politician for defeat in the next election. That is the message the public must send to their representatives.
Because politicians are without cojones, we must play on their cowardice. The fear of losing office is the only motivation to which they will respond. It is a way to end reckless spending. It is the only quick and effective way to prevent the economic and political collapse that is headed at us.
Big spending apologists will say, with some validity, that you cannot just cap government spending without advance warning. From a practical standpoint, that is correct. Wouldn't it be revealing for them to have to respond to this question: "Just how much warning or lead time do you require?" The squirming and hypocrisy watching these parasites trying to answer that question would be nearly priceless -- and just an ancillary benefit of the proposal.
A simple solution to the lead time objection is to provide some. We run about $100 billion per month in borrowing. Have one more acceptable vote for raising the debt limit. Raise it by $300 billion. That provides three months' time to lower spending rates to revenue rates.
The lack of seriousness in Washington is apparent with gimmicks such as the "blue-ribbon commission" appointed by Obama to suggest solutions. Does anyone other than me remember the Bowles-Simpson Commission? They came up with a series of recommendations -- not enough in my opinion, but superior to doing nothing or continuing to increase spending (Obama's solution). Several suggestions were reasonable as beginning steps. This commission and its recommendations have been shoved down the memory hole of history so that Washington does not have to deal with specifics. It is nothing more than another example of the Washington charade.
We need immediate action in order to avoid economic and political collapse. The only way to get that is by freezing the debt ceiling. That should be done now! A more comprehensive approach can be developed after the hemorrhaging has stopped.
Monty Pelerin blogs at economicnoise.com.
