tjarthur

Last week my Brazilian-born housekeeper, who speaks broken English, stopped me as I was about to leave the house and asked “What do you think of the US Economy? Why does Obama need more credit?” I gave her some thoughts and she responded by explaining that if she can’t pay her bills this month, the answer isn’t to call her credit card company and ask for a credit increase. She concluded by asking if Obama’s reasoning is that he just wants money so he can fund programs that get him votes.

And in a very unusual conversation, my housekeeper summed up the essence of our debt ceiling “crisis.” I place crisis in quotes because if you read Mike Baker’s opinion article you’ll see he sheds light on the fact that this is about getting a damn budget created and passed. Yet the spin coming out of Washington, the Obama camp in particular, and the sycophant media, makes it difficult to track the details (the fact that someone with limited English and knowledge of our political system can grasp this crisis, gives me hope)

To be clear, the current debt ceiling debate is a watershed moment in American history. Forget the debt ceiling issue. That issue has come and gone far too many times, and there has been little accountability for either party’s game-playing to date.

Set aside the politics, the outright flip-flopping and gamesmanship of the past on both sides of the aisle.  At this moment, a group of mostly freshman politicians sent to Congress with a strong fiscal mandate in 2010 has determined that enough is enough. The debt ceiling is just a portion of an overall spending problem in Washington and it threatens the very future of this country. Let me summarize some facts that are rarely on display in this sound-bite driven world and expose some of the lies being propagated.

1)   Bankrupt: Spending as a percentage of GDP is about 3:2 ratio every month, and that’s if you take the OMB numbers on revenue that have been short every month for over a year. The Federal government spends over $300B a month. They take in $200B at best. More conservative calculations place the number closer to $173B. Using round numbers, we are going in the hole over $100B every month! This is so far beyond precedent that it makes George Bush look like a fiscal conservative (he was not). This also means that by 2020…not far away, debt to GDP ratio will increase from 40% to 90% or $170,000 per household. Do you have that cash lying around for Uncle Sam?

2)   Entitlement Disaster: The CBO recently came out with an alarming analysis, and it received far too little media exposure. While most people understand that Social Security and Medicare are going broke, the rate at which this is happening should alarm everyone….especially Baby Boomers! Even the AARP that has resisted any real reform to these programs quietly reached out and said they are now ready to discuss options. This is a bullet train headed for a brick wall at 100 miles an hour; and the political will to fix it may be too little too late if we wait any longer.

3)   Nice Try: “Savings” are different than Cuts! Anytime you hear a politician say savings are part of a plan, run or shoot…your pick! Savings are a joke. They essentially mean nothing gets cut except expenditures that they intended to make in the future and they calculate those into the bottom line. It’s like saying you are going to buy a television for $1500 and instead buy one for $1300 and you claim I saved $200 today. No you didn’t. You spent $1300.  Washington DC accounting and spin is hard to follow…but invariably leads to the realization that it’s nonsense.

4)   Obamanomics: Overall federal tax receipts have been steadily in the 18% range for decades. As an overall number, our personal taxes have not gone up over the past decade. That’s the good news. The problem is two-fold. Obama’s proposals will raise the rate to 21%!  This is the biggest jump in generations. Moreover, our system needs reform. The 18% is achieved in a progressive manner that would make any European socialist proud. The top 10% of tax-payers are paying 70% of the tax burden! The bottom 50% pay NOTHING. And this isn’t progressive enough for this administration or the women on The View.

5)   Hype: Reagan raised taxes so why are Republicans being so obstinate? Revisionist history is in full swing when it comes to Reagan. If you ask a Keynsian economist like Paul Krugman, Reagan wasn’t even responsible for the massive economic boom under his watch. The time horizons, according to Krugman and his ilk, should have led us to understand that the boom was started under Carter. (Note to reader: Keynsian economists are also responsible for the failed “spend your way out of recession” mess we are in.) Keynsians insert social studies into economics instead of math and logic. They are a failure except in the halls of select Ivy League dungeons. Yes, Reagan raised taxes several times but only AFTER the biggest tax reform in US history. Additionally, the increases came more from closing loopholes, FICA tax increases and other mechanisms, many of which Senator Coburn has put on the table on behalf of Republicans.

6)   Bewildering: The disaster of appeasement is partly what led to our current fiscal mess. Republicans, the party that historically understands budgetary restraint, business friendly policies etc. were a disaster when they controlled the House, Senate and Presidency. Why? Those Republicans never saw a fiscal compromise they didn’t like. They weren’t fiscally principled. They weren’t willing to risk their next election by making hard financial decisions. Strong negotiating never starts by exposing your starting position then adding the qualification “but if we can’t get that, we’ll work something out.” This is tantamount to negotiating with the Taliban while also announcing our departure dates from Afghanistan (ohhh, we actually did that too). You don’t get true reform or results unless your opponent believes you are willing to risk everything. Normally we can count on politicians to think foremost about themselves, but the current Freshman Republicans are the type we can believe when they say they will stick to their guns – even if the voters send them packing. Finally on this point, it is an almost virtual certainty in deals that involve tax increases coupled with spending cuts, that the cuts don’t last while the taxes do. Why? Political self-preservation. Current politicians cannot bind the hand of future politicians to spend (unless there is a balanced budget amendment) and therefore the cuts never last.

7)   Lie: Not raising the dept ceiling will cause Armageddon. No! While it has severe consequences to be sure, they are not the end of the world. Even conservative pundits like Michael Medved have fallen prey to the doom and gloom predictions being blathered on the 5 o’clock news. First, regardless of the debt ceiling action, we take in 2/3 of our needed revenue every month. This means the President and his Treasury Secretary will get to decide which obligations to pay with the money they have (sounds like a normal budget exercise doesn’t it?) If Social Security checks or military pay come to a halt, look to Obama. It’s his call. But realize this, the markets are rational. They have already calculated in the very likely possibility of a failure to raise the ceiling….AND THEY HAVENT CRASHED. Medved and company can back away from their “end of the world” hyperbole and realize the problems that will result are resolvable; and the results will be worth the pain IF politicians do their jobs. The President has to move on this issue or he’s done.

Ironically, if the President went along with Republican tax and spending reforms, he’d be re-elected in a likely landslide. His left-wing base isn’t going anywhere. Would wing-nuts like Dennis Kucinich or Howard Dean actually pose a primary threat? Not a chance. Rather, Obama would pick up huge points in the middle for demonstrating fiscal restraint. In other words, he’d pull off a Bill Clinton. The only rational reason for him not to pursue this path is that it is entirely contrary to his world-view and redistributionist instincts.

Republicans started this process slowly and didn’t get their message out effectively to the American people. Their poll numbers reflect that. So what? Real leaders don’t make decisions according to polls. They now have a chance to make their case and go on the offensive; which they are starting to do with the legislation moving along under Senator Coburn and his band of 6. For those of you watching from home, pay close attention to Coburn, Rubio and Ryan. These are the types of leaders we need in this country and each is pushing a pro-active agenda to get us through this “crisis” and ensure we come out the other side a healthier country.