Tuesday, May 11, 2010

Irrational, Irresponsible, Economic Recklessness

Investor's Business Daily offers a stark warning that the effects of our current economic insanity will be felt in less than a decade:

Spiraling debt is Uncle Sam's shock collar, and its jolt may await like an invisible pet fence.

"Nobody knows when you bump up against the limit, but you know when it happens it will really hurt," said fiscal watchdog Maya MacGuineas of the Committee for a Responsible Federal Budget.

The great uncertainty about how much debt is too much has tended to make fiscal discipline seem less urgent, rather than more. There is no obvious threshold beyond which investors will demand higher real yields for holding U.S. debt. Vague warnings from ratings agencies about the loss of America's 'AAA' status haven't added much clarity — until recently.

In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis — so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.

If this happens, there will be some major ripples outward, and there's no way to know for certain what this does to the world's willingness to finance American debt.  If the loans dry up, a crisis will erupt, and we could see massive inflation, major devaluing of the dollar, or many other negative effects.  And that's just with the economics of the thing.  What happens when the economics meets the real world?

Look at Greece now, and that'll give you an idea.

No, I'm not kidding:

On Sunday, May 9, 2010-the same day the EU and the IMF announced a new $1 trillion deal to protect the euro-the IMF formally approved $40 billion in loans to supplement the EU's effort to keep Greece from defaulting on its own debt.  As the IMF's largest contributors, U.S. taxpayers now bear the risk if Greece defaults on the IMF loans.  The debt crisis in Greece was brought on by reckless borrowing to fund welfare programs.  While the U.S. is putting itself on the hook for the Greek bailout (and likely more bailouts across Europe), Democrats in Washington are following the Greek model and refusing to learn any lessons from the crisis.

Runaway Deficits

Greece-In April 2010, Greece's FY 2009 deficit was revised for the third time and estimated at 13.6 percent of GDP.  Since joining the EU in 2001, Greece has averaged a budget deficit of roughly five percent, which is well above the EU growth pact's "ceiling" (which has proven to be unsuccessful) of 3 percent of GDP.

United States-In FY 2009 the deficit in the U.S. reached a record high of $1.4 trillion or 9.9 percent of GDP.  In the first seven months of FY 2010, the U.S. government has already racked up a deficit of $800 billion.  Under the President's budget, the average deficit between 2009 and 2019 will be more than the average deficits over the past decade that brought Greece to its current crisis. 

Unsustainable Debt

Greece-The ultimate cause of the Greek crisis was the country's woeful national debt, which has reached 115 percent of GDP and could reach 150 percent of GDP.  Greece was unable to meet this high burden of debt and, as a result, sought a bailout from the EU and the IMF in order to make payments over $10 billion in debt due on May 19, 2010, and avoid default, at least in the short term. 

United States-According to CBO, under the President's proposed budget, the debt held by the public in the U.S. will jump dramatically from 53 percent of GDP to 63 percent between FY 2009 and FY 2010.  By 2020, CBO estimates that the public debt in the U.S. will be $22.5 trillion, an amount equal to 90 percent of GDP.  These levels of debt are unprecedented in U.S. history and are dangerously unsustainable.

Out of Control Spending

Greece-The nation's deficit and debt crisis is a direct result of the country's choice to continue their unsustainable spending to fund a bloated Greek government and profligate welfare programs.  Last year, Greece's government spent an astonishing 50 percent of the country's GDP.  According to the IMF, wages and social benefits constitute 75 percent of total government spending.

United States-Spending in the U.S. has exploded in recent years.  Since 2007, spending in the U.S. has leaped from just under 20 percent of GDP (the historic average since World War II) to more than 25 percent of GDP.  If unchanged, CBO estimates that spending will reach 30 percent of GDP by 2029.  These spending levels will fuel exploding debt and deficits and propel our country toward a fiscal calamity.

Simply put, the situation in Greece provides a stark illustration of what will happen in the U.S. if our fiscal house is not put in order.  Since the Democrats have taken over Congress and the White House, spending, deficits, and debt have skyrocketed to unprecedented levels.  Instead of putting taxpayers and future generations at further risk by bailing out European nations, the U.S. should be tending to its own fiscal mess.  If the U.S. does not act to dramatically cut spending soon, this nation will run out of time.  If that happens, who will be there to bail out the U.S., and at what cost?

No one will be able to bail us out, even if they wanted to.  The more likely scenario is that our enemies will collectively decide to throw America into the dustbin of history, welcoming the end of American global dominance with open arms.  It won't matter that the very destruction so many nations have sought over the past 230+ years only happened at the hands of our own leadership...the end result will be the same.

And what of our leadership in the face of this impending crisis?  More irrational, irresponsible, recklessness:

Barack Obama has done a lot of posturing lately as a deficit hawk, especially after signing the Pay-Go legislation that supposedly requires Congress to pay for any new spending with new revenues or spending cuts elsewhere.  Since passing that rule in February, Democrats have repeatedly waived it in order to pass smaller bills.  With just a couple of weeks left before the Memorial Day recess, they'll push legislation that will cost more than $200 billion — none of which will meet the Pay-Go requirement:

Congress faces a crush of votes on big-ticket items before the Memorial Day recess, setting up a debate on deficits less than six months before the November elections.

Democratic leaders are looking in the next three weeks to send President Barack Obama a slew of measures that cost more than $200 billion, including a multiyear extension of unemployment benefits, an extension of expiring tax provisions and Medicare doctor payments totaling $180 billion and a $33 billion Afghanistan war supplemental bill.

Because most of those costs won't be paid for, Republicans plan to use those bills and the Democrats' budget blueprint to highlight massive deficits ahead of the congressional midterm election. Republicans have recently been pointing to Greece's dismal fiscal situation as a warning, claiming that the U.S. will be headed for a similar fate unless the deficits are curtailed.

"Washington Democrats' out-of-control spending spree is scaring the hell out of the American people," said Michael Steel, a spokesman for House Minority Leader John Boehner (R-Ohio). "It has to stop."

Yes, it absolutely, positively must stop.  NOW.  The Dems have proven beyond the shadow of a doubt that they are incapable of -- or simply unwilling to -- reigning in spending.  Even the so-called Blue Dogs obediently followed along when their leash was tugged by the radical Leftist leadership, so there's no exception for them, either.  Every single one of them must be thrown out.  The Republican party has been little better in recent times until they seemingly woke up in early 2009 and began to revert to core principles like fiscal sanity.  Still, can we trust them?  Unless it's an iron-clad case -- as in Jim DeMint or Paul Ryan types -- I'd say no, so throw them out, too.  Now is not the time to get squeamish, nor to pull punches.  If we as a nation do not get SERIOUS about our economic situation, there will be no good future for America.

Research your elected reps and potential elected reps.  Find out what they actually voted for and against, not what they said.  Surely the future economic health of our nation is worth a small investment of your time, right?  This is a good place to start.

There's my two cents.

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