[*IMPORTANT: Author’s note follows this article.]
Following the debt ceiling wrangling over these last weeks, a quote comes to mind. It is from that great, departed literary wit of the millennium past, Dorothy Parker. “What fresh hell is this?” Thank you Ms. Parker. You have left us with something to ask Washington.
Let’s see. The Congress and President of the United States agree upon a budget. How many ways are there for the government to fund that budget? There are only two, through revenue or through borrowing. You should not discuss cutting spending, on a current budget, after you have adopted that budget and passed it into law. If you want to spend less, you draw up a budget that spends less.
Additionally, the debt ceiling should not be used as leverage to bring future budgets under control. The debt ceiling should merely be a formality following upon the heels of any budgetary agreement. It is not a hostage to be taken in furtherance of budgetary agendas.
If the politicians in Washington cannot arrive at a budget that passes Congress and gets signed into law by the President, then the government – with the exception of essential services – shuts down. Oh, and in that case members of Congress continue to receive their salaries. So much for any concept of fairness.
Shutting down the government is not a good thing. Many people are adversely affected. But shutting down the government, in a battle to get spending under control, is more honest than passing a budget and effectively threatening to renege on it by not raising the debt ceiling.
The United States of America has a huge national debt. The federal government of the U.S. is running gigantic budget deficits. Embracing economic responsibility and fiscal reason are imperative. The country needs to live within its means.
How can a nation tread a path of fiscal responsibility? That is simple. Actually doing it is what brings on political battles. If a country wants to stop borrowing money it must look to two options. The first, and the one I believe makes most sense, is to spend less. The second is to increase revenues. Dumping doublespeak, that means raising taxes.
To embrace true fiscal conservatism is to embrace a tighter budget. However, once that budget is adopted and is the law of the land, you must live with it until the time comes to draw up a new budget. Deciding not to fund a budget after you have agreed to it is reneging on your word.
The United States of America should never be in a position of discussing reneging on its word, particularly when it comes to things like paying back money it has borrowed and cutting Social Security checks.
If a budget is not disciplined enough to garner its funding from revenue alone, the only other alternative is to borrow money. Those who agreed to a too generous budget in the first place should not be awarded a second bite of the apple by deciding not to make good on the budget they agreed to and signed into law.
In the current case, the federal budget was signed into law by the President of the United States in April. The composition of Congress, during these debt ceiling talks, is virtually the same as when that budget was drafted.
If whoever voted for the current budget did the responsible thing and simply voted to raise the debt ceiling – on a clean debt ceiling vote, meaning nothing added to it – this entire discussion/crisis would not be occurring. [*Side note: Congresswoman Hochul, who we had on CYInterview, is in Congress now but was not there when the budget passed. That is an anomaly. To read/hear her CYInterview, click here.
Fiscal conservatives can do the responsible thing by negotiating very hard on next year’s budget. Putting forward any notion, even unintentionally, that promises will not be paid after they have been made – again, particularly when it comes to U.S. debt obligations and current Social Security payments – is contrary to the interests of the United States. That, and it is wrong.
Fiscal responsibility must be adopted by the United States. The time and place to enforce that responsibility is when the budget is created. If the U.S. continues on the path it is on, the nation will not stop paying its bills. Instead, we will see currency debasement, devaluations and inflation. The lessons of places like Weimar Germany and Argentina should be remembered.
The moment to prevent that, however, is before a budget is signed, sealed and delivered, not after. Post facto discussion of funding the obligations of the United States brings into question the bedrock of its historically, widely accepted “Full faith and credit.”
Economics is a game which is affected not just by reality but by perception. Any perception that the U.S. does not intend to make good on its promises, and that’s what has been stimulated by these histrionic debt ceiling talks, is contrary to the interests of the United States, as well as world economic stability and growth.
The time and place to reign in runaway spending is during the budget making process, not after. What fresh hell indeed.
*NOTE: Shortly before this article was to be published, President Barack Obama went on television to announce a deal had been made to raise the debt ceiling. An actual vote was still pending in both houses of Congress.
Assuming a deal has been reached – particularly considering its relatively limited scope – it does nothing to address the fact that the debt ceiling was taken hostage to accomplish other ends.
The time to decide on reigning in the budget is during budget talks. Any bill to raise the debt ceiling should address that issue and nothing more. Tampering with the United States’ credit rating and, consequently, its ability to borrow money makes no economic sense. And after a budget has been signed into law, it is dangerous and hypocritical.
Considering no grand plan was effectuated dealing with the U.S.’s structural financial challenges, the cost of this debt ceiling drama may actually cancel out any money saving.
If the rating agencies downgrade American Treasury debt, owing to this debacle, and if that causes the cost of borrowing to rise for the Treasury, not to mention businesses and individuals, it might turn out that any purported savings is wiped out by higher interest rates.
While no one aspires to a government shut down, owing to a lack of budgetary consensus, it would be preferable to a high stakes show down causing lenders around the world to wonder, as well as seniors receiving their Social Security checks, whether the government will make good on its debts.
This has been a particularly sad chapter in American political history.
Oh, and one more thing. I did not hear any member of Congress, from the left or the right, or the President of the United States or the Vice President say the following: “We are having trouble coming to an agreement on the debt ceiling. However, though it is not a lot of money and only would be a symbolic act, we members of Congress, as well as the administration will take a 50% pay cut to demonstrate to the American people how serious we are about getting our finances under control.”
Should anyone think 50% is too high, why, at the very least, didn’t Congress and the administration agree to take a 10% cut to demonstrate solidarity with the American people? Where were the deficit hawks demanding Congress take a pay cut? There is something telling in this. Leadership starts with leading. Congress and the administration should decrease their pay starting with the next budget. That would be a small step to show their hearts are in the right place.
Image: Damian Brandon / FreeDigitalPhotos.net
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