An illusion of insolvency
7/19/2011, 1:37 p.m.
An illusion of insolvency
|“If even Uncle Sam is having trouble paying his bills, my landlord ought to cut me some slack!” |
The current battle in Washington over raising the nation’s debt limit has created more consternation among citizens than clarity. This is by no means a new procedure. According to records the debt ceiling has been raised 74 times since 1962, all without substantial opposition. But now some political extremists assert that to do so the 75th time will be destructive.
In the past, when tax revenues were insufficient to cover the checks drawn to pay the government’s bills, the treasurer would simply borrow enough money so that the checks would not bounce. According to the Treasury, there will be $306.7 billion in bills due from Aug. 2-31, but a cash deficit of $134.3 billion is projected. Without an extension, the country will have reached its $14.3 trillion borrowing limit.
Investors around the world have always relied on the “full faith and credit” of the United States, so U.S. Treasury debt instruments have always had the lowest interest rates. This has saved the government substantial sums over the years.
Now Republicans in Congress have refused to vote to raise the debt limit unless there are substantial commitments to reduce the government budget so that there is eventually no surplus. While budget reduction is a worthwhile objective, that debate should have its own time and space, and not place the nation’s financial solvency in question.
Despite the unsettled state of the global economy, some conservatives have been assuring their constituents that a default by the U.S. government will have no harmful effect. However, as the Aug. 2 date approaches, Wall Street has issued the directive that a default would not be helpful.
The goal of the conservatives is to shrink the size of the government by any means necessary. If funds are not available, they conclude, then there would be no money to pay Social Security, Medicare and Medicaid or disability benefits. The Republicans want to cut entitlements as well as taxes for the well-to-do. The strategy is to starve the government.
Congressman Paul Ryan’s proposal would cut government spending by $6.2 trillion over the next decade, and tax cuts would reduce revenues by a similar sum. The Medicare system would be fundamentally altered so that seniors would have to pay much of their medical expenses when the new system became effective.
Everyone agrees that the country has to get the budget surpluses under control but conservatives have a limited notion as to the role of government. Their goal is to minimize taxes at the expense of entitlements to benefit the citizenry. From the perspective of President Obama, the government must invest in major projects to maintain its international political dominance as well as provide a safety net for the people. This must be accomplished with progressive taxation that is competitive with the rates in other industrial nations and efficient government operations.
Extreme conservatives like Grover Norquist, the president of Americans for Tax Reform, understand that his efforts to minimize taxation will come to naught if the philosophy of Obama and the Democrats prevail in public opinion. Their goal is to undermine the democratic policies that will lead to the survival of entitlements.
There is no doubt that Obama, the one who relentlessly pursued bin Laden, will not permit a default. Section 4 of the 14th Amendment to the U.S. Constitution states “the validity of the public debt of the United States, authorized by law … shall not be questioned.” Congress has already voted to create those obligations which will come due on Aug. 2. Obama will not be a deadbeat president.