Yet again, we have crisis-driven fiscal policy. All that was accomplished with the end of the federal government’s shutdown was the postponement of the drama and name calling until after the holidays. The president, thinking that the debt-ceiling problem is behind us, now wants Congress to concentrate on the stalled immigration and farm bills that are pending.
This country has not passed a balanced federal budget since 1997, so perhaps Congress should concentrate on this issue along with real solutions to our long-term debt. This can-kicking on what matters most to the economic health of this nation should not take a backseat to any other bills. Why allow debt to increase when Washington should be finding ways to decrease spending and support growth?
The president seems confused about the difference between our deficit and our debt. The deficit is the difference between yearly income vs. expenses. The debt is what we borrow to cover costs not being paid by tax revenue. Yes, our deficits are going down from post-2009 highs, but not because of sound fiscal policy. Deficit reduction is the result of cost savings in the sequester, along with tax increases.
Our rising long-term debt is being managed like an individual who uses a MasterCard to pay off his or her Visa. This is not sound financial planning. Of course, we had to raise the debt ceiling because time ran out, but when are we going to say “enough” well before the last hour? It is delusional to believe that our current debt levels are manageable given that we are essentially borrowing to pay off existing debt. We can solve our deficit problems with economic growth, but managing debt by taking on more debt is very shortsighted.
What if our application to increase the debt limit were declined? Suddenly, we would have to live on just tax revenue. The Treasury takes in more taxes than ever before, but government still overspends. Businesses, unsure about future fiscal policy, would be less likely than ever to put capital to work or hire. Our economy would go back in recession or worse.
One day we are going to run out of buyers to purchase our debt, leaving only the Federal Reserve. When this happens, our country will begin a death spiral of inflation. If our ability to borrow were to suddenly end, hard decisions would have to be made. Do we pay interest on trillions in debt or send out Social Security checks? Politicians know entitlements are a sacred cow, but if we miss an interest payment, our creditors will demand much higher interest rates to take on added risk. This is not like Discover Card; we won’t get forgiveness if we forget a payment. Entitlements will go under the ax, and this will not be popular with the American people. The past few weeks were full of spin and rehearsed talking points, but very little truth or accuracy. China, the country holding $1.3 trillion of our debt, was not as cavalier in its response to the calamity in our dysfunctional government. It downgraded our debt to A-.
Because we rely on debt to run our government, overspending IS our fiscal policy, placing an unfair burden on the Federal Reserve. Realize that the Fed is merely crediting the Treasury with imaginary interest payments from debt purchased each month via QE. This creates buying power from thin air, and no government can create something from nothing no matter how hard politicians try to convince themselves or us that they can. Like a flea circus, this is all an illusion that people are willing to believe as long as it continues to work.
Past borrowing is nothing more than transferring purchasing power from people in the present to other people in the present. By increasing the debt ceiling yet again, Washington is taking the purchasing power of future generations to pay today’s bills.
I don’t think those generations actually realize what they are doing to their own futures as they continue to vote for master illusionists.
The belief that deficit spending adds real growth in the economy is a fantasy. Anyone who thinks there were clear winners this week can’t see the bigger picture. We are all losers until we agree that the upward trajectory of our national debt must be reversed with real solutions, not 11th-hour desperation. The longer we split hairs, the less likely anything will get accomplished until it is way too late.
Carol Perry is a retired financial adviser and has been a Northern Nevada resident since 1983. She can be reached at Carol_Perry@att.net.