The runaway debt ceiling crisis in which we now find ourselves resulted not because the United States cannot afford to pay its bills but because some members of Congress decided we will not without conditions that have nothing whatsoever to do with our creditors.
It is a monster of our own making, created by madmen (and women) in Congress trying to force admittedly needed fiscal reforms by hijacking the budget and holding it hostage.
We the people have been held hostage too by proxy in a war of ideology whose timing could not have been worse. Indeed, the crisis that threatens to wreak havoc on national economies worldwide in just two days if not resolved quickly, need not have happened at all.
Since the 1960s, the US debt ceiling has been raised over and over almost as a matter of routine to make sure the nation could pay its debts and pay them on time. As a result, America enjoyed decades of perceived prosperity abroad and became the country of choice in which prosperous other nations could invest their money.
Rather than sticking with the debt ceiling routine so that bills would continue to be paid and separately setting a timetable for reforms that could include a balanced budget amendment—one of the current sticking points -- a well intentioned but misguided and knuckle-headed cabal in Congress, largely a group of populist newcomers, decided to draw a line in the sand.
Never mind that behind that line was at the edge of a cliff. They have put the cart before the horse and are now scratching their heads, when not scratching at the eyes of their opponents, wondering why theirs is a journey to nowhere.
We hostages are hopping mad and already there is talk of throwing the rascals out. Public social media forums such as Twitter and Facebook, the new voices of the people, are brimming with public contempt at our legislators gone wild.
Damage to our economy already has begun. In just the last week publicly traded corporate stocks lost $800 billion in value as the stock market shares shed value. The stock market responds to fears from political uncertainty while the bond market moves with perceived economic well-being.
So far, the bond market’s popular 5-year notes have gone down from 2 3/4 to 1 percent yield and bounced back to around 2.30 percent because the US remains “the best horse in the glue factory,” as Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform so eloquently put it.
His was the bi-partisan commission asked to look into the budget mess and make recommendations to fix it which the commission did, only to be ignored by President Obama and Congress but I am getting ahead of myself.
Just how did we go in just 10 short years from one of our longest periods of peacetime expansion with a budget surplus to boot, to this cliff hanger with a runaway deficit and suffocating debt? Overseas military adventures and tax cuts at a time of rising costs for entitlement and other mandatory programs played a big role. Add to that the current ugly internecine battle with its pre election year overtones.
The debt ceiling itself is silly, a World War I era relic of questionable value in 2011 that has only made matters worse. If it were of value, certainly nations other than the US and Denmark would use it. Even in Denmark it is used differently, kept high to make sure the government always has the resources it needs to pay its way.
In the last three years of the Bill Clinton presidency which ended in 2001, the government ran a surplus of $69.2 billion in fiscal 1998, $76.9 billion in fiscal 1999, and $46 billion for fiscal year 2000 using the accrual accounting method. The figures are higher using the cash accounting method used by the government, which Clinton haters are quick to criticize.
Enter President George W. Bush and his penchant for tax cuts and wars the nation could not afford. The nation was hit by devastating attacks from Al Qaeda terrorists based in Afghanistan so Mr. Bush went after Iraq’s President Saddam Hussein and his imagined weapons of mass destruction, in what we are now finding out was a deception leading to economic destruction. Billions of dollars spent.
Even before that costly fiasco was over, Mr. Bush took his war on terrorism to Afghanistan where the US has doled out billions and billions of dollars over the last decade of which as much as $10 million a day seems to disappear on arrival with some of the money making its way into the hands of the enemy we are fighting, if findings in an audit by the US special inspector general for Afghanistan are correct.
Public debt rose during the Bush years from $144.5 billion to $962 billion, much of it due to tax reductions and prosecuting the wars in Iraq and Afghanistan. Gross debt rose to $3 trillion.
Richard Kogan and Matt Fiedler of the Center on Budget and Policy Priorities explained it this way in a report: “the largest costs — $1.2 trillion over six years — resulted from the tax cuts enacted since the start of 2001. Increased spending for defense, international affairs, and homeland security – primarily for prosecuting the wars in Iraq and Afghanistan – also was quite costly, amounting to almost $800 billion to date. Together, tax cuts and the spending increases for these security programs account for 84 percent of the increases in debt racked up by Congress and the President over this period.”
Mr. Bush’s $1.35 trillion tax cut, gleefully approved by some of the same politicians fighting to hold onto it in the instant debt ceiling battle royal, was opposed by 450 economists, including ten Nobel Prize laureates, in a signed statement in 2003.
The economists warned that “these tax cuts will worsen the long-term budget outlook... will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research and generate further inequalities in after-tax income.”
President Bush was on a roll, however, and went on to signed into law Medicare Part D, an unfunded law that provided additional prescription drug benefits to seniors and, according to the Government Accounting Office, tacked on $8.4 trillion in unfunded obligations to the national budget.
Making matters worse, the last two years of his presidency saw a sub prime mortgage crisis for which dramatic government intervention was used to bailout damaged financial institutions and an economy on the skids.
Mr. Bush may did not have created the national debt but it sure worsened on his watch and the righteous in Congress now wringing their hands and demanding fiscal responsibility said nothing.
President Obama inherited this mess and has been able to do little to keep it from worsening. He bailed out the big money guys and the auto industry and these are doing well but the public is still bleeding.
Unemployment now stands at 10.2 percent, and Americans continue to lose their homes to foreclosures. After pulling through The Great Recession, the economy is still lethargic and the debt ceiling crisis threatens to plunge us back in.
The bi-partisan National Commission on Fiscal Responsibility and Reform commissioned by the president in January to identify policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run did just. It made a number of recommendations that would have required both Democrats and Republicans to sacrifice political sacred cows:
1. A $200 billion reduction in discretionary spending with proposed cuts of 15 percent in defense procurement, closing one third of overseas military bases, eliminating earmarks and cutting the federal work force by 10 percent.
2. Raising $100 billion in new tax revenues such as a 15 cents per gallon gasoline tax and eliminating income tax deductions such as for home mortgage and the deduction for employer-provided healthcare benefits.
3. Holding the lid on health care costs by maintaining Medicare cost controls imposed by health care reform legislation
4. Reducing entitlements such as farm and student loan subsidies and military and civilian federal pensions.
5. Modifying the Social Security program to raise the payroll taxes and the retirement age.
Commission members were thanked and their recommendations shunted aside and now or hapless politicians are trying to fix the problem with ideological solutions. The debt ceiling is but a pawn.
That government spending needs to be reigned in to get a handle on the budget is not in dispute. That cutting spending alone will get the job done is.
So far, our pols have been as effective as the three blind men trying to describe an elephant and much farther off track.
(Nathaniel Sheppard Jr., a veteran national and foreign correspondent, worked at The Chicago Tribune and The New York Times. He can be reached at: email@example.com)