So I see three possibilities to our debt ceiling problems. A long term deal, a short term deal and no deal.
Let’s see how these three would probably play out.
A short term deal that would push the debt ceiling up to cover the next few months and cut a few trillion off our spending for the next decade, but actually not cut anything from our outstanding debt. Don’t kid yourself, this is what both Boehner and Reid have suggested. And both of these plans, and any slight variation of them Moody’s has already said is not going to be enough to guarantee our AAA bond rating. More importantly these don’t solve anything.
We will be back here again in a few months for another game of chicken. Both parties are playing with fire with a game like this given how the fickle American public is.
Even a balanced budget amendment is passed (and while sane I don’t see it getting past a Socialist Democrat Senate with 2/3 vote needed) the fastest an amendment has ever been ratified is 4 months after it was approved by Congress…as we know Obama can do a LOT of damage in 4 months.
A short term fix, fixes just about nothing. And this is what Congress is debating.
Then we have Obama who has kinda sorta maybe called for a long term deal (we can’t be sure because he has never actually proposed ANYTHING, just complained about what others have done). He seems to claim he has a plan (I think) but unlike his idols (Blofeld, Goldfinger and Luther, their goals do seem to be about the same as the effects of Obama’s policies after all) he seems unwilling to share his plans with us.
So what would a long term solution involve? It seems to hinge on raising the debt ceiling high enough that we wouldn’t have to deal with this at least until well after the election (let’s see spending 4 billion a day over what we’re taking in, we’ll give them until March 1st 2013 to allow the next Congress to deal with this mess, that’s 2.4 Trillion dollars). If you thought the bond rating agencies hated the last option, they’ll despise this one. We’ll be 17 Trillion in Debt! If you think not meeting an arbitrary deadline will hurt the economy, let’s try turning ourselves into Greece and see how that affects the economy.
These two plans will lead to stagflation that will make the Carter administration look like a happy time, and an economic slowdown that will make the Great Depression look fast-paced. All because we couldn’t kick the habit of spending money we didn’t have. Both plans remind me of such great economic planning strategies as those of the USSR and the Weimar Republic (you know the place where a billion marks wouldn’t buy a loaf of bread and inflation was so rapid prices changed on the hour…you think 17 Trillion isn’t heading for that?).
Finally there is no plan.
We let gridlock continue. We meet the deadline with no increase of the debt ceiling. Well, what would happen?
We have enough money coming in from payroll taxes to pay the interest on the debt and all outstanding debts to our bond holders.
We have all the money we need to fund Social Security.
It’s after that we get to make hard choices. We would need to cut a lot of new payments to the federal government. We would have to go to true austerity. Corporate welfare would need to end immediately (oh, wait, that’s a good thing). Obama cronies like GE might actually have to pay taxes (oh, wait, another good thing). Whole useless Departments like Education and Agriculture would have to be cut back drastically if not eliminated (oh, wait, that’s a good thing too). Medicaid and Medicare would have to be slashed (good again).
But wait there must be some bad stuff here. Yes. Now like the short and long term “fixes” we would probably see an almost immediate sell off in the stock market probably dropping as far as 5,000 points because people are panicked little gerbils. My recommendation: Buy. Buy low, sell high. Because about a month after that crash businesses will realize their actual business is still there, and unlike the short and long term plans money might not be utterly worthless. It may have been momentarily hit, but very quickly it will become obvious that Obama suddenly does not have the funds, and with it, the power to regulate and destroy business. It will suddenly be safe to invest, to hire, to expand, to grow—you know all those things that help an economy and which Obama has made his personal mandate to impede. You may argue Obama doesn’t stand for that…but actual businesses seem to believe this so they will not move until the Caesar wanna-be is out or at least powerless.
Honestly as I said in a previous blog I would be happy with a Balanced Budget Amendment, real cuts to budget, not in the 10 year plan, but substantial cuts NOW, and a temporary increase in the debt ceiling to get us through only as long as it takes for the real cuts to take us below the old level. But short of that—let the debt hit ceiling. It may not be the most pragmatic, but it is certainly better than continuing this slow road to self-immolation.
Or ask yourself at what point does the debt become so large that we’ve passed the point of no return? If not 15 Trillion (Trillion, do you realize how big a Trillion is?) then when?