Check Please!

I’m at that time in my observations of what is happening in Washington DC where I just want to ask for the check and get out of this dysfunctional restaurant where the floor show and the food are both equally bad.

Last night, we saw more finger pointing. The President placed the blame on the Republicans for not wanting a balanced approach that includes cuts to spending and increase in revenues, yet earlier in the day he backed the Reid plan which contained no revenue increases.

But wait, The Speaker of the House spoke right after the President and had his own spin on things. Among other things, he claims that his plan is born out of the “bi-partisan” efforts in Congress. Well Mr. Speaker, if it were bi-partisan efforts, why can’t your plan pass the Senate? Five Democratic votes out of a total of 193 Democrats in the House does not make it a bi-partisan effort.

The sad thing is that both parties are not telling the American people the truth, the whole truth and nothing but the truth. The truth is that regardless of what happens over the next week, the US credit rating is going to go down. Why? Well, it’s not about the debt ceiling. It is about the debt and our inability to get control of it. The Democrats and Republicans talk a good game, but neither one are serious. They are both part of how we got here. They are two sides of the same coin. How else can we answer the following questions:

  • Is removing a loophole that was created by lobbyist efforts really a tax increase?
  • Does a tax system that allows a $200 billion company to pay no income tax make any sense?
  • Does a government that spends money in other countries building their infrastructure while our own is falling apart make sense?

However, the markets see this country for what it is… an over-spending entity, that does not invest in itself or its people. It is an entity that believes you can strangle your own bad habits by cutting revenue sources ’till it hurts. The result will not be a default. That is not what the markets are worried about. The result will be the belief that we cannot get our fiscal house in order. In fact that result is already there. The steady decline of the dollar was the early sign. We pay more for things now than we did last year even though demand is soft. The next step will be the lowering of our credit rating which will trigger higher interest rates for the US to borrow. This will have a domino effect on other interest rates that are tied to government rates. The average consumer will see a steady increase in some of the rates they are paying. This begins a spiral effect that is tough in a good economy and could prove to be devastating in our current sluggish economy.

Remember this at the next election. It’s time to vote out the immature kids who can’t play nice. It’s time we vote in some adults who can bring in not the “Change we can believe”, but deliver on the “Change that we need”… fiscal discipline on all fronts.

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8 responses to “Check Please!

  1. The downgrade would be stupid, especially from a number of organizations (ratings agencies) that exhibited corrupt behaviors at least twice in the past (late 1990s and mid-2000s).

    You have the largest economy, the market of first resort for exports, the most arable land, and the third largest population. There are many assets there to back any debt for the near future. Also, the debt level is not unprecedented.

    Simple fact is, if you just cut a little and raise taxes a little the deficit would go away pretty quickly. If you wind down the Iraq war this may be even easier to do. If you push the retirement age back a little on social security that would probably quiet hype about that system going bankrupt. Medicare/Medicaide is a different matter to be honet.

  2. Great chart on the debt from the Congressional Quarterly:
    http://innovation.cq.com/media/debt_components/
    of the $14,270.1 (in billions I think); $4,613.5 are held by government accounts (like social security).

    Of the $9,656.6 that is publicly held, the Federal Reserve system still has its hands in something like $1,427.4.

    Of the $7,705.3 of marketable debt; $4,479.2 is from foreign investors (where things may represent those old debt problems of old in 19th century Latin America, turn of the 20th century Russia, or 1970s Latin America Again).

    By the way, China is only China$1,152.5

    So really $4,479.2 out of $14,270.1 presents a problem in my view.

  3. Michael,

    As usual… great perspective. Here is the rub for “Simple fact is, if you just cut a little and raise taxes a little the deficit would go away pretty quickly.” — As you know, markets like predictability. In the past, the parties would rattle their sword and get some concessions. The markets saw that a deal would be cut eventually and the markets would be appeased. Winston Churchill said it best, Americans “do the right thing after they’ve tried everything else.” At least that was the common wisdom. The challenge now is that the Tea Party faction in the House Republican Caucus has a powerful hold over the Speaker and the House itself. Their intractable stance on any revenue makes the markets leery of the inevitability of a longer term resolution. Deficit pay down will not happen by spending cuts alone when Democrats hold half the cards and the markets know it. Herein lies the problem. Markets are skittish. They don’t always (and rarely) base decisions on perfect knowledge. Having Obama and Boehner feeding this perception does not help.

  4. When you look at Pres. Obana and Speaker Boehner were acting like little kids telling on each other. I did see Pres. Obama up to the old playing the blame game like he had nothing to do with debt. Well I have to tellingres. Obama is that he was a Sen. Obama before he became President and he help out in this mess. Pres. Obama did say both parties hand their hands in this mess by running up the tab. Also Obama wants to close loop holes on Coprate jet owners. Close the loop hole sir if you can, a good company person will always find a way to get what he or she needs and write it off in some way.
    Here is how I would do it
    1. Replace the current tax system with a sale tax everyone get their whole pay check and when you look at it everyone has to buy something also everyone get tax the same.
    2. Change the rules on the entitlements such as congress can not writr IOU to SSN and how many entitlments can a family or person get, st up time lines.
    3. Go after frud in the entitlements and set up un-schuled vists and check ups.
    4. Set up an Earmark committe that aproves earmarks and they have to make all information public such as where did the earmark come from, how much, what it does.

  5. Michael Dunne

    Funny, the Churchill quote popped into my head, out of thin air, last night while watching the news:

    Winston Churchill said it best, Americans “do the right thing after they’ve tried everything else.”

  6. Michael Dunne

    Ty,

    If you try to go 19th century, and do a sales tax on everyone, I suspect the country would really go down the hole.

    Agree on not having the Social Security surplus cover for government spending indiscretions (not sure what to do with the money; also, is there a surplus now?)

    go after fraud in entitlements is good; and probably we should go after fraud in military spending too – I suspect both have billions in rich seams of corruption

    I think we should get rid of earmarks. Also, I think the committe process and budgeting process should be rationalized so that chart of accoutns or specific expenditures are rolled into bills or voting exercises that are topical… that is if you vote on pork subsidies, then that should first come up with a farm comittee and in a farm bill and be voted on eventually; and not allowed to be tied ot other bills.

    Not sure if that happens in practice…

  7. Yep in the 19 cen. Everyone would have nut up on me but we are in the 21 cen. now and the current tax system does not work and we see that with loop holes and not many people paying taxes. That’s why we get rid of the pay roll tax or federal taxes all together and go with a sale tax. Now with that everyone is tax the same and everyone has to buy something in this world. Plus if congress wants to raise taxes then they raise taxes on everyone not one group of people.

  8. Actually in the 19th century we had high tariffs starting with the Civil War (despite what Southerners now say, they were dropping prior to the conflict).

    So you had 35% on average tariffs from 1861 to 1912.

    Then you had massive land sales, granted at below market prices.

    Conversely, I recalled consumer behavior was affected by 10% sales taxes when buying things in the late 1980s (when I was a lighting fixture/chandelier salesmen).

    Also receipts from sales taxes are volatile.

    Otherwise why would you get rid of payroll taxes? Other than the cap there doesn’t seem to be any other loopholes other than state employees (seems Congress does pay).

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