Pay It Forward
Now that the U.S. has fought its way through the Debt Ceiling debate the house was able to easily pass the deal by 269 votes vs 161 votes.
Many have wondered why the U.S. has a debt ceiling? The debt ceiling beginnings were established in 1917 under Article 1 Section 8 of the United States Constition giving Congress the sole power to borrow money on the credit of the United States. The modern debt limit was established by the Public Debt Acts which was passed in 1939 and 1941. The United States has a system based on checks and balances between the President, Congress, and the Senate.
However, if the debt ceiling debate went into crisis mode, and there could be a chance of default. The President of the United States could invoke the 14th Amendment and raise the debt ceiling, of course there would be a legal battle that would ensue, between whichever party invoked the 14th Amendment clause.
The final outcome of raising the debt has kept the U.S. from technical default, but what it really has done is engage the American people into the debt. The next election should be rife with mudslinging from both the Democrats and the Republicans. The preferred opinion by many economists is that the U.S. and World economy are in slow growth phase for years to come.
The reality, is that the U.S. needs to take a hard look at their debt servicing, the U.S. government today is spending 42% more then what they are taking in right now. Also, there are $55 trillion in entitlements that congress has passed over the years, and will need to fulfill eventually. Some of these entitlements are in the areas of medicare, and social security. The next election will hopefully force U.S. politicians to make some hard choices on austerity measures.
The most important duty of each an every citizen in a democratic society, with a constitution, is to besolventin order to create a stable and viable political economy entrenched in democratic principles. The concept is quite simple, however many citizens in the U.S. and other parts of the world do not understand this. Unfortunately, the governments of these countries are in a precarious position and are not making the hard choices.
The U.S. will not go into default it will make those hard choices, but the question is when? They could take a look at their northern counterpart Canada. Back on April 28, 1993 the Government of Canada had it’s rating cut, national debt was peaking at 72% of GDP. The Wall Street Journal was editorializing about Canada’s parlous fiscal state, making it an honorary member of the Third World.
Since then Canada has fixed these problems in a rather short time period, and we are enjoying the benefits in a world that does not seem a certain. How did Canada do this? They cut federal expenditures by 20 per cent, cut 23 per cent of public servants, slashed agricultural subsidies and business subsidies by 40 per cent to 60 per cent, chopped defence spending by 15 per cent, abolished some ministries altogether, and cut transport and science budgets in half.
Of course, they also hiked Canadian Pension Plan and Employment Insurance taxes – er, contributions – and downloaded a ton of federal spending onto the provinces. Lastly, they were helped by a rebounding economy.
Now the U.S. could take a few cues from us, if it wants to stay out of the so called Third World honorary member scenario. These are going to be hard measures let’s look at the timeline of the first fiscal year, 1789 it took the U.S. 198 years to 1987 to deficit spend its way to a $2.4 trillion debt. Which is almost the same amount the debt ceiling was raised on Aug 2nd.
As Peter Schiff wrote last week, The plans on the table suggest cutting a couple trillion in cumulative spending over the next decade. In other words, they propose cuts that only reduce deficits by about 10% to 20%; they do nothing to reduce actual debt levels. So if these talks are successful, then instead of a $1.5 trillion deficit each year, perhaps we only suffer a $1.2 trillion deficit. Meanwhile, the debt continues growing. This is ‘success’ in Washington.
Peter Schiff is right here, as are many politicians, and everyday Americans the hard choices need to be made in order to right size the country. During the Great Recession we had Wall Street vs Main Street, and the hypocrisy that occurred. Now we have Washington vs Main Street an added spice of more hypocrisy. The politicians like to blame business when they don’t have their house in order. Who will blame Washington for their cemented boot syndrome where they are not able to move forward because it would cost them their position politically.
As Congressman Ron Paul memorably stated, Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers.
Conressman Ron Paul, is correct here, not only is it a future tax increase, it also means higher interest rates for borrowing, less social services, and social security. I guess, the alternative would be for the Washington and the American People to move this forward, and let the next generation PAY IT FORWARD, but eventually the day of reckoning will occur.