Amid all the sound and fury and the "high noon" drama surrounding the debt-limit deadline and the passing of a deficit reduction measure this week, one discomforting fact emerged: Federal spending will continue to increase and the national debt, now approaching $15 trillion, will grow, not shrink, over the next 10 years.
You might not think so, judging by the reaction found in some of the editorials and columns to the passage of the Budget Control Act of 2011. The budget deal will mean "massive spending cuts borne by the poor, the sick, the elderly and the middle class," wrote Politco's Roger Simon. A New York Times editorial called it "a nearly complete capitulation to the hostage-taking demands of Republican extremists." The headline over a Maureen Dowd column in the same paper called the budget agreement "The Washington Chain Saw Massacre." So what really happened?
Despite protestations from Jon Corzine, former New Jersey governor, that he has no interest in taking Treasury Secretary Timothy Geithner’s place if Geithner decides to step down, Corzine did manage to have a clause put into his company’s bond offering prospectus that if he did accept the position, bond holders would be paid an extra one percent interest, just in case. Corzine now heads up MF Global Holdings Ltd. which is planning on selling $300 million of five-year notes which includes an unusual “key man event” clause which pays bondholders an extra one percent:
Upon the departure of Mr. Corzine as our full time chief executive office due to his appointment to a federal position by the President of the United States and confirmation of that appointment by the United States Senate prior to July 1, 2013.
The highly publicized debt ceiling debate has drawn to a close. Politicians and commentators from both political parties are hailing this as a victory for the Tea Party. I am not so sure. In fact, I am disposed to judge this a victory for President Barack Obama.
As U.S. politicians scramble to defend themselves against raising the federal government’s astronomical debt to an even higher level, Americans may be seeing the reflection of their own future in the grim picture of insolvency across Europe.
The so-called PIGS nations of the European Union (Portugal, Ireland, Greece, and Spain) are all caught in a vise: on one side, spiraling debt and obligations which can be serviced only through borrowing, and on the other, the increasing costs of borrowing resulting from profound doubt in the minds of potential buyers of government debt instruments that bonds can be repaid.
As fears over global markets grow, the European Central Bank (ECB) signaled that it would start buying more European-government bonds in an effort to prop up the economies and governments of beleaguered nations and the region as a whole. In other words, it will print even more money to temporarily bail out reckless regimes drowning in debt.
But rather than calming investors, the announcement only sparked more confusion and turmoil. Follow-up reports added fuel to the fire.
Citing traders, several news outlets claimed that the central bank bought Irish and Portuguese bonds on August 4 — not Spanish or Italian debt as was expected. Ireland and Portugal, of course, have both received hundreds of billions in bailouts already.
A friend of mine was trying to explain to his children the significance of the debate going on over what to do about our national debt.
He showed them a clip of something you’ve probably seen: the National Debt Clock in New York City. On Monday, the National Debt Clock said our national debt was more than $14.4 trillion, and it said each family’s share of this monstrous total was $122,303.
Steve tried to explain the situation this way to his kids:
“Who would you vote for? Someone who promises to give you lollipops every day at school, even though he can’t afford them? Or someone who says he needs to take your desks away because we can’t afford to pay for them?”
Now that the Kabuki theatre, also known as the debt ceiling negotiations, is over, what really happened? And, who voted for the debt deal?
Lobbyists will be busier than ever in the next weeks and months ahead, trying to influence both the makeup and the recommendations of the new "supercommittee" that is supposed to recommend $1.2 trillion in deficit reductions over the next ten years. Under the terms of Budget Control Act of 2011 passed by the Congress and signed by President Obama on Tuesday, mandatory budget cuts will take effect if Congress cannot agree on the committee recommendations or some other plan to reduce the amounts being added annually to the nation's debt. The prospect of mandatory cuts has alarmed and aroused lobbyists and trade groups, especially those in the powerful defense and health care industries.
If you are as confused as I am about this new bill that increases our debt ceiling and is supposed to save the country from defaulting on its debts, it’s probably because we are getting conflicting reports about what’s in it. And if you scan down the text of the bill, you can see that it was not written so that the average individual could understand it. Indeed, I wish that all such laws passed by Congress would be accompanied by a simplified translation into plain English that the average citizen could understand.
Like so many of these laws crafted by congressional staffers, they are written in a kind of Washington legalese meant to make it impossible for ordinary folk to know what’s in them. For example, Nancy Pelosi said that they had to pass the Obama healthcare bill so that we could find out what was in it. Well, I have news. It’s just as impossible to know what’s in it after it’s been passed. Even the title of the law is meant to deceive the average citizen. Its official title is: Patient Protection and Affordable Care Act. Of course it’s nothing of the kind. It is the Federal Takeover of Healthcare Act. It passed the Democrat-controlled Senate on December 24, 2009. The Democrat-controlled House passed it on March 21, 2010, and our Socialist-in-Chief signed it into law on March 23, 2010. The first task of a new Tea Party Congress and White House in 2012 must be to repeal it.
Hours after Congress voted to raise the debt ceiling, the national debt rose enough to consume 60 percent of $400 billion allowed. According to the Washington Times, spending shot up $239 billion on Tuesday, the largest one-day increase in American history.
Other debt news includes this heartening tidbit: Thanks to the big jump, the national debt may well exceed the gross domestic product.