Raising the Roof

We are going down to the wire on the increasing the debt ceiling issue.

May not be fun to watch but will be high political drama.

What in the past has been a pretty routine matter has been elevated to near catastrophic status because of the partisan divide and seemingly intractable positions of the far left and right. Simply stated Republicans see deficits in terms of too much spending and Democrats of too little taxes.

Talking points have come down to Democrats claiming Republicans want to give tax cuts to the rich and oil companies and that Republicans want to end Medicare as we know it. Republicans have the less sexy sound bite of claiming the Democrats just want to keep spending and that they have no plan.

Public Opinion supports spending cuts although not on programs that support them or that they support.

Not curbing deficit spending has endangered American economic viability (tn the past this was a long term problem – it looks like the future has arrived.) Not raising the debt ceiling endangers American government fiscal policy.

These two issues that MUST be reconciled and NOW!

Unfortunately our Federal Elected Officials are doing little about it (publicly) other than pointing fingers, shouting, threatening (if you think I’m bluffing, etc.) and talking past each other.

The GOP to their credit has a plan. The Democrat Party leader who promised change has not offered any specifics just Oba-matic speechifying. Unfortunately, depending on your perspective, the Government is divided, as are the American people. The Democrats hold the better hand, a slim majority in the Senate and 1600 Pennsylvania Avenue.

An eleventh hour solution with some sort of Compromise seems likely. I am not too sure why, it just seems to me that deadlines crystallize public opinion, which then emboldens or forces officials. My guess is any solution will be short term, although the Leader of the Free World is insisting on a Big Solution, a Long Term Solution, i.e. one that gets us past his Election Day in November 2012. The President does not want to offer solutions nor go through this again before his re elect campaign.

Not meeting the August 2 (artificial estimate at best) will not necessarily cause the Economy back into a recession or cause any worldwide economic panic. However it would cause a tremendous loss of stability that the American economy has enjoyed for a Century (with the exception of the Depression). Ironically foreign investment and holding of American Dollars and U S Government debt was favored because of the stability of our political system which at the moment seems a little rocky.)

Note – The President has said that not raising the debt ceiling by August 2 will put the economy back into a Recession (his attempt to shift blame for his failed handling of the Economy back to the GOP.) President Obama also said he will not sign a short term fix. If all that can be agreed to is a short termer, will the President put us in Recession? (or sign the bill and have his bluff called?)

Public Opinion is demanding spending cuts but all ideas envision cuts later (kicking the can down the road in current vernacular). Other than the GOP plan to reform Medicare (the BIG and wildly growing entitlement – can you say Baby Boomer?) there is not much specificity.

Without question the significant savings must come from entitlement reform (Social Security, Medicare, and Medicaid), Tax increases or tax reform depending on your language or economic persuasion, or economic growth (that enables more revenue and is the elixir that both parties are pining for, though their policies are wildly divergent). Because of the current economic situation, Federal Government is spending $1.40 for every $1.00 in revenue (thus Trillion Dollar Plus Annual Deficits.)

I’m just saying – Everyone pretty much agrees (even the opponents) that not raising the debt ceiling will cause government lenders to get a larger premium for their risk (a higher interest rate) for buying United States Debt. Thus a failure to raise the debt ceiling will result in higher government costs (more spending). So denying the raise is in effect increased spending. (Just a note here and I think this is partially what got us into this political faceoff – there should be reform not just an increase in the debt limit.) An increase in the Treasury rate also will cause an increase in the mortgage rate, the cost of an automobile loan, college loan, credit card interest rates, and business loans – all not so good for the economy and as noted previously ultimately federal revenues.

I have not offered solutions that put me in the boat with Congress other than to say:

Compromise, raise the ceiling with real spending and entitlement reform, do something now, and yes cut a program that effects me. Without some shared sacrifice, we will not make progress and just kick the can!