US Debt

It began on Tuesday when a watered down debt program was passed by a Congress that was behaving more like a group of unsupervised three-year-olds than the guardians of our republic. The foreign holders of the national debt were not comforted by the willingness of our politicians to take the nation to the brink of default.

Following that demonstration of irresponsible self interest one critic, Russian Prime Minister Putin, remarked that the United States was “living like parasites” off the global economy. While most Americans tend to ignore anything Russian, the remarks had the ring of truth in them.

Then on Wednesday, China’s Dagong Global cut U.S. debt to A from A+ saying the debt deal had not changed the general trend in which the increase in debt outpaced the increase in GDP and tax revenue.

Most observers were inclined not to worry about Russian or Chinese opinion until Standard and Poors late Friday downgraded the United States to AA+ from AAA. The stock and commodities’ markets were already beginning to factor in a return to recession, but the move set off a huge decline crushing many retirement portfolios. The negativity was supercharged by the leveraged reverse ETF’s and high frequency traders who could tell the direction of the market ahead of the little guy.

Most households realize you can’t borrow half your spending or keep mounting on layers of debt forever into the future. However, in the la la land of Washington, our Congressmen and Senators don’t believe that the realities that apply to families or other countries apply to the United States.

Unfortunately, there still seems to be no desire in either party to face reality head on. Liberals think the problem is not enough government spending, middle of the road politicians are outnumbered or quitting and the conservative Tea Party members think that cutting spending and moving to the gold standard is the answer.

What needs to be faced is that Social Security, Medicare, military and government pension benefits all need to be cut or have the age limits raised. Serious cuts need to be made in the defense budget. For instance, are the guided missile frigates built by Bath Iron Works of any use except as a jobs program?

Unrealistically, on the tax side the Republican Tea Party members want tax cuts. Democrats want tax increases, but only on the “rich.” If one does the math, what is needed is tax increases on the middle class as well as the “rich” if a real reduction in the deficit is to be made.

We do not have a choice as to whether or not to face up to our debts. As Ireland, Greece, Italy and Spain have shown, eventually the “market” will decide not to fund debt any longer. If a reduction to AA+ is embarrassing, imagine what a bailout by the International Monetary Fund would feel like.

— SS

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