July 28, 2011 – – The Doomsday Debt Ceiling: As the politics of increasing the U.S. debt ceiling, continue unabated in the Capital, one thing is sure; the public has had it with politics as usual. Either solve the problem or face mass defeat at the polls!
The repercussions of continued “brinksmanship” are about to lead to financial and economic Armageddon for the United States! The August 2nd disaster deadline is only five days away and Congress continues to bicker. No doubt they’ll take the usual route, by “kicking the can down the road” and post pone the problem for later, ideally (as the logic goes in D.C.) for someone else.
Whether you save 4 trillion or 2 trillion in debt reduction over 10 years, it only means you’re saving $400 to $200 billion this year. That’s a drop in the bucket, when you’re facing a deficit of at least $1.5 trillion. The total national debt was 70% of GDP (Gross Domestic Product) for FY 2010, up from “only” 36% as recently as 2007. What will those figures be, when we close FY 2011!
Tax increases are seen as “Political Suicide” by any politician. Therefore, they must reduce spending. However, placing public debt on a sustainable path is critical to the stability of the U.S. economy. Raising the debt ceiling, a legislative “speed bump” that for decades was lifted in a routine manner, is now on a collision course with economic catastrophe for the United States and the World!
The stock market (DJIA) dropped almost 200 points today. If the D.C. insanity continues much longer, interest rates will skyrocket, “killing” stocks and “hammering” the bond market. The repercussions of such actions will be international in scope and drive us further toward Great Depression II.
The top graph shows U.S. Federal Government Spending, while the bottom graph shows Revenue for FY’10 (ending October 31, 2010). The Spending graph consists of Discretionary (choices that can be made, versus spending mandated by law), Mandated, Interest (Interest on the Federal Debt), M&M (Medicare and Medicaid) and DOD (the Department of Defense); all totaling $3.456 Trillion. The Revenue graph consists of SS/SI (Social Security and Medicaid Taxes), Corporate Taxes, Other, Excise (Alcohol, Tobacco, Transportation and others) and IRS (Personnel Income Taxes). For a complete list, with expanded definitions, see the Congressional Budget Office web-site. How these graphs look for FY 2011, is being decided in Washington, as I write this.
Deficits do matter and, eventually, just the interest on the National Debt will become problematic. Our elected officials are worried more about getting ELECTED to their cushy jobs than DOING their cushy jobs. Throw the useless bums out and let’s try a new crew, which can steer the ship towards the open seas of prosperity and avoid the rocks of economic disaster!
The Master of Disaster