The providential spiritualty that led America to becoming the dominant world power has been replaced with a crass secularism defined more by “me” than “us.” Is it any wonder, then, that major portions of our national budget are directed at wealth distribution rather than what we need to grow our economy and maintain ourselves as a world leader?
Even when we eventually work our way around the latest government shutdown and the threat to cap the debt ceiling, this current impasse is a harbinger of the future regardless of whom we elect. What has created the perfect fiscal storm is:
1. The aftermath of the Great Recession, where the combination of austerity, tightening credit standards and inadequate macroeconomic measures have hobbled GDP growth, keeping it below the level needed to reduce unemployment nationally below 6 percent and inversely increase tax revenues;
2. Tax cuts during a time of doubling defense budgets to pay for two wars;
3. The arrival of the bow wave of Baby Boomers qualifying for Social Security and tapping into a trust fund largely stuffed with IOUs and marked by a rapidly diminishing ratio of taxpayers to recipients;
4. Increasing Medicare costs including heavily subsidized prescription drugs and removing the “doughnut hole” by implementation of Obamacare;
5. Requiring additional funding for Medicaid to subsidize health insurance under Obamacare for those below the federal poverty level; and
6. Rising interest rates that will nearly double the cost of financing the debt in just the next five years.
The cost of social programs and interest on the debt will absorb nearly 70 percent of the anticipated tax revenues at the end of the president’s proposed budget in 2018. If defense is added in, 95.9 percent of revenue will be fenced off.
In layman’s language, the federal debt is inexorably headed toward $20 trillion and higher. It makes little difference which party gains power after Obama; these costs are practically engraved in stone. Sequestration and gutting Obamacare only slow down the coming tsunami of red ink.
However the Iranians, North Koreans and al Qaeda (which is hell bent on attacking us regardless of how much we spend on defense) undoubtedly applaud our latest “peace dividend.”
The stalemate in Washington does not bode well for the coming fiscal train wreck. There appear to be no Reagan-O’Neil or Clinton-Gingrich compromises on the horizon. There seems to be little stomach for raising taxes or restructuring social programs. Any stimulus package to create jobs is anathema to Republicans and the Fed is practically out of bullets as it maintains its historic low interest rates at the discount window.
Many Blue Chip companies are sitting on piles of cash but they understandably are hesitant to invest until Washington provides some concrete fiscal direction.
Another glimmer of sunlight is the resiliency of American entrepreneurs who are still finding ways to create jobs.
However, overshadowing these bright spots is the game of Russian roulette if the debt ceiling is not raised. A U.S. government default will render meaningless Uncle Sam’s full faith and credit promise. Monetarily, it becomes everyone for himself. Not only will American companies continue to hold back on investment, but so will critically needed overseas investors. China and Japan, which together hold nearly $2 trillion in U.S. government securities, don’t have to liquidate their securities; they simply don’t buy any more.
No amount of quantitative easing from the Fed can offset that shortfall without seriously causing inflation problems and increasing significantly the cost of borrowing for the U.S. government. The threat of sliding back into recession is very real, which consequently makes all current budget assumptions moot.
Thomas Mann writing about the Great Depression in “You Can’t Go Home Again” aptly summarizes our times: “I believe that we are lost here in America, but I believe we shall be found.” We are Americans and have been here before.
Regardless, and very bluntly, this party is over. We shall ultimately navigate ourselves out of the looming fiscal and monetary shoals but it is going to require political courage and personal, painful lowering of financial expectations.
Perhaps one step in the right direction is to begin to find a common denominator for our solutions based the aspirational words of our Founding Fathers, “We the people …”
Mike Boyce of east Cobb is a retired Marine colonel who unsuccessfully challenged Tim Lee in the 2012 Republican primary for chairman of the Cobb Board. of Commissioners.