The Debt Bomb

Aug. 2008, Obama accepts his party's nomination

When Barack Obama gave his 2008 Democratic nomination acceptance speech surrounded in a Greek Temple motif, no one could have seen the prophetic imagery these props provided, America imitating Greece.

Even as Obama was playing Adonis before a swooning American electorate and tingly media pundits, the government and the people of Greece were in final preparation for economic implosion.

Climbing Mount Olympus (Background info)

Greece was borrowing money faster than it could repay.  It had socialized everything.  It’s unions dominated its government and its industry pushing the cost of labor to ridiculous.  Greek fiscal trickery that maintained low-interest rates was becoming increasingly difficult to preserve.  Greeks had become entitled and their government was about to discover the true meaning of the word unsustainable.

Back in America, no sooner did Barack Obama take the oath of office, than he put the financial accelerator of the US Treasury to the floor.  Bail outs, earmarks, pork barrel spending, new entitlements, and huge government employee pay increases, soon dwarfed President Bush’s record budget.  In a single year Obama increased the American national debt nearly as much as Bush had over his entire tenure as President.

“This baby is lying there like a big stink bomb” (The Situation)

Whether Obama has been purposely following the Sal Alinsky plan or not, he was and continues to follow the Greek path.  If current fiscal policy continues, the Congressional Budget Office (CBO) estimates the debt as a percentage of GDP will hit 87% by 2020. It currently stands at an intolerable 62%.

Greece hit 127% of its GDP and had to be bailed out and will likely require several more before it is over.  The United States is far too big and consumes far too much to expect such a bail out, if and when the time comes.

Prior to November 2nd the chances of anything being done about the debt was zero.  Today the odds are slightly better.

The tired ol’ left-wing knee-jerk response to debt is huge tax increases and the creation of new taxes.  Draining the economy of resources eliminates jobs and in turn reduces the tax-base.  If the GOP controlled both legislative and executive branches as the Democrats have for the past 2 years they would have responded with a standard knee-jerk reaction as well, tax reductions without addressing the essential issue of spending.  This year alone the Federal deficit climbed to an ungodly $1.5 TRILLION.

To Obama’s credit, the deficit commission was formed to find a solution to the problem.  After 10 months, the bipartisan commission co-chairs, Democrat Erskine Bowles and Republican Alan Simpson, announced their fears and proposed their solution.  Simpson described the debt issue saying, “This baby is lying there like a big stink bomb.” Bowles was dead on when he said, “We can’t grow our way out of this problem. We can’t tax our way out of this problem. We can’t even just cut our way out of this problem.”

You can’t remove a tumor without surgery (A Solution)

Alan Simpson (R) and Erskine Bowles (D) Co-chairmen of the Deficit Commission

Rather than wait for the full 18 member commission to release the official report, Bowles and Simpson presented their own recommendations. These call for harsh austerity.  They demand real, substantive, and painful changes.  If enacted, it seems realistic that our government and way of life, could be salvaged.  The problem is most Americans and apparently no one in the Federal government, understands the seriousness of the debt bomb.

Bowles-Simpson call for:

I benefit personally from the tax and interest deductions they are proposing to eliminate and I certainly don’t want to pay more SS benefits only to receive fewer of them and be forced to work longer.  But we have to face reality.  The U.S. will collapse after the debt exceeds 90% of GDP.  There is no argument about that, and only idiots deny it will eventually happen under our current policies.  Apparently, even President Obama believes this or the deficit commission would have never been formed.

The Reaction

So what are the chances anything will be done?  It seems like a safe bet to say nothing, or at best, very little.  Bowles and Simpson are attacking political sacred cows.

Democrats are unlikely to ever agree to any positive changes to Social Security because it is their political weapon.  With it they successfully generate fear and loathing.  Republicans are unlikely to support eliminating home mortgage deductions or increasing payroll taxes.  That would make them appear to be raising taxes, even though removing the mortgage deduction would allow for the reduction of the top income tax rate as well as lowering corporate taxes.  On the other side Democrats will never allow corporate taxes or the top income tax rate to go down as it is the centerpiece in their class-warfare strategy.

The current income tax code is perhaps the most complicated it has ever been.  It is certainly more complicated than it was in 1985, just before the Reagan-era simplification in 1986.  In 1998, a consensus of 69 economists found that the 1986 Tax Reform Act added about 1% per year to GDP. However, I doubt such facts will convince even a single Democrat, as the tax code is a perfect way to appear tough on those greedy rich bastards while creating complex secret loopholes for your rich friends and your own rich greedy ass.

How is Washington reacting Nancy Pelosi says the suggestions are, “simply unacceptable.”  AFL-CIO President Richard Trumka said the commission leaders have told working Americans to “drop dead.”  And Representative Janice Schakowsky (D-IL) said, “The gap between the rich and the middle class has never been greater in our country. These proposals will only make the situation worse.”

John Boehner had no comment, dodging the question.  Grover Norquist gave the Republican mantra, “Raising taxes is what politicians do when they don’t have the guts to govern.”

Tick, tick, tick, BOOM! (The Result?)

So we have Democrats unwilling to cut spending and Republicans unwilling to raise taxes – even if those increases are offset elsewhere.  And everyone up there is thinking about how they can push for the items they like while opposing the ones they don’t.

The present course is unsustainable.  It will lead to ruin for both rich and poor and certainly the biggest losers will be the middle-class, as we will be crushed.

Unfortunately doing nothing is an option.  It’s like having 500+ bomb diffuser rookies arguing over how to defuse a bomb, only agreeing to rotate it for a better view or moving a wire left or right.  Beside the bomb lies a cellphone connected to an expert screaming, “cut both the red and the blue wires!” But the voice cannot be heard above the arguing.

All the while the bomb continues ticking, right up until it explodes.

The debt bomb is ticking.

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    • Ben
    • November 23rd, 2010

    While the Dems don’t want to stop spending and raise taxes so they can continue that spending, the Reps want to stop spending, reduce the size of gov’t while also reducing taxes.

    As for the EU, and there’s a lesson in here, the EU nations will not get into the austerity mode they need to be in because of fears of civil unrest. If there was ever a time when the future of these nations lie in the hands of its people, it is now.

    Another point; Ireland needs to raise taxes to help pay down its debt but fears retaliation from Google, JPM Chase, etc, who threaten to pull operations out of Ireland, thus reducing its tax base and making the revenue problems worse.

    I’m sure the current generation of leaders are throwing their hands in the air, looking at the prospect of losing revenue-generating companies who are there in Ireland to enjoy the lowest corporate taxes around, and remarking to themselves about the insanity of the situation. On top of that, the leadership still has to return to its people to raise their taxes and cut services, the result of a reduced government.

    While the government is trying to act responsibly, the people are acting selfishly and will prove to be their undoing.

    I hope everyone realizes it is a situation of their own design. Once you give the populace access to the treasury, you’re going to play hell trying to wean them off.

    That’s the lesson.

  1. This is what happens when people realize they can raid the public treasury. They elect those who promise the most free stuff. And like drugs people get addicted to the free stuff. Take any of it away and the people riot.

    • Ben
    • November 25th, 2010

    They are just kicking the can down the road – they are just refinancing the loan, so to speak. Problem solved? No. They still need to get serious about cutting expenses, which none of the EU nations have done with the level of seriousness required by the situation. GB just had rioting because, after firing 500K gov’t workers (cutting back services) the gov’t tripled the cost of education. All over Europe, the socialist chickens have come home to roost and the populace does not like the taste of it at all. Italian students have occupied the Leaning Tower of Pisa and Rome’s Colosseum to protest education cuts and university reforms being considered by parliament.

    It’s what’s coming to America and like the EU dominoes, California will be the first domestic one to fall, followed quickly by New York.

    We can place the blame for all of this squarely on the shoulders of the American (and EU) voters, who fail time and time again to grasp the correct role of government.

    • Amen.

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