Our country is headed toward a real cliff beyond the so-called “fiscal cliff” that approaches on January 1 as automatic deep cuts in government spending and increased taxes kick in and drag the whole economy down, unless an agreement is made before or shortly after that date. A quick fix to avoid the fiscal cliff would not solve the problem because still looming would be unsustainable budget deficits and debt which has increased more than a trillion dollars ($1,000 billion) per year or 51 percent in the last four years from $10.7 trillion to $16.2 trillion or about $150,000 per family. Under George W. Bush, it increased 88 percent from $5.7 trillion in his eight years. ObamaCare, as now formulated, won’t help the deficit or the economy because of the expansion of Medicaid for the poor. So both parties are at fault.
This year’s budget deficit is about $1.1 trillion (one-third of the total budget of $3.5 trillion which is a very high 22.4 percent of gross domestic product = total value of all goods & services produced in a year = total national income of $15.6 trillion). The interest alone on the federal debt is $258 billion per year, making up 10.8 percent of federal revenues. It will be much higher once interest rates go up again. We owe two-thirds of the debt to American holders of treasury securities including the Federal Reserve Bank and one0-third of it or $5.4 trillion to foreign creditors, especially Communist China ($1.2 trillion = 7.1 percent), Japan ($1.1 trillion = 6.8 percent), and the oil exporting countries ($262 billion = 1.6 percent).
We just can’t keep borrowing one-third of the federal budget indefinitely. It’s impossible! Something has got to give. Yes, the U.S. Treasury can borrow from the Federal Reserve Bank by selling it bonds (IOUs) in exchange for printing up more money so to speak (also IOUs – “Federal Reserve Note” is written on every dollar bill). So the Federal Reserve Bank’s Balance Sheet has Treasury bonds (IOUs) as assets backing up our currency as liabilities (Federal Reserve Notes … IOUs). But more money chasing after the same amount of goods is a formula for eventual inflation, i.e., higher prices. We’ve already done too much of that which increases the money supply … creating money out of nothing as the dollar bill buys less and less.
Sooner or later, the credit of the U.S. Government will disappear. Our creditors will lend the Government less and less money and won’t renew their treasury securities that mature. After all, they know that the dollar will go down in value because of increased inflation and it will be worth less and less on the international markets. Can any family survive by rolling up credit card debt equal to a third of its income year after year, borrowing from one credit card to pay off the other? Of course, the family has to cut back drastically and do without things they are accustomed to having.
At this rate we are headed toward financial collapse which would mean runaway inflation and an almost worthless dollar that will be brutal toward everyone with savings and fixed income through pensions and annuities. It happened to Germany twice in its history. To stabilize such an economy severe austerity measures (a big shock) would be necessary, leading to much higher taxes and deep cuts in government spending … much less in defense, government programs, entitlements and health care for the poor, etc., low investment, business bankruptcies, and a deep recession if not a depression with massive unemployment and perhaps social chaos. Italy, Ireland, Spain, Portugal, and especially Greece are hurting. Austerity programs in the latter, for example, have caused riots.
The current fiscal cliff pales in comparison to the big cliff. To avoid the latter, it is crucial that we formulate a long-range strategy, such as gradually increasing austerity or a long series of mini-shocks so that the economy can adjust. A quick fix band aid won’t cut it. It only postpones the day of reckoning and kicks the can of worms down the road to the next generation. In that way we’ll create bigger problems in the long run more difficult to solve … perhaps a monster incapable of solution.
Cooperation. There’s no way that the people of the United States will ever be able to pay back the debt, but balancing the budget with a small surplus for the debt would stabilize the economy. It’s a huge task in our entitlement society to balance the budget, let alone have money left over to pay off the debt. To prevent our country from going over the precipice, the victors and the vanquished in this election must reach out to each other, compromise, and work together for the common good. If the ship of state sinks, Democrats and Republicans, all of us will go down with it.
To prevent the worst, everyone — conservatives and liberals — must work together wherever possible for the good of the country. As they should, liberals care about the poor, but expect Big Government to do it all. Responsible conservatives also care about the poor, but through the churches and faith-based charities, community organizations, state and local governments, individual and business social responsibility.
There’s still time to right the ship. Republicans and Democrats in Congress must stop the rigid gridlock and be objective and flexible. To solve our debt problem, a lot of sacrifice will be required. We’ll have to drastically cut spending and social programs. There are agonizing choices as to where to make cuts … damned if we do; damned if we don’t. People with different interests will scream: “not my benefits; not my program; not my tax deductions (as for charitable donations); not my tax credits”. There’s a limit to how much spending can be cut (i.e., discretionary spending); most is fixed (interest on the debt, Social Security, Medicare, pension payments, etc.). So, let’s face it … the T word. We’ll have to pay more taxes. Both sides must yield to compromise.
With cut government programs for the poor, we can’t leave the needy hanging out to dry. We’ll have to do much more as individuals and businesses with our time, talent and treasure. We’ll have to give more of our time to the church and community in volunteer work. We’ll have to be more generous in donating to charities. Churches will have to do more. Community organizations will have to do more. Businesses will have to be more involved than ever with the community and give back more of their resources. After all, the citizens of the community are the life blood, support, and sustenance of every business as employees, customers, lenders through their bank savings, and as investors. Yes, it’s all about sacrifice for the common good … all of us.
We can alleviate the debt crisis if we as individuals and as a nation make sacrifices now. The longer we wait, the worse it will get. Austerity when a financial collapse is imminent would be much, much worse.
Pray for the good of the country that these fears are not realized. We must right the ship of state before it goes over the falls. He won; we lost, but we can help him to become a successful president for the common good of the country. It’s not important who gets the credit.