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Debt Ceiling Debate Is Political Theater   July 12th, 2011
There's nothing wrong with a long-term plan, but we need immediate cuts       

 
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Whether it's $4 trillion or $2 trillion in spending cuts, all indications are that we're talking about phantom long-term spending cuts for a very real immediate increase in the debt ceiling. This potentially spells fiscal disaster for America.

Remember about a month ago when Speaker Boehner seemed to be playing hardball?

A credible agreement means the spending cuts must exceed the debt limit increase. The White House needs to get serious right now about dealing with our deficit and debt.

It was very simple to understand: If the president wanted to raise the debt ceiling by a trillion, there would have to be a trillion in spending cuts. The president could decide how much to approve in spending cuts with the stipulation that that same amount was going to be how much the debt ceiling would be increased.

Unfortunately, there have been "caveats."

First, to the real world, a trillion in spending cuts would imply that we'd spend a trillion less than we're spending now. Yet we quickly learned that the spending cuts would likely be phony. The spending cuts wouldn't be actual cuts, but would be reductions in the baseline increases of the federal budget, or would include reductions in spending that everyone already expected to be cut anyway.

But, probably just as scandalously, it appears that all spending cuts are being measured over decade-long periods. So if Obama wants to increase the debt ceiling by $2 trillion this month, spending would need to be reduced by $2 trillion over ten years.

A dollar-for-dollar deal that originally sounded easy to understand and had some decent teeth now sounds like another Republican negotiating failure.

A dollar-for-dollar increase in the debt ceiling should be accompanied by corresponding spending cuts over the very short term. Perhaps not full cuts of the entire size in a single year, but certainly over no more than the next two or three years... with the cuts being very front-ended so they happen very soon and demonstrate to the markets that these are real measures that are being implemented.

But a dollar-for-dollar increase in the debt ceiling this year that is "paid for" over the course of a decade is absurd.

First, in classic political form, there's no guarantee that future presidents or Congresses will abide by the deal. Essentially, in return for a $2 trillion increase in the debt ceiling in the next month, the Congress and the president are promising that they'll reduce $2 trillion on spending over a decade... even though we may have a new president next year, and will have a new Congress every two years... and future presidents and futures Congresses may not choose to abide by deals made years (or even a decade) earlier.

Second, even if the actual decade-long plan is respected by future politicians, it's completely inadequate. The current negotiations seem to be in regards to deals of $2 to $4 trillion over a decade. That amounts to an average of $200 - $400 billion in reductions per year. A few years ago that would have been fantastic. But today, with deficits hovering in the neighborhood of $1.5 trillion, even the more aggressive $4 trillion plan would mean that we'd still be running deficits of over a trillion per year.

This is unacceptable because our problem is the deficit. Even though our national debt stands at $14.3 trillion, we actually can deal with that as long as we don't add to it.

But we cannot sustain trillion-dollar annual deficits much longer. We simply cannot continue to borrow over a trillion dollars per year, every year, forever. We've already pushed the world to the brink by realizing the world doesn't have that much money to loan us--hence the reason we're printing dollars.

So the problem with a decade-long plan--aside from the fact that it might never actually happen--is that we need spending cuts now. Not ten years from now. We could come up with an agreement--even one that we honestly plan to implement--that promises to cut annual spending by $3 trillion ten years from now... and it won't make a difference because we'll have had a debt crisis and gone bankrupt long before then.

The only way to reduce our trillion-dollar deficits which are an immediate threat to our economy is to actually cut spending now.

Regardless of whether it's $2 trillion or $4 trillion and whether or not there are tax increases, the reality is that it won't do anything to avoid our impending fiscal disaster. The cuts are simply inadequate even if they're real.

And, as such, every indication is that the current debt ceiling negotiations are simply political theater. Or, perhaps, those doing the negotiating still don't understand the critical situation in which we find ourselves.

I hope I'm wrong. I hope something significant comes out of this that makes significant cuts very soon.

Otherwise, I think we're in trouble.

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