If you watched a bit of the Republican National Convention a few weeks ago you may have spotted the debt clock hanging in the convention hall like the
sword of Damocles over the country’s future. In fact, there were two debt
clocks in Tampa – the other one showed how the national debt increased just
during the period of the convention itself. Both clocks are scary. If you go to
www.usdebtclock.org you can see the
ever increasing numbers for yourself – they spin higher 24/7 like a clock on
fast forward, and not only for the national debt but for a lot of other things
too, like interest debt, student debt, and our debt to China. As of this writing, the national debt is
closing in fast on $16,000,000,000, up a trillion dollars just from November
2011. Today, deficits certainly do
matter, especially when the numbers are so mind-boggling.
Back in 2010, when the national debt was $12 trillion
(boosted by $2 trillion in stimulus spending by the Obama Administration, and
after TARP, two wars, and the Medicare Part D legislation – all unpaid for), I
wrote a column warning that the debt level was becoming unsustainable. Since
then the debt has only grown exponentially, the government has raised the debt
ceiling several more times, and the nation’s credit rating has been lowered by
one of the credit rating agencies – causing the S&P to plunge some
11-percent in 10 days even though the dollar, strengthened as a bulwark against
the wobbly Euro, remained the best safe haven available for investors.
Fast forward to the end of August 2012, just a year since
the Congress almost balked at raising the debt ceiling and thereby caused the
credit downgrade, and where are we? Facing what’s called the Fiscal Cliff come
January 2, 2013. That’s when the Bush tax cuts are due to expire, the payroll
tax deductions that Americans have enjoyed for the past two years will also expire,
and automatic cuts in government spending, totaling $1.2 trillion will go into
effect. And we will be bumping up against another need to raise the debt
ceiling, which could very well prompt another battle royal in Congress. Put all
that together and we have a certain return to recession.
Any possibility that a compromise deal between Democrats and
Republicans to avert the cliff can happen in time is considered remote. That’s because compromise is a dirty word in
Washington these days, and the November election must come first. Regardless of the outcome of the election,
there would be precious little time available until year’s end for a grand
bargain to be struck, and there are political reasons why both parties would
not be eager to appear to be caving into the demands of the other side.
What will most likely happen is that the Congress will kick
the debt can down the road into 2013, preserving the tax cuts and rolling back
the deal they put in place last year to finally deal with the deficit, which
was the trigger for those automatic government spending cuts. In forging that
deal Congress put a proverbial gun to its own head, but that’s a gun they can
just as well remove. In doing so they
will probably prompt a second lowering of the nation’s credit rating, which
will weigh again on the economy and cause the stock market to seesaw. Individual investors would be prudent to get
to the sidelines beforehand.
Economists calculate that should we go over the cliff the
effects on the deficit would be healthy – saving some $600 billion in 2013
alone. But it would plunge the fragile
economic recovery into a deep freeze.
The sensible solution of course, because something must be done about
the deficit monster and very soon, is for both sides to swallow hard and agree
to balanced concessions – on higher taxes and cuts also to domestic
programs. Libertarians and some Tea
Party types would like to see some cuts in defense spending too.
Situations like these require a grand compromise. The American people, who hold Congress in
pretty low esteem, would be grateful, and the country would be placed on a
sounder and healthier footing. That would steam a stronger recovery. But
reaching such a compromise requires tradeoffs and hard bargaining to deliver
the votes needed to pass both chambers. Sadly, that’s not likely at the moment,
when political leaders on both sides have been derided as not being able to
even deliver a pizza, never mind saving the country.
Correction: My recent column on the RI EDC contained
an error in identifying Saul Kaplan, a former head of EDC, with Michael Saul,
who worked at EDC during the 38 Studios period. It was Michael Saul and not
Saul Kaplan who inquired about a possible position with 38 Studios while
working at the EDC. I regret the mix-up and have expressed my apology to Mr.
Kaplan. Also, I misstated the wi-fi initiative I referenced to Mr. Kaplan.
That initiative to
make RI the first state to have border to border mobile wireless
infrastructure, which was seen as a boon to business. Unfortunately, the
initiative stalled, in no small part because of opposition by a powerful
carrier in the mobile wireless marketplace.
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