American Budget Insanity

Breaking News Alert
The New York Times
Saturday, July 23, 2011 — 4:05 PM EDT
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Boehner Says Work Has Begun on New Debt Deal to Cut $3 Trillion to $4 Trillion

Hoping to reassure markets in the wake of an angry breakdown in the federal budget negotiations, Congressional leaders raced Saturday to reach a new deficit-reduction agreement that Speaker John A. Boehner told colleagues could cut $3 trillion to $4 trillion in spending over 10 years.

“We are working, and I’m confident there will be resolution,” Mr. Boehner told fellow House Republicans on an afternoon conference call, according to participants. “There has to be.”

Mr. Boehner’s comments came a little more than a week before the federal government risks defaulting on its debts, a fate that could be avoided if Congress agrees to increase the $14.3 trillion debt ceiling..

I have been watching the U.S. Congressional political theatre with great amusement. Rest assured the U.S. will NOT default on its debt after the August 2 deadline because the U.S. ALREADY defaulted on its debt LONG AGO. I’ve highlighted the important points in the above New York Crimes news alert (it should be a crime to pass off such bullshit as news.) Let’s examine this so-called news item.

1) The current debt is well beyond $14.3 trillion. That is simply the “funded” debt and does not include over a $100 trillion in “un-funded” Social Security, Medicare, Medicaid and various off-budget obligations which are supposed to be paid with tax revenues which, by the way, are down 40%. So, how’s that working out then?

2) Cutting $3 to $4 trillion over 10 years is a fart in a windstorm. It amounts to $300 to $400 billion a year which doesn’t even cover the interest on the debt let alone reduce the increase in spending.

3) In other words, it does NOT reduce spending NOR even freeze spending; it’s just political theatre in preparation for next year’s election.

4) It doesn’t even cover the interest on the debt at CURRENT low interest rates which are as close to ZERO as it’s possible to get.

5) Furthermore, interest rates have nowhere to go but HIGHER as investors will shortly demand higher rates to cover increased risk as they come to realize that the U.S. is more broke than Greece which requires constant bailing out and there’s no one to bail out Uncle Sam. Higher interest rates will require even MORE spending in this endless debt spiral.

6) And most obvious of all: if cutting a few trillion over ten years would actually reduce the debt then why would they need to raise the debt ceiling?

So, rest assured, the political hacks will, at the last dramatic minute, reach a foregone conclusion, pass the required bill, pat themselves on the back, kick the can down the road, make the problem even worse in future and continue spending non-existent money that doesn’t even cover the interest let alone touch the principal.

So how’s that gonna work out do you think?

Gerold
July 23, 2011, 4:54 P.M.

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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