Tag Archives: deficit

USA Debt Rating Downgrade to AA+ is from our failure to cut defense and entitlements

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S&P’s decision to downgrade the US debt rating from AAA to AA+ is very unwelcome news but it should not surprise anybody, especially in Washington where neither party has been willing to tackle the deficit or the debt in a responsible manner.

It’s time to cut the only two things in the budget that really matter – the bloated portions of Defense and Entitlements.    Even estimating (and then cutting back) the bloat at 10% – absurdly low given how recklessly this money is spent – we could solve all deficit and debt problems in less than a decade.   DO IT, DAMN IT!

The Tea Party’s was right that debt and deficit are major concerns, but their approach to solving the problem has been almost infantile, lacking in strategy as well as substance.    They won’t cut defense – clearly required to solve this problem unless you raise taxes which as they correctly note brings a host of other problems into the mix.   Defense spending is so high it’s become counterproductive, creating blowback and international tension which is mostly a function of our own reckless big spending in hostile territory.

One does not have to be an isolationist to see that it’s time for a much more strategic spending focus.   Troops can be paid well and protected – these portions need no cuts, but operations and maintenance budgets in each of the services are where the big money lies, and where the big cuts won’t create trouble for policy or troops.

The solution is pretty obvious to many of us out here in the real world, where two things are crystal clear:   1.  Entitlements are out of control.  The prosperity the USA has enjoyed for over a century as the kingpin of the  industrialized world is winding down in favor of spreading the wealth around the globe, especially to the developing countries of China and India.   This prosperity allowed us (and by “us” I mean everybody – from poor to rich) to enjoy health, welfare, education, and retirement benefits the rest of the world could only dream about.      Liberal middle class folks are whining too much about how they might lose benefits they never paid for – much of this in the form of “defined benefits” where their contributions won’t match their benefit so it’ll have to come from future taxpayers.   Social Security has this problem, but it’s easy to solve by lifting retirement age a few years for those who can afford the wait  OR doing a ” means test”  OR taxing higher income beneficiaries.   If we do nothing the Social Security trust fund will run out in under 20 years according to most estimates.      The fund is actually growing now but demographics in the form of fewer workers and more recipients will soon overwhelm the system.   Unlike a well managed system, Social Security has promised more benefits than incoming payments can support.

Summary:   Simple solution is to cut bloat in the two big ticket items of defense and entitlements.    Problem solved, AAA restored.  DO IT.

Bailout Blues + Red Ink = Spending Revolution Needed.

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Washington does not understand why taxpayers are so angry about the bailout.   Some pundits are calling this ignorance, but I think to the extent *anybody* can predict things taxpayers know pretty much what is going on here, and realize there is major hardship ahead whether or not the bailout moves forward as proposed, as a modified bailout, or does not happen at all.    Some of this is already reflected in the stagnant broader markets we’ve seen for the past few years, and some reflected today in the Dow’s drop of about 700 at the close.  But this is not a meltdown, suggesting to me that the rumors of total market meltdowns have been at least somewhat exaggerated.

Paul Samuelson noted today in an excellent article that we are basically seeing the bankruptcy of modern economics:

Our leaders are making up their responses from day to day because old ideas of how the economy works have failed them. These ideas were not necessarily wrong, but they’re grievously inadequate at the moment

The American experiment was spawned in large part as a revolution against military-inspired spending taxation from Britain.    Few today realize that the taxation levels of the 1770’s were so tiny by today’s standards that they would not raise a modern eyebrow, let alone spawn any kind of spending revolution.

Over the past 230 years times have changed and we now expect Government to tax us at what the founders would have seen as enormous and totally unacceptable rates, and spend *even more* than they take in, leading to a deficit so large it is in my view of greater economic concern – far greater – than the current recession (which will be getting a lot worse, bailout or not).

What would restore most taxpayer’s confidence?    Massive Government spending *cuts*, not massive Government spending as proposed in the bailout.

For most of the modern era Washington’s response to problems has been massive debt spending, pushing problems forward to future generations who’ll have to pay down our debt.   The Bailout was a similar response unless you accept the optimistic notion that all of that 700 billion will come back after the toxic assets were sold off by the Government.   Most likely based on my take some but not all will come back.