Everyone is talking about the federal debt ceiling and the ramifications if a default should occur. Sorting through all the political rhetoric is difficult. For instance, one would have expected the U.S. dollar to take a hit this week, but the European debt crisis (Greece is the first member forced to face reality, but other European countries are at the tipping point as well), actually drove the dollar higher this week. If anything, the world’s money flow into U.S. treasuries is increasing.
To understand the debt ceiling debate/debacle, one must first understand that this issue is largely about positioning for the 2012 elections. While everyone talks about the importance of winning over independents, both sides believe this election will ultimately be determined by voter turnout. Thus, generating enthusiasm in one’s party base is very important.
Republicans are trying to make the case that after decades of failing to bring fiscal sanity to Washington, they are finally serious and can be relied on to rein in government spending. Meanwhile, Democrats want to make the case that if you want to protect entitlements, environmental protections, and the like, you’d better vote for them.
Sadly, however, these talking points are red herrings. The cuts being discussed – and even characterized as draconian – aren’t even real cuts. They’re simply decreases in the growth of spending. Entitlements, which are growing at an incredible rate and make up a huge portion of the budget, haven’t been seriously addressed.
For instance, the increase in the debt ceiling that is under discussion would take effect immediately, but the proposed cuts are minimal in comparison to the problem and are spread out over 10 years. While it may be true that the deficit might not grow as fast going forward as it has the last three years, these measures don’t get the federal government anywhere close to balancing a budget.
Even the argument about a potential downgrade in the nation’s credit rating isn’t genuine. The U.S. government has already been downgraded by several agencies, while others have indicated that a $4-trillion spending decrease would be needed to avoid a downgrade.
The debt ceiling is a short-term issue being used as a political posturing tool and/or leverage to force the nation to address long-term issues. In the end, it is all about posturing because neither side is close to addressing the real problem.
Elections are indeed important. Plus, as the two major parties move away from center and more left and right, this coming election has become, in essence, a battle for the future of our country. In our two-party system, that means virtually all policy decisions will be shaped by the election results of 2012.
If we end up with one party that controls the White House and another that controls both houses of Congress, we may actually see some compromise. When Democrats controlled the White House and both Houses of Congress, it was their agenda that dominated. But, with control split today of the House and Senate, Congress is incapable of doing anything. Thus, the power ends up in the White House.
Sadly, however, this White House has failed to lead, never offering a proposal of its own. President Obama agreed to a deal last week, but buckled under pressure from the left and added $400 billion in additional taxes. The Senate version has more tax increases than the House plan, and bigger spending cuts, but the cuts are largely backend-loaded and thus less likely to be realized.
The reality is there isn’t much difference in the competing proposals – as none of them address the real issues. They’re just political instruments designed to position the parties for the 2012 election.