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Richard Larsen: Racing Towards a Fiscal Cliff

September 6th, 2012 by Halli

By Richard Larsen

Our U.S. Federal debt is reaching a tipping point. Just four years ago, economists feared that our public debt would reach 60% of the GDP by 2022. Failure to curtail spending, pass a budget, and piling on massive new spending has hurled us past that 60% benchmark twelve years earlier than feared. We passed the mark in 2010.

That 60% benchmark is critical, for it is recognized across the European Zone and developed nations as the “prudential limit” for public debt. And here we are, just two years later and our public debt is even greater. The public debt clock shows we’ll hit the spending limit of $16 trillion within the next couple of weeks, which means with a $15 trillion economy, we’re rapidly approaching the 107% mark of public debt to our GDP. For every $100 we spend, $41 of it is borrowed. All reasonable citizens must recognize the fact that we cannot continue this way.

Even that is an incomplete picture, as the total debt associated with unfunded liabilities associated with Social Security, Medicare, and Obamacare places our debt level between $55 and $80 trillion.

According to Joseph J. Minarik, Director of Research at Committee for Economic Development, “Today’s financial risk arises largely from U.S. fiscal misbehavior.” We did not have a budget passed by congress while Nancy Pelosi was Speaker, and the last two years the Senate has refused to pass one.

The President has presented his own “budget” to congress, but did not receive a single vote, even from his own party, because it was so out of touch with fiscal realities. Yet with his massive spending, from a $1.3 to $1.7 trillion deficit every year that he’s been president, our debt has skyrocketed.

Just four years ago Obama declared George Bush to be “irresponsible and unpatriotic” for $4 trillion in new debt in eight years. It must be more responsible and patriotic to run up $5 trillion in half the time!

The Simpson-Bowles Commission came up with recommendations to balance the budget in 12 years and reduce our debt load. The president ignored his own commission and has continued to spend as if there is no tomorrow. And there is no hint of an indication that the president has any plans for curtailing his spendthrift ways for the next four years.

The United States now has the seventh highest public debt burden among advanced nations, according to Minarik and the latest data. The countries ahead of us should sound familiar for their debt is destroying their economies: Greece, Iceland, Italy and Japan are worse off. We’ve even far surpassed Portugal. Minarik says without fiscal discipline, our politicians have placed us on course to “stumble into a financial meltdown.”

Minarick reveals, “In due time, U.S. public finances will be caught in a vicious cycle. Rising interest rates raise the federal government’s debt-service cost, which increases the risk premia on Treasury interest rates, which raises debt-service costs still further. Higher interest rates extend to private borrowing costs, which slows economic activity, which increases the federal government’s budget deficit. In another Catch-22 contradiction, the drop in economic activity is not cushioned by a fall in interest rates to match the fall in the demand for credit. Rather, the fall in activity triggers a massive growth of fear of default risk, and so interest rates rise rather than fall, accelerating the vicious cycle. Perhaps this crossing over in the effects on interest rates would constitute a true ‘tipping point.’”

Former Comptroller General of the United States, David M. Walker, appointed by President Clinton, agrees. He’s been sounding the clarion call of economic disaster for the nation if spending is not reined in, and politicians refuse to deal with fiscal realities of unabated spending. He describes America as a “sinking ship” in a sea of our own debt. He points out that, “The US ranks near the bottom of developed global economies in terms of financial stability and will stay there unless it addresses its burgeoning debt problems,” based on the Sovereign Fiscal Responsibility Index.

“We think it is important for the American people to understand where the United States is as compared to other countries with regard to fiscal responsibility and sustainability,” Walker said in a CNBC interview recently. He predicts that the country is rapidly heading towards a debt crisis that could come within the next two to three years if we continue on our present course.

Some may call this fear mongering, but it is the fiscal reality that we face as a nation today. We simply cannot go “Forward” on this same trajectory without collapsing the entire national economy under the weight of our debt, which is now $140,000 per taxpayer (mostly middle class). Is this the “fundamental transformation of America” that Obama has in mind? It’s our reality unless we change captains to navigate the fiscal obstacles ahead of us.

It’s time to put nation ahead of partisanship for everyone, Democrats, Republicans, and Independents. There are even those who claim to be “patriots,” who cling cult-like to a former presidential candidate. Any who claim to love this country, our founding documents, and our founding principles, who will, by voting for a third-party candidate, write in a candidate, or not voting at all, facilitate the election of the one with his foot on the spending gas pedal, are not worthy of the “patriot” appellation. They will be accomplices to the destruction of the very nation they feign fealty to if they put their “principles” ahead of national survival by failing to do all they can to prevent this otherwise inevitable destruction.

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Posted in Constitutional Issues, Guest Posts, National Sovereignty, Pocatello Issues, Politics in General, Presidential Politics, Taxes | No Comments »

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