Posted on 06/29/2011 1:16:04 PM PDT by Kaslin
The chatter today has been all about Lawrence Lindsey’s WSJ column about our dire fiscal situation. Excuse me — the meaningful chatter. The meaningless chatter has been about Michele Bachmann, and whether she’s the Gaffe-O-Matic or merely gaffetastic. After watching her embarrassing campaign launch yesterday, I can’t say I much care. Honestly, it was the worst GOP presidential announcement since the last one. Bachmann and Jon Huntsman might turn out to be the Dueling Flame-outs, bookending the left and right of the party.
But I digress, and we have serious business to cover. What Lindsey says about our spending problem comes down to: We are so screwed.
Some facts and figures for you:
The president’s budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president’s forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion. That is the equivalent of all of the 10-year savings in Congressman Paul Ryan’s budget, passed by the House in April, or in the Bowles-Simpson budget plan.
Here’s what I got out of that: If the Ryan or Bowles-Simpson budgets were to become law, our economy would quickly right itself — and the resulting increase in interest rates would eradicate all the savings.
Did you get that? Without seriously drastic cuts — cuts that would make Paul Ryan blanch — we can’t fix this economy without wrecking the government. Or maybe it’s the other way around.
Can we tax our way out? Back to Lindsey:
The tax-the-rich proposals of the Obama administration raise about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast. The whole $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years.
Clinton-era tax rates won’t even begin to cover the spending problem. Not even close.
That leaves us with three possible outs: Cut the budget to the bone, hyperinflate away our debts, or default.
The most serious budget-cutter we have, Congressman Paul Ryan, is not nearly serious enough about the disaster we face. Or if he is serious, he doesn’t have enough of his party backing him up. And even if he had that, Ryan still would face a public too uninformed to understand or tolerate what must be done.
Option One, in other words, is off the table. Ain’t. Gonna. Happen.
So how about Option Two, Hyperinflation?
Inflation only as high as eight or ten percent is harmful to a nation’s economy, its savings, and even its social fabric. Hyperinflation destroys all of those things. It’s no remedy; it’s a cure worse than the disease.
That leaves us with Option Three: Default. Simply put, the government of the United States simply refuses to honor its debt obligations. It’s called “sovereign default” because you can’t take the government to its own courts to make it pay up.
Default would be terrible. The dollar would cease to act as the world’s reserve currency and that inflation we’ve spent the last forty years exporting to the rest of the world, would come flooding back to our shores all at once. Can you imagine how expensive a barrel of oil would be, if we had to scrounge up enough euro or yuan from our meager reserves, to pay for one?
And what about our budget? It would still be seriously out-of-whack — but Washington would lose the ability to borrow from overseas to cover the shortfall. Washington would either have to balance the budget — and right then, buster! — or start rolling the printing presses again. Call it “The Mother of All Quantitative Easings.”
Or just call it Option Two. We’re back to hyperinflation.
The way I see it right now, default still might be our least-bad option. Because default doesn’t necessarily lead to hyperinflation. Not if three things happen. We’ll call it the VodkaPundit Plan for Putting Washington Through Chapter 11. It goes like this:
1. Immediate cuts to spending.
2. A long-term plan to keep spending in line is enacted. (A glide-down path, along with maybe a balanced budget amendment.)
3. Hike interest rates. (To protect the dollar and give the middle class a reason again to save and investors a reason to invest. And also because “free” money makes people stupid.)
The first item is going to happen no matter what; we’re simply out of money. The second item is a necessary step to reassuring jilted creditors that maybe someday they can trust us again. And we are so deep in the hole that the third item might be possible only after we’ve defaulted. Lindsey never made that point in his piece, but it seems perfectly clear: Since we can’t even afford to pay what we already owe, default is looking like our least-bad option.
Not that I’m advocating default. I still think it would probably lead to hyperinflation. A government too paralyzed by cowardice to step out of the way of a moving train, probably doesn’t have the balls to make the hard choices my plan would entail.
If anyone can think of another way out, I’m all ears.
A default and immediate bankruptcy would be better than anotherr Package Deal.
I think we are going to default. There is no way out of $14 trillion soon to be $16 trillion in debt. We can never pay it back. Just like Greece. They keep agreeing to an austerity package and get another handout from Germany and then in a few mos they are in default again. Thats us in a couple of years.
As for default, we need new leadership in all levels of politics, business and academia, so bring it on. It will be an opportunity for better leaders to rebuild our country, which has been soiled by “progressives” from various parties.
Loyal Americans should prepare.
Not years, months.
You could be right.
At this point I don’t see how we can avoid the loss of international confidence in the dollar. If we were to replace 0, Bernanke, and the others with competent people tomorrow, it would already be too late. There is simply no way we can survive a deficit this large. Our best hope now is to pray that the American electorate sees reason after the economic collapse and America rises again from the ashes of her former self.
Screw the alternatives the Imposter-in-Chief has presented. Instead of dropping Scholarships, NWS or FDA food inspections how bout decimating the IRS, the food stamp program (EBT for our poor stigmatized no-goods), the DHS, the TSA or HUD/Education or a myriad of other damned worthless loser programs. I want to see it crash and let the chips fall. Real people will pick up the pieces after the rioting urbanites have finally been re-calibrated on their worth and effect on the rest of this country. We’ve prepared; they’ve leeched.
You might consider Ron Paul. The GOP likes all those big government agencies. They get to run them every few years. The 2 Party system is such a scam.
Horrors. We might have to trade with things of actual value. Like work. Obamabucks might soon have all the cash value of a Camel Cupon.
Too libertarian for me....while I’d decimate un-needed agencies, there are things like Defense, ethics & morals, and other worthwhile facets of traditional American society that I’d like to keep. We just need some real bad Chemo, Radiation, excision and a strict dietary regimen of we-can’t-spend-no-money-on-worthless-shits.
I do not think it is constitutional to default. Maybe a cut to bare bones government and a 50 year mortgage.
Not gonna happen with the Rats and GOP entrenched in both houses and the courts. We need a radical executive like Paul to do battle with them. The executive branch can do a lot real fast.
You’re wasting your time with me on Ron Paul.. I’d advise you to try to convert someone less principled.
I’ve agreed with much that you wrote and understand the attraction to Ron Paul, although I disagree with supporting him. But have a look at the “Addendum” (free video) in the second of the following.
Zeitgeist
http://www.archive.org/details/ZeitgeistTheMovie
Zeitgeist: Addendum (2008)
http://www.archive.org/details/Zeitgeist.Addendum
After watching “Addendum” and seeing the many calls to support Ron Paul in that, go to the “Venus Project” to see that they’re about (”resource-based” world economy with all the world’s people owning the resources, and so on).
Then you’ll know the truth. BTW, anarchists paved the way for communist organizations during Europe’s decades past.
OK but not a GOP or RAT. To be nominated by them is to be compromised.
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