July 4, 2011
The United States does not have to default on its
debt, and the social security and Medicare checks can go out even if Republicans
and President Obama cannot strike a deal to raise the debt ceiling by August
Even though the government cannot borrow additional money, it still
has tax revenues equal to about 55 percent of expenses — $2.2 trillion against
expenses equal to about $3.8 trillion for a $1.6 trillion deficit. With those
tax revenues, Washington can fund interest on the national debt, social
security, Medicaid, and crucial national defense responsibilities. With the
interest on the debt honored, the government can sell new bonds to replace bonds
that come due without piercing the statutory debt limit.
benefits to seniors and defense would absorb virtually all tax revenues. It
would appear the other functions of government would have to shut down, but the
Administration has other options.
Often overlooked, the Treasury can
print money to pay its bills. Before you gasp that Washington would be flooding
the world with greenbacks — it doesn’t have to be.
The Federal Reserve
holds on its balance sheet about $2.6 trillion in securities, mostly Treasury
bonds, which it could sell to absorb the money the Treasury prints to pay its
bills. At $1.6 trillion a year, that could keep the government running past the
Also, since 2007, government spending has jumped $1.1
trillion but only $200 billion was needed to cover inflation — the $900 billion
additional was new programs and benefits and higher pay. That has increased
federal spending’s share of GDP from 19.6 percent to more than 25
Temporarily, slicing that additional government spending by $450
billion, by executive order, would likely stand up in court as an emergency
measure. Especially if President Obama and Secretary Boehner sat down and did a
deal, alone and with no help from their partisan friends but if
It would be good politics for both sides — either the
President is right and Americans would see how painful it is to cut government
that much, or Republican would be able to point that we are better
The Treasury would have to print about $1.2 trillion a year in new
money, and the Fed would sell an equal amount of securities from its balance
sheet; however that maneuver would take us until a new Congress is seated and a
reelected President Obama or his successor has a clear mandate.
you say this is kicking the can again, consider that in 2012, both the President
and his opponent would have to table specific alternatives for slashing the
deficit and restoring normal operations, and the winner would emerge with a
mandate for his plan.
Right now, neither side is tabling credible plans.
The president’s taxes on the rich and other schemes would only slash at best
$150 billion annually from the $1.6 trillion deficit, and the Republicans about
a similar amount in spending cuts they have managed to propose.
side is talking about harnessing the rapidly rising prices the government pays
for health care — both sides just talk about trimming benefits a bit or the
pain of it.
The United States pays double, or more, than European
governments for drugs, and suffers from large disadvantages in insurance
administration, hospital efficiency and tort costs. Regulating those prices is
tar baby no one in Congress or the White House wants to put his arms around —
but we are not getting out of this mess without doing so.
retirement ages for social security and the vast array of federal pensions, and
state pensions the federal government indirectly helps finance.
absence of frank discussion of financing options beyond August 2 is the fault of
two men. Though Treasury Secretary Geithner serves at the pleasure of the
President, and Fed Chairman Bernanke must answer frequently to Congress, both
men have a responsibility to articulate the genuine budget and economic
challenges before the nation, and both men can easily find other satisfying and
better paying jobs in a pinch.
In similar crises, past cabinet members
have stepped up — consider the conduct of senior Justice Officials in the last
days of the Nixon Administration, and Alan Greenspan was not afraid to talk
frankly about federal policies.
Secretary Geithner needs to draft plans
to keep the government going and be quietly frank with political leaders about
those plans. And, Chairman Bernanke would then concur with how the Fed can
Sadly Geithner and Bernanke are shirking responsibilities.
Geithner’s substantive shortcomings are widely speculated; however, Mr. Bernanke
is a bright man and has no alibis to offer.
the United States was born on July 4th, 1776 according to http://en.wikipedia.org/wiki/Usa
July 4th, 1776
7 + 4 +2+0+1+1 = 15 = the United States’ personal year (from July 4th, 2011 to July 3rd, 2012) = Taxes. Spending. Wars.
15 year + 7 (July) = 22 = USA’s personal month (from July 4th, 2011 to August 3rd, 2011) = Like a three ring circus.
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