Debt and Insensibility in Modern-day America

[J.O.]

These people are our major trading partners. The deeper they dig, the closer we get to the precipice.

Neil Macdonald: Debt and insensibility in modern-day America

By Neil Macdonald, CBC News

Posted: May 26, 2011 7:33 PM ET

Last Updated: May 26, 2011 7:33 PM ET

Donald Trump might be an obnoxious buffoon, and his short campaign for the Republican presidential nomination a publicity stunt of Trumpian proportions, but you have to hand it to him: he knows how to get Americans' attention.

More to the point, he knows what they want to hear.

Right until he dropped out of the race, Trump was telling reporters that he was absolutely opposed to raising the federal debt ceiling. That is a legislated cap that now stands at $14.3 trillion, and the government is just about there.

By Aug. 2, the Treasury Department now says, the debt will exceed $14.3 trillion and unless the ceiling is raised by Congress, Washington will be unable to borrow any more money to finance new spending or service its monumental debt.

Meaning the U.S. would no longer be able to make interest payments on its bonds. Meaning it would default.

Which of course is lunacy. The U.S. treasury bill stands as the safest investment in the world. Institutions, individuals and governments worldwide buy T-bills for that very reason.

To default would cause global financial panic. It would hit the dollar, hard, and have incalculable consequences for the operation of America's government and private sector.

It could effectively trigger a run on the U.S. treasury itself.

Yeah, yeah, yeah, said Trump. Hooey.

"I don't think you have to default," he told a White House reporter. "You're going to have to make a deal someplace."

In other words, Trump would tell all the chumps who bought American debt that, sorry, you took the risk, and the interest payments stop on Tuesday.

If you want to salvage your dough, you'd better be prepared to negotiate.

Loopy-nomics

If that sounds crazy, it's because it is. But it fits in perfectly with what so many Americans believe: Debt is something you negotiate your way out of, not something you necessarily have to repay.

Watch commercial TV in this country for a few hours and you'll see what I mean. It's strewn with advertisements for companies that claim they'll "stand up to your creditors."

Owe more than $10,000 in back taxes? Hire us and we'll negotiate with the IRS for you. You might only have to pay a fraction of what you owe!

Big credit card bills? Hire us and we'll deal with those awful banks. We may persuade them to forgive some debt!

Can't pay your mortgage? Hire us and we'll negotiate a "principal reduction." There are even government agencies to help with that one.

Try Googling "personal debt negotiate reduction" and look at the number of hits. Seven million plus.

Pair this thinking with the widespread opposition to any further government borrowing and Trump's make-a-deal idea is crack for the masses.

A new Washington Post poll, in fact, just suggested Americans are much more frightened at the prospect of more government debt than they are with the prospect of default, and the cataclysmic disruption that would follow.

Now, Trump, of course, knows he'll never actually have to deal with the problem. But some of the people who do have that responsibility are sounding nearly as loopy.

Republican Senator Rand Paul, a recently elected Tea Party favourite, would solve the debt crisis by basically dismantling government.

Michelle Bachmann, a Republican congresswoman from Minnesota who is contemplating a long-shot run at the presidency, seems to hold more or less the same view.

Even more worrisome, the Republican establishment, fearing the fiscal fundamentalist crowd, isn't behaving much more responsibly. Tea Party adherents are absolutely against raising the debt limit and the Republicans, who happily authorized raising the ceiling every time George W. Bush asked them to, are suddenly threatening not to.

This won't hurt a bit

House Speaker John Boehner, addressing the Economic Club of New York this week, repeated the Republican sacrament that the debt can and will be conquered without a penny of new taxes.

Republicans consider Americans, the most lightly taxed citizenry in the developed world, to be terribly overtaxed already.

Despite near-consensus among economists (and even moderate Rebublicans) that only a combination of higher taxes and spending cuts can even begin to solve the mess, Boehner told his audience that that is just a myth.

Massive spending cuts and entrenching low tax cuts permanently, goes the Republican argument, will somehow goose such wild economic growth that government revenues will gush in and all will be well again.

Like Trump, Boehner demonstrated a keen sense of what Americans want to hear.

Two-thirds of the way through his speech, he uttered this howler: "Now there's another myth I need to address. It's the myth that our debt challenges require pain."

Now, none of this is to say that Democrats are much better.

Every economist here knows nothing can really be accomplished until the so-called "entitlements" Medicare, Social Security and Medicaid are brought under control.

Those programs are set to balloon by trillions of dollars and are severely underfunded.

Barack Obama and the Democrats, understanding this, have nonetheless punted. Evidently they also understand that as much as Americans desire cost-cutting, they desire their entitlements even more.

The Republicans, at least, have a plan. They would basically privatize Medicare, offering people vouchers toward private health coverage, rather than open-ended treatment at government expense. (Of course, this would also vastly enrich the private health insurers who tend to support Republican election campaigns.)

But as soon as the plan was rolled out, Republican members of Congress began facing angry crowds back home and the party is now backing away.

You might think this would open the field for the Democrats to offer a sensible alternative. Instead, they are scheming about how to hammer the Republicans with their medicare privatization idea during next year's election campaign. But really, did anyone really think politicians in a country that is more or less constantly in election mode would assert leadership and tell the public the hard truths?

Or does the fault lie with a public that's used to running up debt and then walking away from it whenever it can?

Voters who demand that everything be cut except anything that benefits them. A citizenry that expects rich government services AND low taxes. Rugged individualists who profess to loathe socialism, then effectively demand the state backstop them at every turn.

The frightening thing is how deeply everyone else on the planet is invested in America's debt. It sure scares me.

[mrlupin]

Great article J.O.

Éric