Is Obama Really Serious about Debt Reduction?

G’Day!

The answer is apparently “NO”, based on the 1st & 2nd Obama budget proposals for 2012 and the Democrats tooth-and-nail fight before agreeing to a miniscule and questionable $38 billion (a mere 3-4 days) in spending cuts this year from a current projected deficit of $1.7 trillion for 2011! However, they are serious about political posturing, fear mongering, and demagoguery against Paul Ryan and the Republicans for even proposing an earnest plan to resolve the crisis. As indicated last week in “Obama Ignores Bowles-Simpson Debt Reduction Commission – AGAIN!”, their answer is SPEND, SPEND, SPEND and TAX the success of the real investors and hard-working small businesses who are the genuine creators of economic growth, job creation, and wealth in our country. Their only solution is to tax the “Rich” when approximately 45% of the households pay no federal income taxes at all and the “Rich” (Top 2%, incomes over $250,000) already pay over 40% of the total! Tax reform is necessary but Obama’s proposals are neither the serious leadership our country needs nor even a nod of recognition for the fiscal and debt crises we face.

The Fed can’t print enough money to solve this problem without major devaluation of our currency and significant increases in inflation and interest rates. History has repeatedly shown that excessive government spending financed by debt combined with extreme increases in money supply usually results in a collapsed economy and crisis in government. Many other nations have tried this and failed miserably. For example, France tried this before and during the French Revolution and it ultimately led to the collapse of their currency, their economy, the failure of their government, and the rise of Napoleon as dictator. Germany tried this after WWI and it lead to the collapse of their currency, their economy, the failure of their government, and the rise of Hitler as dictator. For more information about financial crises see, “This Time is Different: Eight Centuries of Financial Folly”, by Carmen M. Reinhart & Kenneth S. Rogoff, who analyze financial crises in 66 countries in their 2009 book. Regarding “This Time is Different” they conclude, “It almost never is.”

America is not immune to the workings of economic forces and cannot continue as a great nation if we do not put our bloated and inefficient government spending on a sound fiscal path, cap government spending as a percentage of GDP, and appropriately modify (not eliminate) our currently unsustainable entitlement and social programs for long-term viability. Recent history suggests the sustainable level for federal government spending has been approximately 20% of GDP. Federal government spending was 20.7% of GDP in 2008, 23.8% in 2010, and is expected to be over 25.5% in the current year (the highest level in history, other than WWII). This is a +5% increase in the size of our federal government in the first 2-3 years of the Obama Administration! This is madness and must be corrected!

There is no question that many (but not all) government social programs are desirable; they are just not affordable or consistent with a vibrant, innovative, expanding economy, and rising standard of living for the American people. As I said last week, “We cannot continue as a great nation if we base economic policies on the failed socialistic principles of taking from those who work hard and succeed and redistributing their earnings to those who don’t.” Most other developed nations, including Russia, have learned the incentives and benefits of free market capitalism and our government needs to relearn them as well.

If President Obama was sincere about debt reduction, he would be listening to and acting on the recommendations from the bipartisan Debt Reduction Commission he established. The Bowles-Simpson Co-Chairs’ Proposal outlines how to achieve results through comprehensive and specific actions to improve revenues through tax reform, to reduce government discretionary spending including defense, and to reduce entitlement programs through healthcare and social security reform. All of these reforms: taxation, discretionary spending, entitlements for healthcare and social security are essential to a comprehensive solution for our country’s problems and, if we are to succeed, ALL must be addressed.

Our fiscal and debt problems are correctable if our government seriously addresses the needs of the country and not their political desires for reelection. If Obama, Democrats, and Republicans can’t agree on comprehensive legislation to reduce government spending and bring the size of government back to sustainable levels consistent with a growth economy, our country faces a potential sovereign debt crisis similar to those described in the book by Reinhart & Rogoff referenced above. I agree with Standard & Poor’s downgrading of the “outlook” for US Debt based on the political turmoil in our Government. The outlook for a government solution before the 2012 election is not good and I don’t believe Obama and the Democrats want a real solution. Currently, it appears Obama and the Democrats believe the American people are not intelligent enough to see the need for real government spending reform and are too self-interested to revise the social programs to sustainable levels. I do not agree with this view. I believe the American people are intelligent and don’t want to leave to future generations of Americans a damaged economy with an authoritarian bureaucratic government controlling our lives.

In my first post on this website, “Big Government IS Our Problem!”, I described in more detail the current Administration’s trend toward big government collectivism and the dangerous omens it portends for the future of our lives and our nation. In the 2 months since that posting, the situation has become worse and the socialist agenda of our President and the Democrats has become very clear. They do not appear to be serious about debt reduction or reducing government spending. If we are to have a successful and prosperous country in the future, we must take back our country and reestablish the principles of limited government, free markets, individual liberties, and sound fiscal & monetary policies. Get “Big Brother” out of the way and off our backs, reform taxation & spending, and our economy will recover faster and the future of our nation will be assured.

The Old Guy PhD

 

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