Banging the Drum for Default

Originally published at American Thinker

There’s been so much malarkey meted out by the media about the budget C.R., the government shutdown, and the debt ceiling that the average American can easily lose sight of the real issue, which is the federal debt. Even certain honest, trusted members of the media trot out “default” as though it were synonymous with not raising the debt ceiling by Oct. 17.

Actually, default is not paying the interest/principle on what one has borrowed. Current federal revenue is way more than enough to easily pay what we owe on federal notes, bills and bonds.

If the feds do indeed have enough revenue pouring in to meet their obligations, then actual default would be an act of volition, a decision by the president. The president would have decided to squander the full faith and credit of the nation. Such an action would be an impeachable offense.

The president tells us that the deficit has been cut in half. He’s right, but that’s only because it’s come down from astronomical levels. Despite having fallen, the deficit for fiscal 2013 is still far higher than any pre-Obama deficit. Indeed, the six deficits since the Democrats took over Congress in Jan. 2007 are by far the largest in history.

Two big reasons for the smaller deficit for the fiscal year that just ended are tax hikes and spending cuts; specifically, the income tax rate hikes on the wealthy, the end of the payroll tax holiday, and sequestration. But the Democrats want to end sequestration. If that were to happen with no off-setting cuts elsewhere, the deficit would be that much worse next year. (It may be worse anyway, due to the rollout of ObamaCare.) 

In “Obama’s Legacy: Debts And Deficits,” a recent article over at Cato’s Domain (not to be confused with Cato Institute), Michael Booth reports that in ten years the national debt is forecast to hit $24T. “When interest rates return to the long term average of 4.5%, as eventually they will from the artificially low rates today, interest payments on this massive federal debt will be $1 Trillion a year.” Booth then displays two contrasting graphs from the Congressional Budget Office projecting future deficits. The first graph is from 2008 and the second is the CBO’s most recent projection. The difference between the two graphs suggests that the young people who have championed Obama are economic illiterates. (Look carefully at that second graph, kids — that’s your future.)

How did America get in this sorry situation?

After losing congressional elections for twelve straight years, Democrats captured both houses of Congress in Nov. 2006.  Consequently, the Democrats became responsible for the federal budget and for federal spending at the beginning of the next fiscal year. On that day, Oct. 1, 2007, the public debt was about $5.057T. On Oct. 1, 2013, the public debt was $11.927T. So the public debt grew by $6.87T in exactly six years. (You can verify those figures here.)

When one sees debt clocks on TV soaring up to $17T, the figure presented shows the total national debt. But the public debt is the debt we should be worried about. The public debt is the debt we owe China and others. When the media talks about “default,” they should be talking about the public debt. Over the last six years, the total debt grew by a factor of 1.848. But the public debt, which is the real debt, the hard debt, the debt involved with default, grew by a factor of 2.358.

So over the last six years, the real debt grew on average 27+ percent faster than the debt displayed on those alarming national debt clocks you see on TV. (The debt on the debt clocks is like the official unemployment rate: an underestimation.)

Democrats refer to the continuing impasse in terms of “paying our bills.” The media let them get away with such rhetoric. But the whole point of budgets/appropriations is to decide what expenses the government is going to take on, what bills we’re going to incur. The feds aren’t required to continue spending money on budget items they can’t afford.

Former Speaker Nancy Pelosi on CNN declares: “The cupboard is bare. There’s [sic] no more cuts to make. It’s really important that people understand that.” That’s rich coming from the woman responsible for the largest deficits in history.

It’s amazing that when two sides in a dispute are at loggerheads, the media joins one side in blaming the other. The House passes a continuing resolution, sends it to the Senate, which doesn’t act on that C.R., and then the House is blamed for the shutdown.

The president tells us that if the federal government defaults, it would be “for the first time in history.” James Grant, editor of Grant’s Interest Rate Observer, might take issue with that. On Oct. 10 in the Washington Post, Grant wrote:

Hamilton’s dollar was defined as a little less than 1/20 of an ounce of gold. So were those of his successors, all the way up to the administration of Franklin D. Roosevelt. But in the whirlwind of the “first hundred days” of the New Deal, the dollar came in for redefinition. The country needed a cheaper and more abundant currency, FDR said. By and by, the dollar’s value was reduced to 1/35 of an ounce of gold.

By any fair definition, this was another default. Creditors both domestic and foreign had lent dollars weighing just what the Founders had said they should weigh. They expected to be repaid in identical money.

The reason D.C. Democrats and the media are throwing the word “default” around, is because they want to raise the debt ceiling high enough to get them beyond the 2014 elections. They’re trying to put the fear of God into folks so they can get everything they want. And they’re not willing to make any substantive spending cuts. With their trusty whore media backing them, they think they can have it all and not cut spending.

Forget about delaying ObamaCare, we should now pivot to spending cuts. Although the debt ceiling needs to be raised, Republicans shouldn’t raise it very high without real and immediate spending cuts. So raise the debt ceiling to get us through three more months, during which time we finally address spending, especially entitlements. If the Democrats won’t agree to that, then raise the debt ceiling for a month, or even a week. Speaker Boehner got us sequestration; maybe he can get some additional spending restraint.

Democrats cannot be trusted with our money. They cannot prioritize: every program is necessary; every employee essential. “There’s [sic] no more cuts to make.” The subtext of what the Democrats are saying, their subliminal message, is that there is nothing wrong with going further into debt. Actually, it’s monstrous, unpatriotic, to even consider not going further into debt. Indeed, it’s simply unthinkable that the federal government not go another trillion bucks deeper into debt over the next year.

The “cupboard is bare,” all right, and devoid of reason.