God bless Standard & Poor’s!
In a patriotic act of tough love, the Wall Street bond-rating agency on Friday evening downgraded America’s sovereign debt one notch for the first time since it was granted in 1941 — from its sterling AAA credit rating to AA+. As S&P explained, “The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”
Naturally, this came as a shock to America’s hapless Treasury secretary, Timothy Geithner. “No risk of that,” Geithner specifically predicted about an S&P downgrade last April 19 on the Fox Business Network. “No risk.”
In the short term, this unprecedented news will hammer national prestige, hike interest rates, and heap short-term agony on an already achy nation. However, this startling development may supply the face-down-in-the-gutter moment that Washington’s bipartisan spendaholics desperately need to hit rock bottom, grow up, and enter rehab. Alas, everything else has failed during the Bush-Obama era of the ever-expanding state.
Consider Washington’s latest fiscal flop. There is plenty to dislike about the recently enacted bipartisan deal to cut spending and reduce the national debt. For starters, it neither cuts spending nor reduces the national debt. After weeks of federal handwringing, taxpayers should hope that our masters in Washington become serious about slashing spending. If not, this republic will implode, not sometime on “the children,” but soon — atop today’s struggling adults.
“The budget deal doesn’t cut federal spending at all,” Cato Institute analyst Chris Edwards explains. “The ‘cuts’ in the deal are only cuts from the Congressional Budget Office’s ‘baseline,’ which is a Washington construct of ever-rising spending. . . . The federal government will still run a deficit of $1 trillion next year. This deal will ‘cut’ the 2012 budget of $3.6 trillion by just $22 billion, or less than 1 percent.”
Edwards observes that Washington’s “cuts” rarely reduce anything. President Obama, for instance, proposed boosting the Corporation for Public Broadcasting’s funding from $432 million this year to $451 million in FY 2012. Therefore, handing CPB $441 million would constitute a $10 million “cut” in Washington, versus a $9 million increase in the real world.
Source: Cato Institute
Thus, as Edwards vividly illustrates at Cato’s downsizinggovernment.org website, these budget “cuts” actually raise federal discretionary spending non-stop for the next ten years — from $1.04 trillion in FY 2012 to $1.23 trillion in FY 2021. “No program or agency terminations are identified in the deal,” Edwards laments. “None of the vast armada of federal subsidies is targeted for elimination.”
As for red ink, Washington just extended the federal credit card’s limit from $14.3 trillion to $16.7 trillion. In 2021, the national debt is expected to reach $22 trillion — a figure 54 percent above $14.3 trillion. What debt reduction?
Washington refuses to learn what millions of overextended Americans recognize daily: One cannot escape debt by tunneling ever deeper into it. As the economy cools afresh, the feds blissfully assume that the rest of the Earth will keep lending to Uncle Sam, even as he tragically resembles a junkie trembling for “just one more fix” — to be purchased on account and settled . . . sometime. “Promise.”
This debt-limit extension deal was rushed through Congress, supposedly to avoid an Argentine-style default that would have plunged America into economic Armageddon on August 3. This was an even bigger alarmist lie than so-called “global warming.” While an inability to borrow would have forced Washington to make difficult budget choices, Treasury comfortably could have paid bondholders, which would have rendered default a nullity.
As Sen. Pat Toomey (R., Pa.) — one of the Senate’s most lucid and honest thinkers — told his colleagues on July 27, “There clearly are more than enough financial resources that will be coming into the Treasury day in and day out in the form of ongoing tax revenue to easily be able to afford interest on our debt to avoid a default, Social Security payments to our seniors so they can be assured of the income they depend on, and active-duty military pay, with a great deal left over.”
The U.S. Treasury this month will collect six times the money that it needs to avoid defaulting
on its bond-interest obligations. Source: Office of Senator Pat Toomey (R., Pa.); Bipartisan Policy Center.
This legislation’s “anti-default” sales slogan was false advertising, bordering on fraud.
Meanwhile, the select committee that will spring from the debt deal may generate some good news amid these shadows. As it seeks at least $1.5 trillion in spending cuts by November 23, it should act boldly to improve America’s fiscal outlook:
• A staggering $703 billion in allocated but unspent revenues languish in federal accounts. Republican senators Tom Coburn of Oklahoma and Marco Rubio of Florida and GOP congressmen Tom Price of Georgia and David Schweikert of Arizona have sponsored bills to shift this mountain of cash from dust collection to debt reduction. I have addressed these forgotten funds so often that my computer keyboard hurts. Will the select committee finally listen?
• The Catalog of Federal Domestic Assistance includes the People’s Garden Grant Program, Appalachian Development Highway System, and 2,182 other federal subsidy programs. Many of these should be terminated rather than trimmed, so they never return to menace taxpayers.
• The select committee should padlock entire departments (Agriculture, Education, and Housing & Urban Development, for starters), privatize other agencies (Federal Aviation Administration, National Weather Service, Corporation for Public Broadcasting), and devolve many more to the states via block grants (Medicaid, Food Stamps).
• Rather than re-reinvent the wheel, the select committee should consult the Committee for a Responsible Federal Budget. Its Deficit Reduction Plan Comparison Tool details 36 different fiscal proposals from across the philosophical spectrum. Congress and the White House should have used those ideas to get this job done. The special committee should harness these vast intellectual resources to speed its duties.
Among the more promising blueprints is “Toward Common Ground,” co-authored by the liberal U.S. PIRG Education Fund and the conservative National Taxpayers Union. These Left-Right recommendations could save taxpayers $600 billion by 2015.
• As S&P noted in Friday’s downgrade statement, “The [debt-ceiling] plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability. Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers.”
Thus, the select committee should raise and index the Social Security eligibility age from 67 to 68 for those born in the 1960s, 69 for children of the ’70s, and so on. Medicare’s age-65 threshold similarly should be modernized for these cohorts. Old-age benefits should reflect life expectancy today — not that of the 1930s and ’60s, when they were concocted.
“We are less than three years away from where Greece had its debt crisis as to where they were from debt to GDP,” former U.S. comptroller general David Walker told CNBC Tuesday. “We are not exempt from a debt crisis,” he added. “We have serious interest-rate risk. We have serious currency risk. We have serious inflation risk over time. If it happens, it will be sudden, and it will be very painful.”
— Deroy Murdock is a nationally syndicated columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University.