Yesterday sure was a busy news day. The big news, with the greatest impact, may be President Obama signing an executive order to create a bipartisan commission to plan on how to deal with the National Debt. There are three possibilities why Obama has taken this course of action. A) He’s providing political cover for becoming ‘agnostic’ on taxing the middle-class. B) He’s providing political cover for Congress and himself on their over-spending ways. Or C) He’s showing himself, yet once again, to be a gutless, spineless leader who shuffles all the hard decisions off on others.
While I vote for C, and all of the above is most likely, I am willing to cut Simpson and Bowles some slack. Wolf Blitzer interviewed them yesterday on CNN and both made it clear that everything is on the table. Cutting spending for domestic programs like education, defense, and even third rail entitlements like Social Security and Medicare. Rumors are already floating about that a plan may be to add a national sales tax, or value added tax, to knock down the debt.
Needless to say, if Obama were truly interested in fiscal responsibility, he’d shelve his agenda, ask Congress to dump whatever unspent stimulus and TARP money back into the Treasury to credit the debt, and expand his proposed spending freeze. Any decent economist, enlightened through the Austrian school of thought (I love Ludwig von Mises to pieces!), would advocate cutting taxes, to create jobs and spur economic expansion, and slash spending.
The current economic plan from Obama is going nowhere fast. Job losses are ticking up again. GDP went up slightly, BUT, wholesale inflation jumped 1.4% in January. The core inflation rate also went up, oddly enough at the same percentage, 0.3%, as GDP growth. Hmmm? So, there really wasn’t any true growth in the economy, was there?
Meanwhile, China has begun to draw down their load of our debt, making Japan, once again, the largest foreign holder of U.S. debt. The Federal Reserve decided yesterday to 0.75% for the discount window, which of late has been shoveling out cash to banks and businesses. While this is a very modest and limited increase, it signals that Fed policy is beginning to change.
I’ve written before at another site that if one compares how much the government spent on interest payments on the debt in 2006 based on current rates, Obama could rack up $3 Trillion+ in debt, which he’s done. But the problem is that nobody with half a brain expect the current rate to last forever. Some analysts say that by 2018, interest payments will become the single largest portion of the Federal budget, surpassing defense, Social Security or Medicare.
Frankly, I would say that is extremely optimistic, if not pure fantasy. Interest rates are more likely to rise faster than expected (by those non-Austrian-school economists) and we could reach that dismal target point much earlier. How does 2013 grab ya? Convenient, eh?