Just like last summer, the Congress is exhibiting a lack of common sense. Procrastination, finger pointing, and a general lack of caring about the future of the country that elected them mar the efforts of the Joint Select Committee on Deficit Reduction to come up with at least $1.5 trillion of deficit reduction measures over the next 10 years. Of course, whatever happens or does not happen is the other side’s fault. We are in the throes of election year politics after all.
The whole scenario is quite ironic. The American financial scene is oh so helpful and has tons of advice for solving the European monetary crisis. However, when it comes to our own debt crisis, which caused the US to lose its AAA credit rating, Congress acts like bickering children; everyone for themselves.
Perhaps, Congress is trusting in the strength of the dollar’s reserve currency status. For now, bond markets are willing buyers of US Treasury securities at 2 percent for 10 years and 3 percent for 30 years. This is not a long-term solution, the bond buyers’ nerves are unpredictable In the meantime, the US federal debt will continue rising towards 80 percent of GDP over the coming 10 years.
The rising cost of social programs, including publicly funded health care, pensions, and social security, is the force that drives the debt increase. So far, there is no discussion on either side to address cutting any of these programs. The projected unfunded value of these programs is more than $100 trillion.
Although 8.7 per cent of GDP, the fiscal year deficit came in lower than predictions. As a result, the projections for the coming 10 years are lower. The shortfall in the US is $1.3 trillion this year, on top of the existing $15 trillion national debt. Financial analysts say the number is rising by $180 million an hour.
Since it looks like the committee will fail to reach an agreement, across-the-board cuts of $1.2 trillion over 10 years trigger automatically in 2013. The Super Committee has no meetings scheduled for the weekend before the deadline on the 23rd. In the spirit of true fiscal responsibility, many lawmakers left on Friday for the Thanksgiving break.
Deficit cuts over 10 years will not restore US budget to anywhere close to balance. Ten years is a very long time to expect Congress to stick to one financial course. In addition, the markets and rating agencies will be watching to see if Congress maintains the cuts. The gutting of the proposed rounds of cuts any time down the road may damage America’s credit rating even more. America’s political leaders will have to convince the financial markets they are willing and able to deal with the $15 trillion national debt.
The reductions proposed by the Super Committee will happen in the years to come– after the coming election. Of course, the configuration of today’s Congress will change, and any future spending is not under their control. It is hard to have any confidence in the Super Committee’s good intentions when one of their reductions includes $700 billion from ending the wars in Iraq and Afghanistan during the coming 5 years.
Past actions by Congress, do not inspire confidence either. The Balanced Budget Amendment was on the table three times in the past 27 years, starting in 1984. It failed to pass by the required two-thirds margin again last week.