I have written several times on the budget. In the various places where my articles appear, these articles are usually the most heavily commented upon. First let me say, I enjoy the comments which dissent from my opinion as much as those that agree. I love the debate. That being said, there is a basic disconnect of folks when it comes to understanding the debate on budget, as it relates to the debt ceiling. They are related, but they are two different things. Government’s borrow money to pay for things, and they have been doing it since at least the middle ages. Deficit spending is nothing new. There have been great advantages gained for governments which have done this in a responsible manner, and there have been disastrous effects for governments who have done this irresponsibly.
We all have seen the convention centers in communities which have served to build commerce in down town areas. The local merchants are benefited with higher revenues and local citizens are benefited with greater employment opportunities due to increased business opportunity. The increased levels of taxation due to the increased business activity will allow the bond payments to be made. The International Exposition Center in Brookpark, Ohio is a great example of this. That facility was so successful in its boom, the Mayor of Brookpark actually tried to steal the property through the evil concept of Eminent Domain. An example of a nation who borrowed irresponsibly would be Greece. Greece was borrowing money to pay for government benefits for its citizens. This, in any context is a diminishing asset. Unlike the Convention Center, which operates continually, and will bring in a steady stream of income for many years, benefits are gone once the money is spent. The asset itself disappears. Money borrowed to pay for the basket of goodies from the public largess will not be replaced by any type of return. To continue these benefits, either a new source of funds must be found, or more money must be borrowed. The result in Greece was massive riots, and a delay of the problem being faced, as other European nations got together and gave Greece another massive loan.
What does that mean to us. Well, we have to borrow 40 cents for every dollar we spend. This money is not being used to build anything which will pay a return. Yes, there are some, “investments in infrastructure,” which are part of our budget, but they represent a small pittance of our budget. When you stop to consider that the return of these investments is considered as an afterthought, and only mentioned to sell the spending after the fact, it actually adds up to nothing more than an insulting waste. (I have yet to see any believable estimate of increased business revenue related to any of the Obama Stimulus projects.) With 67% of our budget going to mandated statutory spending, our government is borrowing money to pay for nothing more than mandated benefits. We could cut every single penny of discretionary spending, and we would not have a balanced budget. That is to say, our spending would be greater than our revenue, as a nation. So the budget, without changes to the benefits it pays in terms of wealth redistribution, will never be balanced. Quite simply put, continued spending on a diminishing asset which is greater than our ability to produce wealth will eventually lead to massive failure. There is no other possibility. There will be a tipping point when we will be stealing from the poor to give to the rich. We are closer to that than many realize right now. What will happen eventually, those called upon to be productive will either move away, not produce so much, or just plain quit and join the group who are being paid for.
The debt limit is nothing more than our own self imposed limitations on just how big we will allow the cumulative effect of our deficit spending to become. The current debate over this limit I can only characterize as silly. One reason it is silly, is because when we approach our own self imposed limit, we just raise it. The other reason it is silly, it matters less what our limitations are, than the limitations set by those who are loaning us the money. That debt limit matters. Here is the other shoe dropping. The point may be moot soon anyhow. Just so that everyone understands, a balanced budget may very well be forced upon us. Eventually, our creditors will refuse to loan us another dime. When that happens, our government will be forced to scale spending back to meet revenues suddenly. We will no longer be able to borrow 40 cents for every dollar spent, and at least some of our current 67% which we spend as a matter of law will have to stop.
Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable.
That singular statement from the above linked article should send shivers up the spines of every liberal in the country. It means that the party is about over. It means we have reached a point in this country when those producing can no longer keep up with the demands to transfer the fruits of their labor to those who do not. (I consider those who work in any form for the government to be in the ranks of those who do not produce. While I will concede that they are often working just as hard as the rest of us, this does not mean that they are producing wealth. Their income is only possible due to the taxes paid by the private sector.) We are reaching the point when a debt limit will be imposed upon us involuntarily by the people we are borrowing from.
It would probably be smarter of us to take care of this problem now, before others solve it for us.
Crossposted at Musings of a Mad Conservative.
Tags: Budget, Debt Limit
