Learning nothing from Europe’s Financial Crises, Obama pushes hard to increase the Debt

Posted by PITHOCRATES - July 11th, 2011

No Economy is too Big to Fail

Having too much debt is a bad thing.  For one thing, you have to pay it back eventually.  And until you do, you have to service it.  Make interest payments.  Which can become very large if you have a lot of debt.

Greece has a lot of debt.  So much that they can’t sell any more.  And they can no longer service that debt.  Which is a big problem for the European Union (EU), in particular the Eurozone and its common currency the Euro.  Greece is small.  But the EU is big.  And Greece’s problem is now their problem because of that common currency (see Eurozone moves to stop Greek debt crisis by Gabriele Steinhauser, Associated Press, posted 7/11/2011 on USA Today).

Investors are concerned that the debt crisis, which has so far been contained to the small economies of Greece, Ireland, and Portugal, could soon drag down bigger countries like highly indebted Italy and unemployment-ridden Spain. The mere size of their economies could easily overwhelm the rescue capacity of the rest of the eurozone…

“The fact that contagion is spreading marks the failure of politicians to draw a line under the Euro-crisis to date,” Rabobank analyst Jane Foley said. “As yields rise and debt financing costs become even more exaggerated the difficulties of containing the crisis become even bigger.”

The Europeans crated the EU and the Eurozone to counter the economic prowess of the United States.  And it has.  Their economies run shoulder to shoulder.  Which is why the U.S. should be worried about what is happening in Greece.  And how scared the EU is that their contagion may spread.  For no economy is too big to fail from an overload of debt.

Excessive Government Debt making Investors Nervous

If you’re looking for confirmation on the size and reach of the Greek debt crisis, look no further than the world’s financial markets (see Markets Tumble on Debt Crisis by The Associated Press posted 7/11/2011 on The New York Times).

Wall Street and global stocks slid further Monday because of renewed concerns about the euro zone’s debt crisis and after a dismal jobs report in the United States last week rekindled concerns about the recovery in the world’s largest economy…

The downbeat sentiment in markets was worsened by indications that Europe’s debt crisis might be spreading beyond the three countries that have already received rescue packages. There have been mounting concerns that after Greece, Ireland and Portugal, much-larger Italy and Spain could need bailouts to manage its tremendous debt load.

Investors are nervous.  Both about Greece and the EU.  And the United States.  They’re worried about excessive government spending.  And excessive government debt.  Because the higher the debt the higher the interest paid on the debt.  And interest paid on the debt is money spent that results in nothing beneficial.  It’s just a drag on the economy (i.e., higher taxes are required to pay it).  Or worse.  As in borrowing money to service the debt.  Which makes a bad problem (too much debt) worse (more debt).  Which is a further drag on the economy.

The Children refuse to Eat their Peas

And speaking of debt, there was no progress on the budget debate to increase the debt limit.  As if anyone was surprised by this (see WRAPUP 9-Obama, lawmakers fall short on US debt deal by Steve Holland and Thomas Ferraro posted 7/11/2011 on Reuters).

U.S. President Barack Obama and top U.S. lawmakers fell short on Monday of finding enough spending cuts for a deal to avoid an Aug. 2 debt default and Republicans came under fresh pressure to agree to tax hikes.

The two sides achieved no breakthrough in a roughly 90-minute meeting and scheduled a third straight day of talks for Tuesday. This came after Obama, at a news conference, declared it is time for both Republicans and Democrats to “pull off the Band-aid, eat our peas” and make sacrifices.

I’m a grownup.  And I like peas.  I think a lot of grownups like peas.  That’s probably why I see a lot of peas in grocery stores.  But one thing I don’t see is kids begging their mother to buy more peas.  No.  Mothers have to tell them to eat their peas even though kids don’t want to.  Because kids just don’t know what’s good for them.  And mothers, being mothers and not diplomats, don’t discuss this.  They just dictate terms to their children.  Which is what Obama appears to be doing.  Trying to dictate terms to the children on the other side of the aisle.  To get them to accept what’s best for them.  Because he knows best.  Like Mother.

The Treasury Department has warned it will run out of money to cover the country’s bills if Congress does not increase its borrowing authority by Aug. 2. Failure to act could push the United States back into recession, send shock waves through global markets and threaten the dollar’s reserve status.

This ‘running out of money’ line is very strange.  The government is currently collecting some $2 trillion plus in cash a year.  Which comes out to about $180 billion a month.  And as long as your employer is withholding taxes from your paycheck, there’s money flowing into Washington.  So how exactly are they running out of money?

Back into recession?  Didn’t know we ever came out of recession.

Boehner also took issue with Democrats’ suggestion that most of the spending cuts should be concentrated out into future years, rather than beginning right away.

Smart man that Boehner.  He knows Democrats lie.  “Raise taxes now and we’ll make spending cuts later.  Promise.  $3 in cuts tomorrow for every new dollar in taxes today.”  Ronald Reagan fell for it.  George H. W. Bush, too.  But tomorrow never came.  And neither did those spending cuts.  The Democrats had their new taxes.  So they said, “Screw you, Republicans.  Suckers.”

Obama used the latest in a series of White House news conferences to urge lawmakers on both sides to stop putting off the inevitable and agree to tax increases and cuts in popular entitlement programs, trying to persuade Americans he is the grownup in a bitter summer battle over spending and taxes…

Obama is seeking to cast himself as a centrist in the bitter debate. His 2012 re-election hopes hinge not only on reducing America’s 9.2 percent unemployment but on his appeal to independent voters who are increasingly turned off by partisan rancor in Washington and want tougher action to get the country’s fiscal house in order.

And that’s what this debate is all about.  The 2012 election.  If he comes out of this smelling like a centrist he wins.  Even if he loses the debate.  Because he can campaign as a centrist.  Even though he’s the biggest leftist to have ever entered the Whitehouse.  Who tripled the deficit.  And put the U.S. on the road to national health care.

So how much exactly are they looking to raise the debt limit by to save the country?

They said Obama’s view was that without tax increases, the package would at best be little more than $1.5 trillion in deficit reduction, far short of the estimated $2 trillion needed to extend the $14.3 trillion debt ceiling through the end of 2012.

Hmmm, $2 trillion dollars.  Where can we find $2 trillion dollars?

You Repeal Obamacare and we’ll raise the Debt Limit by $2 Trillion

Here’s a thought.  How about repealing Obamacare?  If we need to live within our means and can’t muster the guts to reform entitlements, then Obamacare is a no-brainer.  It’s not an entitlement yet.  No one would miss it if they repeal it.  Because how can you miss something you don’t even have yet?  So how much money would this save?  Let’s take a look at some facts and figures from an interesting article (see Obamacare Tragedy Primed To Further Explode the Deficit by Peter Ferrara posted 7/6/2011 on The American Spectator)?

…close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more…

Of course, the deficit is not the biggest problem.  Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes…

In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage.  If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time…

Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors.  Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients.  If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.

Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.

So Obamacare isn’t going to reduce the deficit after all.  How about that?  You see, Boehner is right not to trust Democrats.  Because they lie.  And while they’re bitching and moaning about trying to raise the debt limit by $2 trillion Obamacare will add another $4 to $6 trillion, or more, to the deficit over its first twenty years.  And there’s a whole bunch of unpleasantness in addition to that.  78 million people losing their private insurance coverage.  And the gutting of Medicare that will destroy that program.  Which will add another $15 trillion to future deficits. 

This should be the Republican position.  This is the deal they should offer.  Raise the debt limit by $2 trillion.  And repeal Obamacare.  Final offer.  Take it or leave it.  Either eat your peas.  Or you, President Obama, can default on America’s debt obligations.  For it is your Obamacare that has put us in this position in the first place.

Too much Debt is a bad Thing

Having too much debt is a bad thing.  We see it in Europe.  The EU is worried about what’s happening in Greece spreading to larger countries in the Eurozone.  Markets are jittery about Europe’s financial crises.  Even on Wall Street.  Because too much debt is a bad thing.  And no economy is too big to fail from an overload of debt.

The whole world understands this.  That too much debt is a bad thing.  And yet what is the Obama administration doing?  Piling on to their debt.  And not in a little way.  They’re collecting some $2 trillion in cash each year but it’s not enough.  They need to borrow an additional $2 trillion this year to pay their bills.  I don’t know what’s going on in Washington but one thing for sure – it ain’t good governing.

Repeal Obamacare.  Solve a bunch of problems with one act of legislation.  And demonstrate some good governing for a change.

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