Monday, April 25, 2011

Standard and Poor' Gets Religion

S & P, one of a handful of international rating agencies, has downgraded America’s status based on its $14 trillion national debt and $1.6 trillion 2011 deficit and the political inability to do anything about it. This is rich coming from an outfit that gave top rating to every toxic, junk-status mortgage backed security that came its way before the crash. It’s to be expected that you give a high rating to someone who’s paying you to rate them, otherwise they’ll find someone else to pay off for their Triple-A. All that aside, being craven and duplicitous most of the time doesn’t totally detract from your voice if you happen to get it right once in a while, so let’s take it from there.

Both parties objected to S &P’s downgrading, insisting they have plans to tackle the deficit. The Repugs want to save $400 billion a year by eviscerating, emasculating and slashing to the bone every federal program that has anything to do with helping anybody but the top few percent of income earners, who in fact get a tax cut. How cutting taxes for people who already have far more than they know what to do with can be part of a deficit reduction plan is something only a true believer Repug can understand. We know they are full of crazy, but that’s who the people elected, so that’s where the US is at.

Obama wants to save $360 billion a year by reinstating income tax rates for everybody earning over $250,000 that were in place before the Bush tax cuts. Either way that only deals with a quarter of the deficit. The Repug plan projects a deficit of $23 trillion in 2021, Obama’s plan about the same. Moreover, both plans are wildly optimistic in projecting a far healthier economy than anybody outside of government and in their right mind would dare to, but that’s part of the game.

Neither side wishes to deal forthrightly with the problem because nobody in politics wants to take credit for raising taxes. It’s not hard to understand why since it’s far easier to borrow to make the economy temporarily look good than tell the truth to the American people and be voted out of office at the next election. Sure, everything will look hunky-dory when you are spending borrowed money, but it’s like heroin addiction. You feel really great when you are high so that in contrast everyday life is hard to deal with so you cannot stop, you have to have more. You also build up a tolerance, so need ever increasing doses. At a certain point, the only thing that can save your life or sanity is cold turkey.

So instead of being realistic or practical it’s all left to the future to sort out. Think about that number, $23,000,000,000,000. Interest rates are relatively low now, but the US government and the Fed are making every possible move in the direction of increasing rates. That isn’t their stated purpose, but when you print shiploads of money and issue vast amounts of debt you lessen its value and increased interest rates is the only logical, possible outcome. So, figure a modest average of 5% interest on the debt and you come up with $1.25 trillion a year in debt service. If the administration’s (seeming) goal of cheapening the value of the dollar jacks up interest rates an additional two or three percent then service of the debt will amount to half of the current budget and an obviously untenable situation.

There are four, more or less equal parts to America’s $1.6 trillion budget deficit. The first is the military. Since 2000 the defense budget has doubled, amounting to about $400 billion. Obama recently announced, to great fanfare, a $78 billion reduction in military spending; except when you looked at the fine print it didn’t actually reduce the amount spent, only the projected increase was less than planned. So clearly not serious about deficit reduction.

A second part is health care spending – Medicare, Medicaid and prescription drug benefits. That one’s easy; single payer would save about $400 billion in overall health spending. Admittedly, not all of that is direct federal savings but a lot of it is.

The third part is Bush’s tax cuts. Obama wants to end the cuts for the wealthiest Americans, that’s another $400 billion. But really, there’s so much money sloshing around at the top, the entire deficit could be erased if corporations and the wealthy were obliged to pay their fair share of the tax burden. A combination of raising the top rate for millionaires and billionaires, a financial transaction tax, taxing capital gains the same as ordinary income, a corporate income tax which corporations actually paid and a wealth tax on the richest Americans would easily and painlessly completely eliminate the deficit. Considering the top 1% is sitting on assets of $19 trillion, just an 8% wealth tax alone would balance this year’s budget deficit of $1.6 trillion.

Finally, there’s the recession which has reduced tax revenue. Yes, corporate profits and the stock markets (headed for soon-to-burst bubble territory) are way up but they don’t pay much in taxes so that doesn’t help the budget much. There’s nothing on the horizon which suggests an end to the recession in the next few years, but at $400 billion that’s a deficit charge that’s relatively easy to sustain. Besides, that’s the only part of the deficit that is legitimate, the rest is all based on a lack of political will and common sense combined with cockamamie wingnut anti-tax insanity.

Instead of actually doing something to rein in the deficit, Obama and the Repugs will take a chainsaw to slash Social Security, Medicare and every program that benefits everybody below the top few percent. Why do I group Obama with the Repugs? Of the two people he chose to head his bi-partisan deficit commission, one, former senator Alan Simpson of Wyoming, positively despises Social Security, the other, Erskine Bowles, the nominal Democrat who served in the Clinton administration, is a fellow traveler. So even though SS has absolutely nothing to do with the deficit, they suggested serious cutbacks to the program. With $2 trillion in the bank, SS has all the money it needs for another 25 years and a little tweaking of tax rates will carry it decades further in the future. Obama talks about taking a stand to protect SS and other programs, but I don’t believe him for a minute. The only things he is good at are oratory and compromise.

The US is blithely and obliviously headed for a morass of its own making that could ultimately destabilize the whole world economy.

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