Debt ceiling deal does little to cut real spending

Friday, August 05, 2011 by: J. D. Heyes
Tags: debt ceiling, government spending, health news

(NaturalNews) The drama of uncertainty. The last-minute pandering to colleagues. The "nail-biting" final votes. Yet in the end, lawmakers did their "duty" and agreed to raise the federal debt ceiling and allow the government to borrow even more money than the $14.3 trillion it current owes.

But to be honest, who really doubted that Washington's anointed would really pass up an opportunity to borrow and spend more money? For the past generation, that's how it has been in the nation's capital. Chalk it up to the cost of doing "business as usual."

The political theater finally ended when President Barack Obama put pen to the new bill. The deal means future generations of Americans will take on an additional $900 billion in debt by this fall, with the wonderful option of adding $1.2-1.5 trillion next year. It was so embarrassing that the bill was signed away from the cameras and fanfare.

As if to put an emphatic stamp of disapproval on the entire sordid mess, Wall Street reacted with disdain, as the Dow Jones Industrial Average fell more than 1 percent, or 200 points, extending an eight-day decline that should serve as an indication that not everyone believes the hype.

"I'm not so sure that the debt deal is well received or if it's what everyone wanted," Steven Carl, head equity trader at Williams Capital Group, told CNBC. "[Traders have] more of a macro view to see if anything happens overseas."

The measure also calls for something like $2.5 trillion in spending cuts over the next 10 years, but when you realize that Uncle Sam will still borrow five times more over the same period. What we're left with is a smoke-and-mirrors sideshow that only expands, rather than shrinks, the nation's bottom line. And wasn't this entire debate, in part, about cutting the debt?

It's bad enough that the U.S. dollar borders on worthless as it is. But what's worse - money that is valueless or having a government that is incurring real debt without real money to pay it?

What's the immediate impact of this shameful overspending, besides more borrowing? More expensive borrowing. The nation's credit downgraded by ratings agencies might - might - finally force Washington to live within its means, but the more likely scenario is that borrowing will continue, only at higher interest rates. This adds even more to the national debt, and forces more cuts and higher taxes.

"The analogy isn't perfect, but imagine if you were heavily indebted and seem to be at risk of declaring bankruptcy," says a New York Times analysis. "Banks are not going to want to lend you money to help you pay your bills, so you get stuck borrowing at extremely high interest rates from a payday lender or a pawn broker." That's not a sustainable strategy. In fact, it's not a "strategy" at all.

During World War II, government spending as a percentage of the nation's GDP rose to 53 percent, but it fell to 21 percent shortly thereafter. Since then, politicians in Washington have gone on a spending spree, with most of your hard-earned tax dollars going to buy the votes of core constituency groups and factions.

It all boils down to this. Without substantial spending reform, the current tax-and-overspend philosophy will lead to the collapse of the greatest economic power in the history of the world - The United States. The numbers don't lie, and this recent "debt deal" doesn't do anything to prevent that eventuality.