The Potential for a U.S. Default

January 16th, 2010

By Tom Carter

Hmmm.  I find myself in the unusual position of mostly agreeing with Pat Buchanan twice in rapid succession.  In Is a U.S. Default Inevitable?, he takes a quick macro look at the financial situation of the U.S. and concludes that things are pretty bleak. His analysis can be criticized for being short on detail and long on gloom, but it’s like the fire bell ringing in the night — you may not be getting all the details, but it makes your gut clench because you know something bad is happening.

Buchanan’s case is basically this:  The five largest areas of spending in the federal budget are Social Security, Medicare, Medicaid, defense and interest on the debt.  In the current political climate, none of those can be reduced, and taxes can’t be increased to pay for them.

The defense budget can’t be cut, considering that we’re involved in two wars(escalating the one in Afghanistan), while at the same time defenses are being maintained against a constant worldwide terrorism threat.  We can’t stop paying interest on the debt — that’s the default we’re talking about.  As for Social Security, Medicare, and Medicaid, as Buchanan says,

…it would be fatal for the Obama Democrats to curtail Social Security or Medicare benefits any further this year. … The same holds true for Medicaid. The Party of Government is not going to cut health benefits for its most loyal supporters.

If we can’t cut spending to any appreciable degree, the only logical solution left is to raise taxes.  But…

Obama has promised to let the Bush tax cuts lapse for those earning $250,000 but has pledged not to raise taxes on the middle class. Any broad-based tax would be politically suicidal for him and his increasingly unpopular party.

But if taxes are off the table, Afghan war costs are inexorably rising, and cuts in Social Security, Medicare, Medicaid and entitlement programs are politically impossible, as pressure builds for a second stimulus, how does one reduce a deficit of $1.4 trillion?

How does one stop the exploding national debt from surging above 100 percent of GDP?

Here’s an important area where I disagree with Buchanan.  He’s focusing on Obama and the Democrats, “the Party of Government.”  However, the problem goes far beyond his partisan view of one president and one party.  One only has to look at the eight years of the Bush Administration, where the philosophy was spend, spend, spend and not only don’t raise taxes, but cut them!  The hard fact is that Bush and the Republicans were just as irresponsible as Obama and the Democrats.

Buchanan concludes,

What the looming fiscal crisis of this country portends is nothing less than a test of whether this democratic republic is sustainable.

It’s hard to disagree.

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6 Responses to “The Potential for a U.S. Default”

  1. Brianna |

    The only real difference between the parties is how quickly they’re driving the nails into the coffin. The Republicans are using a hammer. The Dems are using a power drill.

  2. d |

    Because the nail was already 3/4 way in when Dems took charge and screwed it the rest of the way in.

  3. Dee |

    “His analysis can be criticized for being short on detail and long on gloom” When I file my taxes, my tax preparer needs to receipts and all that is needed to make an appropriate analysis of my taxes. In order for Pat Buchanan and any other politicians or non-politician to make an appropriate and ACCURATE analysis we would need more detail and less gloom.

  4. Tom |

    Dee, when you look at the big picture — the amount of the deficit, the rate at which it’s growing, the amount being spent and the rate of growth in spending, new spending legislation, the amount coming in from taxes, and the likelihood that taxes will never be raised to sufficiently pay for spending, it’s impossible to be optimistic. The detail that goes into individual tax returns and analytical nibbling around the edges of the problems are meaningless.

  5. Brian Bagent |

    Doris, this has been coming for a very long time. It didn’t start under “W,” or even Clinton. The groundwork for this was established in 1913 with the passage of legislation that established the Federal Reserve, and then subsequently the 16th amendment’s ratification, FDR’s elimination of a gold standard for our currency, and on to Nixon’s unilateral disregard of the Bretton Woods agreement.

    I’d say that we were a bit higher than 75% when Obama took office, but you are right in that he is trying to drive the final coffin nails.

  6. The Potential for a U.S. Default | Roger Knecht |

    […] … other posts by rknecht […]

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