Monday, July 25, 2011

Trust Me.

We are in the last week of negotiations between Congress and the President over the current debt ceiling.  The main sticking point seems to be that Democrats wish to increase revenue while Republicans want to reduce spending.

I like the Republican approach.  To me, the Democrats are taking us into uncharted territory.

Why do I characterize the argument in this fashion?  It has to do with defined outcomes.

Take note of our space program:  NASA funding is being cut, and as a result, there will be no more space shuttle flights, no astronaut training program, no R&D in this area.  Cutting NASA funding has defined outcomes.

In contrast, if we try to increase revenue, the results are not necessarily predictable.  Increasing tax rates on “the rich” does not guarantee an increase in revenue to the federal government.

We forget that “the rich” are also “the powerful.”  They will make decisions on whether or not they wish to play in the new game.  If special concessions are not granted, they will move their wealth into assets that are not exposed to the federal tax programs.

When the expected governmental revenue is not realized, we end up with the same problem, only worse.  Because of the time wasted in the experiment, we now face even more difficult prospects.

Our politicians may very well allow President Obama “another go” at solving the problem his way.  Our President instills hope and assures us that he can cut the interest on the federal debt and operate our country with the federal government consuming 25% of GDP rather than the traditional 20%.

Unfortunately, these promises have those pesky quantifiable risks.  Will our President truly save money on the interest paid on our national debt?  With interest rates rising and the amount of debt increasing, does his assurance ring true?

How about the increase in the size of government?  If we have never in our history had the federal government taking 25% of GDP, how do we know this will be good for the country?  When our politicians tell us it is “no big deal,” can they be believed?

We are being asked to weigh two “equal” policies of Republicans and Democrats, but what we are NOT being told is that one of them has substantial risk.  What does our President say about all this?

“Trust me.”

UPDATE 7/26/2011:
House Speaker John Boehner and Senate Majority Leader Harry Reid present options for dealing with our federal debt.  CNN Money lays out the four components of Senator Reid's debt ceiling plan:

Specifically, Reid's plan includes $1.2 trillion in savings from various domestic and defense programs, along with $1 trillion in savings from winding down the wars in Iraq and Afghanistan. It also generates $400 billion in interest savings on the debt, and another $40 billion by rooting out waste, fraud and abuse.
Note Senator Reid's "$400 billion in interest savings on the debt."  With rising interest rates and the amount of our public debt increasing , how will he accomplish that?  (I know, "Trust him.")

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