The United States currently has revenue of approximately $2.2 trillion against expenses equal to about $3.8 trillion. Keep in mind that Obama increased spending by over $1 trillion. This means that our expenses are approximate 172% of revenue. Another way to state this is that our current revenue is only adequate to pay 55% of expenses, hence, the 55 or double nickel.
Obviously, at the current rate of spending, we have to borrow an additional 45% in addition to our current revenue just to avoid default.
Let me put this in perspective. Suppose someone has an income of $5,500 per month. Their expenses are $10,000 per month. They borrow $4,500 each month so they can pay the bills. Obviously every time they borrow money their expenses increase the next month. How long do you think they will last?
If you knew someone in this situation, would you loan them more money? The answer is no, because you know that loaning them more money would not solve their problem. All loaning them more money would accomplish is to delay bankruptcy for another month or so. Letting them borrow more money just results in a bigger and bigger problem. The only possible solution for these people is to double their income, or to half their expenses. Which is more likely? How many people do you know who have doubled their monthly income lately?
The sad reality is under Obama’s leadership we are already insolvent. The only question is when the day of reckoning arrives and who gets blamed. Extending the debt limit does not solve the problem it only delays the problem for a short period of time. Raising taxes might help solve the problem; if raising taxes resulted in more revenue. But the problem is that raising taxes is likely to kill the economy, resulting in even less revenue.
Virtually every state run by Democrats has raised taxes and increased spending and virtually every state run by Democrats is on the verge of bankruptcy. Think California. California dreaming takes on a whole new meaning. Virtually every state run by a conservative Republican has reduced taxes and cut spending and those states are already starting to recover. Think Texas.
Republicans are seriously considering caving in to the President and raising the debt limit, through one deal or another, primarily because they are afraid of the political fallout. I wish just one Republican would stand up and tell the truth. We are already in default, we are already insolvent and the longer we delay in recognizing this; the more painful it will be for everyone. If anyone wants to see what is just around the corner look at Greece, look at Ireland and look at Italy.
I have learned that the best way to analyze any situation is to read the New York Times and do the exact opposite of what they recommend. Here is a NYT article from February 22, 2011.
http://www.nytimes.com/2011/02/23/business/economy/23leonhardt.html?_r=1
Less than two months later, a record even for the NYT, their analysis was proven wrong:
http://uk.reuters.com/article/2011/04/07/uk-germany-institutes-idUKTRE7362RW20110407
Now, in July, less than 5 months after the NYT explained why cutting expenses can’t work, Germany appears to be on the path to recovery and is even talking about lower taxes?
http://online.wsj.com/article/BT-CO-20110706-702324.html
If, and it is a big if, the Obama administration would agree to big cuts in spending, than raising the debt limit might be a good idea. It would buy us enough time to do the necessary, which is cut spending. But Obama clearly lives in a dream world where all he has to do is raise taxes on corporate jets and all his problems will fly away on streams of soaring tax revenue. Mitch McConnell got it right when he said no real deal to cut spending is possible while Obama is President.
So why does McConnell want to give Obama the ability to raise the debt limit? The answer is because that is a political decision, not an economic decision. McConnell knows that default is coming and his most important consideration is in making sure that Obama is not successful in falsely blaming this on Republicans. He is right to be concerned, because the main stream media is still fully in the tank for Obama.
To me the worst case scenario is that Obama drive this country into bankruptcy and with the help of the main stream media finds a way to blame everything on Republicans. There is precedent for that. George Bush and Republicans are blamed for lack of regulation in the financial markets even though that was done by Bill Clinton before Bush took office. Bush is blamed for letting Fannie Mae and Freddie Mac take down the housing market in spite of the fact that it was primarily Democrats who facilitated that disaster and Bush went to congress on 11 separate occasions warning them about this. George Bush is blamed for all our economic woes, although the economy was doing just fine until January of 2007, when Nancy Pelosi became Speaker of the House and Harry Reid became Senate Majority Leader. Democrats are unfortunately very skilled at blaming Republicans for problems they created.
Perhaps McConnell got it right. We really can’t avoid the financial train wreck that is coming as long as Obama is President. There is no hope of fixing this problem with this man in office. You cannot engage in mental combat with an unarmed opponent. But what we can do is force him to take ownership so the American people know who to blame. It is time to call his bluff. Put the leadership responsibility squarely on Obama so we can finally, finally, finally fix the real problem. If our financial ship of state has to go down, at a minimum we need to make sure we get rid of the Captain that steered us into the rocks.
TDM