The Debt Quagmire

ANOTHER QUAGMIRE FOR THE AGES

Washington can only handle matters in the headline of a crisis,

whether it be true, false, faux, daily or stupid. In many situations,

it is all of the above.

Under the Constitution, Congress must pass a bill and the President sign into law, the mechanism for the federal government to borrow more money (for public purposes). Also under the Constitution, a post Civil War amendment required that the national debt of the federal government would never be impaired - - - meaning that other nations and investors had our country's word that their investment in public debt would not falter. So in the narrowest sense, the U.S. government can never default on its public borrowings because that would be a direct violation of the Constitution by elected officials sworn under oath to uphold its terms.

So the screaming media and political banter for the last month about the DEBT CRISIS is another faux hysteria to try to score political points, rattle the markets and throw roses at one's political base electorate.

The Wall Street experts are crying Wolf again like in 2009. The reason is simple: self interest in real interest. Many major banks have been borrowing money from the Fed at zero interest rates and walking across the hallway and dumping it into Treasury bills for a quick and guaranteed 3.0 percent profit. That profit margin is more than most commercial real estate loans, and without the risk. Banks have not been lending real capital to businesses for years. Banks have been hoarding their money, the TARP funds and bailout dollars since they feared new capital requirements and greater loan loss reserves. The economy has flat lined because their continues to be a real credit crunch on the Middle Class and small business operators, the people that create 75 percent of the new jobs in the nation.

So when Wall Street screams default in a crowded theater, it is meant to panic the politicians into doing something stupid like borrow more money, which means big Wall Street banks will sell more Treasury bills to the Federal Reserve and customers for a tidy profit. One has to be blind to the fact that big investment bankers have been driving governments (federal, state and local) into the financial abyss by continuing pushing them to borrow more and more money in order to spend more and more money on pet projects, their own salaries, benefits and pensions (personal pork). It has nothing to do with solving the government's debt obesity problem. The banks and leadership WANT to borrow more money in order to spend more money on programs, entitlements, and personal pork. Borrowed money is like crack cocaine to politicians. And the federal government has unlimited printing presses in order to fill that addiction.

Democrats are crying that Tea Party Republicans are holding the nation hostage because they are demanding a balanced budget amendment as part of any debt ceiling raise. These Tea party members ran and won on fiscal conservative platforms. Elections can have consequences, and the career Washington politicians are not used to a crop of zealots with a message and the stamp of victory standing their ground, even in the path of some compromise.

But the Democrats and the President have not moved to compromise either. Obama has been a snitty child in demanding his alleged “balanced approach” which was code to raise taxes. He told a reporter that it was unfair that he keep more of his salary than he needed to spend. Why not, it is his earnings. But that response did not get played up in the national press because that comment is the basis of socialism and redistribution of wealth concepts that apparently guides Obama's personal national government policy. The Senate Democrats want every dollar of debt reduction offset by another new dollar in borrowing authority. If you raise the debt ceiling a trillion dollars, we get spend a new trillion dollars. Yes, it is a totally illogical plan to try to reduce a $14.8 trillion deficit, which is now larger than the entire US annual gross domestic product.

But in the political playbook, spending more money is the only way to get lobbyists attention on issues on how to spend federal dollars. In return, the politician's vote is being bought and sold like a commodity for campaign donations. In many cases, this pay-to-play type legislative machine politics is illegal, immoral and totally inefficient. But that is how corruption has institutionalized itself in all parts of public office.

The worst thing that could happen to Congress is that no bill on the debt ceiling passes. That would require the congressmen and Senators to do something they have refused to do for decades: their jobs for the benefit of their constituents. They would have to actually work like every man and woman in America and balance their budgets and live within their current means. That would mean prioritizing who gets paid first, who gets paid second, all the way down the ladder to who won't get paid or whose pet projects get killed off.

States, like Illinois, have been in a fiscal sink hole for decades. Illinois has stopped paying some vendors for YEARS. If the federal government cannot come to terms with its spending rampage, then the Treasury will have to do the same thing as bankrupt states: stop paying certain state vendors and let the chips land where they may. The irony at play is that the vendors that usually get hurt the most are doctors, nurses, hospitals, medical suppliers and social service agencies that are taking care of the poor, the exact people the government leaders campaign about the most in order to get re-elected.

Repeating: the US government will not default on its payment of interest or principal on its Treasury securities on August 2, 2011, or any other artificial date the Treasury Secretary pulls out of his hat. The problem of government overspending is NOT be addressed in the current debate since the misleading notion of government debt default has been the smoke screen to hide the real lack of leadership in this country: how to put the nation's finances in proper order.