Perhaps the only thing worse than watching our great nation’s creditworthiness disintegrate as we default on our obligations is the idea that we may have to endure another whole week of watching politicians give dueling press conferences on the topic. Hopes were high last night that some sort of progress would be announced during the President’s unusual televised address, but no such luck. Instead he pointed the finger at house Republicans while their leader, John Boehner, struck back by blaming the whole crisis on the President. Was that a productive way for the two most powerful politicians in the country to spend an entire evening while the nation is hurling toward a major crisis, only days away? I’d venture a guess that it was not.
Let’s take a moment to put this whole charade in perspective. Though this question of whether or not to raise the debt ceiling is being treated as some groundbreaking battle on which the future of the American way of life rests, that’s simply not the case. Raising the debt ceiling is not a new process. In fact, it has been raised seventy four times since 1962. Ronald Regan raised it 19 times, just during his presidency. So the idea that the debt ceiling debate is some novel battlefield on which the nation’s fiscal direction should be decided is rather silly.
If you go back to the beginning of the debate, there was a purpose behind congress’ refusal to increase the nation’s borrowing limits. They wanted to create a solution to our nation’s horrific deficit problems before borrowing more money, right? But to solve the long term imbalance, at least one of two things must happen. Either we must reform the tax code to increase revenue, reform entitlement programs to decrease spending, or do some combination of the two. As of this morning, there are two plans on the table (one offered by house Republicans and one by senate Democrats), neither of which does either of the above. So at this point, we are seven days from a US debt default, and neither plan we have does anything but kick the can down the road. Didn’t the whole debate start out of a desire not to kick the can down the road? From a practical standpoint, this is essentially the definition of insanity.
So what’s the real meaning of all this madness? If we go back to the midterm elections, you’ll recall that the new house majority John Boehner stated that his single goal over the next two years was to ensure President Obama is defeated in the next election cycle. This is not a recipe for progress in a divided government. At the same time, it’s unclear if the senate Democrats’ plan would even get enough votes from their own party to pass, seeing as it does not raise taxes. That does not sound like a party ready to compromise. The point is neither side is willing to put the nation’s interests in front of their own political agenda. Thus, the system is broken and ineffective.
The fact that there has been no progress made on one of the simplest, most routine fiscal issues ever debated is a terrifying statement. There is little doubt now that the United States of America will lose its triple-A credit rating, but that’s not the terrifying fact. Yes it could cripple the economy, raise borrowing costs, and send shockwaves through financial markets. That’s a problem, but it’s not the problem. Since we can’t come together on a simple little issue like this, there is little hope for a solution to the true catastrophe in the making; the $60 trillion of US deficits and unfunded liabilities. That’s the real problem.
So forget next Tuesday for a moment. Maybe a deal will be struck in Washington and maybe it won’t. In the long run it won’t much matter because absolutely nothing is being done on either side of the isle about the real deficit problems. Even if we wake up tomorrow and they’ve struck a deal, the message has been sent: our system is too dysfunctional to tackle even the simplest fiscal issues.
I met someone last week who bought gold for the first time at $1585 per ounce. He was worried, having bought near the all-time high and asked if I thought gold would keep going up. My response to him was pretty simple. I asked him “Don’t you think the falling dollar and America’s debt issues are the biggest driving factors behind higher gold prices?” He agreed. Then I asked “What do you see that makes you think these debt problems will be solved any time soon?” To this he had no answer, and neither do I.