Will the United States Default?

Will the United States default?

This column will be read on August 1^st one day before the deadline to raise the debt ceiling or default on our obligations.  So, what do I think will happen? Whatever I say, we will know on August 2^nd if I am right or wrong.

I think the politicians in Washington are playing with all of us. To them it is a game even though the consequences are already being felt.

I believe they are not stupid enough to allow the country to default. I think it would be a horrendous mistake and I am in favor of not allowing that to happen. They are not behaving as leaders should behave.

But let’s assume the worst. Let’s say that they can’t reach a compromise and August 2^nd arrives without the ceiling being raised. This is also remote because I believe the President has a card under his sleeve where he could do something about it without the approval of congress. Whether it is legal or illegal, that remains to be seen.

But, in the event that the ceiling is not lifted, I don’t believe that the politicians and government officials are telling us the truth. Maybe even the President is not being too transparent.

Let’s analyze this:

Federal spending averages 300 billion a month as per an economic newsletter put out by D. Morris who worked with President Bill Clinton.  Federal tax collections run to about 180 billion. Our absolutely vital obligations are much less than that. Federal debt service is about 25 billion a month, social security about 58 billion per month, the entire defense budget is also about 58 billion per month. So, tax revenues are enough to fund each of these items if the president chooses to allocate the money for this purpose.

If congress doesn’t want to raise the debt ceiling, and believe me, the pressure they are under will almost make it impossible for them not to do so, but let’s say they don’t, the president has the prerogative to allocate the funds that will continue to come in.

Let’s be clear, if he wanted to cause a catastrophe by deliberately channeling the money to areas other than debt service he could certainly do so. If he wanted to provoke a massive political crisis by withholding tax revenues from Social Security or payment for military purposes, he can do that too.

That decision is his to make as President of the United States. He could do the right thing and make sure that the absolutely vital expenses are paid and not pay some of the other federal expenses that although important, are not critical such as Labor, Agriculture, HUD, Justice, Commerce etc. Even as I mention those not vital it gives me the creeps, because they are important, but in reality they are not vital.

Some people believe that the real political threat to the President is that the debt limit is not increased and just a handful of people notice any change in their lives and nobody much cares. They say that for someone to wait a few more weeks to get their passports is not a big deal.

Mr. Morris believes that the President’s entire strategy is to conceal his real goal: protecting every last desk in the government bureaucracy behind a disguise of threatening to close the most popular fiscally necessary programs. He makes an interesting comparison by saying that Mr. Obama is like a local mayor who knows that nobody is going to get hot and bothered if the commercial licensing bureau gets closed for a few days, so he warns teachers and police will have to be laid off if there are budget cuts. I think he over simplifies it.

The house and the senate we are told are fairly close to a deal. They have finally agreed to raise the debt limit without tax hikes. As I write this article, and this might change in a heartbeat, the Senate wants it raised by two years, the House for one. This is to be expected of course, the Senate is Democrat controlled and the House is Republican. The Senate wants some items to be included as savings, such as ending the wars, the House doesn’t want that to be counted as savings. Hey, these are obstacles that can be overcome by all means. These I don’t think are deal breakers.

The big factor is the President, who has positioned himself to the left of his Senators and wants a tax hike.

I am not a politician or an economist, but in my profession we have the ability or the skills to determine how entities utilize their resources and how they misuse or waste them.

Even in well run companies, it is estimated that at least 30% of revenues are wasted. This means that if you stood at the door of the organization and your collected the money coming in from sales or taxes, or whatever income producing mechanism you have, for every hundred dollars that comes in, you take thirty dollars and throw them in the waste basket. You operate only with $70.00.

I would bet anything that the Federal government, and more so our local government wastes more than 30%.

So, if there was a concerted effort to eliminate waste, re- engineering the whole government, there would be no need to raise taxes and all our bills would be paid.

And if corruption is penalized, really penalized, to the point that corrupt officials would think it over before they became crooks, we would also have more money available to be invested in the well- being of the citizens.  

I was having dinner with a lady from Malaysia a few years ago and I asked her how they controlled their drug problem and she answered that it was rather simple. You get caught with drugs and the penalty is death.

I must end with the words of one of my favorite philosophers, Alissa Zinovievna Rosenbaum a.k.a. Ayn Rand. Even though she died in 1982, her book Atlas Shrugged still sells close to a quarter million copies a year.

She said: “When you realize that to be able to produce something you need the authorization of those that produce nothing; when you realize that the money flows towards those that don’t do business but do favors; when you perceive that lots of people become rich because of bribes or influence rather than work; and that the laws don’t protect you from those people, on the contrary they are the ones being protected; when you realize that corruption is rewarded and honesty becomes self- sacrifice, then you will be able to declare without fear of being wrong, that your country is condemned.