Monday, Oct 20, 2014
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Government debt – an illusion

Staff
Published:   |   Updated: May 7, 2013 at 04:12 PM

Shirley Temple grew up fast. She told us, "I stopped believing in Santa Claus when my mother took me to see him in a department store, and he asked for my autograph." What she realized was: Sure – there is a Santa Claus – but the magic he supposedly has is an illusion.

Jack Balkin, brilliant constitutional law professor at Yale, J.D. from Harvard, Ph.D. in philosophy from the University of Cambridge, tells us that one way to solve the debt ceiling crisis is for the Secretary of Treasury, Timothy Geithner, to snub the Federal Reserve. It only prints money – paper fiat currency – not coins. America has a long history of coinage legislation, given that in the olden days citizens only trusted money you could bite with your teeth, not burn with a match.

Congress has given the Secretary of the Treasury broad coinage authority, so Balkin suggests that Geithner could finesse the debt ceiling crisis by ordering the Mint to coin a $1 trillion platinum coin, then deposit it at the Federal Reserve and buy back $1 trillion in U.S. debt. It would be legal tender, not counterfeit money – so the Fed wouldn't refuse the deposit.

There are many other creative analyses offered by attorneys. But practical? Another thought-stimulating idea advanced by Democratic senators is that a debt ceiling violates the 14th Amendment of the Constitution. ("Public debt…shall not be questioned…") So Obama could simply issue an Executive Order directing Geithner to just keep paying all the government's bills.

Sen. Pat Murray (D-Wash) thinks this interpretation is "fascinating." In her opinion the debt debate is over. "We have to pay our bills." This senator epitomizes the true meaning of sinecure and goes one better. She's also lost touch with reality, like so many progressive Democrats. These are the kind of ideas that you bat around in constitutional law classes to sharpen your debating skills.

Other progressives have suggested that ignoring a budgetary debt ceiling would eliminate all the angst, the nasty politics and the threat of default. Default would just be another word. Tell that to Greece, Spain and Italy, the latest countries heading for the junk bond market.

This is not meant to be a frivolous observation: We need political reform from the bottom up – not unlike what we just saw in Wisconsin, when average citizens at the bottom of the economic ladder, finally came to grips with out-of-control spending on public sector employees. (But the impending debt crisis goes well beyond the overreach of public sector unions.) The new "bottom" needs to be an informed younger voter, because the "top" – both politicians and older voters, including Republicans – are heavily invested in the status quo – keeping what's already theirs.

Politicians pander for votes to keep their high-paying jobs; and Greek-like, ensconced voters will not support the serious reform needed – the hundreds of free federal entitlements, such as Medicaid, Earned income tax credit etc., or subsidized entitlements such as Medicare, and Social Security. This goes beyond party politics. We – all of us – can't afford ourselves. Government sector employees are but a tip of this unaffordable iceberg.

To add insult to injury, we can't even get tax reform.

Many of the "forget about the deficit" schemes are being floated in advance of yet another debt ceiling crisis this Fall. They won't get through the Congress, but they will give Democrats blame game talking points.

The public debt of France, with a socialist president, is at 90 percent of GDP. The U.S., with a Democrat as president, is at 100 percent of GDP. Yet, the budget deficit crisis of 2011 was blamed on the Republican congress trying to seriously reduce the deficit. Democrats truly believe any debt ceiling is an illusory unconstitutional number. (As Senator Murray says, just pay the bills and be quiet please.)

Republicans were also blamed for the 1995 budget crisis. This was at the time of the first Republican majority in 40 years. They were elected on the promise to slow government spending. This conflicted with the Democratic Party's spending objectives. They tried to cut spending – got no agreement – so they surrendered to the Democrats after a partial shutdown of the government.

Here we are in 2012 with the Congressional Budget Office (CBO) warning of a devastating fiscal crisis as our debt soars, with yet another potential year end budget crisis awaiting us.

The CBO is begging for a grand bargain. Nothing will happen until after the November election with a lame duck congress. Each party wants to see who prevails. Even if the Republicans win, they would need a veto proof Senate – hardly likely. But it would at least facilitate a grand bargain and lay the groundwork for the almost impossible task of restoring fiscal sanity.

There are simply too many moving parts. (Think Obamacare plus 1 million.) It will take a generation to just downsize government to get a handle on this mess.

Progressive Democrats appear to have little concern for a budget with a debt ceiling – apart from their view that putting spending controls on a Congress violates the Constitution. That simply doesn't square with CBO's concern that growing debt "would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government's ability to manage its budget…" What budget? The Democratic Senate hasn't even passed one.

This will not have a happy ending. President Obama does not govern or campaign as a uniter. It is not his style. He has been applauded for his skill as a rhetorician, not an inspiring leader. (His remarks at a Latino rally in Cincinnati when he wasn't on teleprompter: "If Latinos sit out the election, instead of saying, we're gonna punish our enemies and we're gonna reward our friends who stand with us…") Name one president who has used such language. He governs and campaigns like a union leader – brutal, divisive, identity politics.

If the Democrats win in November, the CBO might as well forget about their hope for a grand bargain.

It too will remain an illusion along with spending controls.


John Reiniers, a regular columnist for Hernando Today, lives in Spring Hill.
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