Column: A $1.3 Trillion hole

By Jacob Drucker

Harvard Political Review, Harvard U. via UWIRE

Last week, President Obama proposed a $3.8 trillion budget to Congress.  The budget is nothing more than posturing–it has no chance of being approved by the Republican-controlled House of Representatives and would create a deficit of $1.3 trillion if enacted.  The budget does demonstrate, though, that Obama is not even remotely serious about getting America’s fiscal house in order.

House Budget Committee Chairman Paul Ryan jousted with Secretary of the Treasury Timothy Geithner and forced him to admit, “We’re not coming before you to say we have a definitive solution to our long-term problem.  What we do know is we don’t like yours.”  This is a ridiculous thing for a Secretary of the Treasury to say.  It is his job to come up with a definitive solution.

Geithner further admitted that Obama’s budget, while stabilizing the debt to GDP ratio over the next 10 years, will actually cause the ratio to double within the ensuing 50 years, to the point where the debt equals over 200% of GDP.  Aside from being insanely fiscally irresponsible, the budget was proposed for purely political purposes.  Obama needs to paint the GOP as obstructionist in order to win reelection Harry Truman-style–by running against a do-nothing congress.  And he can only do so if no budget passes, an event virtually guaranteed as the Democratic Senate will never approve a GOP-written House budget.  (Obama has not signed a regular budget in over 1000 days.)  For a president who seemed so eager to stay above the political fray, Obama has had no compunction playing politics with the nation’s budget.

Obama’s sheer audacity is why so many, on both sides of the political spectrum, are frustrated.  Granted, the economy is weak, and recessions are not the time to tighten the fiscal belt.  Nevertheless, by 2013, Obama will have overseen a larger increase in the federal debt than any other president in history.  The debt has just recently exceeded annual GDP, which is somewhere near $15 trillion.  His latest proposal will add another $1.3 trillion.  And yet, the OMB Acting Director Jeffrey Zients had the nerve to claim that “The president has put forward today a balanced budget” with a straight face on MSNBC.

Why, many wonder, is a large deficit such a bad thing?  Running up large, continued budget deficits will ultimately lead bond buyers to demand a higher interest payment from the government, which could significantly derail the economy.  The ultimate worry, of course, is that lenders lose faith in the credit of the United States, an event which would lead to skyrocketing interest rates and global financial turmoil.

Many Democrats, however, are still committed to the notion that deficit spending is necessary now to help the poor in our times of economic turmoil.  They fail to acknowledge that, in fact, a smaller and smaller fraction of federal expenditures goes to the poorest quintile of Americans.  Most of the budget is now comprised of transfer payments which have increasingly gone to middle-income and wealthy Americans.  The practice is sure to come under increased scrutiny as it becomes increasingly obvious that the government simply cannot afford such payments anymore.

The time has come and gone to blame our fiscal woes on the previous administration.  Yes, they created a massive deficit problem.  No, Obama has not had the will, or ability, or political finesse to address the issue.  And nobody can blame Republican stonewalling for the deficits of the past few years- Obama has proposed a budget with a $1.3 trillion shortfall.  The proposed deficit is before Republicans take a hatchet to the budget.

$1,300,000,000,000 is a lot of money.

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