In his usual rare form, Fareed Zakaria’s monologue on the budget deficits, debt and credit rating this week cut to the heart of the issue. People are complaining up and down about the S&P downgrading our federal credit rating – which is likely to cost us hundreds of billions in increased debt payments and will damage our economy to an extent that can’t be known until later, but many of them have been saying the exact same things that the S&P gave as their reasoning behind the credit downgrade.
Really what it comes down to is people don’t want to accept the reality of the situation that we’re in. The fact of the matter is, the S&P’s analysis is absolutely sound.
Zakaria explains by saying that our leaders in Washington have demonstrated that our political system is broken, and that because the ideological and/or partisan zealots refuse to budge on issues that are required to be worked on if we want to start shrinking our deficits – much less eventually start paying down actual debt. Some taxes are just unrealistically low, and we need to slow the growth of entitlement spending.
Without real action on both of those fronts, as well as on issues like cutting military spending, our deficits will only continue to get worse and worse. And since the right is hell bent on stopping any tax increases, and the left is hell bent on stopping any cuts to entitlement programs, there is no indication what so ever that our leaders in Washington are likely to come up with a deal that would actually address long term debt in any substantial way.
Economists, fiscally focused advocacy groups, think tanks and pundits have been saying this for years, yet now people want to attack the messenger for recognizing the obvious. The economic pain that economists have been saying would eventually come, if we kept following a fiscally irresponsible path, are now here.
We’re throwing away hundreds of billions on interest payments because of the greed of Democrats and Republicans. The Magical thinking that the politicians have been feeding the American people – that we can get more from the government than we collectively give in taxes, is now being exposed for the fraud that it always has been.
If nothing major changes, we can expect the other credit rating agencies to eventually see the writing on the wall, push past the political pressure to not do so, and downgrade the federal credit rating as well. Why wouldn’t they? Why would you not ask for more interest from a debtor that can’t even balance budgets when the economy is in good shape?
If nothing major changes and that happens, all of the minor cuts they’ve agreed to so far will be wiped out by the increase in the interest payments on the growing debt alone.
The two major parties have been pitting their ideological magical thinking against compound interest for years. I don’t know what can be said to people who buy those lines, over what Einstein said was the most powerful force in the universe (compound interest).
Politicians may lie, but the numbers don’t. Without the sort of actions the Gang of Six was pushing, which the Fiscal Commission originally was for and the President came on board with later in the game (only to do a whole lot of nothing about since), this is the future we’re looking at.