I simply cannot comprehend the malfeasance of the media in discussing America’s fiscal situation. This includes the entire spectrum of commentary, from the usual suspects on MSNBC to Fox News Sunday.
10. The President’s desired tax hikes — raising taxes on “the rich”, those with an income over $200,000 ($250,000 for married couples) — would pay for just 8 days of the federal government’s operation.
9. The President’s one-time, emergency Stimulus package of around $900 billion, passed in 2009, became part of the baseline federal budget and has been spent every year since.
8. According to The Wharton School, “The federal government ran annual deficits well above $1 trillion in 2009, 2010 and 2011… the largest deficits since World War II” as a percentage of GDP.
7. The federal government is spending so much more than it takes in that it is now forced to borrow 42 cents of every dollar it spends. This is an unsustainable rate — and higher taxes do nothing to limit spending.
6. The Federal Reserve is now buying nearly all (90 percent-plus) of the United States’ newly issued debt in order to keep interest rates artificially low. In other words, the federal government is essentially loaning itself money by printing what it needs.
5. Again, according to Wharton, “Rising rates would cause severe problems for the U.S. government. The bulk of Treasury bonds in circulation have maturities of less than five years, which will require existing debt to be refinanced with new debt at higher interest rates. That will increase the government’s debt-service costs.”
4. Even under a best case scenario — one in which interest rates gently rise to historically normative levels — the U.S. will be forced to pay $5 trillion in interest payments alone over the next decade. Under other scenarios, the federal government would simply have to default on its obligations.
3. A recent conference of experts explored the ramifications of a federal default. In short:
Trillions of dollars of losses would roar through the world economy like a tsunami, damaging Treasury investors, including governments, corporations, pension and insurance funds, individual investors and people who own mutual funds. Panic would undoubtedly harm other types of investments as well, including stocks and real estate. And if the government wanted to borrow in the future, as it most likely would at some point, it would have to pay much higher yields to attract investors. As higher rates worked through the markets, state and local governments, corporations, homebuyers and other consumers would face higher rates as well.
2. A Treasury default would be so devastating that the entire financial sector could well be obliterated.
1. In the words of investor Kyle Bass, “The developed world faces a day of reckoning. It is time to act.”
Where are the adults?
We face a real fiscal cliff; not the one you hear about from the talking heads, but a collapse that will devastate seniors, the poor and urban centers most of all.
And there doesn’t appear to be a single pundit or politician capable of explaining this impending disaster.