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Human
Events...
And The Debt Bomb
Ticks On
by Patrick J. Buchanan
01/25/2011
With his approval rating moving up to 50 percent and higher in some
polls, the pundits are all agreed. President Obama has turned the
corner. He is now the winter-book favorite in 2012.
How, two months after his “shellacking,” did he do it?
First, by taking the wheel from Nancy Pelosi and Harry Reid, cutting a
deal to extend the Bush tax cuts, bringing aboard Bill Daley, and
separating himself from the demonizers of Sarah Palin and Glenn Beck as
moral accomplices in the Tucson massacre.
Second, Obama has been the beneficiary of bullish news.
Corporate profits are coming in higher than expected. The stock market
has surged. Nine of 10 economists surveyed by USA Today are more
positive about the economy than they were three months ago. The ratio
of businesses that anticipate new hires over businesses that anticipate
new layoffs has not been better in a decade.
There is a feeling that at last we are coming out of the Great
Recession.
But has the debt bomb really been defused?
On Jan. 20, The New York Times had two front-page stories that ought to
concentrate the mind.
“A Path is Sought for States to Escape Their Debt Burdens,” was the
headline over the first, which reported that bankruptcy lawyers were
being consulted by congressional aides on how states like California
might go into Chapter 9, “leaving investors in state bonds ... possibly
ending at the back of the line as unsecured creditors.”
Illinois, the story said, might, with federal help, do what GM did.
But GM bondholders were wiped out, as some of us know all too well.
Should states win the right to seek bankruptcy protection against their
state bondholders, the $3 trillion municipal bond market, which has
lately been taking hits, could crater.
The second Times story wrote of a rebellion in the House Republican
Study Committee by conservatives and Tea Partiers who think the
leadership is being too timid in cutting this year’s budget.
Rep. Paul Ryan & Co. want to cut $60 billion to $80 billion. But,
says, Mick Mulvaney, a freshman from South Carolina, “We want more.”
These conservatives want $100 billion cut from discretionary programs.
Among their ideas: a five-year freeze on federal salaries, a 15 percent
cut in federal employees, a rollback to 2006 spending levels, $300
billion in long-term funding cuts from such programs as foreign aid,
Amtrak, public broadcasting and the Washington, D.C., subway system.
As the Tea Partiers’ proposed cuts do not touch the military, Medicare,
Medicaid, Social Security or interest on the debt, the biggest budget
items, slashes in transportation, education, domestic security, law
enforcement and medical research, said the Times, “would be nothing
short of drastic.”
Undeniably. Yet, consider.
The federal deficit for the fiscal year 2011, which ends Sept. 30, is
projected at between $1,200 billion and $1,500 billion.
Thus, the $100 billion in cuts the firebrands are pushing, and few
think they will get, add up at best to 8 percent of the deficit and 2.5
percent of the $3.87 trillion budget Obama proposed.
Thus, at best, this Congress will only slightly reduce the rate of
speed at which we are heading toward a debt default.
The last few days have brought other news bearing on the debt bomb
hanging over the Western world.
The Irish, upon whom austerity has been imposed as a condition of an EU
bailout, saw their government fall this weekend. Elections are in
March, and the ruling Fianna Fail, at 13 percent approval, is expecting
a wipeout.
Will the Irish accept endless austerity, or vote for populists who will
default and let EU governments and banks take the hit?
Should Ireland default, she will not be the last to do so.
Also this weekend, the European Central Bank chief warned that
inflation in the global economy -- the rising prices for oil, food,
minerals and precious metals -- may mandate a rise in interest rates.
That would be bad news for bondholders and governments everywhere,
including our deeply indebted states that now borrow to cover operating
costs.
Then there is the crisis in the housing market that continues to deepen.
“All previous postwar recoveries,” writes Mort Zuckerman, “have been
able to depend on a growing U.S. housing market.”
But 8 million homes are today in foreclosure or their owners are
delinquent in their mortgage payments. Some 5.5 million are occupied by
families whose mortgages are at least 20 percent higher than the value
of the property, making them prime candidates for foreclosure.
This weekend, Bank of America reported fourth-quarter losses of $1.6
billion and a 2010 yearly loss of $3.6 billion. Its credit card unit
took a $10 billion write-down, and its home loan business is still
reeling from the fallout of the exploded housing bubble.
Now, facing trillion-dollar deficits as far as the eye can see, House
Republicans are balking at agreeing to raise the debit limit of $14.3
trillion, though the national debt just crossed the $14 trillion mark.
Are the happy days really here again?
Read this at Human Events
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