Wasn’t it just five minutes ago that Democrats and Republicans alike were hailing their budget resolution from last week as “historic” and “unprecedented” in its cuts? Even the usually understated WSJ called it, as I pointed out only moments ago, “The Tea Party’s First Victory.”
I guess that was then. Today the WSJ reports that even that widely reported figure of $38 billion in hotly negotiated cuts was “hokum,” the real figure being closer to $20 billion. The Journal also reports that this revelation might mean that House Speaker Boehner is in danger of losing yet more backbencher support from those yahoos of media lore.
Well, I for one am shocked, shocked that instead of cutting the budget by the whole one-and-a-half percent ($61 billion) the Republicans initially demanded, and instead of the one whole percent ($38 billion) they claimed to end up with, they in fact cut the budget by only about one-half of one percent.
Budget crisis? What budget crisis?
PILEUS 
I have a better idea. I’m voting Democrat.
It’s a simple calculation. I’m about to go into huge debt for law school. Democrats will run up the debt really fast (as opposed to slightly more slowly, as the Republicans would like). Because the federal government has no real way of paying this back, they will, once their terms of borrowing become too onerous to grow the debt any further, begin to monetize the debt. At that point it will be a countdown to runaway inflation (Percy Greaves suggested in “Understanding the Dollar Crisis” that, based on the experience of prewar Germany, this will take a few months). All I have to do is make minimum payments on my loans and watch inflation take out my poor lender.
Never has so little been claimed by so many to be so much. What is the over/under on the time until the disclaiming of credit for the historic achievement begins? Perhaps it has already done so…
Our actual inflation rate is already somewhere near 6%. When the depreciation cycle begins depends when the US Dollar loses its status as the global reserve currency. It could happen within 24 months. My guess is it will happen in 2-6 years, depending on the political instability in the Arab world (political instability could lead for a larger, louder chorus of nationalistic voices demanding to be paid in a currency other than USD, especially if people come to power who aren’t quite as dependent upon America’s political muscle to maintain their grip on power). Even if it never happens, foreign countries like China that have been stockpiling US dollars will likely want to reduce their dollar holdings in the short run, especially if the dollar keeps falling in the foreign exchange markets, and as their citizens clamor for a larger share of the pie that has been, thus far, been monopolized by government-favored exporters. Any such significant reduction could send the dollar’s value on a downward spiral, and hurt America’s borrowing capacity, since interest rates rise as the market price on treasuries falls in response to a large-scale sell-off.
The question of US debt (and the US credit rating) will hinge upon state budgets. It’s clear that a number of large states, including NY, NJ and CA, will need federal government bailouts to avoid losing their credit. Each bailout will involve a huge, sudden increase in the federal debt. Any such sudden move could cost us our AAA sovereign credit rating, which would instantly increase our borrowing costs, decreasing the percentage of government cash inflows available for spending. As a rule, the government does not decrease social spending, so it will be forced to increase total spending (spending + interest on the debt) to compensate. Taxes are notoriously hard to pass and even harder to collect, so, especially in the immediate term, they will borrow money to keep spending levels static. To prevent a downward spiral in the price of treasuries that would normally result from such a large-scale issue, the Fed will be instructed to buy treasuries on the open market, effectively monetizing pre-existing debt, thereby inflating the money supply.
Again, it’s hard to say exactly when this will happen, and it’s largely contingent upon when and to what degree various states will need to be bailed out by the Federal Government.
Pardon the numerous grammatical errors in the above comment. My language skills appear to have woken up on the wrong side of the bed.
Taxes are sticky in the sense that total tax collections, as a percentage of GDP, historically are in the 19% range. There are sometimes increases beyond this percentage, following some adjustment to the tax code, but total tax collections then return, often quickly, to this average level. Borrowing is, therefore, the only way to finance spending that exceeds that percentage of GDP.
But don’t worry- Obama just announced he’s raising taxes on the rich. This will, somehow (without any real spending cuts), reduce our debt by 4 trillion dollars. I must have missed the part where we were running a surplus.
The incompetence of the political class would be entertaining if it didn’t have such horrific long-term implications.
The fraud continues: Obama claimed his plan has $3 of spending cuts for every $1 of tax hikes and then it turns out they have classified “tax expenditures” as “spending” so when they reduce deductions and raise taxes that way, it is classified as a spending cut.
That is actually just plain funny. It doesn’t take much to fool people these days, does it? Say! Aren’t those weapons of mass destruction?!
And who can forget: “oh it’s not a tax hike it’s a ‘penalty’ for not carrying insurance. Oh that’s unconstitutional? Well it’s not REALLY a penalty, it’s more of a tax hike…”
It gets worse. Just saw at Reason that the CBO is now estimating the real reduction in budget deficit to be only $353 million. Pitiful.
A scene in Chinatown comes to mind.