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IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.

There is no good economic reason why this should be happening. America’s net indebtedness is a perfectly affordable 65% of GDP, and throughout the past three years of recession and tepid recovery investors have been more than happy to go on lending to the federal government. The current problems, rather, are political. Under America’s elaborate separation of powers, Congress must authorise any extension of the debt ceiling, which now stands at $14.3 trillion. Back in May the government bumped up against that limit, but various accounting dodges have been used to keep funds flowing. It is now reckoned that these wheezes will be exhausted by August 2nd.

The House of Representatives, under Republican control as a result of last November’s mid-term elections, has balked at passing the necessary bill. That is perfectly reasonable: until recently the Republicans had been exercising their clear electoral mandate to hold the government of Barack Obama to account, insisting that they will not permit a higher debt ceiling until agreement is reached on wrenching cuts to public spending. Until they started to play hardball in this way, Mr Obama had been deplorably insouciant about the medium-term picture, repeatedly failing in his budgets and his state-of-the-union speeches to offer any path to a sustainable deficit. Under heavy Republican pressure, he has been forced to rethink.

Now, however, the Republicans are pushing things too far. Talks with the administration ground to a halt last month, despite an offer from the Democrats to cut at least $2 trillion and possibly much more out of the budget over the next ten years. Assuming that the recovery continues, that would be enough to get the deficit back to a prudent level. As The Economist went to press, Mr Obama seemed set to restart the talks.

The sticking-point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.

A gamble where you bet your country’s good name

This newspaper has a strong dislike of big government; we have long argued that the main way to right America’s finances is through spending cuts. But you cannot get there without any tax rises. In Britain, for instance, the coalition government aims to tame its deficit with a 3:1 ratio of cuts to hikes. America’s tax take is at its lowest level for decades: even Ronald Reagan raised taxes when he needed to do so.

And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noting that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer.

Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.

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Noteworthy in Congressman Long’s reply was the following statement he made about voting against the amendment proposed by U.S. Rep. Steve King (R-Iowa) that would have prohibited Pigford II funding:


“I voted against this amendment, along with several other Republicans, because stopping payments could increase the risk for additional litigation. I firmly believe I must take every step I can to curb costly litigation, which hurts businesses and job creation in this country. I also believe I must take every step to slow out-of-control government spending at every turn.“

Later in the reply, the auctioneer-turned-politician added this thought-provoking missive:

“The United States is facing an unprecedented budget shortfall which threatens the stability of our economy and the fiscal viability of future generations who will have to repay our debt. Families, businesses and especially the federal government all need to take caution to live within our means and prioritize how to best spend their money. We must look at all programs as we search for savings in tackling this extremely important challenge.”

[apparently] it’s worth spending $1.25 billion to prevent spending more money to litigate the case once described on the Washington Times’ editorial page as “Race hustlers are shaking down taxpayers for payoffs, and the U.S. Department of Agriculture (USDA) is falling for the scam.”

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The Federal government’s spendable tax revenue of approximately $170 billion per month; is roughly just enough to cover legally required Social Security / Medicare payments ($90 billion) and debt service (ranging from $10-40 billon per month) – and the most politically sensitive payments for military and unemployment ($40 billion).

The Treasury will need to borrow $20 trillion or ten times more than the proposed deficit reduction agreement over the next decade.

The American Social Welfarists promised that government bureaucrats could manage the economy so effectively we would avoid the pain of deleveraging the ludicrous amount of mortgage and credit card debt we ran up in the “good times”. Congress did put Welfare State on steroids, but much of the $5 trillion in deficit spending went to not-so-well-intentioned bailouts and subsidies for powerful cronies. With solvency of our nation now at risk and unemployment rising again, the Privateer suggests another path for our nation:

“Economic “miracles” (so-called) have happened before. The US emerged from a deep recession in 1920-21, because the government and the central bank did NOT interfere. Germany emerged from the actual physical rubble of WW II for exactly the same reason. So, to a lesser extent, did Japan. In all these cases, debts which could not be repaid were not held on life support by central banks, they were written off. In all these cases, creditors took very severe “haircuts” indeed while many debtors literally had to start again from scratch. In all these cases, the LACK of government impediments or government largesse meant that a recovery took place in a much shorter time frame than would otherwise have been the case.

Nothing demonstrates more clearly how the Social Welfare State is on life support than the fact America’s fastest growing cohort of the unemployed are federal, state and local government workers. Last month government cut a record 39,000 jobs; over the past eight months governments have cut a combined 238,000 positions. With federal, state and local governments all threatened with debt defaults and the public angry over failed spending; the American Social Welfare State is doomed.

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Political trench warfare reached a stalemate in Washington, DC this past week as the White House and GOP lawmakers continued to square off in the debt ceiling debate. President Obama put his thumb on the launch button of his party’s thermonuclear equivalent weapon, suggesting seniors may not get Social Security checks because of Republican intransigence in the talks. But beyond the simplistic jab and parry of tax hikes versus spending cuts, there’s something much more significant at stake: two vastly different visions of America’s future.

Despite Obama’s sudden head fake attempt to appear above the fray on the issue, he is not. Barack Obama is as far left as politicians come. He’s a product of his upbringing and radical influences, a culture that despises America’s capitalism and exceptionalism. In his America, one in every seven Americans is on food stamps, one in two households pays no federal taxes, and the wealth creators are vilified for their success.

It should be no surprise that Obama’s vision for America is to create as many wards of the state as he can, trapping more citizens in the utter despair of big government dependency. It is this kind of lefty mentality that drives his position on the debt ceiling debate. Tax hikes are the only solution in the mindset of the average liberal/Democrat/progressive/socialist/Marxist (you pick; they all mean the same thing).

In contrast, the GOP envisions an America where less government and more individual freedoms stimulate personal responsibility and independence. On the debt ceiling debate, spending cuts are a necessary (and commonsense) first order of business to control runaway debt and keep government in check. Tax hikes will only stifle business growth and stymie job creation.


I’ve got personal history with both visions, so I view this debate from a perspective most Americans don’t have. I grew up in the 1960s and 70s in the housing projects of Newark, NJ, in literally one of the most despairing environments one can imagine. It was big government-created misery, a mini-version of the welfare-state vision Obama has for the entire country.

My father was a blue-collar guy, and unlike most of my friends’ parents, he worked. The average “family” in the projects consisted of a single parent of several children on welfare, and because of that dependence, there was little incentive to work. My dad was severely disabled, partially paralyzed, yet he worked hard every day to support his family.



When I was a young boy I once asked him why he didn’t simply go on disability or welfare. He smiled and told me that once you accept government assistance, it’s hard to stop. He explained that government builds fences around people to trap them, but it is up to a man to build his own bridge out of poverty. After that I started to see the fences that surrounded the people who lived in the projects, fences made of welfare checks, food stamps, and other forms of assistance. They were content to live on just enough to survive, with no hope or promise of improving their lives.

My dad eventually built his bridge and pulled us out of poverty to a better life in a new city and state, and his lessons have stayed with me ever since. I grew into my conservative beliefs by example, seeing both the big government solution and the benefits of personal responsibility. There’s no comparison. Newark’s welfare culture was the most hopeless, bleak, and miserable existence I’ve ever experienced. The last thing I want to see is its expansion to the rest of America. Some days, I feel like we’re almost there.



On the debt ceiling debate, the choice is clear. We can allow Obama and the asylum-running lunatic Senate Democrats to push us closer to a total welfare state where we’re all penned inside fences we can’t see beyond, or we can allow the GOP to end the madness and help us all build bridges to a greater future. It starts with taking a stand. The time is now.

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US President Barack Obama stormed out of tense debt-limit talks Wednesday with his top Republican foes after declaring he was ready to stake his reelection on the outcome, a Republican aide said.

After Republican House Majority Leader Eric Cantor proposed to raise the US debt ceiling in more than one catch-all vote, Obama got "heated" and insisted on one comprehensive deal, said the aide, who requested anonymity.

Obama said he would not be "afraid to veto" a short-term approach or "defend it to the American people" and warned that a US debt default would amount to "a tax increase on every American," said the aide.

Obama said "I have reached the point where I say enough," and added "I've reached my limit. This may bring my presidency down, but I will not yield on this," according to the aide.

There was no immediate comment from the White House.

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