The U.S. is about to get a balanced budget catastrophe

The House Republicans appear to be poised to pass a bill that would forbid increases in the federal debt limit beyond six months from now unless Congress sends out to the states for ratification a balanced budget amendment to the Constitution.

This will never happen. There aren't enough votes in the Senate, and maybe even the House (two-thirds), to approve the amendment.

And I predict that if the federal debt limit isn't raised by August 2, as appears increasingly likely, American voters will be horrified by the prospect of a balanced budget amendment -- dooming this foolish proposal forever.

Why? Because after August 3 we will have a de facto balanced budget. As a story in my hometown Salem Statesman Journal said today:

A July analysis by the Bipartisan Policy Center concluded that the Treasury Department will face an Aug. 3-31 cash deficit of about $134 billion. It will have only a projected $173.3 billion coming in to pay the month's $306.7 billion in expenses.

So if the once-unthinkable happens and the federal government can't borrow money to finance its already incurred obligations, everybody in the United States will get an up close and personal look at how a balanced budget amendment would affect this country.

It won't be a pretty sight.

If the roughly $100 billion in Social Security and Medicare-Medicaid obligations are met, tough choices will have to be made about how the remaining $44 billion or so is spent.

National defense, the Justice Department, including the FBI, and other vital government functions likely could not escape unscathed. The federal government shutdowns of 1995-96 would pale in comparison, experts say, because this time even mandatory spending would be affected.

Federal salaries, jobless benefits, Internal Revenue Service refunds and housing and nutrition assistance for low-income families could go unfunded in a worst-case scenario as could departments and agencies such as the Environmental Protection Agency, the Centers for Disease Control and Prevention and the Education Department.

With the economy still in the doldrums, this is a horrible time to be slashing more than a hundred billion dollars a month from U.S. economic activity.

“There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week,” said Nigel Gault, chief United States economist at IHS Global Insight. By “things going wrong,” he said he means “if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately,” as many Republican representatives hope to do.

Well, that's what the Tea Party wants: economic catastrophe. The best way to cut government is to throttle the economy. No profits or income, no taxes. Do the American people want this to happen? Of course not.

So Obama has been presented with a marvelous opportunity to do what's right for this country, now that Boehner has thrown his lot in with the balanced budget amendment crazies (ask a business executive if companies should be prohibited by law from borrowing money; yet this is how Republicans want government to be run -- which certainly isn't businesslike).

Now he has more reason to assert his presidential power and tell the country that he will not allow the federal government to default on its obligations, which would lead to huge increases in unemployment and other economic disruptions.

Or, if the worst comes to pass and a default happens, Obama and his fellow Democrats will be able to say "this is the consequence of a balanced budget amendment." As people see what the effect of slashing federal spending to current revenues is, they'll quickly realize why the amendment doesn't make sense.

Yesterday Ezra Klein wrote a persuasive column, "What the final deal is likely to look like." He correctly points out that there's a fairly easy way for reasonable Democrats and Republicans to come together on a debt limit bill that will avoid catastrope.

But today Klein said that Boehner's problem is that the Republican party doesn't want compromise. He's correct about that also. The Tea Party isn't reasonable, so they've got us on the edge of an economic cliff and are pushing as hard as they can in the wrong direction.

Comments

[DJ]

To say, “… default… is the consequence of a balanced budget amendment" is all wrong. Default, should it come to that, is the symptom of an illness called overspending. Much like fever is the symptom of physical illness. Illness is cured by eliminating that which causes it. We can choose to mask the fever with tax increases so we can continue to live with the disease and spare ourselves today – but without a cure the patient will ultimately succumb to the disease down the road when the medicine finally runs out.

Greece is the canary in the mineshaft. Greece had very high taxes…that didn’t save it. And now taxes are going up further still. Do you think that and the recent IMF bailout puts it on the road to recovery? In fact it still has a 100% chance of default. The people of Greece will suffer for a long time to come because they did not have the fortitude, vision, will and good sense to curb their appetite for borrowed money and enact a balanced budget years ago. Welcome to your future, citizens of the USA.

http://www.washingtonpost.com/business/economy/greece-default-virtually-100-percent/2011/07/25/gIQALbpSYI_story.html
Note the positive spin on this story of ultimate default by officials who want to minimize contagion to rest of the Eurozone. They will fail to do so…Portugal and Spain are next. When will the USA wake up to the precedent already set by others? Sooner or later, other people’s money runs out.

[Rain]

The answer for the budget is to pass a new budget and not use the device of a spending limit. This is a way to cut without responsibility. It is like a family who goes into a department store, buys a lot of stuff and then says they will only pay part of it. Balance the budget if people want that but do it with the budget, not this dishonest and very unconservative method. I have so little respect right now for the right wing that it is hard to believe. I didn't think it could go lower but it has. I didn't think they could seem more stupid and cruel but they have.

Balance the budget if they want to do that. They passed all these budgets in the past with pork for their own districts (check out if Ron Paul on that) but do it honestly. Is that too much to ask for from Republicans?

One more thing-- the right has gone out of their way to lower taxes on the rich. They want to cut SS, Medicare and any program for the poor or middle which would end even public education if some get their way. Has it occurred to any of them what that means for individual spending and businesses? The rich get a tax cut and frankly don't spend more as they already have all they want. The poor or those on SS get a cut on what is available and they already were spending all they had. Now they won't have as much and there go more businesses. These people in the tea part don't have a clue and those who do really want to destroy this country and I don't know what they hope to gain. A population of serfs?

[tucson]

I agree with DJ

There is an insanity in our government...America borrows money from China or elsewhere, or prints it, to spend overseas.

How has this illness manifested? It is a weakness in the system whereby legislators, in order to get re-elected, create and pass irresponsible legislation to please the special interests that got them elected.

This is insidious and works well into Obama's plan which is to break the system so that a new one can be created that looks more like the European social democracy model.

This may please "progressives" but I don't see Europe doing so well either.

Besides you guys...THERE IS NO MONEY! It's gone. Now we are exactly like a household that has over-maxed out their credit and must live frugally while they sweat and toil to pay off creditors. No more extras or freebies. It's down to bare bones survival or the country dies as we know it.

I am not a tea partier or any partier at all, but it is easy to see why TPers have become so intransigent. How could this happen to the USA? It is unbelievable that this conveyor belt of corrupt, amoral legislators has been allowed to do this for decades or more. We're dummer than dumb and the tea partiers are some of the few who have woken up and are saying "WTF"? Kind of like someone who wakes up to burglars in the room and tries to kill the burglar before they get killed.