The debt ceiling deal is only hours old, and it will be some time before the winners become clear (though I wouldn’t be surprised to see Barack Obama at the top of the list on November 7, 2012). But it’s very clear that the losers are the American people.
Pundits and politicians are telling us that the crisis is over, that our financial system is no longer in danger. That might be true in the very near term, but so was Chamberlain’s declaration of peace in our time.
The debt deal avoids the immediate catastrophe of a default. But it also accelerates the even bigger catastrophe of a future when the United States cannot borrow money, cannot maintain programs like Social Security and Medicare, and when massive unemployment could lead to another Great Depression. And that is not hyperbole.
Most Americans will see that a deal was reached and think our problems have been solved — that the country can return to business as usual. But our problems haven’t been solved. They are growing worse, and this deal won’t solve them.
All of the headlines focus on the specifics of the deal and the partisan fighting between Democrats and Republicans. But the real headline is this: The United States just voted to borrow more than $2 trillion — and that will ONLY be good enough to get us through 2012.
It took 80 years (1917-1986) for the debt limit to reach $2 trillion. And now we’re being told it’s an achievement that $2 trillion in borrowed money can finance our government’s obligations for less than 2 years.
The spending cuts in this deal are praiseworthy. But they are not the kind of structural reforms that can actually solve our financial problems. If these cuts were kept in place for the rest of eternity, we’d still need to endlessly borrow trillions of dollars to pay for programs like Medicare, Medicaid and Social Security.
Eventually, investors will realize that we will never be able to repay this debt, and they’ll stop lending to us. And that’s when we’ll be forced to make draconian cuts that will eliminate these vital programs and plunge America into a terrible depression. And when that day comes, a last-minute deal to avert the crisis won’t be possible.
Here’s a practical example of why the debt ceiling deal fails to fix the problem. Say I decide to buy a new Mercedes every year — but I have to borrow $20,000 each year to pay for the Mercedes. Five years later, I own 5 Mercedes and am $100,000 in debt. I realize I have a problem.
So the next year, I save money in other areas of my budget and I only have to borrow $10,000 to pay for the Mercedes. I now have 6 Mercedes and $110,000 in debt. If I told people I was getting my debt under control, they’d laugh in my face.
The first thing I should do to get my debt under control is to stop buying new Mercedes. Similarly, the first thing the United States should do is stop and slow the growth of entitlement programs like Social Security, Medicare and Medicaid because these are the true drivers of our long-term debt.
If you don’t believe me, just ask President Obama. A few months ago he said that by 2025, the United States would only be able to pay for entitlement programs and interest on the national debt. Everything else would have to be paid for using borrowed money.