Where It Stands

The purpose of this blog is to keep you, my loyal readers, informed as to what’s going on in Washington that could affect you and your family. The most significant thing going on right now is the imbroglio around the debt ceiling which allegedly will be reached next Tuesday, August 2nd.

The challenge in writing this week’s blog is that the ground under us is shifting so rapidly, that by the time you read this, some significant new development may have occurred to change everything. But here goes.

First of all, the Obama Administration and the mainstream press continue to say that if the debt ceiling is not raised by August 2nd, we automatically go into default. This is not true. The United States Treasury takes in approximately $200 billion each month. Our debt payments each month are roughly 10% of that. The Administration should pay the interest on the debt first, and we don’t default.

I also favor and have supported passing legislation that would prioritize where the rest of the revenues go. It would require that we pay Social Security, Medicare, and our men and women in uniform as priorities. And then we start cutting from there. However, no such legislation has yet been passed, and therefore there is no telling how competently (or I fear incompetently) the Obama Administration would handle divvying up the available funds.

I still believe that the ideal answer to our dilemma is to enact the Cut, Cap, and Balance Act which was passed last week by the House. It would require substantial cuts in spending, real caps on future spending, and require passage of a Balanced Budget Amendment to the Constitution before the debt ceiling could be raised. Unfortunately, Harry Reid and the Democrats control the Senate, and they voted against even bringing Cut, Cap, and Balance up for debate in the Senate last week.

So where does that leave us? Most people say there are basically three choices at this point.

First, we can do nothing. Although, as I argued earlier in this blog, we do not automatically go into default, the overwhelming majority of economists believe that the results of such inaction could be catastrophic to the economy which is already weak, roil the markets, and the Obama Administration just yesterday argued that it could push us not just into a deeper recession, but into depression. None of us knows for sure if any of these scenarios will actually occur, but they are to be avoided if at all possible.

Second, the Harry Reid plan raises the debt ceiling and essentially gives President Obama a blank check. This is an awful choice, and I hope we can stop it, but it’s basically what the President and just about all the Democrats in Congress want.

And third, Speaker John Boehner has proposed a plan which cuts $1.2 trillion and more later, forces a vote on the Balanced Budget Amendment in the Senate, and holds the line against raising taxes. As I’m writing this blog, it’s just been announced that the Congressional Budget Office (CBO) says that the cuts are overstated, so the plan will likely be modified before it’s voted on by the House. And it’s just been reported that there may be sufficient revenues coming into the Treasury coffers to push the August 2nd date out for a week or so, perhaps to August 9th or 10th. (Remember what I said about the ground shifting and potential new developments?)

Anyway, it’s impossible to predict with certainty how this will all play out over the next few days, but there is no question that the ramifications of what we do could significantly impact the economy, jobs, our savings and investments, and probably the rest of the world who look to us for leadership.

We better get it right.

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