FRONT PAGE CONTRIBUTOR
The Debt Rises, The Economy Sinks
Despite being dispirited by the one-sided nature of the debt ceiling deal, most of us were looking forward to reaping the rewards from its only ancillary benefit; the impending stock market rally. Much to our chagrin, the Dow dropped precipitously, losing over 800 points since the opening bell on Monday. After the initial euphoria from the debt ceiling hangover began to subside, people have been forced to confront an inconvenient reality. The problem with the economy is not the debt ceiling; it is the debt – and all that it represents; overbearing and job-killing government.
Late Sunday night, Republican leaders forged a bipartisan deal with the president to raise the debt ceiling another $2.4 trillion without any preconditions for the second tranche. Despite pretentious claims that we were entering a new era of austerity, the debt deal has charted us on a trajectory to incur $7.8 trillion more in debt, even considering the unrealistic baseline projections of economic growth and revenue.
Well, the Treasury wasted no time utilizing its new credit card and devouring the spoils like the starved beast that it has been for the past few months. On Tuesday, Treasury Secretary Tim Geithner issued $239 billion in new debt, almost 60% of the entire $400 billion increase in borrowing authority that Congress granted for the first round of the debt limit hike. To put that in perspective with the “austerity side of the debt deal,” it will take 4.5 years to achieve a commensurate degree of savings from the discretionary caps imposed in the bill. I guess that is one way of measuring dollar-for-dollar cuts.
Our total cumulative debt (including the intragovernmental share) now stands at $14.58 trillion, approaching 100% of out GDP for the first time. We have joined the failed socialist experiments of Europe in this ominous distinction.
Nevertheless, at the very least, we should have enjoyed the inevitable market rally that was so eagerly anticipated by the bipartisan cheerleaders on Wall Street. After all, our borrowing authority is inviolable, as we are slated to borrow trillions more over the next few years. Hey, a few billion dollars of debt a day keeps the default away – and will forestall the greatest market crash ever. Won’t it?
As it turned out, there is more to growing an economy, and even the stock market, than issuing more debt. In fact, the debt, along with the very entities and institutions that it purveys, is the primary culprit of the economic stagnation and the “unexpected” market decline.
How ironic that following the spike in market futures, as a result of the debt deal, the market tanked from the news of a terrible manufacturing report. There is perhaps no other sector of the economy that has been so negatively affected by taxation, regulation, litigation, and Big Labor – the crown jewels of big government serviced by debt – than manufacturing.
In addition to the abysmal manufacturing report, the market suffered from record low consumer spending, 17 weeks of jobless claims above 400,000, unprecedented stagnation in GDP growth, higher gas prices (despite, or, because of the meretricious SPR release) and the worst housing market since the Great Depression. These vices are all self-inflicted wounds that have been perpetrated by the inveterate forces of big government, and its gargantuan boot that is placed on the necks of our job-creators daily.
Aside for the economic malaise that we are experiencing as a result of previous big government policies, we now have to contend with more portentous issues resulting from the debt deal. Since the deal failed to impel our government to balance the budget, and worse, actually issued trillions more in debt, the markets will suffer under a perennial cloud of uncertainty regarding the security of our credit rating. Additionally, because of the egregious cuts that the sequestration will extract from healthcare providers (and dump into Medicaid and Obamacare), healthcare stocks lost as much as 50% of their value on Tuesday. That was some market rally the debt ceiling deal produced. I’m sure glad we didn’t traverse the Aug. 2 deadline without a bipartisan deal.
As we head into the September budget battle, we must remind the American people that the problems with the economy are not merely the result of profligate spending alone; they are the result of overbearing government. In other words, even if we had all the money in the world, we should never fund government agencies and programs that promulgate job-killing, income-destroying, price-hiking, market-distorting regulations on the economy. The amount of wealth that these agencies cost our economy dwarfs the price tag of their own appropriations. According to a new report circulated by Senator Barrasso, Obama has added 608 new regulations just in the month of July, costing our economy $9.5 billion. We must begin to fight specific government agencies and regulations – and let the Democrats defend them in the face of insurmountable government-induced economic stagnation.
As a result of the debt deal, we won’t have much to fight for in the September Continuing Resolution, in terms of topline spending caps. All the discretionary spending caps were established in the deal, while the mandatory spending reforms were punted to the super duper committee. Nonetheless, we must be ready to ensure that these cuts, as minuscule as they may seem, are incurred by the biggest offenders. Departments, agencies, and programs such as the Department of Energy, Department of Interior, EPA, NLRB, Obamacare, Dodd-Frank, and Sarbanes-Oxley are among the worst offenders. Not all spending cuts are created equal; we should choose wisely. We should link the debt crisis to the jobs crisis, by identifying the consummate problem as a big/overbearing government crisis.
The great market decline this week should serve as an enduring lesson for our focus headed into 2012. The economy will never improve, unless we vitiate those governmental entities and behemoths that were originally responsible for the decline, and the ones that are currently responsible for the stagnation. This week’s unprecedented issuance of debt will only augment those perpetrators of economic misery and joblessness – even if it was the best we could do.