Archive for August 7th, 2011

spending cuts

For the first time in US history, rating agency Standard & Poor’s has lowered its rating of long-term federal debt to AA+, one notch below the top grade of triple A. But instead of focusing on the roots of that historic decision, government officials complained about some technical flaws.

So, what has caused the United States to lose its top credit standing? The official statement puts it very precisely:

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

Indeed, the budget deal basically does nothing to balance the budget and reduce government spending. As was shown before, those so-called spending cuts politicians have talked about are simply reductions in increases. These illusory cuts were brilliantly described by Texas Congressman and potential Republican presidential candidate Ron Paul:

This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda.

The whole debate in Washington was also depicted in that same article:

If your family’s income did not change year over year, would it be wise financial management to accelerate spending so you would feel richer? That is what our government is doing, with one side merely suggesting a different list of purchases than the other.

But instead of simply criticizing Washington politics, Ron Paul also presents a simple solution to America’s debt problem:

Our revenues currently stand at approximately $2.2 trillion a year and are likely to remain stagnant as the recession continues. Our outlays are $3.7 trillion and projected to grow every year. Yet we only have to go back to 2004 for federal outlays of $2.2 trillion, and the government was far from small that year. If we simply returned to that year’s spending levels, which would hardly be austere, we would have a balanced budget right now. If we held the line on spending, and the economy actually did grow as estimated, the budget would balance on its own by 2015 with no cuts whatsoever.

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