Belmont Club

The nine trillion

Don Surber links to a Reuters story saying that President Obama plans to borrow 28% more than previously planned: “$9 trillion over the next 10 years”. Reuters says that “record-breaking deficits have raised concerns about America’s ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.” For those who are interested, Jeffrey Rogers Hummel at the Library of Economics and Liberty argues that while many believe the country will inflate itself out of debt, “it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.”

Others argue that the US government will find increasing difficulty borrowing money at any affordable interest long before it needs to repudiate debt. One interesting point that is raised is that if the US public’s willingness to support the Federal Government has a ceiling of between 20-25% of GDP, then eventually controlling spending is the only way of ever getting the books back into balance.

In that regard, the key to controlling spending may be finding some way to limiting the escalation mechanism which drives public expenditure, which is the tendency for entitlement programs to expand indefinitely. While socialists may want this, eventually “they run out of other people’s money to spend”, yet there is no obvious reason for the expansion to stop until it crashes because everyone will want to get on the gravy train until the ladle scrapes bottom. It’s pschologically like a Ponzi scheme: sweet until the very end.

And there’s some chance the gravy train will actually have to crash up against the buffers for it to stop. The Plum Line describes the great disappointment among liberals at President Obama’s willingness to even negotiate on the public option in his health care proposals. One comment says “compromise, shmompromise. +70% of Americans want the public option. The Dems are losing faith and patience. The Blue Dogs have us over a barrel. You give the Republicans an inch, they take 100 miles. Time to LBJ-up and get it done. Because it’s right.” In that universe, the only thing wrong with the current situation is that government isn’t spending enough. There’s no way to convince some people that the barrel isn’t bottomless except by getting to the very bottom of it. And even then there will be those who believe that pickaxe and shovel should be substituted for the ladle and they will dig, like men demented, until they come out in China. The problem is a bipartisan one and it’s not going to stop unless something in the dynamic changes or until the whole thing just self-destructs.

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