Only sharing the pain will save the U.S. economy
by Gerry Warner
Cranbrook Daily Townsman
“April is the cruellest month,” said poet T.S. Eliot in “The Wasteland” many years ago in the aftermath of World War I. Perhaps if Eliot was alive today he would be revising his opus to say August is the cruellest month as it's certainly looking that way as the U.S. teeters on the edge of financial ruin with no deal reached yet on its government debt ceiling crisis.
Put simply, the U.S. federal government spends more every day than it takes in. The federal deficit is currently $1.3 trillion and rising. The accumulated debt (all the deficits put together) is $14 trillion and rising and the maximum the U.S. is allowed to borrow by law is $14.3 trillion. Hence the fateful date of Aug. 2 when it's calculated that government borrowing costs will exceed $14.3 trillion and the U.S. will default on its loans.
And if that happens all hell will certainly break loose.
The reason is simple. Like it or not, the U.S. dollar is still the coin of the realm, the world's leading currency and the main foundation of the world's economy. U.S. federal treasury bills are still considered the safest investment and the best security in the world and if this were to change we would enter uncharted territory and a crisis in business confidence that could trigger another recession or worse. Much worse!
But the operative word above is “if” because it's in virtually no one's best interests for this to happen, including all of us who live outside U.S. borders. Yet the clock keeps ticking, the markets continue to slide, gold keeps going up and the politicians talk, but still no deal.
The obvious solution, at least in the short term, is to raise the debt ceiling yet again and it would be once more “business as usual.” But for obvious reasons this so-called “solution” carries little appeal because when you get into the trillions the numbers no longer make sense. Debt on this scale scares everyone. There has to be a better way. If you and I budgeted our affairs this way we would be living under a bridge by now. Something has to change. But what is that elusive something?
The constant refrain of politicians on the right in both the U.S. and Canada is we've got to cut government spending. That sounds fine until you look at the record. In the U.S., Republican Presidents Ronald Reagan and George Bush raised the debt ceiling 25 times between them while President Bill Clinton left office with a balanced budget. In Canada, former Liberal finance minister Paul Martin balanced the budget and began to reduce the debt, but both have climbed again under Conservative Prime Minister Stephen Harper.
In other words, politicians on the right talk the talk, but don't seem to walk the walk in both Canada and the U.S. Obama, in fact, has agreed to huge spending cuts even in the U.S. medicaid program yet the Republicans – pushed by their loony Tea Party members – keep calling for more and reject Obama's proposal for modest tax increases to help pay down the debt.
Well, no one likes to pay more taxes including the owners of corporate jets as Obama points out. But it's no different here in B.C., as columnist Paul Willcocks revealed in this paper last week with HST figures released by Victoria. According to B.C. Public Accounts, during the first nine months the HST was in effect, the new tax pulled in around $467 million-a-month compared to $392 million-a-month the PST brought in the previous year. This amounts to a 19 per cent increase or $210-a-month for every man, woman and child in the province while corporations and businesses got close to a $2 billion tax break .
I guess that's what's called voodoo economics – those with less pay more, the rich pay less and our grandchildren pick up the debt.
But surely this can't go on. If the U.S. falls, Canada won't be far behind and neither will the rest of the world. Even with the Tea Party types claiming God has ordained a tax cut, we all have to share the pain including Canadians with the highest per capita household debt in the world.
Or as the oracle once said there are three things you can always count on – birth, death and taxes – but there's no reason why taxes can't be fair on both sides of the border.
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