Tuesday, August 2, 2011

Debt Crisis Update

Because many of you have told me that your chief - or only - source for mainstream news is this blog and my podcast, I felt it necessary to keep you updated on the ongoing debt crisis in America.

Late last night the House of Representatives passed an initiative that would raise the debt ceiling until the end of next year. Thus, this would require this same round of negotiations and posturing at the end of 2012/beginning of 2013. (A note: of course, this means that all those folks in Washington who don't want to talk about this during an election year are going to get their wish.)

What's in the deal?

  • In the first installment, $917 billion would be cut over 10 years in exchange for increasing the debt limit by $900 billion.
  • The deal will increase Pell grant funding, but cut other financial aid. Graduate and professional students will no longer be eligible for interest subsidized loans. Repayment incentives will also be done away with after July 1, 2012.
  • The agreement establishes a joint committee of Congress (that some are calling the Super Congress) that would produce debt reduction legislation by November 23, 2011 that would be immune from amendments or filibuster. The goal of the legislation is to cut at least $1.5 trillion over the coming 10 years and be passed by December 23, 2011. The committee would have 12 members, 6 from each party.
  • Projected revenue from the committee's legislation must not exceed the revenue baseline produced by current law.
  • The agreement specifies an incentive for Congress to act. If Congress fails to produce a deficit reduction bill with at least $1.2 trillion in cuts, then Congress can grant a $1.2 trillion increase in the debt ceiling but this would trigger across the board cuts ("sequestration") of spending equally split between defense and non defense programs. The across the board cuts would apply to mandatory and discretionary spending in the years 2013 to 2021 and be in an amount equal to the difference between $1.2 trillion and the amount of deficit reduction enacted from the joint committee. The sequestration mechanism is the same as the Balanced Budget Act of 1997. There are exemptions—across the board cuts would apply to Medicare, but not to Social Security, Medicaid, civil and military employee pay, or veterans.
  • Congress must vote on a Balanced Budget Amendment between October 1, 2011 and the end of the year
  • The debt ceiling may be increased an additional $1.5 trillion if either one of the following two conditions are met:
    • A balanced budget amendment is sent to the states
    • The joint committee cuts spending by a greater amount than the requested debt ceiling increase.

Ok... I can understand why nobody is really happy here. We have a little under $15 trillion in debt. Now, if you're like me, sometimes reading these words takes things out of perspective. Let me help. Our debt is this big:

$14,294,000,000,000

In fact, if you ever want to be shocked and disgusted, take a quick look at the exceptionally well-done National Debt Clock website. From there I have two numbers to show you. The amount the federal government SPENDS is $3.6 trillion (or $3,604,065,987,368. FYI, that number will have gone up by the time you check it.) The amount the federal government MAKES is $2.2 trillion.

So, we're spending more money than we make. And you say, "Yes, Fire Lyte, that's how we got into this debt crisis in the first place. That's how all people go into debt. They spend more than they make." Well, I have a question: If you spend more than you make, and you've taken out a serious chunk of debt. Let's say, comparatively speaking, you make $40k/year, and you have $100k in debt. Obviously, we all know what happens to our monthly income. $40k/year isn't take home pay. You probably take home something like $28k/year because of taxes. After that comes your rent or mortgage, your car payment(s), your food, clothing, entertainment, trips to Salem, etc. How much is left after that to pay down that debt?

What happens for people is different than what happens with governments. We can cut little by little and make a difference over time, as long as we don't add to the debt, as long as we cut up those credit cards. Governments like ours do not have the luxury of cutting up the credit cards and adding to the debt. We also do not have the luxury, as a government, of the last resort of most Americans: bankruptcy. We cannot just absolve all of our debts for a small fee and a few hours in court.

$900 billion is what the debt ceiling is being raised, which should abate the hemorrhaging in this debt crisis for a little while, but Republicans made sure we cut $917 billion in spending....over 10 years. That doesn't equal out to "more than the debt ceiling" no matter how you slice it. We have to make some very serious cuts in certain areas - like defense spending (which I would rather they call 'war spending' as having a permanent presence in dozens of countries doesn't quite feel like 'defense' to me). They also need to add revenue. Badly.

If somehow you had the opportunity to get a better job so that you were now taking home $40k instead of just $28k/year, that debt you have could disappear a lot quickly, right? Especially if you learned how to continue to survive on that $28k/year. Well, we have dozens of wars around the world combined with insane tax cuts for the wealthy. (totaling around $1.6 trillion for the top 20% and about $1.3 trillion for the wars in just Iraq and Afghanistan according to the AP)

How are these meager (by comparison) cuts spread out over 10 years actually going to affect anything? And why aren't these unbelievably wealthy politicians willing to gain that $1.6 trillion back from the wealthiest Americans by simply reverting back to pre-Bush era taxation? (you know...the Clinton years...when there was a surplus?) And why in the world is Obama constantly going on television and saying he's going to "trust" the Republicans will do the right thing when they clearly have decided against any sort of compromise on raising revenues?

The Senate votes today on this debt ceiling increase proposal, and many Republicans are doing a couple things: 1) saying the vote in the House was a victory. 2) saying they're going to vote against it.

So...exactly who is trying to...you know...make sure we're not going to default and cause the nation to eat cat food and live in caves? Neither party appears to be budging, but when there is budging from one camp, there is no show of reciprocity.

Keep your fingers crossed that we can at least get through this with our dignity.

What's that? Oh we've lost that in our political system already, you say? This bodes well...

Keep checking Twitter for the latest on the debt ceiling crisis!

Love and Lyte,

Fire Lyte

3 comments:

  1. I'm glad about the increase in Pell grant funding for undergrads! :) At the same time I feel bad for grad student's I know.

    I'm going to come right out with it and just say it: this whole national debt thing just sucks.

    Even with your excellent explaination I can't stop asking myself "how did this happen?" :|

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  2. @Dessie I know exactly how it happened. W. broke the bank with his two wars and his tax breaks for the wealthy. That's how it happened. :P

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  3. First of all, a big thank you for being so on top of this. This is a huge service you are doing for the community and you are awesome to devote your time to this.

    LOL, you aren't my only news source (and not just you and Jon Stewart either) Slate.com, thedailybeast.com especially Andrew Sullivan's Daily Dish section are two sites I haunt, with occasional peeks at Salon.com, HuffPo and even the National Review on-line if only to get a glimpse at what they're doing on "the other side". Of course none of those are what I would call non-biased sources (the Daily Beast does have writers from both sides of the spectrum) but then again I think the days of neutral unbiased journalism has been gone for a long time now.

    I keep hearing double dip recession or an only vaguely more optimistic note of steeper climb to get out of recovery. At least military spending is supposed to have been cut, but I'm floored that doing away with the tax cuts isn't part of the deal too. I still haven't read enough if closing the loopholes for tax breaks to corporations is part of the deal, but I think I recall reading somewhere else (I think factcheck.org)that merely closing the loopholes on oil companies wouldn't bring all that much revenue (hmmm...what about closing loopholes on corporations across the board?)

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