'Tis Only My Opinion!

February 2012 - Volume 32, Number 2

Politics and the Budget

After last year's fiasco over the debt limit and the fact that Congress has yet to submit a budget for FY 2012 and lives by continuing resolutions, it is time for the voters to send a message ... throw all of them out!

The Debt Limit

On August 2, 2011, Congress compromised with the Obama Administration to raise the debt limit by increasing the debt limit immediately by $400 billion to a total of $14.694 trillion.  President Obama signed the Budget Control Act of 2011 (BCA) almost immediately after it was passed. Provisions of the bill included:

• The President could request a further increase of $500 billion, which is subject to a congressional motion of disapproval which the President may veto, in which case a two-thirds majority in Congress would be needed to override the veto.^[3] This has been called the 'McConnell mechanism' after the Senate Minority Leader Mitch McConnell, who first suggested it as part of another scheme.^[4]
• The President could request a final increase of $1.2–1.5 trillion, subject to the same disapproval procedure. The exact amount depends on the amount of cuts in the "super committee" plan if it passes Congress, and whether a Balanced budget amendment has been passed.^[3]
• The BCA included provisions aimed at deficit reduction and allowing the debt limit to rise between
  $2,100 billion and $2,400 billion in three stages, the latter two subject to congressional
  disapproval.
• The failure also triggered a second $500 billion increase on September 22, 2011, as a disapproval measure (H.J.Res. 77) only passed the House. A January 12, 2012, presidential certification will trigger a third, $1.2 trillion, increase after 15 days unless a disapproval measure, which would be subject to veto, were enacted. On January 18, 2012, the House passed such a measure (H.J.Res. 98) on a 239-176 vote.

History of the Debt Limit from 1993

The following table shows the four-fold increase of the U.S. federal debt limit from  April 1993 to the present.

Politics as usual ...

In December 2011 as part of the compromise that allowed the federal debt limit to be increased, Obama's deficit commission or "the super committee" failed to reach a 14-member supermajority to advance recommendations for Congress to consider on reducing the debt.  It was politics as usual with each side trying to gain a talking point for the Presidential election cycle.

Unfortunately, the games which they are playing exist while the Eurozone is falling apart over the very same problem ... simply too much debt. 

The current inhabitants of Congress and the administration don't see the urgency and expect that the U.S. dollar will remain the world's reserve currency as long as they remain in office.  Here's a news flash ... don't bet the farm on that assumption.

Increase taxes or cut spending

As we have often said, politicians are unwilling to take the necessary steps required to bring the budget into balance by either increasing taxes or cutting spending.  The entitlement programs of social security, medicare and medicaid have to be reduced or taxes raised almost to infinity.

However, the failure to address the issue and continue to spend $1.40 for every $1.00 received in taxes is simply unacceptable.

Conclusion

While the Ryan budget was rejected, the simple fact is that our elected representatives are not doing their job.  In any other environment, they would be discharged for malfeasance ... it is time for the voters to take a stand and say ... "Do your job! --  If you can't get a balanced budget resolution in place quickly, we will find someone who will."

But then - 'Tis Only My Opinion!

Fred Richards
February 1, 2012

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

This issue of 'Tis Only My Opinion was copyrighted by Strategic Investing in 2012.
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