Monday, December 13, 2010

“The Moment of Truth”─ A Political Non-Starter

The Bowles-Simpson bi-partisan National Commission on Fiscal Responsibility and Reform, appointed by President Obama to recommend solutions to America’s dire economic problems and deficit spending ─ did just that. It made very constructive observations and sweeping recommendations in how America spends money and collects taxes and proposed solutions to tackle the U.S. debt by harshly trimming federal spending, especially defense spending, that even the commission recognized were political non-starters ─ even though imperative for America to get back on a sound financial footing. “We’ll… be in a witness-protection program when this is all over,” said former Republican Senator Alan Simpson, co-chair of Obama’s deficit-reduction committee when he and his co-chair Democrat Erskine Bowles, former President Clinton’s chief economic advisor, released a draft of their 59 page report in earlier this month.

The report proposed the cutting of 200,000 federal-government jobs by 2020, roughly 10% of the work force. The proposed plan would achieve nearly $4 trillion in deficit reduction by 2020, reduce the deficit to 2.3% of gross domestic product by 2015, overall the tax code, trim defense spending, cap government revenue at 21% of GDP and reduce debt to 40% of GDP by 2035. “Throughout our nation’s history, Americans have found the courage to do right by our children’s future. Deep down, every American knows we face a moment of truth once again,” the report said.

America needs some big structural solutions and changes to get back on a sustained growth path. The necessary structural fixes can only happen with bipartisan consensus and sacrifice, two political ingredients that have been sorely lacking in Washington.

America milked the stock market in the 1990s to have a good life. When it burst in 2000, the country switched to the property market for another decade of good life. When that crashed, the government decided to print money and suck on the treasury market in a desperate effort to defend America’s lifestyle through government spending. That hasn’t and will not work either. The federal government has more than $9 trillion in debt. If the fed were to buy it all up, it would lead to a collapse of the dollar, and hyperinflation.

The Washington gridlock and bipartisan stalemate has frozen career politicians ability to realistically and meaningfully address the country’s economic problems. America cannot continue its debt-fueled growth model on borrowed money from China for unjustified tax cuts and entitlements without long-term structural changes and investments in new growth enterprises.

Bowles and Simpson, the committee co-chairs, acknowledged that the reality of the Washington Beltway, both of whom are Beltway insiders and know it well, is that their recommendations will never see the light of day because of the built in self-serving interests of corporate America that will be adversely affected by their recommendations and command their lobbyists and supporters in Congress to ensure their recommendations never get to first base. They were right. Congressional leaders from both parties severely criticized their report and recommendations even though what they recommended is exactly what the Tea Party movement and citizen taxpayers want.


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