State of the Economy – July 2011 (Debt Ceiling)

Will the global economy come to grinding halt on August 2nd if the debt ceiling is hit? Will the global economy fall into another massive recession? For either party to allow that would be political suicide, but it makes for good headlines.

Speaker Boehner’s plan was taken back to the drawing board after analysts said it would not provide the savings advertised. Reid’s plan projected a $2.6 trillion savings, but that figure included a draw down of wars in Afghanistan and Iraq. One would think that a decision to end a war was determined by other factors than a need to cut budget. ‘Guys we cant afford to fight anymore. Pack it up!’ Cuts probably need to come from other less fluid sources.

Democrats need to be open to restructuring social programs. Those programs need to have sustainable strategies for the next 50 years. Hope is great, but hope is not a strategy! Republicans need to be open to increased taxation through elimination of tax brakes and loop holes. Streamline and simplify the tax code… cowboy up and fix it! The argument that removing tax brakes for the ultra rich and subsidies for industries making record profits would reduce hiring is absolute rubbish! Companies will continue to invest in growth in accordance with growing market demand and not because they can afford to hire more people they don’t need. The idea is absolutely ridiculous! With the ultra rich, it’s not a lack of available funds, but rather a lack of potential and opportunity in the current economy. Wealth has not vaporized. It has changed ownership and been secured in less fluid and less risky instruments. Removing tax brakes would not impact the amount of absolute investment at all. How much has QE1 and QE2 impacted in liquidity and borrowing in the market as a whole? Quantitative easing (printing money) has served to weaken the dollar, which has reduced the absolute value of national debt in relation to other currencies. It has also increased the dollar value of US made exports and cooled the trade deficit with China. Quantitative easing is not a domestic policy, but rather an instrument of international trade… and a necessary one.

I agree that we should not add additional tax burdens across the board, as those would truly impact the economy as a whole. Touching the mortgage interest reduction would be a catastrophic move. With depressed home prices, underwater mortgages and generally a sluggish market… yeah, let’s remove incentives for home ownership and let’s add hardship to distressed mortgage holders. Real smart!

The discussion is more political than rational and the stakes are high. Watching the political news this week is like watching So You Think You Can Dance. I just hope that the voters see it for what it is and hold the ‘players’ accountable in the next election, regardless of their party. We need doers, not dancers. My challenge to Washington is: look me in the eye, offer me a long term deal that makes simple common sense and I’ll shake your hand.


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