The co-chairman of the President's Deficit Reduction Commission came out yesterday with their proposal to reduce the budget deficit to less than 3% of gross domestic product (GDP) by 2015--down from the 8% of GDP that it was this year. It is a substantial departure from the ridiculous rhetoric of the 2010 elections, which saw deficit spending used as a boogeyman, but say no worthwhile discussion of how to reduce it. This article from the Wall Street Journal outlines the basic elements of their plan. Further discussion should follow before the Commission is due to report its plan to the President on December 1. Expect empty bombastic talk to fill the airwaves between now and then. I can only imagine how cable news commentators, Rush Limbaugh, and others will twist this to their own ends.
For those following the news, Greece, Britain, and Portugal--among others--have implemented austerity measures to close close budget deficits and eliminate burgeoning debts partially brought on by the reduction in government revenue following the 2008 financial crisis and economic downturn. All of these countries have had to make difficult decisions over social welfare programs (entitlements as we usually call them here), defense, and overall government spending.
The United States has found itself to be one of the worst offenders, with a budget deficit currently 8% of GDP and a national debt of more than $13.7 trillion (or $13,734,829,335,179, i.e. a lot). That $13.7 trillion is held by both United States and foreign creditors, including foreign sovereign wealth funds and central banks, in the form of US Treasury bonds. The top holders of US Treasury bonds (49% of them) are private and public domestic holders (based on data from the Federal Reserve Bank of San Fancisco). The remaining 51% of US Treasury bonds are held by foreign countries, including China, Japan, Arab oil-producing states, Britain, and Brazil--in order of size of holdings (based on data from Wikipedia).
Their program takes a little from all of our major entitlement programs and discretionary spending, but doesn't outright ax any of the large programs--making it as painless as an austerity program can possibly be. It tries to suggest some of the hard decisions we are going to have to make. Whether or not this particular proposal makes it forward, it is a harbinger of the kinds of decisions that will need to be make to make the United States solvent again.
As one might expect, both Democrats AND Republicans came out against many of the ideas in the proposal. This article from Politico.com outlines some of the dissenters. It is going to be interesting to see how political positioning starts to begin, as the remaining liberal Democrats struggle to save every bit of their entitlement programs and the supposed deficit-hawk Republicans have to put their money where their mouth is. It should be some interesting political theater--that is if something comes of this discussion. If we do nothing at all, things might not be so rosy in the next couple of years.
What we must also remember, as the discussion stemming from this proposal will now move to the airwaves, is that this austerity program would only be a beginning. We need a 0% budget deficit at a minimum. To actually pay down some of the national debt, we will need a 0% budget deficit for many, many years. To make real strides in reducing a national debt that continues to grow will require a budget surplus for several years, and that surplus going straight into paying off that debt (and not spent on rebate checks, pork-barrel spending, or tax cuts). What will you be willing to do without?
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