This week, a new Congress has been sworn in (well, mostly), with higher expectations by conservatives than any Congress in at least 2 years. And the first week has been full of a couple of good things, and a lot of good symbolism. One of the first things to happen was a reading of the Constitution on the floor of the House. One of the first bills that the House will pass is a repeal of Obamacare. A new House rule will require every bill to refer to the part of the Constitution where they were authorized, and other House rules will open up debate on amendments and expand floor debate in general. I support all of these things, but I don't care that much. While they are either small positive steps or good symbolism, they don't mean that much.
We have a $14 Trillion national debt, and a $1.3 Trillion national deficit. Japan and China, our two major creditors, are fighting their own fiscal issues, and have been unwilling or unable to buy very many of our bonds. The deficit has been financed by major US banks buying Treasury bonds, with money borrowed from the Fed at 0.25% interest rate, and the Quantitative Easing by the Fed itself. Both of these are inflationary measures with slow effects, because the money goes to the Government first. The debt and the deficit is doing major harm to the economy. Republicans have promised to cut $100 Billion in discretionary spending. Let's say that they do, and that the economy really starts to pick up steam, and grows by 3% in 2010 (increases tax receipts by about $65 Billion). And lets say that Obama has a rare fit of sanity and brings all the troops home from Iraq and Afghanistan (saves $100 Billion). Even with all of that, and the wailing and gnashing of teeth from the media about lost medical science grants and bridges falling down and dumb children who can't learn without grants from the Department of Education, we'd still have $1 Trillion deficit.
And you can't solve the problem with taxes either. It is unlikely that the new Congress will recommend any tax increases (even those that involve lower, simpler tax rates, like Reagan signed into law), but even if so, the historical revenue limit says that would be limited to about 19% of GDP, and they're about 17% of GDP now. So the maximum increase in tax receipts would be about $300 Billion. If they did all of that, plus the reductions in spending mentioned above, there's still a $700 Billion deficit, and it's getting worse with every retired baby boomer. A country with a $14 Trillion debt and a $700 Billion deficit is in better shape than one with a $1.3 Trillion deficit, but it is still headed for default.
The new Republican-led house must pass major reforms to get the country's checkbook in order. They must get Social Security and especially Medicare on the table. They must start talking about things like Medicare vouchers, and admitting to baby boomers that they won't be able to give them what was promised. This won't be easy, but with everyone from Ron Paul to Paul Ryan to Paul Volcker talking about the dire situation of the national debt (in Paul Krugman bizarroland, we need a bigger deficit and I don't know what RuPaul thinks), it is possible. It will take compromise, but any compromise must still lead to financial solvency.
To the 112th Congress, I must say that I like the talk so far, and I like the symbolism. But if the American people wanted great talk and symbolism, we would have elected Glenn Beck and Lee Greenwood. Let's see some results.