The Potential for a U.S. Default

Hmmm.  I find myself in the unusual position of mostly agreeing with Pat Buchanan twice in rapid succession.  In Is a U.S. Default Inevitable?, he takes a quick macro look at the financial situation of the U.S. and concludes that things are pretty bleak. His analysis can be criticized for being short on detail and long on gloom, but it’s like the fire bell ringing in the night — you may not be getting all the details, but it makes your gut clench because you know something bad is happening.

Buchanan’s case is basically this:  The five largest areas of spending in the federal budget are Social Security, Medicare, Medicaid, defense and interest on the debt.  In the current political climate, none of those can be reduced, and taxes can’t be increased to pay for them.

The defense budget can’t be cut, considering that we’re involved in two wars(escalating the one in Afghanistan), while at the same time defenses are being maintained against a constant worldwide terrorism threat.  We can’t stop paying interest on the debt — that’s the default we’re talking about.  As for Social Security, Medicare, and Medicaid, as Buchanan says,

…it would be fatal for the Obama Democrats to curtail Social Security or Medicare benefits any further this year. … The same holds true for Medicaid. The Party of Government is not going to cut health benefits for its most loyal supporters.

If we can’t cut spending to any appreciable degree, the only logical solution left is to raise taxes.  But…

Obama has promised to let the Bush tax cuts lapse for those earning $250,000 but has pledged not to raise taxes on the middle class. Any broad-based tax would be politically suicidal for him and his increasingly unpopular party.

But if taxes are off the table, Afghan war costs are inexorably rising, and cuts in Social Security, Medicare, Medicaid and entitlement programs are politically impossible, as pressure builds for a second stimulus, how does one reduce a deficit of $1.4 trillion?

How does one stop the exploding national debt from surging above 100 percent of GDP?

Here’s an important area where I disagree with Buchanan.  He’s focusing on Obama and the Democrats, “the Party of Government.”  However, the problem goes far beyond his partisan view of one president and one party.  One only has to look at the eight years of the Bush Administration, where the philosophy was spend, spend, spend and not only don’t raise taxes, but cut them!  The hard fact is that Bush and the Republicans were just as irresponsible as Obama and the Democrats.

Buchanan concludes,

What the looming fiscal crisis of this country portends is nothing less than a test of whether this democratic republic is sustainable.

It’s hard to disagree.

Written by Tom


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