Deficits matter

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What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.” –President Barack Obama, from his first ‘State of the Union’ speech to Congress

All due respect to President Obama – for he’s got an awful lot on his plate, right from the get go – I consider myself very old fashioned (if not conservative) on fiscal matters. In short, that means deficits matter a huge amount to my way of monetary thinking. I think the stimulus package is a big mistake; one more monstrous debt hanging around our country’s neck as we try to get ourselves back on the road to fiscal health.

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Note that I didn’t use the word “prosperity” here, because looking down the road, there won’t be much of it unless we start doing some drastic things. It’s all well and good to throw $787 billion into the economy to try and “revive” it – it’s something else to willfully ignore the $10 trillion plus in debt we’re already mired in, with more obligations to come.

The big bugaboos are entitlements. Remember those? Social Security? Medicare? Medicaid? They ate up $1.3 trillion out of $2.98 trillion in federal spending in fiscal 2008 (and that budget was $500 billion in the red before the banking crisis and economic downturn picked up speed.) Defense spending, by contrast, clocked in at a measly $613 billion. Noted economist and columnist Robert J. Samuelson says those numbers and the trend lines they create offer two very stark choices for the government – and our nation – to make: by 2030 we either raise federal taxes by 50% to cover spending on those three programs alone, or we pare them back significantly.

It doesn’t end there. State governments all have big unfunded health care liabilities for their workers, liabilities that totaled $370 billion in 2006. That was before the stock market crash we’re going through wiped out some $1 trillion in state and local government pension funds.

“Obama hasn’t confronted the conflicts; he’s been all things to all people,” Samuelson noted in a recent column. True, but it’s still early yet – not even 100 days. And the president is now starting to say the right things, too – laying the ground work to attack the red ink surrounding us.

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“We have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election,” he said in his first State of the Union speech last night. “People bought homes they knew they couldn't afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day. Well, that day of reckoning has arrived, and the time to take charge of our future is here.”

It’s going to be a hard road, one requiring sacrifices – probably a goodly number of them. “The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care, the schools that aren't preparing our children and the mountain of debt they stand to inherit. That is our responsibility,” the President said.

“My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we've inherited: a trillion-dollar deficit, a financial crisis, and a costly recession,” he noted. “Given these realities, everyone in this chamber -- Democrats and Republicans -- will have to sacrifice some worthy priorities for which there are no dollars, and that includes me.”

Let’s hope, then, President Obama sticks to this game plan – for if not, we’re going to be facing problems that make what we’re going through now pale by comparison.

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