DENNIS SEID: Waiting for Tuesday’s implosion – or not

By Dennis Seid/NEMS Daily Journal

Descriptions of the heated talks surrounding the federal debt and budget deficit certainly grab attention.
“Unprecedented government default,” “dysfunctional government” and “plunging the nation into default” were used in just the first three paragraphs of a recent Associated Press story.
And if some experts are to be believed, the U.S. economy is set to implode unless the U.S. debt ceiling is raised.
With a few exceptions, Democrats and Republicans have quite a difference of opinion on what to do.
The Democrats think wealthier Americans, including big corporations, should be paying more in taxes; Republicans rankle at any idea of a tax increase for anyone and insist spending is the problem.
The rest of the country is split as well, not sure which side to believe. Tea Party candidates rode a wave of popularity into Congress last fall, and while their numbers are relatively small, their voices are quite loud.
The “cut, cap and balance” idea has gained strong support within the ranks of the Republican Party, and for many of them, it’s the only way to stop runaway government spending. Enough is enough, they proclaim, drawing a line in the sand.
Opponents say it’s a dangerous game they’re playing, risking U.S. government default that will have ripple effects on the global economy. We’ve never been down this road before, and they could be right. They also could be wrong.
According to the Treasury Department, if the debt ceiling isn’t raised, the government will no longer be able to borrow funds, and there’s no guarantee that the U.S. can pay all of its bills.
But is that an empty threat, or one based on facts? It depends on whom – and what – you believe.
Investors are wary, as we’ve seen the stock market get roiled in the past week. Could that be a sign of things to come?
Credit agencies have said they could downgrade U.S. credit worthiness. The government has financed its borrowing through U.S. Treasuries, and a downgrade would likely send investors seeking “safer” investments in Canada, the United Kingdom, Germany and France. You read that right – France.
A downgrade also would mean higher interest rates all around. The U.S. would have to pay more on its accumulated interest. State and local governments also could face higher borrowing costs. Consumer borrowing rates also would rise, making mortgages and car loans more expensive.
But this all could be merely an academic exercise, with none of it panning out.
Solving this problem seems quite simple – a compromise plan in which we cut spending and raise revenue (I didn’t say “raise taxes” necessarily) at the same time. But that’s easier said than done, as we’ve seen. As of press time, a compromise hadn’t been reached.
Let me play the devil’s advocate for a moment regarding a constitutional amendment to balance the budget. Supporters say the U.S. government, like the Mississippi government, should be required to balance its budget every year. It’s how you keep spending under control.
But what if the constitutional amendment covered everyone, not just government? That means all of our budgets would have to be balanced every year. I’m afraid many of us would fail miserably. Much like Uncle Sam has done.
No wonder Washington can’t seem to figure out what to do.
Dennis Seid is Daily Journal business editor. Contact him at (662) 678-1578 or dennis.seid@journalinc.com.