re: #394 Obdicut

The downgrade didn’t happen because of ‘real and grave problems’, it happened because of the stonewalling of the GOP, especially in their complete refusal to raise taxes as necessary to address the debt.

Oh boy. Who, please, proposed tripling spending? And confidence in treasuries is doing just fine; that’s the irony. The interest rates on treasuries are incredibly low and we’re still having no trouble selling them. That’s what makes what the GOP did especially moronic; they’re trying to prevent us from borrowing money during a time period where borrowing is amazingly cheap.

Oh yeah? Go ahead and make that case.

It was hyperbole. Spending was set to increase by more than taxes were hoped to increase, and every increase in tax rates yields less of an increase in revenue than the CBO must project, because by law the CBO uses static scoring.

Also, actual spending always outpaces budgeted spending. Often by wide margins. Costs escalate.

Since the picture with respect to the soundness of the dollar and the prospects of default are inversely correlated, it’s hard to prove that an outright, de jure default becomes more likely with runaway spending. Perhaps what would happen would be that the debt would be monetized via a very sharp dose of inflation.

But if one assumes inflation rates are not goosed, but stay around 2 percent, (assuming that’s where they are now), then the debt is unmanageable without some sort of spending reform to go with tax increases. Any number of analyses have shown that the sum needed to pay all current and anticipated benefits outstrips the currently projected revenue by tens of trillions. Nobody can afford to get 5 or 10 years’ worth of yearly income in debt, especially if they’re in the habit of almost always spending more than they make, not even counting debt service.

The case that the president’s budget was feasible is one that no one seems to have even bothered to attempt. The math doesn’t begin to work. You’d have to have sustained rapid increases in real GDP to bring it off, and even then some of your costs would go up faster than expected because so many expenditures are pegged to prevailing wages.

If we had sustained, rapid increases in real GDP, and we kept tax rates where they are so that pretty much everybody found themselves in the 38 percent marginal tax bracket, maybe that would allow for a free-spending, fast-rail, etc. budget.

We cannot budget on the assumption of almost unheard of rates of growth in the near future.