CENTRAL VIEW for Monday, August 1, 2011

Compromise: The art of politics

As a rule, between the end of the school year and Labor Day, the minds of most Americans are on vacation. But the “bickering” in Washington over a serious government over-spending problem should be an exception to the rule.

In terms even this writer can understand, the U.S. Government (USG) has maxed out all of its credit cards by borrowing $14.3 trillion dollars and, if the USG is not allowed to borrow even more money, the USG will have to delay payment to some of its creditors. About $10 trillion of the debt is owed to individual investors or other governments. The remaining $4 trillion or so is interdepartmental borrowing between elements of the USG.

Can’t the USG simply borrow dollars out of some of its many trust funds as a temporary measure? Sorry. The USG has been using the dollars in some of its trust funds to pay for day-to-day government spending. Some trust funds contain only government treasury bills and other government securities sold to investors who, in addition to collecting interest, expect to have all their money back -- someday.

Ironically, Social Security and Medicare are not part of the federal budget, meaning the current “bickering” in Washington does not even begin to address the looming, baby-boomer-induced funding problems of Social Security and Medicare.

There are five ways to assure the future of a federal trust fund: 1. Borrow more money by selling even more government securities to private investors and/or foreign governments. 2. Or, raise taxes, again and again. 3. Or, lengthen the qualifying age. 4. Or, reduce benefits. 5. Or, print more money which increases the number of paper dollars in circulation which, according to the Law of Supply and Demand, will make each dollar printed worth less than it was before more dollars were printed, resulting in higher inflation.

As for the “bickering” in Washington, our government is designed to work that way. The bickering is between two different visions about how America should work. Mr. Obama and the Democrats are urging more taxes to fund a socialist-style government that takes care of its citizens from womb-to-tomb. The Republicans, who only control one-half of one-third of the USG (the U.S. House of Representatives), want the USG to be more concerned with the Constitutional mandate to provide for the national defense and to keep persons and their property safe from harm and be, therefore, less of a welfare state.

Both sides are certainly entitled to their different visions for America. The alternative to allowing the differing visions to bicker is called: Dictatorship. Under our system, the elections of 2012 will decide which vision better suits the American electorate.

So, for now, what’s the solution? In the short term, both sides will have to reach a compromise that sharply reduces unnecessary government spending, that makes our tax code more rational without raising taxes, and starts the U.S. along the typically ten-year-long path to the ratification of a balanced-budget amendment to the U.S. Constitution.

According to Bloomberg Business Week, projected into the so-called “out years,” the present value of our projected future expenses minus all projected future government revenues reveals a budget gap of $211 trillion dollars. So, even if the USG were not faced with the current debt ceiling and the possibility of the USG defaulting on some of its current debt obligations, the credit-rating agencies would already be justified in downgrading U.S. securities from AAA to AA or even lower.

Therefore, in the short-term, a compromise between the two visions needs to be reached that signals to the world’s financial markets that the USG is starting to cut unnecessary spending, will not rob the economy of badly-needed capital through higher taxes; and that the USG will, eventually, have a balanced budget. But please do not hold your breath waiting until 2012.

Nationally syndicated columnist, William Hamilton, was educated at the University of Oklahoma, the George Washington University, the U.S Naval War College, the University of Nebraska, and Harvard University.

©2011. William Hamilton.

Dr. Hamilton can be contacted at:

Email: william@central-view.com