Cut, Cap and Balance: Too little, too late?

This letter from Diane Black, my TN 06 representative...

Update: Debt Limit Negotiations

A lot has happened this week in regard to the debt limit negotiations and I want to update you all on the events here in Washington, as well as assure you of my outlook going forward.

Our nation's debt is highest it has ever been in history—a staggering $14.3 trillion dollars.  According to a June report by the Department of Treasury, this year our national debt will eclipse our nation's GDP.  Every child born today already owes more than $46,000 to our creditors.  America cannot continue on this path.  Our crushing burden of debt is a threat to future generations, our security, the economy and the very greatness of our country. 

Look no further than this week's announcements by Standard & Poor and Moody's credit agencies.  In the July 13th statement from Moody's, they announced that the organization "has placed the AAA bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations."

In order to restore certainty in our economy to bolster job growth and keep America competitive, we need to stop spending money we don't have.   That is why next week, the House of Representatives has cancelled our scheduled Constituent Work Week in order to stay in Washington and work to solve this problem.  We will be voting on our Cut Cap and Balance plan, which will:

• Cut total spending by $111 billion in FY 2012
• Caps total federal spending over ten years, eventually leading to spending capped at 19.9% of GDP by 2021
• Requires the passage of a Balanced Budget Amendment before raising the nation's debt limit.

Earlier this week, you heard from me after the president said publicly that he could not guarantee that Social Security checks would go out on August 3nd should Congress not pass a debt limit increase.  However, based on study of the issue, I believe there is enough money for the Treasury to pay out Social Security checks for some time after August 2nd, and that such statements are merely scare tactics.  But what is true, is that should Congress not pass a debt limit increase, the decisions about what bills to pay would be up to the sole discretion of the Treasury Department.

Today a presentation was given to me and my colleagues that explains how August 2nd is in fact the day the United States can no longer pay its obligations, and outlines possible spending scenarios should Congress not reach an agreement on increasing the debt limit.  I hope you will take the time to look over the presentation by the Bipartisan Policy Center and tell me what you think. 
All politics aside, I am committed to getting our country's fiscal house in order.  This burden of debt will be with us long after the debate over raising the debt limit is decided, and I am in this fight for the long haul.  Securing our country's fiscal future remains a top priority of mine, one that will last well past August 2nd.

Click here to view the presentation from the Bipartisan Policy Committee.

To read more about the Center, or their work on the debt limit, click here.

Sincerely,

Diane Black
Member of Congress

Thank you, Representative Black, for your considerations and support of necessary Government actions, desperately needed to correct the problems we are facing. Especially necessary is the Balanced Budget Amendment, which should have been in place before Lyndon Baines Johnson set us on this wild ride to fiscal irresponsibility in 1968.

However, we might be coming to fiscal sanity just a wee bit too late.

I think the U.S.’s vaunted AAA credit rating gets dinged no matter what, because there’s no way BHO and the Democrats, with or without Team R’s contributions – detractions, will agree to the S&P’s demands that they see 4 trillion in cuts ‘n tax increases, or else…

Standard & Poor's still anticipates that lawmakers will raise the debt ceiling by the end of July to avoid those outcomes. However, if the government is forced to undergo a sudden, unplanned fiscal contraction--as a result of Treasury efforts to conserve cash and avoid default absent an agreement to raise the debt ceiling--we think that the effect on consumer sentiment, market confidence, and, thus, economic growth will likely be detrimental and long lasting. If the government misses a scheduled debt payment, we believe the effect would be even more significant and, under our criteria, would result in Standard & Poor's lowering the long-term and short-term ratings on the U.S. to 'SD' until the payment default was cured.

Congress and the Administration are debating various fiscal consolidation proposals. At the high end, budget savings of $4 trillion phased in over 10 to 12 years proposed by the Adminstration, (separately) by Congressional leaders, as well as by the Fiscal Commission in its December 2010 report, if accompanied by growth-enhancing reforms, could slow the deterioration of the U.S. net general government debt-to-GDP ratio, which is currently nearing 75%. Under our baseline macroeconomic scenario, net general government debt would reach 84% of GDP by 2013. (Our baseline scenario assumes near 3% annual real growth and a post-2012 phaseout of the December 2010 extension of the 2001 and 2003 tax cuts.) Such a percentage indicates a relatively weak government debt trajectory compared with those of the U.S.' closest 'AAA' rated peers (France, Germany, the U.K., and Canada).

We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained throughout the decade, we could, other things unchanged, affirm the 'AAA' long-term rating and A-1+ short-term ratings on the U.S.

This pretty much seals it. Tax increases will trigger another downturn; cuts in handouts will trigger street protests; then S & P dings; the resulting fallout across the economic spectrum ushers in a real and painful economic crisis. I don’t think the word ‘depression’ would correctly describe it; we’ll need a new term.

Fun times will be had by all.

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