Fear the long-term implications of flop
TERRY SAVAGE email@example.com November 21, 2011 6:00PM
Updated: May 3, 2013 12:15PM
The so-called “supercommittee” of 12 of our elected representatives just threw in the towel on the possibility of charting a reasonable financial future for America.
Yes, I’m surprised. After Simpson-Bowles, and then the Gang of Six, came close to agreement in the past year, I was optimistic these 12 leaders could take a lesson from our founding fathers about the need to compromise for the good of our country.
Especially with the woes of Europe playing out in front of us, it seemed that reasonable people could come up with a plan that would limit our fast-growing debt. Otherwise, we will eventually — and eventually is very soon — find ourselves facing the same crisis as Europe.
Global money has recently rushed to the “safety” of the U.S. dollar, fearing that the euro will be made worthless — either by default or by “printing” the money. Will we face any different future?
Gold dropped below $1,700 an ounce today, but I consider that a “buying opportunity” for those who have speculative money, and for those who have not already “hedged” the fact that we will need to plan our retirement years in dollars. What will those dollars be worth in buying power if our only way to keep the promises we’ve made is to “print” the money?
No one, and especially not I, can time the markets perfectly when uncertainty reigns. But the long-run picture is becoming clearer to those who step back and have some perspective.
A drop in the bucket
Yes, there will be automatic “sequestration” of the much-sought $1.2 trillion — but not until after the 2012 election.
Meanwhile, we’re really talking more about principle than principal. According to an editorial written by former Sen. Phil Gramm (whose name is on the 1985 legislation that was originally designed to control government spending), even if the automatic spending cuts are triggered in 2013, total spending in that year would still be 32 percent higher than had been predicted in 2007!
Even after adjusting for inflation, real defense discretionary spending would be up $77 billion, or 13 percent, after sequestration.
Yet, there will be headline stories about the impact of cuts to both defense and programs like Medicare.
Undoubtedly, cuts to Medicare physician reimbursement will make it difficult for seniors to find physicians to care for them — as we have predicted for years. And there will be headlines about the impact of cuts on defense spending and weapons programs, with real implications for our national security.
Yet, the president still has the power to submit a resolution to reconsider the defense sequestration, a likely move and one that cannot be filibustered. And the president already has unilateral power to protect defense personnel accounts from sequestration.
So beware the scary headlines. The truly frightening outcome of Monday’s surrender by the supercommittee is not the immediate cuts, but the long-term implications for our country, and our free enterprise system that has done so much for so many.
The deficit has increased by more than $3 trillion in the past three years. The real issue is not “cutting the deficit” — but keeping it from continuing to grow at the present rate. And that’s The Savage Truth.
Terry Savage is the Chicago Sun-Times’ nationally syndicated financial columnist, and a registered investment adviser.