By Cong. John Carter
Texas Insider Report: WASHINGTON D.C. It is past time that the federal government live by the same rules as the rest of us and history shows us this is the only restraint that can work. We were told by Standard & Poors (S&P) in July that their agency would lower our rating even if we increased the debt limit if we did not also cut a minimum $4 trillion in spending over the next ten years.
Congress reluctantly and with many like me holding their nose voted to increase the federal governments ability to borrow more money and pay our countrys bills on Monday August 1 as the lesser of evils.
House Republicans were convinced the Democrat-controlled Senate and President Obama would not budge another nickel because Democrat strategists believed that a default on U.S. bonds would play to their political advantage.
The predicted outcome by multiple respected economists of a first-ever U.S. default would have been a downgrade in Americas AAA credit rating by all three rating agencies. Following this we were told would be a dramatic drop in the value of the dollar a catastrophic global stock market crash the loss of the dollars status as the worlds reserve currency and resulting massive consumer inflation and job loss.
So the House first passed the Cut Cap & Balance Act which cut federal spending by $5.3 trillion over ten years while allowing a $2.4 trillion increase in the debt ceiling. Had the Senate and President Obama not blocked this bill we could have avoided much of the economic turmoil of early August.
We instead had to fall back to a weakened version to avoid default the Budget Control Act with allows a total debt ceiling increase of $2.1 trillion with a guaranteed spending cut of slightly more. In spite of the glaring weakness in spending cuts this marked the first time in American history that a spending cut has been required before a debt limit increase has been allowed.
The debate on more federal borrowing has been forever changed by this battle even though the fight is definitely not over and I remain dissatisfied with the current state of affairs.
The economic analysts predictions have thus far been correct. We avoided default through the Budget Control Act and retained our AAA rating with Moodys and Fitch. Because we did not cut the minimum $4 trillion in spending we were downgraded to AA by S&P just as they said they would.
The stock market has declined precipitously but not by the catastrophic levels that were predicted in the event of a lack of any agreement and for additional factors other the current U.S. debt crisis. The dollar remains the worlds reserve currency at least for now and has not been greatly devalued.
While we attempt to fight our debt other industrialized nations face the same challenge only with many in far worse shape than us. A similar but more severe crisis facing Italy Spain Portugal and Greece over out-of-control spending debt and a potential default on their bonds are playing a major role in the current global market nosedive. France may have narrowly avoided a downgrade of their credit rating as well.
All of this is occurring with the following very interesting twist as reported by Bloomberg and other news outlets:
Stocks erased losses after Reuters said the ECB is pressuring Italy to make further reforms in return for buying Italian bonds. Italys government will announce plans to speed up state-asset sales liberalize the labor market and introduce a balanced-budget amendment into the countrys constitution Sky TG24 reported today citing unidentified officials." Bloomberg News Friday August 05 2011
A Balanced Budget Amendment (BBA) is the key issue that survived from our Cut Cap and Balance Bill and made its way into the current Budget Control Act. Before years end the House and Senate is now required to vote on a BBA which is the only long-term way to stop the fiscal madness in Washington.
Our families have to balance their budget or face bankruptcy and 49 of our 50 states have Balanced Budget Amendments or laws in place. It is past time that the federal government has to live by the same rules as the rest of us and history shows us this is the only restraint that can work.
When Congress reconvenes in September our top goal should be to replace the Budget Control Act that just passed with a new legislation that can restore Americas credit rating and economy through fiscal responsibility.
The Budget Control Act should be viewed as just what it was a temporary and only means available to avoid irreparable financial damage while continuing to seek a real solution.
