The Debt Ceiling Debate - The Real Issue

Ken Langone, one of the former founders of Home Depot, was a recent guest host of the CNBC program Squawk Box. His insightful commentary on this debate crystallized my views on this controversy. I loved his reference to the movie “Moonstruck”. There is a scene in this movie that reminds him of what is going on in Washington today. The grandfather enters the kitchen, which usually is the center of an Italian household. He is in the midst of a confrontation between the various generations of family members about their romantic interests and suddenly leaves shaking his head saying, “I am so confused”. Confusion is what most of us are confronted with today in listening to this debate. When I discuss this with my liberal friends, they blame the Republicans and the Tea Party for their recalcitrance. On the other hand, my conservative friends blame President Obama and the liberal left. The truth of the matter is there is enough blame to go around.

The Tea Party in my view is a movement that evolved as many people started to feel disenfranchised with the politics in Washington. Tea Party members have been concerned with run-away spending in Washington and the socialist path that our country is headed with no detour in sight. Today, this situation has become more acute. We are reaching a major inflection point where the government needs to take appropriate action to get the debt under control or our economy faces ruinous circumstances in the near future. As Mr. Langone mentioned, you don’t have to be a financial expert to realize that if the federal government is spending $.40 on every dollar spent just to service the debt, we have a problem. Furthermore, he states that since our interest rates are at historically low levels, a rise of several percentage points in short-term interest rates will add to the federal debt by $300 to $400 billion a year. He goes on to say that even the average American household is aware that you cannot continue to borrow money and spend more than your means and not ultimately face serious consequences.

I believe the Tea Party has done this country a service by bringing the spending and debt issue to the forefront of American politics. However, what the Tea Party is losing sight of is that the Republicans are not in control of the government today. They only control one-half of the congress, and the Democrats control the other half and the presidency. More importantly, we are running out of time to pass the debt limit and legislation that deals with our long-term-debt problem. It is unthinkable that we are now confronted with a possible downgrade of our AAA+ debt rating and a potential default. We are at a critical juncture, and both parties have no viable choice but to compromise in order to get passed this critical threshold. The conservative republicans cannot expect to win this battle today. This battle should be fought to secure the next presidential election and a majority in the Senate. Unfortunately, if there is no compromise, I believe the conservatives will get the lion’s share of the blame and be labeled as obstructionists. Moreover, if this were to occur, the public backlash could jeopardize their chances to win elections next year.

What is President Obama’s role in this mess? I agree with Mr. Langone. Obama is not acting presidential. He has become a divisive force in this country by promoting class warfare. This is the real issue facing the long-term health of this country. He campaigned to win the presidency on a platform of bringing change to Washington. He promised to rise above petty politics, bring more civility to the political discourse and unite this country. Instead, he has become petulant and boorish at times by promoting partisan politics. He certainly has not demonstrated good negotiating skills during this debt debate. He panders to the press for political gain by demonizing the other side, and he continually positions himself as the only adult in the room during these negotiations. We do not know what is going on behind closed doors. Nevertheless, if the other side is acting badly as he maintains, it is his role as president to rise above petty politics, and negotiate in good faith to find a solution. Instead, he is using this critical time in our history not to solve this problem but begin his campaign for re-election.

We also know by the sequence of the following events that the president was not fully engaged early on to deal with the budget impasse. During the past two years, the democratically controlled Senate has not passed a budget. He did not get behind last year’s recommendation of his nonpartisan, Simpson-Bowles commission, to deal with the debt problem. If the president was serious about dealing with this issue, the recommendations of his commission were a perfect platform to begin negotiations with Congress in order to find a solution. Finally, he introduced a budget in April that was such a sham it was soundly defeated in the Senate 97 to 0. After all of this transpired, does he get personally involved? No. Instead, he sends Vice President Biden to do his biding with Congress. This was doomed from the start since the president was not sitting at the table during these negotiations. Even Maureen Dowd, in a recent column in the New York Times, chastised the president for not being more in sync with the electorate on profligate spending. The example she used was his signing of the 2009 Pelosi budget that was loaded with earmarks. This was another violation of his campaign promise to be vigilant on wasteful spending.

Admittedly, President Obama was dealt a lousy hand by former President Bush. President Bush got the ball rolling with-out-of- control spending and having a major financial collapse on his watch. However, when it comes to spending, this president is Bush on steroids. The last time government spending was this high compared to the GDP was during World War II. So far, the economy is not responding adequately to this largesse. Employment has rarely budged, and GDP growth is anemic.

What is the president’s rejoinder to all this? He blames the rich for not paying their fair share of taxes. When 47% of the population is not paying federal taxes, and the top 1% is paying approximately 40% of the taxes, how much more can we tax the wealthy? Factually, even if we taxed the wealthy (annual income of $250,000 and higher according to Obama) 100%, it would not come close to solving the budget gap. Many of the rich, including Mr. Langone, have contributed a significant amount of money to charity. Therefore, Mr. Langone reprimanded the president for using “glittering generalities” to demean the wealthy. Furthermore, the wealthy are the job creators in this country. I have never worked for a poor person. Sadly, President Obama’s strategy is to incite class warfare in order to get re-elected. This is a very dangerous road to follow with a steep cliff at the end. It is the real issue behind this debate.