Stock-Market-Observations

Today the House passed HR 2560, which is a debt reduction bill that is dead on arrival in the Senate.  Since compromise is always the name of the game in politics and cooler heads usually prevail, things could be on the upswing.  HR 2560, which has strong Tea Party support, insists on a balanced budget in fiscal year 2012.  FY 2012 runs from October 1, 2011 through September 30, 2012.

A FY 2012 balanced budget calls for a reduction in federal spending beginning in 2.5 months and entails a reduction of 41% below the current year’s spending.  A cut of this magnitude would seriously jeopardize the current recovery (tenuous as it is).  In addition to a federal cut of this size, there  would be severe reductions in state spending too because the states depend on big handouts from the Feds.  People are addicted to federal spending and when you take the money away, people will scream, and scream very loudly.

A balanced budget achieved over several years is a more reasonable target.  Balancing the budget is comparable to weaning a drug addict away from his supply.  You can go cold turkey and make the addict deathly ill or do it slowly and have a more desirable outcome. It’s the addict’s choice.

We have come down the path of the balanced budget amendment before and it has never survived.  Due to the USA’s precarious debt situation and the prospect of a lowered debt rating, we may finally have arrived at a point where the balanced budget may gain genuine traction.  How we accomplish a form of the balanced budget is the question, not whether we will do it.

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This entry was posted on July 19, 2011 at 8:19 PM and is filed under UPDATE. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.