Wednesday, 10 Nov 2010 09:24 AM
By Robert Wiedemer
Last week’s election showed strong signs of an increased
focus on our debt problems and genuine concern by many
candidates on reducing the debt.
This is an important step in the right direction.
The challenge Congress will face is that much of the budget
remains off limits to cuts. Even with the newly elected House
and Senate, there is likely not enough votes to make any serious
reduction in entitlement programs.
And, since entitlements are growing because of demographics —
more people on Social Security and Medicare, and the poor
economy (more than 40 million people are on food stamps now, up
from 26 million in 2007) — it is quite likely that entitlement
spending will be significantly higher in two years than it
is today.
So, the focus will move to discretionary spending.
However, even if we eliminated all discretionary spending,
including the military, we still wouldn’t eliminate the deficit.
The Republicans have made it clear that they don’t support cuts
in any Homeland Security department. That’s more than half of
our discretionary spending.
Plus, we can’t cut interest expense, which could easily rise at
some point due to increasing fears about the massive
money-printing operations we are about to begin.
So, there’s a lot off the table.
Yes, cuts can be made but many of those programs, like
agricultural subsidies, have a lot of political support and
aren’t very big in the overall scheme of things.
Clearly, there is waste that could be cut, but past Congresses
have found waste an elusive animal to hunt down.
It is quite possible in two years that the Republicans will
control the Senate and the presidency as well as the House.
At that point, there will likely be greater interest in cutting
spending.
It’s also at that point we will find out if our greatest
challenge to spending cuts isn’t our politicians, but our
voters.
In this election, we saw more interest in cutting spending, but
it was often for cutting other people’s spending. You
didn’t see too many people wearing signs that said "Cut my
Social Security."
We may find there is a great deal of interest in spending cuts,
but not spending cuts in "my backyard."
Voters, like politicians, have gotten used to the easy money
that comes from enormous amounts of borrowing and printing.
When spending cuts start to hit people, their views on spending
cuts may change.
It remains to be seen just how much pain they are willing to
stomach — until they are forced to by an inability to print and
borrow more.
About the Author:
Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a
macroeconomic forecasting firm that customizes its forecasts for
specific businesses and investment funds. He is a regular
contributor to Financial Intelligence Report, the flagship
investment newsletter of Newsmax Media.
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