As the stock market jumped and skidded this week amid a sea of slowing economic data and corporate earnings that was at best mixed, another first for our country was had.
That’s right — Happy Belated Debt Ceiling Day!
Yep, as most if not all of us have heard by now, the authority Congress had given the Treasury to borrow money ended Monday.
Hardly a surprise given the attention that this has been given over the past few months, but we have now passed that line in the sand and a workable deal has yet to be presented. That’s probably because Treasury Secretary Timothy F. Geithner has said that he can juggle accounts and use “extreme measures” to avoid default until early August.
How will he do this? Well, the Obama administration agreed to tap into federal retirement programs to help fund programs and agencies that otherwise would be funded through borrowing before the debt ceiling was reached.
In terms of where the two sides stand — President Obama proposed a long-term deficit-reduction package of about $4 trillion over 12 years, which would include $2 trillion in spending cuts, $1 trillion in tax increases and $1 trillion in reduced interest payments. On the other side, Republicans are seeking spending cuts and no tax increases in exchange for supporting a higher debt limit.
While the president’s approval rating has rebounded following the May 2 killing of Osama bin Laden, Gallup data show that Americans say they would want their member of Congress to vote against raising the U.S. debt ceiling by a 47 per cent to 19 per cent margin, while 34 per cent don’t know enough to say. When we put the $14.3 trillion national debt into context per www.usdebtclock.org, it’s understandable to see why most are against raising the debt ceiling:
• Debt per U.S. citizen: $46,183.
• Debt per taxpayer: $129,109.
Keep in mind the data set used shows a total U.S. population of 311.4 million and 111.4 million U.S. income tax payers, which equates to 35.8 per cent of the domestic population.
When we break down the revenue streams for U.S. federal tax revenue, the largest components are income taxes, payroll taxes and corporate taxes. Given the unemployment rate is at 9.0 per cent and the underemployment rate is at 19.4 per cent, the revenue stream has been battered over the past several quarters and is expected to get only modestly better near term. With key spending programs such as Medicare, Medicaid, defence spending, income support programs, Social Security and net interest on the national debt accounting for the lion’s share of the federal budget, it seems to me a combination of strategies — tax increases, program cuts and more — will comprise the eventual solution.
Whether we get innovative solutions that don’t kick the can down the road, we will see, but at a minimum, the political manoeuvring to close a workable deal on the debt ceiling is going to make headlines near term. Those headlines and recent economic data that paint either a continued soft patch in the domestic economy or a more subdued recovery than was expected in the first quarter of 2011, in my view, will undermine an already concerned consumer.
According to Gallup, three in four Americans name some type of economic issue as the “most important problem” facing the country today — the highest mention of the economy in two years. More specifically, general economic concerns (35 per cent) and unemployment (22 per cent) are the issues currently at the forefront of Americans’ minds. As I always say, the trend line is as important and the trend line for the percentage mentioning the economy is up significantly from 26 per cent in April, while unemployment is up just slightly from 19 per cent.
Not all that surprising for those like me who have been paying attention the past few months.