The debt bomb

I've always been amused by the "bright boys" from elite universities who claim the economic equivalent of "Newton's laws don't apply to MY theories, because I'm so much smarter than the rest of you."

Specifically, I'm looking at the guys who claimed the federal government could continue to spend far more than it took in in taxes--borrowing the shortfall--year after year, with no consequences whatsoever.

If this strikes you as crazy beyond belief, congratulations.

And yet just a week ago the top men in congress and the Obama administration labored to produce a "deal" that would trade our life savings for a handful of magic beans.

Well, pretty close, anyway: What literally happened was that Congress agreed to let Obama borrow an additional $2.4 Trillion, in exchange for a solemn promise by Obama and all the Dems to drastically cut government spending.

Now if you've studied politicians at all, you may be more than a bit skeptical about believing anything they say. But this, gentle reader, is different. Because it was a promise.

And not just your ordinary promise, but a solemn promise.

Give me a few seconds, please.

Thanks. Yeah, I was just trying to see if I could say that with a straight face. Couldn't do it.

So even though it doesn't matter: How much spending did they promise to cut, you ask? The PR answer is "$900 billion over ten years." But the real answer is: Even with the proposed cuts, the U.S. debt will still increase by $7 Trillion over that same ten years.

Take a few seconds to let that sink in.

They promised--solemnly--to cut spending, yet debt will still increase. Not only that, but the debt increase will be seven times more than the promised "cut."

Does this sound like the work of serious, competent thinkers, or idiots intent on putting off the disaster one more year?

And just as an aside, what does it say about the contempt these jackasses have for you and me that they would try to pass this deal off as a work of pure genius instead of the bad joke it so obviously is?

If you hadn't already heard, the ludicrous inadequacy of the "deal" is the reason the stock market dropped 512 points last Thursday.

So what happens when a country consistently spends more than it makes? Amazingly, we don't have to just guess, because we actually have examples: Greece, Italy and Spain, to name three.

What happens is that investors--nervous about a country's ability to pay its debts--stop buying a nation's paper until the yields rise enough to make it worth the risk. For Italy and Spain those rates are around 6.5%, or roughly twice the rate paid by the U.S. government.

Mark Steyn observed that at current interest rates, by 2020 just the interest alone on U.S. debt will consume a full one-fifth of all government revenue.

And that's if interest rates stay at current levels. If they follow the path of Italy, Spain and Greece, you can expect the amount consumed by interest to double.

You need to understand this situation fully and completely, because that's the only way anyone would be willing to support the admittedly hard actions necessary to pull out of this crash dive.

Back in the 1980s either Ecuador or Peru (never can remember) found itself a bit farther down the debt road than we are now. Specifically, analysts found that the entire value of the nation's exports wouldn't be enough to service the country's debt.

I'll tell you what happened some other time. Right now you need to hear something crucial: This wasn't your fault.

A whole bunch of judges, congressmen and half a dozen presidents who thought they were smarter than the Founders gradually dismantled the Constitution, letting the federal government start programs to "give" benefits to citizens. The Founders knew these would bring disaster, and tried their best to restrict government.

It didn't work.

The pols pushed the benefit programs (later called "entitlements") because they wanted to be re-elected. The judges didn't do their job of defending the Constitution's clear commands because they had chowder for brains.

Okay, close: They were liberals who felt the government should do whatever was being proposed at the time because it would help the poor, or children, or...some needy person or group.

And as a result of these good intentions from short-sighted people, the whole magnificent machine is about to come crashing down.