Pull the Emergency Cord on U.S. Debt

Rick Calhoun

By Rick Calhoun, AAI Chairman: Standard & Poor's put U.S. Government debt on "negative outlook" on April 18 in a shot-across-the-bow that was designed to get the attention of Washington's leaders.

What does S & P's action mean to the average Arkansan? Everything! Because the move has significant implications on Arkansas's economic future since the state's fortune is tied directly to the U.S. economy - as is the rest of the world. Washington DC's tentacles reach into every Arkansas county with programs that depend on hard-earned tax money. A significant portion of the state's budget is spent on entitlements that are mandated by Washington.

S & P analysts deny that the move was politically motivated, but admit that President Obama's recent comments polarize future negotiations and make a debt reduction compromise unlikely. "If an agreement is not reached and meaningful implementation does not begin by then [2013], this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' Sovereigns," S & P said in its report.

This ought to be a wakeup call for Congress. It's time to rein in federal spending and balance the budget. Instead of pointing fingers, congress must take action now. We can argue about entitlements until the cows come home, but nothing will solve the problem until we reform entitlements and reassess all federal spending.

If we want to protect Social Security - fix it! If we want to protect Medicare & Medicaid - fix it! If not, both programs will go away. Partisan bickering aside, if we don't fix our problems, the market will do it for us. It will be painful either way, but far less painful if we do it on our own.

Raising taxes, however, is not the solution. Conclusive evidence exists to prove that lower taxes actually bring more revenue into federal coffers. Low taxes produce incentives to work, save, and invest - which in turn stimulates economic activity. Only two things will fix the problem - reduce federal spending and grow the U.S. economy. U.S. debt is now 97% of U.S. GDP* and rapidly approaching the point-of-no-return.

The United States now faces its greatest threat since the American Revolution. Ronald Reagan said, "At home, our enemy is no longer Redcoats, but red ink." In only the last few years, Washington has issued more debt than the total sum of all U.S. debt from George Washington to George W. Bush. America is drowning in a sea of red ink and
S & P has issued a warning that we are going down for the third time.

It's as if the bridge is out up ahead and Democrats want the train to go faster while some Republicans only want to slow it down (e.g. proposed $60 billion in cuts) and no one is willing to pull the emergency cord and "STOP THE TRAIN." If we do not, it will plunge into the ravine and take Arkansas and the world economy with it.

Congressman Paul Ryan has located the emergency cord and needs our help to reach it. More than anything else, it takes the will of the people to "pull the emergency cord" and stop the runaway spending train before it's too late!

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*As of March 25, 2011, total outstanding U.S. debt was $14.26 trillion. Consider how many AAA sovereigns are out there and what follows is a list. Note the U.S. is at the bottom due to alphabetical listing and not because of credit quality. Also note, that U.S. GDP is $14.66 trillion and is equal to the sum of all the other countries GDPs combined. So while the downgrade threat is real, buyers shying away from U.S. debt have little other choice. Therefore, the financial leadership of the United States will make or break global economies in the future.

GDP trillions
Australia Austria Canada Denmark Finland France Germany Guernsey Hong Kong Isle of Man Liechtenstein Luxembourg Netherlands New Zealand Norway Singapore Sweden Switzerland United Kingom United States		AAA/Stable/A-1+       1.235 AAA/Stable/A-1+       0.366 AAA/Stable/A-1+       1.564 AAA/Stable/A-1+       0.306 AAA/Stable/A-1+       0.232 AAA/Stable/A-1+       2.555 AAA/Stable/A-1+       3.306 AAA/Stable/A-1+       0.003 AAA/Stable/A-1+       0.226 AAA/Stable/A-1+       0.003 AAA/Stable/A-1+       0.005 AAA/Stable/A-1+       0.052 AAA/Stable/A-1+       0.770 AAA/Stable/A-1+       0.138 AAA/Stable/A-1+       0.413 AAA/Stable/A-1+       0.217 AAA/Stable/A-1+       0.444 AAA/Stable/A-1+       0.522 AAA/Stable/A-1+       2.250 AAA/Stable/A-1+      14.660,

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This article expands on information in a prior March 18, 2011 article by Rick Calhoun is First Vice President, Crews & Associates, Inc., Little Rock, AR and Chairman of Arkansas Advanced Institute (AAI).

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