Obama's Sincerity Will Ultimately Lead the Wolf to the Pasture

As of the first of this month, the U.S. Treasury’s mechanism to automatically reduce the deficit, also known as the “sequester,” has entered into our collective “here and now.” Meanwhile, President Obama is still shouting about how spending reductions will affect the lives of average American citizens. Many believe, however, that there is a lack of sincerity underlying this mission to increase fiscal sustainability.

Supposing that, once again, the U.S. government does not take the appropriate action on this fiscal issue, the “wolf” will most likely come for real.

The 2011 agreement between the Democrats and the Republicans calls for a reduction in federal spending by approximately $109 billion per fiscal year, beginning in 2013. The reduction in spending over the next ten years, namely the sequester, will total more than $1 trillion. According to the most recent agreement, which was reached in the beginning of January and was intended to resolve the “fiscal cliff” issue, approximately $24 billion in spending cuts will be embodied in the form of reductions of government program allocations in this fiscal year alone. The remaining $85 billion worth of spending cuts took effect as of March 1.

But since the beginning of the year, Obama has not conducted any meaningful discussions with high-level members of the Republican Party with regard to managing the deficit. Rather, he has concentrated an inordinate amount of energy on repeatedly conducting propaganda efforts abroad.

While it is true that budget cuts will lead to layoffs for people like teachers and air traffic controllers, as well as bring about inconveniences like increased flight delays, nevertheless any and all reforms will be painful. Beyond that, the pains felt by both the government and the people alike are to be expected. Once the sequester begins to take effect, government expenditures for this fiscal year will still be approximately 30 percent higher than 2007.

Moreover, the sequester itself was proposed by newly appointed secretary of the treasury and trusted adviser to the Democratic Party, Jacob Lew. Obama has continually vacillated on the issue of debt reduction, and that has added difficulties and thrown variables in the way of proper bipartisan cooperation.

However, even if the U.S. government is able to carry out spending reductions this fiscal year, the sequester is, in and of itself, just a product of trade-offs and compromises of interest between the Democrats and Republicans. It is not exactly the optimal solution to the national debt problem over the long term. Currently, spending on social welfare programs accounts for 55 percent of the federal budget. When asked about the deficit problem, former Federal Reserve Vice Chairman Alice Rivlin stated that if the focal point of the sequester is not aimed directly at the reduction of federal welfare spending, then moving even “seven inches” of the overall deficit will be something of a pipe dream. *

Here’s the breakdown: Of the $85 billion in planned spending reductions for this fiscal year, approximately half of it is allocated for things like defense, education, foreign affairs and transportation. Other domestic spending accounts for 35 percent, while welfare expenditures — things like health care benefits — account for only 15 percent of the overall budget. The two big programs, Social Security benefits and low-income health care (such as Medicare and Medicaid) will not receive cuts.

But for the past ten years and counting, the main contributor to the high federal deficit has been growth in welfare expenditures. Therefore, any deficit reduction plan that does not reduce welfare expenditures will be hard-pressed to clean America’s “fiscal house.” The current sequester will be not be able to resolve the sticky situation that is the federal budget deficit.

In this fiscal problem, there’s been a compromise between Congress and the White House that was put off until the last minute, and Wall Street seems to have already seen through that façade. Over the past few days, it has shown absolutely no fear that the threats posed by the sequester might intensify.

But a moment’s worth of optimism cannot eliminate the inherent crisis. Despite the fact that the U.S. enjoys a singular privilege, namely that of being the world’s reserve currency issuing body, it still seem bound and determined to go ahead with long-term quantitative easing policies. These days the U.S. has been drawing perilously close to “critical mass.” It is straddling a fine line: One step in the wrong direction will set off a land mine, causing the budget crisis to explode. This is common knowledge among those of us who are in the know.

“WOLF! WOLF!” This well-known proverb should not be reduced to just another empty cliché when it comes to this issue. If the U.S. government doesn’t take the right course of action now, then there will be a day when the “wolf” will come for real.

* Editor’s note: This quote, while accurately translated, could not be sourced.