Take it to the Limit

This on going circus we call the United States of America is starting to sound like the refrain from an Eagles song.

“So put me on a highway
And show me a sign
And take it to the limit one more time”

As much as all of the crap that is taking place in Washington is turning my stomach, it is unfortunately obvious to even the most casual observer that the government will have to increase our debt limit.  But to the same observer it is also obvious that we (The People) cannot continue down this path of allowing the government to spend more than the government collects.

The following is a plot of Revenue and Expenditures per Person for the United States since 1980.  The curves are divergent.  The Great Recession of 2008 certainly did not help the situation all it really did was to accelerate the divergence between the two curves.

Real spending cuts must take place.  Real revenue increases must take place.  We the people have allowed our government collectively since 1981 to expend on average $1.20 for every $1.00 of revenue.  Some years have been much worse.

Source http://www.fms.treas.gov/mts/index.html

After the limit is extended, and the United States Debt offering is downgraded by the various rating agencies and the bond market starts to into the punishment phase of the market reaction.  This already appears to be baked into the mix.

How much of a haircut do we get to take?  It looks like 50 percent just to get to even, see the graph above.  So through some very arcane and macabre process we call the United States Congress, spending needs to be reduced, and revenue needs to be increased.  Is the gap closed by 50/50 split between expenditures reduction and revenue increases?  Is it a 75/25 split, or is a 25/75 split?  I have no bloody idea.  50/50 at first blush appears to be the fairest.

There are three things that we do know.  1. We will not close this gap via spending reductions alone.  2. We will not close this gap via revenue increases.  3. We will not be able to continue to fund this gap via the issuance of sovereign debt.

So Take it to the limit one more time, it might be our last.