Friday, 18 February 2011

Controversy over Wisconsin Budget Cuts. Is this a preview for the rest of the U.S

The U.S economy at both state and federal level is currently quite precarious compared with any other time in American history. So the news coming out of Wisconsin that there is to be cuts to workers wages by making employees pay more their health insurance and pension premiums is causing quite a stir nationwide. One large bone of contention for the workers is that there will be a curtailing of the collective bargaining rights for most public sector unions thereby  reducing their power at the negotiating table.

Many people are outraged by these cuts and want them immediately rescinded, but what no one has yet provided with their mostly scalding responses is an alternative. I understand that many people find common cause with these employees as many Americans have had to endure pay cuts and layoffs throughout the financial crisis, but the question is if not from public sector pay cuts where does the money to pay back the debt come from?

Even the U.S congressional budget office's plan for the fiscal future of the United States is to run deficit after deficit every year until the year 2083. From both sides of politics there has been no real roadmap back to fiscal equilibrium, only politically based jabs at programs and policy's valued by the other party.

No party or at this point even any powerful individual in either party is willing to even speak about the types of cuts needed to get the budget deficit and national debt under control, even within the next few decades. I'm not suggesting by any stretch of the imagination to get the budget out of deficit by the end of this year or even next but there has to be a long term strategy for returning both the state and federal finances back into positive territory.

I realise what a daunting task and perhaps even politically impossible task this may be for law makers, but it's something that sooner or later has to be done and the longer the nation waits the harder it's going to be and the harder its going to hit the poor and the middle class.

We have become used to these policy's from the days of a booming economy, that generally make our lives better, helped us get paid more or make our taxes lower. But what is becoming alarmingly apparent is that we couldn't afford those policy's back then when you actually look back at previous budget deficits and that we definitely can't afford them now. The hard question for law makers though is which policy's to cut? do they make changes to Medicare, Social security, Defence, Medicaid or all of the above. How can you do something so politically damaging when the peoples first response is to storm the capital building and demand that you don't go through with your policy's?

As of this moment U.S government and state bonds are still seen as a safe haven for investors voyaging the still dangerous financial seas, but if those investors begin to believe that the U.S doesn't have a plan to pay off its debt in the long term investors are going to be much less willing to lend the U.S governments the money to fund these massive public debts thereby creating super high interest rates that would cripple the U.S economy like it has in Greece.

What it really boils down to at the lowest common denominator is lending a friend money, who while they still have a large income they already have other large debts and only pay the interest on those and don't actually pay the money back. I don't know about you but I wouldn't been keen to lend that friend money or go guarantor on a loan for them.

So while I don't entirely agree with the current cuts in Wisconsin I am forced to agree with their course of action because no one has presented another alternative and until someone does there will have to be these cuts into public policy to bide time until either a default on the debt or someone finally comes up with a plan to get Wisconsin and indeed the entire United States back into the black.

I leave you with a quote from Alan Simpson co-chair of President Obama's fiscal commission.

"“There’s only one way to [fix America’s long-term budget problems], You dig into the big four, Medicare, Medicaid, Social Security, and defence.”

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