The United States is on the verge of what Ben Bernanke, chairman of the Federal Reserve Bank, calls a financial "calamity." Why? Because unrealistic members of Congress are blocking raising the government's debt ceiling, creating the very real possibility that the government will dangerously default on its debt obligations, eviscerating the full faith and credit of the U.S. government.
Fortunately, there is a solution to get out of this mess, and that's to reduce expenditures and raise revenues now. We need shared sacrifice. That's the deal that's been put on the table by bipartisan Senate leaders, including Republican fiscal hawks and Democratic spending liberals, known as the "Gang of Six." This is a deal worth taking.
Yet a group of members of Congress, driven by an obsession over cutting spending at any cost -- a position that would not resolve our fiscal crisis -- continues to insist on playing Russian roulette with our economy, vowing to destroy it if they don't get all that they want.
Let's spell out the actual consequences of such a disastrous scenario.
If the government defaults on its debt, interest rates for all of us would skyrocket. The stellar reputation of the American economic juggernaut would be shattered. Our government wouldn't be able to meet its financial obligations to our senior citizens, veterans, and foreign allies like Israel.
It's hard to imagine that members of Congress are willing to put our financial commitments to our own citizens and allies at risk, but unfortunately, that is the case. The astonishing thing about this crisis is that it is an entirely self-generated one, driven by political ideology and not by practical decision-making.
That said, it's clear that we have to deal with the debt. We have too much of it and it weighs us down. Our country's cumulative debt currently stands at $14.3 trillion. Only 10 years ago, it was $5.8 trillion, an increase of nearly %150.
In the most recent fiscal year -- 2010 -- our government's budget was $3.5 trillion. To pay for that spending, taxes provided $2.2 trillion and the remaining $1.3 trillion was deficit financed, as it was borrowed from both foreign and domestic creditors.
So what did we get for this $3.5 trillion? Roughly, $700 billion for defense; $735 billion for Medicare, Medicaid, and children's health care; $700 billion for Social Security; $490 billion for social safety net programs; $665 billion for investments in education, science, transportation, and other programs; and $210 billion for debt interest payments.
What then, should we do resolve the deficit and the debt?
We can't eliminate all social spending to cover the deficit, as that would total $1.15 trillion, falling short by nearly $200 billion. We also can't get rid of it by purely closing tax loopholes through real tax reform, as the latest bipartisan negotiations on this would net $1 trillion -- also not enough to cover the deficit.
Therefore to resolve, we would clearly need a reasonable mixture of spending reductions and revenue increases. There are aspects of our spending and taxing, like expenditures for nuclear weapons and tax loopholes for oil companies, which should be explored.
Now let's imagine this in personal terms. For example, the deficit to revenue ratio that the government currently maintains is equivalent to earning $50,000 per year while spending $80,000 per year, creating a $30,000 annual credit card bill to cover all of our costs.
Let's assume that our basic monthly expenses include rent at $2,000, food at $1,000, daycare at $1,000, utilities at $300, car payments and gas at $500, and synagogue membership at $500. We'd already be at $63,600 and counting, without even having expensed health care, taxes, and an occasional night out. In other words, our basic expenses would be more than our income.
But now, imagine that our creditors told us that in order to balance our books and be allowed to have more credit, we would have to cut back on expenses -- like rent or education -- without having the option to earn any more income (i.e. tax reformed revenue)? This would be unreasonable, but is exactly what the debt debate is boiling down to.
This means that if we would even try to earn more revenue to balance our books, then our credit cards would be cut off and we'd be blocked from paying back our obligations, causing personal bankruptcy, or, as is at risk in the current budget scenario -- a national default.
What we need now is for our leaders to pull back from the brink and advance a plan that will protect our economy, meet our obligations to our seniors and veterans, and reassure our allies. The time for playing games with our economic future and security has passed.
We must therefore choose differently from what the extremists in Congress are demanding and must make our voices heard. Our country's future depends on it.