This morning, I found myself thinking about 1987. It was one heck of a year. Sure, we had that nasty little market crash in October, but we also had Reagan and Gorbie signing a missile treaty, Ivan Boesky was shuffling off to jail for insider trading, and Gary Hart got caught in a little Monkey Business. At the box office, Three Men and a Baby was #1. Fatal Attraction (Cook! Where’s my hasenpfeffer?) finished a close second.
Maybe what’s more notable about 1987 is that the nation’s debt — all of it — was $2.35 Trillion. I bring up that number because that is roughly the amount of increase in the debt ceiling that is being passed as part of the new bargain. Once the ceiling is lifted, we’ll be staring at $17 Trillion in total debt. In a mere 24 years, we’ve increased our national debt by a multiple of 7 1/4.
When I look at those numbers I can’t help but get nostalgic for 1987. Now I’m not pining for the return of George Michael, White Snake, Whitney Houston, or Heart. I may be nostalgic but I’m not deaf. I pine more for the less vitriolic, more respectful political environment. It was a time when the President wore his suit coat into the Oval Office — out of respect for the position. Back then you could be diametrically opposed to a politician’s policy stance, but you could respect — even like — the person. It was a time before the portable bubble of tech stocks, housing, and US Treasuries.
I’ll concede that 1987 wasn’t a panacea. We had LBO’s and junk bonds and The Georgia Satellites. But in spite of those problems, you had a sense that the light you were seeing was coming from the end of the tunnel; not from the freight train that’s about to hit you. Today I see a light, but I’m not sure from where it comes.
It makes one wonder how you can add $2.5 Trillion onto the nation’s debt while being beyond nebulous about spending offsets. How exactly do you get the citizenry to go for this? Having had the misfortune of watching some of the debate this weekend, I think it has to do with the morphing of our political lexicon by “leaders” trying to give us a warm fuzzy. I’ll give a few examples:
Revenue: As a business owner, I know that revenue is good. Without it Altair would be a hobby. So let’s not call a tax increase what it is. Rather, let’s call it “revenue.” Everyone likes revenue! THE FEDERAL GOVERNMENT DOES NOT NOW, NOR HAS IT EVER, GENERATED REVENUE. IT COLLECTS TAXES.
The American People: That expression, “The American People” is a lot like the word “but.” Whenever it is added to a sentence it immediately nullifies all the words that came before it. ie. “We have to vote for TARP, it’s in the best interest of the American People.” Or, “We have to raise the debt limit to avoid a default that would be devastating to the American People.” Whenever I hear a politician invoke that phrase, I immediately declare shenanigans.
Extreme (and its derivatives of ‘ist and ‘ism): When I think of extreme, I think of things like shooting your TV because Law and Order is a re-run. That would be extreme. But, in the new lexicon, having different, well thought-out ideas, is extreme. That makes you an extremist with all your extremism.
Grand Bargain: Much like “revenue, ” this one is a win/win. Everyone likes a bargain, and this one promises to be GRAND! It will involve the closing of loopholes, the raising of “revenues, ” and the protection of entitlements. Which brings me to…
Entitlements: If you tell somebody they’re entitled to something, you change their perception of the benefit. Post-depression safety nets become an entitlement for lifetime retirement benefits. Medical safety nets become an entitlement for Medicare.
All of this wordsmithing has now led us to the point where a deal is about to pass both houses of Congress and to be signed by the President. While pretty words may calm The American People, I doubt they’ll have the same effect on Standard & Poors. The deal doesn’t come close to hitting the $4 Trillion S&P was looking for. Default may be off the table, but the odds of a debt downgrade (particularly by S&P) remain rather high. But you sure can’t tell that by looking at bond prices. The Treasury market is celebrating our newly approved $2.4 Trillion in debt by rallying. The 10-year now pays 2.74%.
Maybe I’ll quit complaining and just pop my Bon Jovi cassette into the ol’ boom box.