Wednesday, June 10, 2009

The national debt when George Washington left office after eight years was $72.4 million. On Tuesday, it stood at $11,402,512,353,674. And 6 cents.

So perhaps it makes sense that the giant portrait of the first president, which hangs in the White House East Room, was covered over when President Obama declared that the federal government should - from now on - make sure there’s enough cash on hand to pay for the things it wants to do.

“The ‘pay as you go’ rule is very simple,” Mr. Obama read from his teleprompter to a happy crowd of Blue Dog Democrats. “Congress can only spend a dollar if it saves a dollar elsewhere. And this principle guides responsible families managing a budget.”

A muffled snicker wafted out of the box covering the Washington portrait.

Mr. Obama’s proposed budget would produce a $1.85 trillion deficit this year, more that four times the previous record set just last year by President George W. Bush, and $1.3 trillion next year. Over the next decade, the plan would incur $11.6 trillion in deficits - doubling the national debt, according to the nonpartisan Congressional Budget Office.

But even though it seems a bit too late to try to adopt the guiding principle of “responsible families,” the president also may be deploying the wrong template.

The pay as you go - PAYGO, to the crack federal linguists - isn’t working so well just now with your run-of-the-mill “responsible family.” Americans’ credit card debt had risen to $972.7 billion by the end of 2008, reports; the average household is $16,635 in debt. Four out of five homeowners don’t use a detailed budget. And one in six is either in foreclosure or behind on house payments.

What’s more, every year, Americans pay around $15 billion in penalty fees, according to the Treasury Department. Since the economic meltdown last fall, missed credit card and mortgage payments have damaged credit ratings, which means that people who fall behind can’t get a loan to catch up or refinance to bring down costs.

Wait, that does sound like the federal government, after all.

Washington borrows roughly half of every dollar it spends and about 46 cents of every dollar pouring into the federal government goes out the door to pay for debt. And just like homeowners whose bad credit prevents them from borrowing money, the United States could lose its triple-A credit rating within the next 10 years, Moody’s Investors Service said last month.

In addition, top Chinese bankers, who own billions of dollars in U.S. debt, this month said the U.S. government should start issuing bonds in yuan rather than dollars. In April, before the G-20 economic summit in London, the head of the People’s Bank of China called for the yuan to replace the dollar as the international reserve currency. Throughout, the Chinese have begun to balk at buying more U.S. debt, unsure of its future worth.

So Mr. Obama has come up with a new plan - actually, it’s an old plan, and one Congress eventually watered down so badly that it wasn’t worth the paper it was written on.

First enacted during President George H.W. Bush’s term as part of the Budget Enforcement Act of 1990, PAYGO required all spending increases to be offset by revenue decreases or, if necessary, “revenue increases” (read: taxes). But Congress began to work around the stringent rule and, throughout the two terms of George W. Bush, wriggled free of the restrictions.

In 2001, Congress removed discretionary spending from the PAYGO mandates, putting $90 billion outside the restrictions that year, which ballooned to $444 billion in 2006. When the Economic Stimulus Act of 2008 hit the floors of Congress, lawmakers were unhindered. Restrictions never applied to emergency or supplemental spending anyway, or even to annual appropriations, so the horse was long out of the barn by then.

Also, PAYGO rules don’t apply to “discretionary spending” - taxpayer money Congress decides each year how to spend, which makes up nearly 40 percent of the annual budget.

Republicans, thus, are skeptical of the “new” plan. “It seems a tad disingenuous for the president and [House] Speaker [Nancy] Pelosi to talk about pay-go rules after ramming trillions in spending through Congress proposing policies that create more debt in the first six months of this year than in the previous 220 years combined,” said House Republican Whip Eric Cantor of Virginia.

But the president said it was just that kind of naysaying that doesn’t help.

“The debate of the day drowns out those who speak of what we may face tomorrow. That is why ‘pay as you go’ is essential,” Mr. Obama said. “It requires Congress to navigate the ebb and flow of politics while remaining fixed on that fiscal horizon.”

And he insisted that the corner is being turned. Just two months after laying out $787 billion to shore up the economy, “several financial institutions are set to pay back $68 billion to taxpayers,” the president said.

“As this money is returned, we’ll see our national debt lessened by $68 billion,” he said.

That’s 3.67 percent.

George Washington in his heaven smiled.

Joseph Curl can be reached at

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