State of the Union Delusion

Getty Images

State of the Union Delusion

The State of the Union speech revealed an emperor with no clothes.

“Tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. [T]his would reduce the deficit by more than $400 billion over the next decade and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president” (emphasis ours).

Wow! $400 billion.

America seems to be finally getting serious about its spending problems, says Reuters: “The initiative marked a departure from Obama’s first two years in office, [which was] a period of aggressive federal spending.”

After hearing the president’s speech and listening to the media, you might think that America was finally ready to balance the budget. The president did say that he was going to “freeze annual domestic spending” and reduce the deficit.

President Obama’s Budget Director Jack Lew is promoting that image too. The 2012 “budget will show a very serious path of deficit reduction,” he said in a recent interview—so don’t be worried when the soon-to-be-released revised budget projections show a slight increase in the actual deficit.

The president’s budget will be an inflection point of “switching gears to reducing the deficit,” said Lew. It is going to be a budget of “tough choices and tough cuts.”

The problem is it is a load of lies mixed with half truths. It is a total sham.

Look at what the president is doing—not just what he is saying.

That $400 billion might seem like a lot, but it is peanuts. It is a rounding error for Washington spending. And it is to be cut over 10 years! That means that on average the government will only cut a paltry $40 billion a year. This year alone, America will fall another $1.4 trillion further into debt.

The proposed 2012 budget is estimated to be $3.7 trillion in spending. Assuming that rate stays the same for the next decade (which it won’t—it will be much higher), America will spend an astounding $37 trillion over that time frame.

To put this number in context: Pretend that you earn $4,000 per month, but spend $6,000. You clearly see that this is unsustainable and will eventually lead to your bankruptcy, so you decided that you need to switch gears into deficit reduction mode and make some “tough choices and tough cuts.” You call a committee meeting with your spouse, hire some professionals to outline a serious path to deficit reduction and then call a press conference to announce that henceforth you will chop $64 from your monthly spending.

You are making $4,000 per month. You are spending $6,000. You are going a further $2,000 in the hole per month. You owe $100,000 on credit cards—and the bank is getting ready to call your line of credit. And you want the family (and your creditors) not to worry because you decided to spend $64 less next month?

Nobody will believe it. Not a chance. It is too ridiculous. But astoundingly, that is just what America wants the world to believe.

No matter how beautiful you tell people your imaginary clothes are, and no matter how much you want them to believe it, the truth is: When you are naked, you are naked. The picture isn’t pretty and winter is about to arrive.

For more information on how to not just survive, but thrive in any economy, read “How You Can Prosper in a Recession!