Image via WikipediaI must say I'm not overly interested in this US budget process.
Yes, it's groundbreaking.
Yes, the President wants his first budget to have education, energy, health care and work towards reducing the deficit. He's pretty fixated on those 4 specific categories and to him they are non-negotiable. All of them - he's said it a zillion times. And in fairness, they are all critical, they are all important, and they have been waiting for too long. But they have been waiting....and they can continue to wait....the world won't fall apart.
Frankly, the world won't fall apart without fixing education AND energy AND health-care AND reducing the deficit in the very next budget. It just won't. Would I like to have all of them? Sure! But there's a MUCH bigger battle which totally impacts this one.
And here it is: the global financial sector/banking system. Because what's a budget if you cannot fund it? What's a budget if it cannot be sustainable because there are no funds to pay for the programs year after year?
Follow me here:
The world WILL - I repeat WILL - fall apart without a functional global financial sector/banking system. We need one yesterday.
Let's examine this. A budget is funded by tax revenues and debt (which is just an expensive advance on tax revenues).
Let's look at tax revenues: Where are the tax revenues when companies are not profitable - because they cannot borrow to expand and invest, for example? Where are the tax revenues when small businesses cannot get back to generating the majority of employment - so you get income tax from the businesses and taxes on salaries and wages?
Let's look at debt: If the society cannot go back to generating private wealth, isn't creditworthiness going to fall - so credit gets more expensive and less accessible? How do you reduce the deficit if you have to keep borrowing because you don't have a functional banking system so people can go back to making money so they can pay taxes? How much more money can the US borrow IF it does not demonstrate that the society will be generating the wealth to repay it?
Frankly, all these lovely programs WILL NOT get funded in a sustainable manner in the absence of a global functional financial sector and banking system. In one of the few matters where Bernanke and I see eye to eye, this is really the deal breaker, folks. All the stimulus in the world is carrying us nowhere without this global banking/financial sector clean up.
I haven't read the budget and maybe if I did I would feel differently. Maybe if I were President I would be seized with the historical significance of the "first budget". And hey if the President can get all four of these done AND the global financial sector/banking system fixed, then great. Except he was visibly annoyed when asked about AIG. And that made me wonder if he is fully seized about what is negotiable on his very full plate.
Because the global financial sector/banking system is a necessary, pre-requisite, must do, have to have, non-negotiable.
Bear with me - it is straining relations between countries, it is encouraging protectionist measures, it is reversing all of the gains that were made in the last 50 years. It requires the dedicated attention of the President - not the Secretary of the Treasury and the Chairman of the Fed. If people believe countries will not end up in civil war over this, or go to war with other countries over this, then they have forgotten history.
Respectfully, we cannot leave the global financial sector/banking system one more second. Even if the President magically gets everything he wants this year in the budget, without a global banking/financial system, that budget will be a one-off anomaly because next year's priorities will be totally different, and may I say not in a positive way. So here are some solutions: maybe we can do all four of what the President wants but not on that scale. Maybe one of them can be delayed until next year.
Hey, I'm not the President, but if I were maybe I would look at the big picture, and realize that my energies are better spent elsewhere - like in a functional global banking system/financial sector so this never happens again. Sometimes to win the war, you have to lose a battle.