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The Economic Crisis
Page 3

Here are posts beginning with January, 2010
For reports from Oct. 10, 2008, through all of 2009
For earlier reports >>

The Debt Squeeze: Who Should Take the Fall?

by Gene TeSelle

Gene TeSelle, formerly president and long-time Issues Analyst of the Witherspoon Society, has written this as a sequel to his article "Taking Responsibility for the Future" in the Spring 2009 issue of Network News, pp. 16-19. He explains that it is an attempt to understand, and that he would welcome corrections and additional perspectives. Just send a note >>

A headline in early February, 2010, said that health care expenditures had risen last year to a record 17.3 percent of the Gross Domestic Product, double what they were a decade ago, and that the percentage could rise to 20 percent ten years from now.

The Rising Bill for Health Care

People are living longer because of improved health care, and the older they get the more health care they need. Those who are over 65 are eligible for Medicare, which has been a bonanza for medical specialists, hospitals, and equipment manufacturers — and, in the last several years, for the pharmaceutical companies, which have received about $40 billion a year from Medicare's Part D, the Prescription Drug Plan.

Bills to Medicare keep rising as medical procedures and equipment become more and more sophisticated. The chief beneficiaries are the major medical centers, most of them linked with universities, and the for-profit chains like HCA, invented by the Frists in 1968. But even the major medical centers are squeezed as Medicare reimbursements are reduced and states try to cap what they will pay per patient.

Not so fortunate are the community hospitals, the last refuge of patients without public or private insurance. It should also be noted, however, that the community health care centers, which offer primary care in poor neighborhoods, have continued to be funded even during Republican administrations, as a safety net that no one wanted to pull away entirely. But they, too, need more adequate funding.

All of these institutions, as well as the private insurance companies that insure people under 65 and offer supplements to Medicare, have a stake in the outcome of the current Congressional debates about a new health care plan. So do the citizens who are over 65, and all who expect to pass that marker in the near or more distant future.

What About That Looming Debt?

My purpose here is not to solve the Congressional debate. This latest news about medical costs is more like a "news handle" for resuming discussion of a broader issue – that of the future obligations of Social Security and especially of Medicare. "Deficit hawks" have raised fears that, as the Baby Boom generation begins drawing on these entitlements, these funds could go broke, if not sooner then later. Others point out that the squeeze is building up slowly and that it could be avoided by making adjustments in retirement age or removing the "cap" on Social Security taxes ($106,800 in 2010).

More broadly, it is pointed out that deficit spending may be a necessary and productive approach during a downturn in the economy by lowering unemployment, investing in energy conservation, and developing the alternative sources of energy that we know we will need.

But the issue is bigger, of course, than Social Security and Medicare. The deficit hawks are focusing their attention on the total federal debt, which is now over $12 trillion. When you look further into this, you find that the federal budget, and thus the national debt, is of two different kinds.

(Please note that I am writing this in an attempt to understand, not as an expert. If my presentation should be incomplete or inaccurate, I beg your indulgence — and your suggestions. These are complex matters. It is difficult to get the whole picture. And even the economists, accountants, and lawyers vary in the ways they calculate and evaluate them.)

One part consists of what is called "mandatory" spending, including Social Security and Medicare. This is drawn from funds held in trust by the federal government in the form of "special obligation bonds," not Treasury bills (for the complex details see the official history at These bonds are backed by the "full faith and credit" of the United States, and thus they do constitute a part of the national debt.

The other is "discretionary" spending, approved annually by Congress. This is of several different kinds. The Iraq and Afghanistan wars, for example, are funded by "supplemental" bills and thus do not appear in the annual budget. Total military and Homeland Security spending has been over half of discretionary spending in the past decade. One summary for FY 2010 puts total "security" expenditures at $844 billion, non-security at $553 billion ( The cost of current wars and power-projection throughout the world may well be the most unsustainable part of our economy.

Discretionary expenditures are funded either from taxes or from Treasury bills and other such instruments. There was a balanced budget in 2000. Because of the Bush-era tax cuts these obligations have accumulated in recent years, leading to an increased deficit in the annual budget and a rising national debt.

The two sets of obligations have been combined since 1968 in a "unified budget" (it helped make the costs of the Vietnam War somewhat more palatable by counting Social Security and other trust funds in the assets column). The total is now over $12 trillion, though as a percentage of the Gross Domestic Product it is roughly comparable with past debts. And of course one part of the mandatory budget is interest on the federal debt, now over 8 percent and steadily rising.

These are the technical details in broad outline. If the deficit is a growing problem, what are we to do about it, and whose recommendations should be followed?

Who Should Decide?

One solution that we have heard for several years is to appoint a federal commission to examine the total debt and make the "tough decisions" that Congress has tried to avoid. The Peterson and Pew Foundations formed a Commission on Budget Reform which issued its report last December, with the title Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt. It does not make specific recommendations; instead it calls for a multi-decade program to "stabilize" the debt and save future generations from bankruptcy. Its Conclusion notes the need to "raise certain taxes" and "reduce certain benefits." But specifics would be dealt with by the blue-ribbon commission.

President Obama, influenced especially by Wall Street billionaire Pete Peterson (whose public career began, ironically, in the Nixon cabinet), has favored this approach to "fiscal responsibility." He asked Congress to appoint a commission to deal with the issue, but the Senate voted down one version of the proposal, the Conrad-Gregg bill, which would have formed a commission composed chiefly of members of Congress. In his state-of-the-union address he announced his intention to appoint a commission anyway, with a membership far broader than Congress.

There has not been much coverage of the issue, other than echoing the alarm about the rising national debt. But the matter deserves careful reflection.

Opinions about the commission proposal are varied. Some insist that Congress has the constitutional responsibility of adopting an annual budget and should not palm it off on a panel of professionals (most of whom participated in the debates leading up to the current situation) deliberating in secret. Others point out that any proposal would still have to come before Congress, perhaps for an up-or-down vote, perhaps amendable by some super-majority. Republicans fear that it would co-opt them in a plan to raise taxes; Democrats, in a plan to cut entitlements. The official name would probably be "budget commission," but many commentators are already calling it an "entitlements commission." Although the commission idea is attractive because it seems "non-political," it cannot help being political from first to last.

Who Should Benefit? 

The Treasury has borrowed from the various trust funds, chiefly Social Security, over the years — with interest-free loans, we should note, thus easing the total national debt. When you check the Internet to see what this "intragovernmental debt" comes to, it's hard to find the information. The best source is the official Treasury web site (, which says that the total is now $4.5 trillion. That means that a third of the national debt is not held "publicly" by investors of many sorts (individuals who have bought T-bills, pensions funds, investment banks — and foreign governments, chief among which is the People's Republic of China), and thus is not vulnerable to the ups and downs of the international financial market.

This "intragovernmental debt" is money that the government "owes itself." And when you are in financial trouble, the easiest solution may seem to be to write off what you owe yourself. That idea has been a "subtext" in the recent discussion of the national debt. So let's ask what would be involved.

William Greider, a seasoned watchdog on many financial issues, points out that Social Security is far from broke ("Looting Social Security," The Nation, January 25, 2010). It has a surplus of around $3 trillion ("trillion, not billion," Greider notes). Because of decreased employment and smaller paychecks, FICA taxes have shrunk drastically since mid-2008.  The Social Security Administration says that expenditures may outpace receipts as early as 2018, though the total fund would not be exhausted for several more decades.

Social Security is a trust fund, paid for by citizens' FICA taxes. In this sense it belongs not to the government but to all the participants in this retirement insurance program. Some of them are drawing on it now. Our children hope to be drawing on it in the future.                           

Since politicians love to draw analogies with a family's budget, this is like having a trust fund for one's children but borrowing against it — by credit cards — to meet current expenses. In the case of a legally registered trust, there is only a limited range for discretion. It's like a contract, and we love to say that a contract is "sacred."

But there's a difference. The government has sovereign freedom to change the terms of the trust fund and the way its debts will be paid. Its relationship to us is more like those "suzerainty treaties" that we read about in the history of Israel. Congress could indeed change the Social Security system. That's why we need to be worried. In order to avoid bankruptcy in its publicly traded debt, it could put us far down in the list of priorities.

Probably Social Security has become the target of the deficit hawks because it is solvent. A more serious debate concerns Medicare, whose expenditures, according to the Social Security Administration (see, are expected to begin outrunning assets in 2014. In addition, health care costs are steadily rising, as my opening "news story" indicates. That's why there are increasing calls for cost-containment. And that's why passing a health care bill is so important — and so controversial, since cost-containment could seriously affect specialists, medical centers, equipment manufacturers, and insurance companies.

The projections about the future of Medicare are a motivator to "do something." So is the more general debate about deficit financing — and about what should be financed. The basic question, of course, is who would benefit.

In the eyes of many political consultants, this is largely a question of what will get the votes, and what kind of financial backing will be needed to get those votes. But it is also a question of public ethics and what ought to take priority in our public spending.

The money is there in the economy  -- or at least was, before it was frittered away in derivatives, credit default swaps, and all the other practices that fed the bubble and then the bustThe Bush tax cuts that put billions of dollars of assets into the hands of the top few percent of the population were "deficit-financed" through an inverse kind of Keynesianism. However one totals the amount of the Bush tax cuts (and there is much controversy, if not obfuscation, about this), this money could have kept Medicare and other federal expenditures on a sound financial basis.

One problem is that the gain from these tax cuts is now held as assets, not income.   Instead of being recycled into the economy through spending, loans, or new investment, much is being stashed away, "capitalized," in stocks, real estate, offshore tax havens -- and, ironically, in Federal Reserve deposits and government securities, currently regarded as the safest place to store one's money.  While some states tax "wealth," the federal government does not, except through inheritance taxes and gift taxes (designed to catch intergenerational transfers prior to death). The inheritance tax is now technically void, although everyone expects it to be reenacted (and made retroactive to the beginning of 2010) as part of a legislative package. The debate will concern the amount excluded ($3.5 million? $5 million?) and the rate (a maximum of 35%? or of 55%?).

Perhaps the chief reason for the current furor over the national debt is that the Bush-era tax cuts were not permanent, despite several attempts to make them so.  (The 2001 and 2003 cuts were made using the now-controversial "reconciliation" process, without requiring 60 votes for cloture.) They are scheduled to expire in 2010; then we would revert to the previous tax provisions. These would add to the tax burden of middle-class families, as we have been told so often. President Obama has promised that taxes will not be raised on families with incomes under $250,000. Conservative commentators deride this, claiming either that it would not collect enough, or that it would be unjust to the Wall Street traders who deserve all of their hard-earned wealth, or that it would hurt "small business."

As we head into the 2010 elections, we may be facing the "perfect storm." How candidates and voters respond to the various factors will be important, in fact fateful, for the future.  

bulletHealth care costs are rising.

bulletMedicare is spending at a rate that could develop into a net loss.  

bulletThe annual "discretionary" budget has borrowed against Social Security and other trust funds, shifting the burden of taxation from the present to future generations in what looks to many like a Ponzi scheme. 
bulletThe policy of deficit financing, although it seemed to be the height of wisdom a few years ago, has now become controversial. Blame for the growth of the deficit can be attached to many different targets: the Bush tax cuts, spending on social programs, porkbarrel projects, an overgrown military and questionable wars.  
bulletSimilarly there are conflicting recommendations on how to deal with it. Will we (or Congress, or the lobbyists, or a special commission) raise taxes or decrease entitlements? Or (what is most likely), what combination of the two will be negotiated — first in back rooms with the participation of Washington's 17,000 lobbyists, but finally in public, on the floor of Congress, and during an election year? 
And if election-year pressures should lead to some kind of responsible legislation, will those who voted for it be savaged by corporate assaults and Tea Party protests?
bulletRising health care costs and the coming squeeze on Medicare make some kind of legislation almost inevitable. Because of pressure from the White House a year ago we are no longer talking about a single-payer plan, a kind of "Medicare for all." We may be talking about the current Senate bill. We may be talking about some kind of bipartisan compromise. 

The key question is what to do when the Bush tax cuts expire. Will we return to a more progressive tax structure, or will we be inclined to identify with the wealthy? In any case, tax legislation will not stand on its own. It will be linked with the two other issues of deficit financing and health care costs.

How we respond to that three-cornered problem – no, make it four-cornered, a tetrahedron with the military budget probably at the top of the pyramid, since some deficits are more equal than others – will say much about our character as a nation and what kind of future we envisage for ourselves. And to be quite specific, are the churches ready to ask what our public priorities are or should be, and whether we are ready to call upon citizens to bear their fair share of the tax burden for the sake of our common good?

"Pay taxes to whom taxes are due, revenue to whom revenue is due, respect to whom respect is due, honor to whom honor is due" (Rom. 13:7, RSV).  In a democracy all of these terms have a broader meaning than they did in Paul's day.  We know from Paul's own situation that the governing authorities may not always have the right understanding of good and evil conduct.  But we also know from Paul what their proper task is, and we are told to support it, not only because of the wrath that might come upon us (from God, from the media, from corporations, from political parties, or from populist anger, all of which can seem to be the voice of God) but for conscience' sake (Rom. 13:5 KJV).

If you have comments or suggestions
for improving this survey of a huge topic,
please just send a note!


Another view of the U.S. budget crisis:

Wars sending U.S. into ruin – Obama the peace president is fighting battles his country cannot afford


Eric Margolis, writing for the Toronto Sun, begins:

U.S. President Barack Obama calls the $3.8-trillion US budget he just sent to Congress a major step in restoring America’s economic health.

In fact, it’s another potent fix given to a sick patient deeply addicted to the dangerous drug — debt.

More empires have fallen because of reckless finances than invasion. The latest example was the Soviet Union, which spent itself into ruin by buying tanks.

Washington’s deficit (the difference between spending and income from taxes) will reach a vertiginous $1.6 trillion US this year. The huge sum will be borrowed, mostly from China and Japan, to which the U.S. already owes $1.5 trillion. Debt service will cost $250 billion.

The rest of his article >>

Thanks to the Global Network Against Weapons & Nuclear Power in Space

The religious case for moving your money where your heart is      [1-12-10]

A week ago we posted a bit of Ariana Huffington’s call for people who are concerned about the power and apparent irresponsibility of the nation’s super-sized banks to show their resistance by moving their own money to smaller, more local or regional banks.

Now the Rev. Paul Raushenbush, who is the Religion Editor for the Huffington Post and the Associate Dean of Religious Life and the Chapel at Princeton University, offers an explicitly religious/theological/ethical perspective on the same proposal. He concludes:

It may be time for us as individuals and as churches, synagogues and mosques to move our money to smaller banks that are connected and responsible to our local communities.

I encourage you in your congregation to consider the following question regarding where you keep your money:

How does my religious tradition view money? What purpose does money serve in the ideal society envisioned by my tradition? Does it matter how our money is made? What is the best way to make my money serve the ethical mandates of my tradition? Does my bank reflect the values that I hold regarding money?

Each of us has many ways to live out our religious convictions. One of those ways is to be conscious and have a conscience about how we make, spend and where we save our money. If you are interested in learning more go to

His full essay >>

A Happy New Year suggestion: move your money to a small bank      [1-4-10]

We received this note from a Witherspoon/Voices member on New Year’s Eve:

"Happy New Year" I'm sending this to wish us all a 2010 that has US citizens expressing "we the people" more effectively. Consider what Arianna Huffington and her gang suggest. I don't have any account in one of the BIG banks but I can at least suggest YOU read this amazing idea! which may by the grace of God plant other seeds for IT'S A WONDERFUL LIFE in 2010!

Mary Louise Ellenberger

A few snippets from Huffington’s article:

Too-big-to-fail banks are profiting from bailout dollars and government guarantees, and growing bigger. ...

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. ...

Meanwhile, America's Main Street community banks – the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of – are struggling. ... As a result, a system which was already dangerously concentrated at the top has only become more so. ...

Our money has been used to make the system worse -- what if we used it to make the system better? ...

The idea is simple: If enough people who have money in one of the big four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it becomes again the productive, stable engine for growth it's meant to be. It's neither Left nor Right – it's populism at its best. ...

Think of the message it will send to Wall Street – and to the White House. JP Morgan/Chase, Citi, Wells Fargo, and Bank of America may be "too big to fail" – but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system. Let them gamble with their own money, not yours. Let's turn big banks into smaller banks. We'll all be better off – and safer – as a result.

Make it your New Year's resolution to move your money. We can't think of a better way to start 2010.

For Huffington's full article >>

For more info, go to:

Some blogs worth visiting


Voices of Sophia blog

Heather Reichgott, who has created this new blog for Voices of Sophia, introduces it:

After fifteen years of scholarship and activism, Voices of Sophia presents a blog. Here, we present the voices of feminist theologians of all stripes: scholars, clergy, students, exiles, missionaries, workers, thinkers, artists, lovers and devotees, from many parts of the world, all children of the God in whose image women are made. .... This blog seeks to glorify God through prayer, work, art, and intellectual reflection. Through articles and ensuing discussion we hope to become an active and thoughtful community.


Witherspoon’s Facebook page

Mitch Trigger, Witherspoon’s Secretary/Communicator, has created a Facebook page where Witherspoon members and others can gather to exchange news and views. Mitch and a few others have posted bits of news, both personal and organizational. But there’s room for more!

You can post your own news and views, or initiate a conversation about a topic of interest to you.


John Harris’ Summit to Shore blogspot

Theological and philosophical reflections on everything between summit to shore, including kayaking, climbing, religion, spirituality, philosophy, theology, politics, culture, travel, The Presbyterian Church (U.S.A.), New York City and the Queens neighborhood of Ridgewood by a progressive New York City Presbyterian Pastor. John is a former member of the Witherspoon board, and is designated pastor of North Presbyterian Church in Flushing, NY.


John Shuck’s Shuck and Jive

A Presbyterian minister, currently serving as pastor of First Presbyterian Church of Elizabethton, Tenn., blogs about spirituality, culture, religion (both organized and disorganized), life, evolution, literature, Jesus, and lightening up.


Got more blogs to recommend?

Please send a note, and we'll see what we can do!


Plan now for our 2010 Ghost Ranch Seminar!


July 26-August 1, 2010



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