Tuesday, July 05, 2011


The federal government is rapidly approaching the limit of the amount of debt congress permits it to have. Meanwhile, politicians and the media alike are blustering about a debt ceiling doomsday scenario. They base this assertion on the premise that hitting the debt ceiling means that the federal government goes into default.

I believe this is a non sequitur. What I don't understand is why hitting the debt ceiling necessarily means the federal government goes into default. It has almost $200-billion in monthly revenues -- as I understand it, that's more than enough to service our current debt obligations.

Wouldn't hitting the debt ceiling just mean that the Fed would have to stop issuing new bonds and the government would have to operate without a deficit? As I recall, America was in pretty good fiscal shape the last time we ran a budget surplus -- much better than it is now. I see no problem with spending the same as the federal government did then.

The irony is that the GOP claims federal spending is the least productive application of savings. Yet many of those same Republicans support increasing the debt ceiling. There is a finite amount of savings in the financial markets. If the federal government takes on more debt, it takes the amount of that increase away from private investment. You can't have it both ways.

The most obvious question about this issue is, if congress raises the debt ceiling every time we hit it, what is the point of having a debt ceiling in the first place? If I'm missing something in this equation, please post a comment and explain.


Anonymous said...

The debt ceiling debate is not about economics, it's about politics. The debt ceiling was raised several times under President George W. Bush with hardly any debate, and even on voice vote. This debate is more about creating chaos in the economy to make the CEO (Obama) look bad in the runup to re-election. Unfortunately, regular folks will be the ones harmed by this political gamesmanship.

Anonymous said...

Just read that Boehner walked away from a big debt-limit deal. Why is the GOP so afraid of compromise? Isn't that at the heart of our political system?