IT IS OBVIOUS: THE US DEBT LIMIT HAS OUTLIVED ITS USEFULNESS

…Where the two houses of the US Congress live.

 

Both parties need to stop playing “Russian Roulette” with the nations debt.

 

How many of you know what the nation’s “Debt Limit” is and why we have one?

 

If I asked that question on the street, the odds are that I would need to ask well over 100 Americans before I got any explanation that “might” be correct.

 

First, here is the definition for what the US Debt Limit is today.

 

“The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.” 

 

In other words, the debt limit is the total of the nation’s bills and by passing a debt limit bill, the congress is authorizing the US Treasury to pay all of the nation’s current bills.  No, it has nothing to do with increased spending.  It is only for paying our already accrued bills.

 

Here is why it is so important for the debt limit bills to be passed.  If the debt ceiling bill doesn’t pass and the ceiling isn’t increased, all of the outstanding US bills would immediately go into default and the nation’s reputation and credit rating would go into the sewer.

 

Here is what happened when the Republicans almost caused the US to not pass a new debt ceiling bill in 2011:

 

On July 31, 2011,two days prior to when the Treasury estimated the borrowing authority of the United States would be exhausted, Republicans agreed to raise the debt ceiling in exchange for a complex deal of significant future spending cuts. The debt crisis had sparked the most volatile week for financial markets since the 2008 crisis, driving the stock market trend significantly downward. Prices of government bonds rose as the scared investors fled into the relative safety of US government bonds.

 

Later that week, the credit-rating agency Standard & Poor's downgraded the credit rating of the United States government for the first time in the country's history.  However, the other two major credit-rating agencies, Moody's and Fitch, did retain America's credit rating at AAA.

 

The Government Accountability Office (GAO) later estimated that the delay in raising the debt ceiling increased government borrowing costs by $1.3 billion in 2011 and also pointed to un-estimated higher costs in later years. The Bipartisan Policy Center extended the GAO's estimates and found that delays in raising the debt ceiling would raise borrowing costs by $18.9 billion.  Missing this date is not cheap.

 

So, this all makes us ask, “Why is there even a debt limit in the first place?”

 

In the beginning, the debt limit generally was raised without controversy.  But when large unknown expenditures such as the funding for a war were required, it was decided that a large debt limit was needed instead of have large lists of individual debts that would all need individual approvals.

 

This all went well until 1953 when a partisan White House request to raise the limit was sidetracked in the Senate.  For the first time, the debt ceiling was being viewed as a partisan fiscal instrument.  Since those days, there has been continuous partisan bickering between the US Congress and the executive branch of the government whenever these two branches are controlled by different political parties.”

 

The reality is that it is obvious to almost everyone that the federal debt ceiling has outlived whatever usefulness it once had. It does not discipline government spending in any predictable way. On the contrary, it creates an artificial crises with possible negative economic consequences and it always discredits both political parties. International confidence always suffers while the supposedly most powerful nation on earth debates whether it’s going to pay all its bills. It is definitely time to end the debt ceiling debacle.

 

Today, we are again facing another manufactured crises. Treasury Secretary Jack Lew says that by Nov. 3, 2015, the government’s cash balances may drop below $30 billion.  Unless the debt ceiling is raised, allowing the government to borrow again, some routine payments for Social Security, defense contracts, or whomever, will be missed. What happens after that is anyone’s guess.

 

The latest fact is that the Congress needs to select a new House Speaker at the same time that the debt ceiling needs to be raised, so everything for this issues is unpredictable.

 

The White House has insisted on a “clean” bill increasing the debt ceiling with no additions or addendums.

 

But the political impasse is crystal clear. Many House Republicans today just don’t care and want to use an increase in the debt ceiling as a legislative lever to get the Obama administration to accept spending cuts.

 

Both parties have sidestepped an honest debate because that would require both to admit unpleasant realities.

 

The reality is that the cuts that the Republicans want would not allow then to get where they want to get, and the spending that the Democrats want would require tax increases that will never happen.

 

But since neither party can admit that, and since all that would happen with a credit default is the hole would be dug even deeper.  There is no reasonable answer.

 

The most important issue is that real credit damage by either party will damage America’s global reputation. The role of the US Treasury securities as the world’s safest financial instruments would be thrown into major doubt. 

 

A US default, even a brief one, would qualify as yet another financial crisis that was thought impossible to occur.

 

But in reality, another financial panic cannot be ruled out if either party gets their way.

 

So, everyone stay tuned.  As of today, no one knows what going to happen.

 

Copyright G.Ater  2015