36 thoughts on “Don’t raise the debt ceiling…”

1. Anticipating the critics, let me lay out the following from the article above:

   “Here are the facts, as reported by MarketWatch and the Bipartisan Policy Center. You do the math:

   * The federal government receives approximately $200 billion in revenues each month.

   * Interest on the national debt in August will be approximately $29 billion.

   * Social Security will cost about $49. 2 billion.

   * Medicare and Medicaid will cost about $50 billion.

   * Active duty military pay will cost about $2.9 billion.

   * Veterans affairs programs will cost about $2.9 billion.

   If you’ve been punching buttons on your calculator, you know that still leaves $39 billion each month. This is where Obama and the Democrats most fear to go. If Congress doesn’t agree to raise taxes and the national debt limit, they will then have to make the tough choices about which of the remaining programs gets paid or cut and by how much:

   * Defense vendors

   * IRS refunds

   * Food stamps and welfare

   * Unemployment benefits

   * Department of Education

   * Department of Housing and Urban Development

   * Department of Justice, etc. etc.

   Read more at the Washington Examiner: http://washingtonexaminer.com/blogs/beltway-confidential/2011/07/washington-gets-200-billion-month-social-security-costs-50-billio#ixzz1S1BKnwTM“

2. I agree with you. We cannot continue to spend money we do not have. In real life, the bank bounces your checks, the credit card company cuts you off and you can’t even get financing at the used car lot. We need to live within our means as a country, we have to do it as indivduals.

3. There is an interesting short-term measure to be taken to ensure no default takes place. Read this for more.

   http://www.nationalreview.com/corner/271793/debt-ceiling-bill-pass-right-now-kevin-d-williamson

4. Well said, Joyce. I am in agreement as well.

5. Yes, our country should live within its means. The problem is we are still feeling the negative impact from October of 2008. Taxing the rich and corporations while cutting spending will help our economy. Let’s have a conversation of reducing taxes for the rich in a few years when our economy picks up.

6. Mitch, who is talking about “reducing taxes for the rich?” That is not even on the table. There is some talk about lowering rates but then getting rid of deductions so that the overall effect will be neutral or cause a slight tax increase. For example, let’s say you make $100k per year. I think you are in the 25 percent bracket at that rate. So, in theory you would pay $25k in federal taxes. But you get deductions for your mortgage, for your family, for your charitable contributions, for your property taxes, for your state income taxes. So in reality you probably only pay $12k in federal taxes (or even less if you have more than three kids). So, if we lowered your rate to 20 percent but got rid of deductions for, say, your mortgage, you probably would pay about the same or slightly more in taxes. THIS is what is under discussion. Nobody is talking about reducing taxes for the rich.

7. Basically, we’re screwed as far as the budget is concerned. I have hope for the eternal perspective though 🙂

   In the short term, it’s amazing how we can’t possibly find a way to save 2.5 trillion over the course of 10 years in exchange for a 2.5 trillion increase in the debt limit, when we should know full well in 2 years or less, politicians will be back at the a table requiring another 2.5 trillion increase. It’s even disingenous for them to say they want 1-to-1 cuts in spending for every dollar in the debt limit because their cuts take place over a decade, and they will likely be back asking for an increase in the debt limit several times in between.

   I have heard the prophets testify that if this people turn away from God, the day will come when the nation will have to be thrown down and supplanted before He comes to reign. It’s increasingly clear that will be necessary, but it seems to me as a nation we are sewing the seeds for that collapse even now and have been doing so for quite some time. I honestly don’t see how things can change unless everything falls a part first and the people are humbled so we can see the errors of our ways and return to God and become the free people he wants us to be.

8. Of course the politians will try to raise it again in two years. They raised it seven times during GWB’s administration and it was utterly uncontroversial. Mitch Daniels, at the time Bush’s budget director, said it should be treated as the housekeeping matter that it is. Orrin Hatch was voting for routine raises in the debt ceiling since long before Mike Lee had ever heard the phrase (I’m betting that it’s more recently than he’d like us to believe).

   Now the tea party has come along with no memory, thinking Obama is the entire source of the debt, when percentage-wise he has contributed a very small amount to it (I except Geoff B. here who has now repudiated the economic performance of the Bush years). Somehow, after all these years, the debt ceiling just became very important.

   What is most important is policies to encourage the growth needed to eventually catch back up so that the debt is manageable as a percentage of GDP. Interest rates right now are so low that the government can actually borrow at negative rates in inflation-adjusted terms. One of the smarter things the treasury has done over the past couple of years (among its many blunders) is to have increased the maturity of outstanding debt to an eight-year high:

   http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/UST%20Maturity%20by%20Bucket.jpg

   A default would increase rates and push the country back into recession, making the growth problem even more difficult to recover from, and causing interest payments to go up, both resulting in even more debt to deal with, wherever the artificial ceiling is set.

9. It’s hilarious that Hatch is leading the way on this issue when he’s such a major cause of the problem. I guess he’ll fake anything to get elected again in 2012.

10. Reducing tax on the rich is not on the table now. My post stated that it can be on the table in a couple of years if the economy gets better. At this point we want to tax the rich to help the economy, but the republicans are fighting it.

11. Bill, I am not sure I get that chart. My understanding was the Bill Gross and Pimco (and many others) were dumping their long-term debt and trading it in for one-year T-bills and corporate debt. See this:

    http://www.cnbc.com/id/42013143/Pimco_Move_Could_Send_More_Investors_Out_of_Treasurys

    At the same time, my understanding is that the Fed is buying almost all of the long-term debt from the last two years. So, could your chart actually mean that long-term debt buying is up because of Fed buying? How could that be a good thing?

    Bill, from your comments here, it is clear that you actually understand economics and finance, which is a great thing. You are right that the only way out is growth. But the many forms of Keynesian stimulus (monetary and fiscal) are clearly not working. We have spent $4 trillion on monetary and fiscal stimulus, and we’ve got 9.2 percent unemployment and no sign that growth is coming.

    The supply-siders were also wrong. Reagan’s Keynesian bubble did not work long-term, and neither did Bush’s. But if you see that, you must also see that we are in the middle of the biggest bubble of all right now. There is only one way out: returning to a real economy based on real growth. This means popping the bubble, which is going to be painful in the short term but very fruitful in the medium to long run. The first step is cutting the size of government and dealing with entitlements. I think you know that as well as I do.

12. Jjohnsen, agreed about Hatch. He has got to be the smarmiest, most two-faced politician I have seen in a long time. I know you are hoping for Matheson to replace him, but you are likely to get Chaffetz, whom I like but I’m pretty sure you don’t. So be careful what you wish for. 🙂

13. So, short term not raising the debt ceiling without serious cuts is a very risky strategy politically. But long term, we regain credibility.

    Capital markets rest on the assumption that obligations will be paid in full and on time. Anything less than that is a default, which is indeed a risky strategy but hardly a recipe for long-term crediblity.

    I wouldn’t be surprised if your doomsday scenario (“You will probably lose your job; Your 401k will disappear; You may lose your house and car depending on your debt level; Rioting in the streets as we are seeing in Greece”) did play out sooner than later, but as a result of the USG defaulting on its current obligations and not because of a failure to “cut, cap and balance” future budgets.

14. Peter, you may want to read this:

    http://legalinsurrection.com/2011/07/we-already-were-headed-for-a-downgrade-because-of-too-much-not-too-little-debt/

15. I don’t like Chaffetz OR Matheson, but both are better than Hatch, who I consider one of the slimiest politicians in the Senate right now.

16. As for the debt ceiling, I understand the nasty taste it leaves in your mouth to raise it. We have raised it many times in the past ten years without a fuss though, why not give it another two while the economy recovers some more? Go ahead and add your balanced budget amendment along with some tax increases to take us back to Clinton levels and I’m ok with it, but this posturing about something that has been raised so many times is a bad idea. I think it’s strange that these false fiscal conservatives have decided that THIS is the time they have to draw a line in the sand, not six years ago when the economy was at least stable.

17. I’m probably a cynic, but I think that a government group having the power to set the level of their own spending is rather silly to begin with.

18. Jjohnsen, regarding your #16, I will agree with you as a libertarian-leaner, not a Republican partisan, the Republicans deserve their fair share of blame on this issue. Where were we all six years ago when Bush was spending like a madman? Well, I complained about it on these very pages, but I also supported the Iraq war, and I didn’t complain enough. So, yes, it is undeniable we were wrong.

    Well, who was right? Ron Paul. Jim Demint. Tom Coburn, Jim Inhofe, Jeff Flake. The most conservative members of Congress when it comes to spending. Don’t you remember how the Left (and the establishment Republicans) complete vilified the few people who did draw a line in the sand? So, you can’t have it both ways. Either all this debt is bad or it isn’t. Well, just about every economist agrees it is bad and that it has to stop. But when people six years ago tried to stop it, they were vilified.

    What has happened is that people who stuck to their principles have convinced those of us who didn’t do enough that they were right and we were wrong. So, if they were right, which they were, people should be celebrating we were convinced, not calling us hypocrites for not supporting their position all along. Isn’t that what politics is supposed to be about, ie, convincing the other side that you are right? Shouldn’t we celebrate when somebody does that?

    In that spirit, my goal is to be on the right side of this issue now, so at the very least I can look back and say, “well, I did my part.”

19. SilverRain, exactly right. That’s why most people support a balanced budget amendment, meaning you take the spending power out of the hands of the people who have no control (ie, politicians paying off special interests) and try to at least give them some handcuffs.

    It is also worth pointing out that this is exactly why Ron Paul is going after the Fed. If the Fed is abolished, then the government is restrained and cannot print money and go into massive debt without self-correcting very quickly.

20. We could pay off the debt, Social Security, the troops, Medicare, Medicaid and many other government projects out of the revenue we receive. Here are the numbers. The bond market knows we will pay our debts, so all of those claims that we will be ruining the “full faith and credit” of the United States are a lot of hooey.

    I know “the numbers” are getting a lot of play in respectable publications, but they are wildly misleading to the point of being irresponsible. There are two features U.S. Treasury operations that this analysis misses: (1) how the debt principal is accounted for, and (2) the importance of daily cash flows.

    As everybody knows, the government has borrowed a lot of money over the years. It does that by issuing bonds. The proceeds of those bonds are not counted as revenue in the budget when the Treasury receives them–if they were, it would look like there is no deficit. That means that when it comes time to redeem those bonds, the payments of principal are not counted as expenditures in the budget either. But we still have to come up with the cash to make the payment. I’ll come back to that later.

    “The numbers” show average monthly receipts and expenditures, but anybody with a checking account knows that you can’t write a check based on what your monthly average balance is. You need to have enough in your account at the time you write the check. Inconveniently, revenue flows into the Treasury (and payments come due) irregularly during any given month. So whether Treasury can make a particular payment depends on whether enough cash was received that day to cover it. Fortunately, we have a pretty good idea of what the daily cash flow patterns are and can predict when Treasury will have insufficient funds to make critical payments. Lets start with August 3, which will start out with a balance of zero. Treasury expects $12 billion in revenue to come in that day. But $32 billion of payments are due that day, including $23 billion in Social Security benefits. So approximately half of the Social Security checks will be late right off the bat, even if no other payments are made.

    August 4, however, is when the perfect storm hits. In addition to an additional $10 billion in on-budget payments due (and only $4 billion in new revenue), $100 billion in bond principal comes due. With a balance of at most $16 billion, there is no reallocation of funds that would permit that principal to be paid. So we will default on our debt on August 4, regardless of what our average monthly receipts might be.

    This would be bad, people. Really bad.

21. LL, you are exactly right. Please read comment #3, where this is addressed.

22. but I think that a government group having the power to set the level of their own spending is rather silly to begin with.

    What are you thinking of? Spending is done by the Treasury Department, which does not set its own level of spending. That is done by Congress, which does not have a checking account. If you don’t want Congress setting levels of spending, then who?

    Geoff’s solution is for the electorate in 2011 to make that decision on behalf of every future American, essentially depriving them of the same right to vote that we now enjoy. I’m not buying it. And in case nobody noticed, the budget passed by the House with the votes of all but two Republicans does not balance the budget for another 26 years. If even the advocates of the balanced budget amendment are unwilling to walk the walk, I cannot take them seriously.

23. Comment #3 is the equivalent of spending every last dime to pay the mortgage, then breathing a sigh of relief that you have saved your house just before the electricity and water are cut off and your car runs out of gas so you can’t even get to work.

24. So we will default on our debt on August 4, regardless of what our average monthly receipts might be.

    If the balance is really going to be zero on August 4, the only rational contingency plan is to quit making non-essential payments before then. That is what any sane person would do in a similar situation.

    The pressure of a partial government shutdown ought to be all that is necessary to force some sort of reasonable deal without all this silly default brinkmanship. If we default, it will be because Obama and Geithner choose to do so. It is not like the Republicans have anything to do with it.

25. Thanks for the link, Geoff. To add to that:

    “Moody’s Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. […] An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. […] If the debt limit is raised again and a default avoided, the Aaa rating would likely be confirmed. However, the outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction.”
    http://www.moodys.com/research/Moodys-Places-US-Aaa-Government-Bond-Rating-and-Related-Ratings?lang=en&cy=global&docid=PR_221800

    I guess I’ll throw my hat in Moody’s ring and agree that there is a long-term debt problem while noting that in the short term, raising the debt limit is the right thing to do.

26. Mark D makes an important point.

    But beyond the finger-pointing there are a few realities we must face.

    1)A deal by Aug. 2 seems very unlikely, so we will have to spend at least the first few days in August finding ways to pay for things. I’ve got a news flash: the government sometimes lies. I know this is a crushing blow to many of the readers out there, but it is nevertheless true. So, does Geithner have money in reserve to pay for bonds, or some way to move money around or some other vehicle to prevent default? Of course he does. It is silly to believe for a minute he does not. So, please use some common sense and take with a grain of salt all of these doomsday scenarios that the world ends on Aug. 3 or Aug. 4.

    2)Having said that, LL is correct that there are things that need to be paid for. This is easily manageable. The Constitution calls for the Congress to direct the Treasury how to spend money. So, Congress could easily pass a bill prioritizing payments, making sure we don’t default. There are several proposals out there right now being considered. This is something that could definitely be done in the next week or so if there was congressional will (and executive flexibility).

    3)Any first year business student knows about the importance of a concept called “zero-based budgeting.” This means starting from zero and justifying every expenditure before it is funded. On a household basis, this is easy to imagine. If you start from zero and count up all of your expenditures, do you have duplication? Do you have something you could eliminate? Could you get rid of the movie plan on your cable or satellite (which costs $30/month) and instead get streaming from Netflix (which costs less, although Netflix is changing its pricing plan, in any case, it is less than $30/month)? Could you get rid of some features on your cell phone? It is important to recognize that nobody on a federal level is doing zero-based budgeting. Federal budgeting starts from existing levels and always asks for more funding. Nobody ever stops and asks “is there duplication?” “is there something we could get rid of?”

    Forcing the Treasury and Congress to *choose* which items to pay first is an extremely health exercise. We will find out what is truly essential and what is not. We will find areas of the budget to cut that are relatively painless. We should be excited about this because it offers a real opportunity for change and resolving many long-term problems.

27. There’s a spreadsheet showing every debt limit increase since 1940 at http://www.ritholtz.com/blog/2011/05/debt-ceiling-limits-through-the-ages/.

    You can extrapolate the following data from that spreadsheet (apologies that my spacing will probably be off here):

    Year Amount of Increase Percentage of Increase

    2002 $450 billion 7.6%
    2003 $984 billion 15.4%
    2004 $800 billion 10.8%
    2006 $781 billion 9.5%
    2007 $850 billion 9.5%
    2008 $800 billion 8.2%
    2008 $700 billion 6.6%
    2009 $789 billion 7.0%
    2009 $290 billion 2.4%
    2010 $1,900 billion 15.3%
    2011 (proposed) $2,500 billion 17.5

    As a percentage of the budget, increases like the one proposed are on the high end but not unprecedented. However, consecutive increases of this magnitude appear to be unprecedented at least since 1940.

    But numerically, what the President is asking for is staggering. For the President to complain that Bush got what [i]he[/i] wanted, is rather like Susie complaining that she should get a pony because Johnnie got a dog.

28. Geoff,
    I think it shows out troubled we are as a people that the alternative to life without satellite TV is instead life with Netflix. And the alternative to $70/mo worth of cell phone benefits you don’t need is $30/mo worth of cell phone benefits you don’t need.

    How can we possibly ask and expect the government (the people!) to go back to a 1992 budget level–a time when Ross Perot was making tracking with significant portion of the public because many were alarmed how much the government spends–when we ourselves as a people can barely fathom giving up Netflix and a cell phone plan. Of course, I can feel “superior” because I have neither, but I could also lose my job tomorrow and have enough money saved to pay for expenses for the next 18 months. I’ve traded a bit of pleasure for security and liberty.

    To me, what’s fascinating about this entire USA debt-crisis, is it’s intentional. Greece, et al. is facing a crisis because they really can’t afford it, and the market doesn’t want to keep lending them money. The USA is facing a crisis because some percentage of the population is screaming, “we’ve been living beyond our means for many years and enough is enough.” It does have a touch of virtue to it.

    The political, opportunistic thing to do is keep running up the debt, keep printing money while most of the world’s population (except the elite) doesn’t understand the ramification, and export our political/financial distress onto the rest of the world and continue to spread the economic malaise to the rest of the world. Yes, the financial policies we enact internally, reverberate through the world economy both because of our size, but also the dual role of the dollar (internal USA financial transaction + global trade transactions/investment). I think the reason Republican or Democrat is willing to spend so much money even though they were opposed to it during elections is as soon as they get in office, some economist explains this fact to them… “Yes, you can do the virtuous thing and cut spending, cut the budget, etc at great cost to those individuals and programs which are cut — or you can keep running up the debt at virtually no cost (to the USA) because so much of the negative impact is distributed around the world.” Of course, it’s a deceit akin to being blinded and led into captivity to assume there is no cost to the spending, as there is a great human cost to making millions of people reliant on the government. Not to mention the cords of debt and spending which we will have to maintain at higher rates once the world does wise up, or cut that spending anyway and face those same problems… you can cut programs now attractive rates at 1% available to you in your time of distress or you can cut programs later at rates of 15%.

    That the government can credibly threaten checks will stop coming, and have legions of senior citizens and millions of others depending on their government related checks worried, is a testament to the tragic degree of self-reliance we’ve lost as we’ve bound ourselves with the cords of reliance on government for our daily needs. No, this is not a rant against government in any and all forms… but with so many millions concerned they won’t have bread on the table or be able to pay their bills because Uncle Sam might stop sending checks, then we have a problem.

29. JimD and Chris, good comments. You know what is really depressing? If we got spending back to 2002 levels, we would balance the budget. Did anybody think government was much too small in 2002? Of course, this would involve large cuts in the military and everywhere else, which I favor. Imagine how much money we would have saved if we hadn’t invaded Iraq and had left Afghanistan after the first six months. Trillions.

30. What has happened is that people who stuck to their principles have convinced those of us who didn’t do enough that they were right and we were wrong. So, if they were right, which they were, people should be celebrating we were convinced, not calling us hypocrites for not supporting their position all along.

    I’d argue that nobody started paying attention to those people that you say were right all along because things are so much worse, but they conveniently decided to make it an issue when they lost power in the White House. That’s when they really started screaming. And I’d love to see you prove me wrong, maybe YOU are steadfast in your opposition. There is no doubt in my mind that if Sarah Palin were elected in 2012, the debt ceiling and deficits would suddenly become a whole lot less important to a large segment of the politicians (like pretty much anyone that was around during the past 12 years). Maybe you’ve changed, but it’s obvious that for many people this is just one more us vs.them political issue.

    Am I making any sense at all? I’d be a lot more supportive if this had started in 2004 instead of 2008 when it was obvious who was going to end up in power. I don’t question your sincerity, but I sure question the GOP politicians who are doing the talking right now.

31. Really the proof of how this is being used as politics instead of concern about spending is Mitch McConnell’s plan that gives Obama the authority to raise the limit on his own, and allows the Republicans take voted all along the way disapproving of his spending, without actually doing anything to help the situation. They’re willing to raise the debt limit as long as it comes with a guarantee to make Obama look like the problem.

    McConnell wants the debt limit to be raised, he just doesn’t want to do his job and vote for it to happen.

    A perfect setup for the 2012 election, which is the point of this grandstanding by all but the most hardcore (I don’t question the integrity of a few like Ron Paul and Jim Demint because I know they’d keep harping on it even if the GOP swept the House, Senate and WH in 2012).

32. Jjohnsen, I can’t disagree with you. This is why so many people like myself are turning to Ron Paul. He is one of the few that has integrity. You may disagree with his libertarian vision, but you know where he stands and he doesn’t demagogue and he doesn’t change his mind every year depending on where the political winds are blowing. Will he get the Republican nomination? Almost certainly not, although there is a scenario that sees him kind of catching fire. I don’t see how that scenario could play out right now, and if I had to bet on the R candidate it would be Romney or Bachmann, both of whom have huge negatives in my view. So, I guess we can agree that almost all politicians are scum, ok?

33. Totally get it. Ron Paul has credibility, and I believe you when you talk about it because after years of political discussion you seem very even-handed and sincere, even when we disagree. For many of the others it is no different than if I were to suddenly have been in favor of the war in Iraq, Guantanamo and the privacy issues Bush welcomed (and Obama has continued to enjoy) starting the day Obama took the oath. Doesn’t it drive you nuts to hear liberals that most assuredly were calling Bush a baby-killer suddenly be able to justify Afghanistan? If so, you know exactly why I feel nauseated when Hatch talks about deficits and debt ceilings. If I wasn’t such a junkie I’d turn off my internet and never pay attention to politics ever again.

    So, I guess we can agree that almost all politicians are scum, ok?

    Geez, just give me one guy I can agree with on issues AND trust to do what he honestly feel is best for me and my country. Is that so much to ask?

34. I vote Geoff for president.

35. Unfortunately he only meets the second part of my qualifications.

36. A divorced bald Mormon guy will never be elected. 🙂

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