thoughts on politics

July 12, 2011

Debt Ceiling Death Knell

Filed under: Uncategorized — Matt @ 4:51 pm
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The issue of raising the debt ceiling has become the top political topic this summer.  The ceiling is the maximum legal limit for how much debt the US government can hold, and right now it stands at about $14 trillion.  In the past, as I understand, raising the limit has never been controversial, but this year, because of the power of the Tea Party Republicans, it’s now being contested by the “small government” Republicans.

The mainstream political class (both left & right) has been going full court press on fighting this for the past week and a half, with a parade of “independent” economists being presented in the media declaring that it would be an unheard of catastrophe to not raise the ceiling and force a government default.

Then today, Obama came out with this whopper.  We do not have “money in the coffers” to pay $20 billion of Social Security checks if the debt ceiling is not raised.

This is meant to scare the public into forcing the legislators to raise the debt ceiling, and it could work.  I do believe what he’s saying, and it’s clear why he’s saying it, too.

My question is, what kind of confidence is this supposed to give us about our government?  Paying for current expenditures by borrowing?  Has anyone ever heard of that being a sound method of operating?  And anyway, isn’t Social Security supposed to pay for itself?

Of course we already knew all these things.  I just marvel that the great majority of this country, especially the members of the media, can take his comment so innocently, either failing or refusing to grasp what his comment really means.  Not only that, but even after this comment revealing just how broken and hollow the system here is, as soon as the debt ceiling is raised and debt goes on sale again, there will be buyers clamoring for Treasury debt even more, hungry for that “sure bet” with American debt in the financial markets.  But how are those debts going to be paid back?  With more borrowing.  Which will be paid for with more future borrowing.  And so on.

The debt ceiling will be raised before the August 2 deadline, I have no doubt.  We will find a way to keep borrowing, and catastrophe will be averted, for the time being.  But what’s clear is that the government is, in reality, bankrupt, and they cannot hide this truth forever.  At some point, the borrowing will become too expensive.  The debts too great for the tattered world economy to bear.  Then the real catastrophe comes.  For now, though, let the bread and circuses continue.


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