The
federal government just increased taxes on Americans who earn an income. The
touted rich, who “must pay their fair share,” were barely touched because these
new taxes do not include wealth, just earned income. Texas, Louisiana, Florida
have balanced their budgets without raising taxes, they just cut spending.
Illinois and California, who increased taxes, are still following the federal
government’s reckless spending formula.
Our
President had promised to cut the budget deficit in half during his first term
and then balance the budget – he did neither. On the contrary, he increased the
national debt, the “mess” he keeps reminding us that he had inherited from his
predecessor, from $6 trillion to over $16 trillion in four years.
Not
raising the debt ceiling again would force the federal government to operate
within the means of revenues, forcing cuts overnight and the choice which bills
to pay and which to delay.
There
is another option to the quandary of sequestration in two months when automatic
cuts of 9 percent will be made in the military. We could do away with the debt
ceiling altogether as the Secretary of Treasury Tim Geithner had suggested and
the Chairman of the Federal Reserve, Ben Bernanke, echoed, “Get rid of the debt
ceiling, it has no practical value.”
Not
having the debt ceiling, which is periodically raised anyway, unless a
Republican President wants to start a war, in which case, it is fine to vote
against raising the debt ceiling, is like giving a credit card to a teenager
without a credit limit.
What
credit card company would raise the credit limit to someone who maxed out their
card to the tune of $100,000 when they only earn $30,000 a year?
The
debt limit or ceiling is not something new. “Congress created a statutory debt
limit in the Second Liberty Bond Act of 1917.” What is new is the extraordinary
level of government outlay in such a short period of time (4 years). In the absence of a budget, the government
has been operating on continuing resolutions. If the sequestration does kick
in, the problem becomes compounded by the fact that the government has been
spending money since October 2012, on the premise that the debt ceiling will be
raised again in March 2013 and the sequestration will not be necessary.
“The
fact that we are here today to debate raising America’s debt limit is a sign of
leadership failure. It is a sign that the U.S. Government can’t pay its own
bills. It is a sign that we now depend on ongoing financial assistance from
foreign countries to finance our Government’s reckless fiscal policies….
Increasing America’s debt weakens us domestically and internationally.
Leadership means that ‘the buck stops here.’ Instead, Washington is shifting
the burden of bad choices today onto the backs of our children and grandchildren.
America has a debt problem and a failure of leadership. Americans deserve
better.” (Sen. Obama’s Floor Speech, March 20, 2006)
Senator Obama was then urging
Congress not to increase the debt ceiling to $9 trillion. The government
statutory debt limit has now reached $16.394 trillion as of December 31, 2012.
The federal debt is debt held by the
public, foreign and domestic, and by government agencies, also known as
intragovernmental debt. The federal government borrows money because of budget
deficits (spending more than its yearly revenues) and because of investments of
federal government account surpluses in Treasury securities, as required by
law.
The Treasury can employ
“extraordinary measures” to avoid exceeding the debt limit such as a “debt issuance
suspension period.” The Treasury
suspends investments in the Civil Service Retirement and Disability Trust Fund,
Postal Service Retiree Health Benefit Fund, and the Government Securities
Investment Fund of the Federal Thrift Savings Plan. Geithner established a debt
issuance suspension period until February 28, 2013. (CRS, pp. 3-4)
Department of Treasury actions were
taken previously in 1985, 1995-1996, 2002-2003, 2009, 2011, and 2012 in order
to postpone reaching the debt limit. (CRS, pp. 4-6)
After the Budget Control Act of 2011
was passed on August 2, 2011, the debt limit enacted then was reached on
December 31, 2012. Using “extraordinary measures” will buy additional time
until February 28, 2013. (Congressional Report Service, “Reaching the Debt
Limit: Background and Potential Effects on Government Operations,” Mindy R.
Levit, Clinton T. Brass, Thomas J. Nicola, Dawn Nuschler, January 4, 2013)
The
intragovernmental debt is debt issued primarily to trust funds such as Social
Security, Medicare, and Unemployment Compensation. When a trust fund “invests”
in U.S. Treasury securities, it lends money to the rest of the government.
Treasury periodically pays interest on the special securities held in a
government account. The revenues exchanged for these securities go into the
General Fund of the Treasury and is then spent for any government outlay.
What
if the debt limit is reached and not raised? Perhaps bills will be paid in the
order in which they are received; bills to be paid will be prioritized; other
bills would go into an unpaid and delayed bills category. Such decisions would
be similar to those made by everyday Americans who have to live on a limited
budget and within their means. Would prioritizing be a glaring example of U.S.
government’s failure to meet its commitments? GAO said in 1985 that the
“Treasury is free to liquidate obligations in any order it finds will best
serve the interests of the United States.” But the Treasury thinks that all
obligations have equal footing according to the law.
It
is fear mongering to say that the U.S. cannot pay its bills if the debt ceiling
is not raised again. “The Treasury has sufficient resources to liquidate all
obligations arising from discretionary and mandatory (direct) spending,
including interest payments on the debt.” (CRS, p. 10)
Delaying
payments to vendors, contractors, beneficiaries, other governments, and
employees could take place. Congress passed P.L. 104-121 to preclude the use of
Social Security and Medicare Trust Funds for debt management, except for
payments of benefits and administrative expenses of those programs.
CBO
said in 1995, “Failing to raise the debt ceiling would not bring the government
to a screeching halt the way that not passing appropriations bills would. Employees
would not be sent home, and checks would continue to be issued. If the Treasury
was low on cash, however, there could be delays in honoring checks and
disruptions in the normal flow of government services.” (CRS, p. 11)
Sequestration
may furlough government employees for up to 22 days. The military is exempt
until October 1, 2013. The Joint Chiefs of Staff have sent a letter to Congressional
leaders this week expressing their concern that not passing a 2013 defense budget
and sequestration will create a hollow force.
A
government default will affect the economy and the public welfare: salaries and
wages of employees, social security benefits, civil service retirement,
services and supplies in general. The full faith and credit of the U.S. will be
downgraded further. It is unclear how the financial markets will be affected. Some
economists are concerned about the out-of-control federal debt but warn of
significant repercussions if the debt limit is not raised. “Suggesting that the
United States might default on its debt is factually wrong and shameful
behavior on the President’s part,” said Heritage’s J. D. Foster. The “threat of
default,” as Obama called it, is a red herring.” The Treasury has “far more
than enough funds to pay all interest as it comes due.”(Amy Payne, Heritage
Insider, January 15, 2013)
Nouriel
Roubini said that United States would not have to pay higher borrowing costs if
Congress does not raise the debt ceiling. In the face of global fear, other
nations usually dump the yen and the euro and buy dollars. If China avoids the
dollar, the emerging markets would not want their currencies to appreciate and
lose market share to China, therefore the best move would be to buy Treasury
securities and the dollar. (Moneynews, Roubini: U.S. Still Safe Despite Debt
Ceiling Fight, Michael King, January 15, 2013)
It
would not hurt if banks, which are too big to fail and have become extremely
political and not so pro-America in their business stance, would be split up
into smaller entities.
It
is not a good idea to raise the debt ceiling again without balancing the
budget. Because the main stream media does not report unbiased news anymore, it
is hard for most Americans to understand that they are being held hostage to a
fear of economic Armageddon if politicians do not get their outrageous spending
wishes, some of which are shamelessly included in the hurricane Sandy relief package.
No comments:
Post a Comment