Fiscal Hawks Need to Fight for the Debt Ceiling

It is a constitutional tool to save America from itself

Whenever the establishment left and right agrees on something, expect a big assault on our democracy. That is the case with the emerging consensus that the debt ceiling should be dumped—for two years at least—in any deal that replaces House Speaker John Boehner’s ill-fated Plan B ­so that spending hawks can’t later hold the economy hostage to extract cuts. But there are few external market checks on America’s profligacy. Without strong internal political checks, it might well spend itself into oblivion.

America’s total $16 trillion accumulated debt represents 100 percent of the GDP. Add in its $85-plus trillion in unfunded pension and health care liabilities and the debt shoots up to 550 percent—only marginally better than France. Every man, woman and child in America is currently on the hook for $190,000.

But the Obama administration obviously doesn’t give a hoot. Otherwise, its plan to avert the fiscal cliff would have included serious spending cuts and entitlement reform, not primarily a scheme to raise taxes on households making over $250,000 which would at best raise about $40 billion per year—around what Washington borrows every week.

As if that were not outrageous enough, the administration also demanded in its fiscal cliff package that Congress forever forfeit its constitutionally given debt authority. (This authority was already considerably weakened during World War I. At that time, Congress gave up its authority to approve debt issuance for specific projects. It started pre-approving instead a lump sum loan amount so that the president could raise money quickly to fund the war effort.) House Speaker John Boehner (appropriately) laughed at Obama’s suggestion at first. However, later he whispered in the president’s ear that he would be willing to lift the ceiling, which will expire in February, for a year if he went along with his Plan B. But with the collapse of that plan, it is likely that Obama will try and write in a two-year extension in whatever deal he works out with Congress now—and take away the only tool that Republicans have to enforce any spending discipline.

And in this he might get the help not just of liberals—but smart-set conservatives too.

Liberals have been railing against the ceiling ever since fiscal hawks used it to create a spending showdown last year. They argue that separating the budgeting and the borrowing functions of Congress means that Congress can authorize spending but then refuse to sanction the means to pay for it. “The idea that the Congress gets to vote twice on whether to pay for [expenditures] it has appropriated is crazy,” insists Bill Clinton. Liberals want America to follow other developed countries where legislators are required to approve new borrowing as part of the budgetary process.

What they ignore is that many of these countries have hard limits on debt issuance as part of the budgetary process—kind of like a Balanced Budget Amendment, which liberals resolutely oppose. For example, Germany has a constitutional amendment that requires that structural deficits not exceed 0.35 percent of GDP.

What’s more, that’s effectively how things worked in America until Democrats decided three years ago that passing budgets was a dispensable nicety and started authorizing spending through ad hoc resolutions. This meant they did not need to negotiate or set spending priorities to get a majority buy-in, a process that made raising the borrowing limit a fait accompli. But eliminating the ceiling in the absence of budgets is tantamount to giving Democrats a blank check and then gagging opponents from raising questions.

But liberals aren’t the only ones questioning the debt ceiling. Writing for the American, a magazine of the conservative American Enterprise Institute, Steve Conover notes that the possibility of America defaulting undermines investor confidence in America’s sovereign debt instruments, something that could raise borrowing costs and hurt growth.

That strains credulity.

For starters, not raising the borrowing limit doesn’t mean default. America’s annual debt service costs are only about 10 percent of federal revenues, which means that the country can easily pay investors, meet its obligations to its retirees (for now) and still have money left. It would certainly mean cutting spending somewhere, but that’s a prospect to be cheered, not lamented.

Furthermore, America has experienced an epic financial meltdown, sluggish growth and is up to its eyeballs in debt and credit markets are still offering it loans at effectively zero percent interest rates. It makes no sense that a little budget fight to put America on sounder fiscal footing would cause them to significantly jack up these rates.

But one reason credit markets have ignored America’s spending addiction is that, with Europe on the verge of meltdown, they have nowhere else to go. More importantly, the dollar’s status as a reserve currency makes it much easier for America to issue debt without fearing commensurate interest hikes. In other words, America’s superpower status has created an incentive for fiscal irresponsibility.

Even if a debt-ceiling showdown causes some rate hikes, catastrophe wouldn’t follow. The resulting budgetary strain might well prod legislators to deal with the deficit now—forestalling a far uglier reckoning down the road.

Great powers fall not due to external threats but their own avarice. The existence of the debt ceiling suggests that America is aware of this. Republicans should yield as little as possible on this crucial tool. Cavalierly bargaining it away will be a terrible sign.

A version of this column originally appeared in the Washington Examiner

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  • Pound. Head. On. Desk.||

    For starters, not raising the borrowing limit doesn’t mean default.

    They'll make sure it does by spending the debt service last.

  • Drake||

    Good, then they'll be able to borrow again.

  • Drake||

    Whoops - NEVER borrow again.

  • entropy||

    But then the message will be that spending cuts and austerity caused default and economic catastrophe.

    And people will probably buy it too.

  • MoreFreedom||

    I've got a beef with the word "austerity" in that when politicians use it, it's always referring to the impact on government spending. Never do they suggest a tax increase is "austerity" as that's austerity for citizens.

    What we have are leeches in government or living from government checks, sucking on the blood of productive class. And that includes those on Social Security and Medicare as well, as they didn't earn their social security, government is giving it to them, rather than their saving and producing it themselves. Government has no contractual obligation to provide it and can take it away with a vote.

  • some guy||

    A question regarding unfunded liabilities, particularly Medicare. Does the 85T$ include the fact that the average person is getting 150k$ more out of Medicare than they put in? In other words, is the calculation using the money we put into entitlements or is it counting the money we are expected to take out of entitlements in the future?

  • R C Dean||

    The latter. Its an actuarial number, essentially, if you were going to fund an annuity to cover these obligations, this is what it would cost.

  • R C Dean||

    The reason that the credit markets have ignored our fiscal problems is because the Fed is clearing the Treasury auctions. There really isn't a functional Treasury market any more; the Fed's overt policy is one of market manipulation to hold rates down. They aren't even pretending. That's what the main purpose of QE has been for the last three years.

  • califernian||

    Without strong internal political checks, it might well spend itself into oblivion.

    Sounds pretty good to me actually. What's the downside of this actually?

  • Stevecsd||

    The downside: Look up hyperinflation. Read about Germany in the 1930's between the war, or 100% plus inflation in several South American countries.

    It will destroy the United States, just as it did in Germany in the 1930s.

  • Rasilio||

    I don't know I seem to remember Germany being in pretty good shape by 1939.

    Sure hyperinflation is a problem in the short term and it can easily cause a government to collapse however it is highly likely that America would come out of such an event in a far stronger position. The risk of course is that the country dissolves or becomes a totalitarian state of some sort in the interim.

  • Drake||

    The German hyperinflation occurred in the early 20's. They eventually recovered, particularly after they stopped paying war reparations in 1931. While the economy recovered, the resulting political situation was ugly.

  • CE||

    You mean, "becomes an even more totalitarian state" in the interim.

  • JWatts||

    "I don't know I seem to remember Germany being in pretty good shape by 1939."

    Ummm, not if you judge it from the point of view of the Jews, Roma, Homosexuals or anyone else that could be used as a scapegoat.

    And the rest of the population wasn't doing exceptionally well 5 years later either.

  • Kyfho Myoba||

    "The risk of course is that the country dissolves or becomes a totalitarian state of some sort in the interim."

    I suspect that the cryptocracy views that as a feature, not a bug.

  • Meowmeowoofwoof||

    The " risk " is the intended destination. Payback is called " social justice " Our evolutionary defense shields have been desensitized by collective guilt being taught by traitorous transnational progressive educators.

  • califernian||

    It will destroy the United States, just as it did in Germany in the 1930s.

    Are you talking about the state, or the people living within the boundaries of the geography controlled by the state?

    The health of the state is not the health of the people. If the government destroys itself it CANT go pre-war Germany on the people without the people voting for it.

    That might happen but it's not guaranteed.

  • sarcasmic||

    Are you talking about the state, or the people living within the boundaries of the geography controlled by the state?

    When the government uses inflation and confiscatory taxes to pay off its debt, the people suffer because the economy turns to shit.

    it CANT go pre-war Germany on the people without the people voting for it.

    What do you mean? The people don't vote on Fed policy or tax law.

  • CE||

    There is not, and never has been a "debt ceiling". It's a piece of fiction, increased by both parties whenever it is in danger of capping spending.

  • ||

    So they should call it "high-water mark"...

  • Drake||

    It's just the next milestone.

  • NorEastern||

    Do you have any idea what you are talking about? Thought not. At a certain point the US government does not have the authority to borrow any more.

    So you are in favor of another credit rating fiasco like happened last year?

  • jb4479||

    Proof, please.

  • MacKlingon||

    Don't worry about the debt, the government can just print more money.

    http://www.templetoncollectibl.....ars-1-note

  • Meowmeowoofwoof||

    What you do need to worry about is the " value " of the monopoly coupons you and I call " dollars ". We are being robbed every waking moment and they don't even need a gun.

  • Teaching Student||

    But don't worry, Obama just made Christmas Eve a Federal Holiday!

  • jb4479||

    I want to know how I'm on the hook for money I didn't spend, just because idiots in Washington made promises they couldn't keep.

  • Speedy Loan Search||

    The debt ceiling increase is required in order to pay for past spending approved by Boehner's House (and the accrued debt payments from previous House spending). It is not new spending, so demanding cuts of equal amounts really doesn't make as much sense as it seems. Spending cuts today will help reduce the need for future debt ceiling increases, but that is not the point. The point is that the US has taken on certain financial obligations and needs to raise the debt ceiling in order to meet them. This should be, and always used to be, automatic.

  • Meowmeowoofwoof||

    Since default is impossible as long as there is paper to print on, there is only one other danger. That would be a failed treasury auction. That trigger could be pulled by a reckless transnational progressive cabal at any moment if a crisis was necessary. All they would have to do would be, instruct " printing ben " to not purchase the 70%+ of treasuries that they have been buying for the last three years. They are conducting an experiment that releasing " digital " dollars whos physical control can be " manipulated " will not be harmful ; that the raging inflation that would accompany true dollar infusion can be avoided .This cabal of transnational progressives that appear to us as " democrats " have tripled the money supply since Barry Soetoro was installed. Remember that gas was 1.87 a gallon the day he was elected. It now is 3.25 a gallon. Gold was 697 an ounce, it closed yesterday just under 1700 an ounce. A loaf of bread was .89 cents a loaf, it now is 2.00 a loaf. These barometers of the dollar are gas, gold and grains. All nations must convert their currency into dollars to buy these three, the most accurate dollar barometers available to lay people like you and I. The progressive transnational cabal whose puppeteers are unknown to us have decided America needs a leveling. Prepare. Meowmeow

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