Government Spending

Five Uncomfortable Facts About the Wonderful, Horrible Debt-Limit Debate

Don't believe the hype. And it's all hype.

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It's all debt limit, all the time, it seems. Everyone's talking about what may or may not happen when the U.S. government finally butts up against its legal borrowing limit on August 2. That's the date that Treasury Secretary Timothy Geithner says the feds will max out the credit lines that account for about 40 percent of all current spending.

A quick explanation for the uninitiated: The debt limit or debt ceiling concept dates back to 1917. Prior to that date, Congress had to specifically approve any new borrowing done by the federal government. For convenience's sake, Congress then decided to periodically approve increases in its credit line so that the government could borrow without a vote as long as the total oustanding amount didn't bust through the cap. The current cap is $14.3 trillion. The debt limit includes both debt held by the public (that is, by outside investors, which comes in at around $9.7 trillion) and "intra-governmental holdings" or debt owed by one part of the government to the other, which comes in at around $4.6 trillion). The debt limit has been increased more than 100 times since it was instituted and 10 times in the past 10 years alone.

The Washington Post's "Fact-Checker" column has recently called the debt limit a "MacGuffin," a term used by Alfred Hitchcock to describe "a device used to propel the plot forward, even though it may be meaningless." That's because while the debt limit is important, it really represents the pretext of a battle over spending and revenue between Republicans and Democrats, with each side waving away the other's claims. The Dems are basically saying that if the limit isn't increased yet again, all sorts of horrible calamities will befall the United States. A minority of Republicans are arguing that the limit doesn't need to be raised while most are using the looming deadline as a means of extracting concessions on spending and revenue issues down the line.

Stuck in the middle are the American people, us poor schmucks who are footing the bill one way or another.

To help clarify the discussion, here are five facts about the debt-limit discourse worth keeping in mind as the humidity rises in summer's dog days.

1. August 2 is an arbitrary date. As Reason columnist and Mercatus Center economist Veronique de Rugy has pointed out, the specificity of the date in which the U.S. at long last runs out of room in its credit cap seems pretty soft. Geithner himself has pushed back the day of reckoning at least four times this year alone. How can this be? For starters, it's hard to nail down "to the penny" what amount of borrowing is out there (though the Treasury does try, bless their hearts). But also because there are all sorts of ways to scrimp and save bits from the cap, some of which Treasury has already started doing. This isn't to say that there won't come a date when the cupboard really is bare or even that setting an essentially arbitrary deadline is a bad thing, especially since we've got a chronic mismatch between spending and revenue. But let's not pretend that this is one of those ticking-time-bomb scenarios that we used to hear so much about by folks trying to justify actions ranging from torturing terrorists to passing TARP.

2. Reaching the debt limit is not the same as defaulting on the federal debt. No less an authority than a Treasury Department fact sheet claims, "If Congress fails to increase the debt limit, the government would default on its legal obligations." This is simply not true. The two things are distinct, and it's unnerving as hell (though hardly surprising) that the government department in charge of minding the books either is wilfully misleading people or just out to lunch. When the debt limit is reached, that doesn't mean that the U.S. will default on its debt payments. Unless it chooses to. There's a huge difference between reaching your limit and not paying your bills. Let's say you max out your credit cards. You may not be able to put any more purchases on plastic, but that doesn't mean your creditors are going to come after you. As long as you cough up your minimum payment amounts, you're OK. The same basic rule applies here. What's more, the government has a number of assets, ranging from cash on hand to gold reserves to TARP assets it could sell to cover all or part of its debt obligations through the end of the current fiscal year. It can also prioritize government payments to take care of debt-related bills first (indeed, it may be constitutionally required to).

Most estimates for total federal revenues in fiscal 2011 have about $2.2 trillion flowing in versus about $3.77 trillion flowing out. In the out-flow figure is about $200 billion in interest payments (which represent the absolute minimum amount that would need to be paid to avoid a technical default). Given that we're in the final quarter of fiscal 2011, let's assume that we've got about $50 billion left in debt payments to go for this year (I'm guessing here, as the schedule of payments could vary considerably). That seems to be well within the government's ability to pay one way or another, at the very least to buy some time to sort through things.

3. Both sides are using the August 2 deadline to negotiate terms. If you listen to Democratic-leaning folks like MSNBC's Chris Matthews, who has accused GOP bigwigs of waging the economic equivalent of "terrorism," only the GOP is working the debt-limit issue for political advantage. I've got no interest in defending the motives of folks such as Sen. Jim DeMint (R-S.C.) or Rep. Michelle Bachmann (R-Minn.), but the plain fact is that both sides are trying to get something out of the current moment. Hence Geithner's shifting deadlines for drop-dead dates and interesting new arguments from such pure-as-the-driven-snow legal geniuses such as Sen. Charles Schumer (D-N.Y.) about whether the debt limit is even binding on the president now that a Democrat is in the White House (short version: yeah, it is). The White House and congressional Dems want a free and easy boost to their ability to maintain the status quo and/or blame any future bad economic news on dingbat conservatives; Republicans want to highlight the debt limit as yet one more place where Obama and the Senate Dems are out of touch. Those of us without tribal loyalties to Team Red or Team Blue can easily see both sides' self-serving arguments for what they are: self-serving arguments.

4. This is no way to run a country. A February 2011 Government Accountability Office (GAO) report on the debt limit has sparked a lot scrutiny. Well, part of it has, at least among those who currently believe that Congress should always rubber-stamp increases in the country's credit line (this is a group, by the way, that includes President Barack Obama, who back in 2006 famously called automatic upwards bumps "a sign of leadership failure"). That's because the GAO found that in some (though not all) recent cases where debt-issuance auctions were delayed, markets responded by increasing the government's borrowing costs. That's not surprising: You end up paying a premium if you start to look a bit shaky on whether you're going to pay your bills. Yet as The Wall Street Journal reports, bond buyers don't seem to be overly worried right now: 

Investors in U.S. Treasurys aren't betting that a major deal is going to solve the U.S. debt problem in one fell swoop.

Nor do bond buyers appear worried that a deal won't be reached. While yields—which rise when prices fall—have risen on better-than-expected economic data lately, they still remain low by historical standards. Late Thursday, as stocks jumped, investors pushed down the price of the benchmark 10-year note 15/32 to yield 3.151%

The real takeaway from the GAO report, however, isn't that markets sometimes get twitchy when governments act incompetently about their finances. It's that procedural changes adopted from other countries might help to actually link spending to its effect on national debt:

Observers and participants with whom we spoke suggested that improving the link between the spending and revenue decisions that increase the need to borrow and changes in the debt limit would improve the situation. Better alignment could be possible if decisions about the debt level occur in conjunction with spending and revenue decisions as opposed to the after-the-fact approach now used. This would help avoid the uncertainty and disruptions that occur during debates on the debt limit today. It might also facilitate efforts to change the fiscal path by highlighting the implications of these spending and revenue decisions on debt. This will be particularly important in coming years as the federal government addresses the challenge of unsustainable increases in federal debt.

That's something that Bush Republicans ought to read and re-read, given their willingness to pay for massive increases in spending through borrowing. When Reason interviewed Ronald Reagan's budget director David Stockman, he got this point exactly right, I think. He said that in the best of all possible worlds, we'd have a government that did a lot less than it does now. But if the majority doesn't want that, they should at least pay for the stuff they're getting, rather than foisting the costs onto future generations.

5. This is no way to run a country, part 2. The debt-limit debate has to be properly understood in its larger context of a country whose spending has effectively run amok for at least the past 10 years, during which time federal spending has increased by over 60 percent in inflation-adjusted dollars. On top of that, we're in a situation where last year, for the first time since new budgeting procedures were put in place in 1974, the government failed to actually pass a budget—despite the president's party holding both houses of Congress. And there's every indication that there won't be a budget for fiscal 2012. Indeed, Sen. Kent Conrad (D-N.D.), the same guy who failed to move last year, is at it again now. Given that the two budgets currently in serious play—Rep. Paul Ryan's (R-Wis.) and Barack Obama's—envision a government spending $1 trillion and $2 trillion more in 2021, respectively, than we are currently spending, budgetary gridlock may not be the worst thing that can happen. But it reveals not simply some sort of ideological stand-off but absolute incompetence, of the kind that even the most anti-government libertarian doesn't want to believe.

The news today is awash with stories about how the Dems are offering long-range budget plans that offer two-to-one, three-to-one, even four-to-one cuts in spending versus tax increases. As Reuters' James Pethokoukis has argued, if past performance is any indication of future screwings, there's no reason to believe any of that kind of talk. At the same time, GOP types need to face the fact that we can't keep spending $700 billion or more on defense while keeping Medicare going full steam ahead and never touching Social Security, which represents a sacred bond by which relatively wealthy old people fleece relatively poor young people. Something has got to give, because we're out of money.

And make no mistake: We're out of money because we've spent too much for too long. Take a gander:

Like a lot of truths, this one isn't particularly complicated or difficult to grasp, even for politicians and their handmaidens in the press. If the current argument over the debt limit focuses our attention on the unwillingness of our elected officials to act responsibily—however you define it—and addresses the larger problems with the way those officials have run the country in this wonderful, horrible 21st century, it will have been more important than all the elections of the past 10 years combined.

Nick Gillespie is the editor in chief of Reason.tv and Reason.com. He is coauthor with Matt Welch of the just-published The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong With America.

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  1. Maybe all the debt limit hysteria is just to distract us from Ron Paul wanting to account for all the gold that’s supposed to be in Fort Knox. Article 1, Section 8, (which has never been repealed) No State…shall make any Thing but Gold and Silver Coin legal tender in Payment of debts.”

    1. I think that was superseded by the Commerce Clause, or maybe the Elastic Clause, or I dunno who cares. The Constitution is like, before color tv and stuff.
      Nobody cares.

      1. The constitution is clearly a racist fiction contrived by ignorant tea baggers.

        1. If I join the Dems can I become a grand wizard like the late great Sheets Byrd?

          1. I know you jest, but it is the violation of this Section that paved the way for all the other violations. Once they took away our lawful currency and replaced it with commercial paper, we were “subject to the jurisdiction thereof”.

  2. And here is the perfect cruise for rich liberal Obama-lovers who want to waste our money in social programs, PBS, NPR and everything else.

    PBS/NPR cruise from $5,799 pp.
    http://libertarians4freedom.bl?ogspot.com/2011/07/ship-of-lib?erals-pbsnpr-cruise-only.html

    By the way, the next person who bitches about defense spending has to agree to get rid of the EPA, BATF, Health & Human Services, the Department of Education, the Department of Labor, and the DOT.

    After all, this isn’t antiwar.com.

    1. You must be new in these circles if you think that’s a trenchant criticism.

    2. By the way, the next person who bitches about defense spending has to agree to get rid of the EPA, BATF, Health & Human Services, the Department of Education, the Department of Labor, and the DOT.

      Non-defense discretionary spending grew by 55% while defense spending grew by 70%

      As a matter of fact yes we can bitch and not agree with you.

      But yeah I would have no problem cutting defense and the other things you mentioned down to 2001 levels…and I would even like more things to be cut as well.

      1. You must not be a patriot. The military is sacred, it’s perfect, it’s beautifullllllllll………

        1. Its not the military that is the problem. Its the military industrial complex. We could trim a lot of fat out of the DoD and still keep our capabilities where they are. Civilian contractors are a waste. Strykers/ACUs wasted a shit ton, and added NOTHING to versatility or effectiveness.

          Although you are a douchebag for mocking the military…but i guess the first ammendment protects douchebags too.

          1. When the Secretary of Defense puts out a list of wasteful defense spending that should be cut and Congress tells him to fuck off, that’s a pretty good sign that things have gotten out of hand.

      2. “But yeah I would have no problem cutting defense and the other things you mentioned down to 2001 levels…and I would even like more things to be cut as well.”

        2001 levels–you communist!

        1. Nice one, there is actually some good points on this blog some of my readers may find this useful, I must send a link, many thanks????????.

      3. The 2001 level of spending, while adequate to protect us from the dinosaurs and fur bikinied big breasted cave women, in that savage and primative time, it would not provide nearly the level of protection necessary to protect us from near stone age people wearing sheets on their heads and bearing jockstrap bombs.

    3. Blogwhore, I take issue with your terminology:

      Once you get outside of a certain minimum budget, your marginal unit of military spending increasingly becomes geared toward “offense”, not “defense”. Libya, for example, didn’t do shit to us. You can’t honestly consider money for that war as “defense” — that’s as bullshit as calling it a kinetic whateverthefuck.

      1. But for Greg killing ragheads is what gives his life meaning.

  3. #2 is so obvious it’s painful to see people oblivious to this fact. not eating more pie doesn’t mean the cook is putting his arm down your throat to collect what you’ve eaten.

  4. The latest leaks seem to have the GOP willing to put larger defense cuts on the table than Obama has proposed before. We’ll see.

    Of course, there’s really only two headlines in most media for all these talks, either “X splits GOP, revealing party’s weakness,” or “GOP remains horrifyingly unified around extremist position.”

    1. I find it odd that people think the republicans are in the weak position.

      Obama is the one claiming that the debt ceiling must be raised or the world comes to an end…if the world does not end then the republicans win and if the world does end (ie economy does not improve or gets worse) then Obama will be blamed for it in the 2012 election.

      If the Republicans cave to Obama make no mistake they did it by choice and it is their fault.

      1. No idea why I italicized the first sentence….it was not a quote.

        1. It needed to be emphasized.

          1. !!!I FIND IT ODD THAT PEOPLE THINK THAT THE REPUBLICANS ARE IN THE WEAK POSITION!!!

            Like that?

            1. I shouldn’t have been drinking coffee while reading your comment, Joshua.

        2. I read like a voice over.

      2. If the republicans don’t pass the increase, then the budget automatically get balanced. The sec of the treasury has to cut enough so that revenues=outlays.

  5. Oh my god, what has this country become. I tell you how to fix debt and make us competitive with china again. First eliminate completely, medicare, social security, welfare, and grants and tutition for schools. no more handouts of any kind, you shave off about 8 trillion that way. Then you raise your defense spending to make new technologies and make sure we stay the most powerful military in the world. Third end all taxes on businesses period, no taxes at all cause these are the guys that make jobs, and coporations are trying to do the best they can cause thier number 1 jobis making jobs. also raise taxes on anyone under 100k to make up the difference companies were paying so we shift burden off of them. Iknow that i spainful for th epoor but they mostly been freeloaders and need to learn how to work. Finally get rid of minimum wage, it hold companies back, you shouldn’t be paid more then a dollar to push buttons on a cash register or pump gas anyways. these overpaid workers take away from real jobs and money buisness could be payig to real job earners. Finally as a major stop gap, everyone should take a 30% pay reductions across the board to control expenses from washington to those burger flippers.

    1. You must be new here. Get ready.

    2. Who are you talking to?

      Certainly it isn’t Nick…

      Perhaps you are making fun of GregorySmith3.

    3. I award you no points, and may God have mercy on your soul.

    4. @trueblueben-You’re ignorance is sickening.

      1. Ignorant, I am from alabama i am anything but ignorant. I can see your an ocuwamba supporter or a rhino. What i put forward is the truth and the path to prosperity. I do my homework, i watch rush and bill o rielly, I read up on drudge and go to my fair share of websites, I ain’t blind. I see china taking money from us cuase they pay thier people very low wage. if we matched that for those useless uneducated types in our country(the liberals) businesses would be pulling higher profits and more gdp. Overseas places like japan and philipines let business do what evr they can to survive, no regulations, just try and imagine what a business could do if no government or polictical group or dick jane and harry were up in arms in thier face. orginizations like the epa, irs, fda, and fema should be cut right out, cause they over regulate business and KILL IT!! no sir, I know my country and I know that muslim gonna run us into the ground.

        1. This is satire, right? If so, well done. If not . . . then I am speechless.

        2. Whatever you’re on, it’s probably illegal and shouldn’t be.

          And if you’re not on anything, bravo, sir.

        3. Troll grade = D-

          Try harder next time. Actually, fuck that – just don’t try any more.

        4. The troll attempt was weak, but the following ideas seem to be popular among libertarians here:

          No corporate income taxes
          No minimum wage
          Elimination of the EPA, IRS, FDA, FEMA, etc.

          1. You forgot to mention no income tax in general, an unregulated free market, and some of us even believe that we don’t need a government at all! yikes!

      2. Pretty sure trueblueben is a troll.

        1. look you want to call me the troll under the brudge eating them rams and pigs that cross it, that’s fine but I don’t resort to name callin about serious business. I think your the boogeyman trying to scare common sense folks like me away.

          1. the troll under the brudge eating them rams and pigs that cross it

            I don’t know what Walder Frey does with the pigs and rams….but he does have a tendency to marry off his children to the Wolves and Trout that cross.

            1. j. snow ftw!

  6. That Geithner photo needs alt-text.

    “And then I grabbed the taxpayers by the throat like this….”

    “You wouldn’t believe how big Hank Paulson’s dick is….”

    1. I like both these alt-text suggestions….I’d like them better merged together.

      “And then I grabbed the Hank Paulson’s dick by the throat like this….”

  7. Spend less than you take in, use the difference between your revenues and expenditures to pay down debt. The smart thing to do when it debt trouble would be to spend a lot less than you have been, of course.

    1. But that makes government debt seem like household debt, which I’ve been told by many reliable, studious and learned liberals, that it’s not.

      1. Because when households steal to pay for their excess spending, it’s considered a crime.

  8. You confuse “legal obligations” and “debt”. Legal obligations will include wages payable and statutory entitlements like social security, medicare and medicaid. Absent an increase in the debt ceiling, the government is going to have to make major, ad hoc, cuts to entitlement programs. The government might be able to delay the drop dead date by selling liquid assets but that is hardly a solution.

    1. Given the governments effect on the GM bankruptcy, putting the unions and unsecured creditors ahead of secured creditors, I think that there’s going to be a reckoning if there isn’t a deal cut.

      Which way will it go:

      Pay the creditors and bondholders, or
      Pay granny and gramps

      I look forward to the wringing of hands and gnashing of teeth

    2. You confuse “default”, “cessation of transfer payments”.

    3. “legal obligations” and “debt” are functionally the same thing. They may come from different buckets, and they may take on different priorities, but it’s no less contributory to debt when you promise someone you’ll pay them a trillion dollars you don’t have.

      1. When you write the laws, a bondholders expectation that his bond is good is much different than a suckers expectation that his transfer payments will last forever.

  9. how do we get out of this chicken[shit] outfit?

    You secure that shit, Hudson!

  10. Again with David Stockman. The federal government cannot “foist” costs onto future generations in the way Stockman and others seem to think it can. It is literally impossible. What matters economically, ultimately, is real goods and services (not financial instruments, which ultimately only have value as claims to real goods and services). When we eat bread today, it comes from someone who bakes bread today from wheat harvested today (give or take). It literally cannot come from someone who will bake bread 50 years from now (future generations). Time travel is impossible. Our grandkids can’t send bread and movies and cars back in time from the future so that we can selfishly consume them today. You need to check your premises, as Ayn Rand used to say – since you’ve reached a contradiction with the facts of reality, one of them must be wrong.

    And the mere suggestion that we would “pay down” the debt with gold or other real commodities is pure insanity. The US (federal) debt is a notional quantity that is necessary (in our fiat currency system) to maintain interest rates. It never needs to be “paid down” as long as bond holders can collect their interest payments (and eventually, principal) in US dollars. Bonds and dollars are just two related (and similar) financial instruments. Both are essentially US debt, just in different forms (one earns interest, paid in paper currency). You can continue to increase the debt limit without bounds – as long as you have continued economic growth. Indeed, the two are inextricably linked in our system – fiscal deficits increase the money supply, and an ever increasing money supply is necessary to fund an ever increasing economy. No sovereign issuer of fiat currency can ever run out of money.

    If you had really maxed out all of your credit cards, but needed to eat, and I gave you these two choices, which would you take:

    1) Cut out one kidney and sell it on the black market to raise money for food.

    2) Open up another credit card and use it to make your minimum payments while also buying the meals you need.

    The US can very easily do the equivalent of choice #2, by raising the debt ceiling. Except for bone heads who don’t understand the way the system works, and instead are wondering whose kidneys they can cut out (or whatever other form of austerity they might suggest) to “pay down the debt” to save “our grandchildren.” Folks, our grandchildren will be eating the bread that’s being baked 50 years from now. What we need to leave them is a vibrant, growing, un-regulated economy, and the long term benefits of the capital goods we develop today. If we leave them that, they’ll be just fine. But if we self impose austerity we will make things worse for us, and them, because our nation will not only go without real goods and services today, but we’ll also lose the economic growth that would be enabled in the future by the production of more capital goods today.

    When 20 million people who should be producing goods and services are instead unemployed, that’s a major problem. And austerity does nothing to solve it.

    1. No sovereign issuer of fiat currency can ever run out of money.

      I like the way you think!

      1. I bought one of these, along with a 10, 20 & 50 trillion note. Paid ~ $13, which is probably $12.50 more than they were worth as currency, but what the hell.

        1. I have a few 5,000,000,000 dinar notes from Yugoslavia. Thank you Tito.

          1. On the other extreme, I actually wound up with a bunch of Soviet 1-kopeck coins from when I studied in the former Leningrad in 1992, at the time when the exchange rate was about 1 USD = 100 RUR.

            I don’t know where they are, though.

        2. It has a security strip? Awesome!

      2. 89.7 sextillion percent.
        You were the master, Bobby.

        1. Sorry. That was an early estimate. The actual final inflation rate appears to have been 6.5 quindecillion novemdecillion percent, give or take a percent or two.

    2. And austerity does nothing to solve it.

      Not true if you’re half-Keynesian like the Republicans. That is, Keynesian on taxes, Hooverian on spending. It may look like a blatant contradiction, not to say the willful negation of a factual universe, but it really all works out when your goal has nothing to do with “the grandchildren” but in funneling wealth in the right direction (upward) just in time for the select few virtuous producers to purchase their own little paradise somewhere. If it sounds like the psychopathic behavior of a two-bit strongman rather than someone who cares about America, then you don’t understand trickle-down economics.

      1. Again…you sometimes flirt with reality.

        but it really all works out when your goal has nothing to do with “the grandchildren” but in funneling wealth in the right direction (upward) just in time for the select few virtuous producers to purchase their own little paradise somewhere.

        I am curious to know why Team Blue (and their well spoken quarterback) didn’t bring the Fire sector of the economy to heel when they had them by the balls?

        1. The plummeting stock market at the time probably had a lot to do with it. I noticed it’s largely been up, up and away ever since Obama went off about “profits to earnings ratios.” I think the FIRE sector knew right then they had a guy who was easy to tame.

      2. *yawn*

    3. If what we need is a vibrant, growing un-regulated economy, then why funnel trillions more to a government that seems intent on producing a stagnant, stalled, highly-regulated economy? It is not just that they are spending trillions of dollars, it is that they are spending trillions of dollars to make it harder to innovate, harder to be an entrepreneur, and harder to compete in the global economy. If they were just taking our money and then getting the hell out of the way, you could just write some of it off as the cost of doing business. But to take our money and then use it to regulate us into oblivion, then that is doubly harmful. It appears that the only way that the government will do less is if it cannot afford to do more.

    4. good words my man, you know your stuff. that Ayn Rand is my hero, when facts come up shit for piss, I just grab my ol rifle and start barking up the trail. But i have a third option for your choice there, that you should seriously look at.

      choice 3, those who try and collect thier debt to us, we just blow thier country to kingdom kong. In this world the mightest says what they want to say and the rest just drool like a gopher. if china wants to collect they have ot get through a little somethig called the US F**king MARINES, you ain’t getting by that wall. just like you follow law cause you can’t take on the police, other government can’t take our stuff if we defend it the old American way. LIke a second reveloution, we overthrow these chinamen and tell them to eat dirt. Ain’t nothing they can do about it either.

    5. option 3: I cut out your kidney and feed it to you since you’re the one who needs to “eat”.

    6. No sovereign issuer of fiat currency can ever run out of money.

      Welcome to Zimbabwe.

    7. The problem is that your so-called “two choices” is a false premise. In the real world there are other alternatives to those. Nice try though.

    8. Government consumption eats the seed capital of future generations. Our borrowing is not financing investment in the future, it is financing the consumption of resources.

    9. Draco, you are a real dumb fuck.

    10. So what’s gonna happen if we keep on the borrowing-and-more-borrowing course we’re on? What’ll happen if interest on the national debt finally crowds out everything else on the budget? I think if the debt gets too big, we’re gonna see the bond ratings drop anyway, not to mention China and other nations demanding we pay up now because we’ll never get our financial house in order. I’m already certain things are going to get a lot worse before they get better.

    11. So what’s gonna happen if we keep on the borrowing-and-more-borrowing course we’re on? What’ll happen if interest on the national debt finally crowds out everything else on the budget? I think if the debt gets too big, we’re gonna see the bond ratings drop anyway, not to mention China and other nations demanding we pay up now because we’ll never get our financial house in order. I’m already certain things are going to get a lot worse before they get better.

  11. “The debt limit or debt ceiling concept dates back to 1917.”

    You mean…our country can function without a debt limit??? And did so for its first first 141 years of existence??? Amazing!

    “Prior to that date, Congress had to specifically approve any new borrowing done by the federal government.”

    So the debt limit, which Team Obama is coloring as a limit on presidential power, is actually an astounding abdication of Congressional authority over spending. And refusal to extend the ceiling is therefore the reclaiming of Congress of its traditional control over spending.

    No wonder Team Obama is coloring this as the end of the world.

    1. You mean…our country can function without a debt limit??? And did so for its first first 141 years of existence??? Amazing!

      Technically, our country had a debt limit of “whatever debt congress explicitly approved”. That is, “debt limit” makes it sound like Treasury is being restricted, when in fact it means its being empowered, though only to a some extent, that extent being the “limit” in question.

      1. Which goes to my second point about Congress abdicating a substantial power of the purse to the executive. It is one example of the creation of the modern imperial presidency.

        It is also a license for fiscal irresponsibility. It is the difference between telling my daughter that she cannot buy anything without my approval, and my simply giving her a “spending limit” of $1,000. How long do you think it would take that “spending limit” to be met?

        Maybe the debate should not be over how to raise the limit, but whether we have a debt limit at all, at least in its current form.

  12. I’m beginning to suspect that the Democrats are winging it on fiscal policy.

    1. Nah. Sheer random chance wouldn’t work this poorly. Unexamined bias is required.

    2. We shall see my little pretty!

  13. Absent an increase in the debt ceiling, the government is going to have to make major, ad hoc, cuts

    Chop, chop.

    1. This idea that cutting spending dramatically is “hard” is such bullshit. Give me the budget and ten boxes of red pens, and our troubles here will be over very quickly.

      1. I can balance that budget with 5 boxes.

        1. It’s a big budget. Maybe a bucket of red paint and a paint brush would be better.

          1. Shredder

      2. Yes, but you don’t have to worry about whether lazy and stupid people will vote for you in some far off November.

        It doesn’t matter whether it’s “easy” to cut the spending, what matters to these pukes is that they’ll get blamed for Mabel’s/Farmer Ted’s/The Professor’s government check/subsidy/grant not coming through and blaming them for it while some other great politicians promises that he’ll cut everything else *but* that check/subsidy/grant.

        We’re going to have to blow up completely for anything to change significantly. The GOP will eventually role over – and raise the limit while bragging about not raising taxes – and this will all be over with.

  14. Regarding #2, I have long been saying the same thing. But I started to wonder if there might actually be an issue in that regards. If we’re spending 40% more than we take in, that doesn’t mean we wouldn’t be able to drop the spending by 40% in order to continue paying the creditors.

    In theory, if it were a cash flow situation, this wouldn’t necessarily be true. If, for example, the feds collected all their (read: our) money on the first of the year, and then ran out by 8/2, I’d understand. But we all know that the federales are continually draining our paychecks every two weeks to that argument is patently bunk.

  15. The federal government cannot “foist” costs onto future generations in the way Stockman and others seem to think it can.

    This may come as quite a shock, but I am more inclined to believe Stockman than I am inclined to believe you.

    “We’re not broke! We have plenty of checks left!”

    1. I once dated a girl who actually said this. Non-ironically.

      Yes, she was pretty hot.

  16. In a rational world, there would be a high-powered “working group” at Treasury busily analyzing sources and uses of cash, in order to prioritize spending and prepare to deal with hitting the end of the chain.

    Instead, we get a lot of hyperventilating about the end of the world as we know it.

    1. Michael Stipe would make a better a Treausry Secretary. At least his rants would be rhythmic and pleasing.

      1. We must not have been listening to the same R.E.M.

  17. It’s a big budget.

    Let’s use a woodchipper.

      1. ,b>NNNOOOOOOOOOOOOOOOOO

  18. Pretty sure Paul Ryan is from Wisconsin, not Kentucky.

  19. My best case scenario at this point is getting some kind of balanced budget amendment out of this and in front of all of the states but I’m not particularly hopeful.

  20. Probably the best anti-political debate I’ve seen about the debt limit. VERY educational! Another reason to like REASON! Thank you, Nick! When are you going to start teaching? Where do I start my studying?

    1. When are you going to start teaching? Where do I start my studying?

      Holy shit don’t say that!!! You will awaken the endless ads for Nick’s new book again!!

      You have brought us doom!!!

  21. Balanced budget amendment 18% of the previous year GDP!

  22. I thought it was all Casey Anthony all the time…

    1. Was she building the mosque in NYC?

      1. Navy SEAL who killed Osama?

        1. Casey Anthony murdered the debt limit! And we can prove it, too!

          1. Who the hell needs proof? The debt limit is dead, and someone needs to pay!

    2. They cancelled the CNN space shuttle special for Casey Anthony and other bleep. Which is more significant? Really?

      And I still don’t really know what that’s all about, other than someone might have killed someone else.

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  25. Treasury can’t just sell assets, they would need Congress to approve that. It’s also true that the US would default on legal obligations, you’re confusing these with bonds. Though it’s also possible that we could default on bonds, we’d be pressed against a liquidity constraint and trying to roll the debt. The numbers people quote are only for the interest, but you don’t pay minimums or interest on bonds; you pay face.

    So what happens when Treasury needs $300 billion to pay maturities? It can’t sell new debt until old debt retires, so you can have a day long default instantly.

    1. “So what happens when Treasury needs $300 billion to pay maturities?”

      Then Treasury does what it did in the pre-Wooodrow Wilson days. It goes to Congress and says, “We have $300 billion in bonds all maturing. Can we have authority to borrow money or roll over the debt to avoid default?” You don’t need a blank check, in the form a pre-approved, unchecked borrowing authority, for that.

    2. You do what the treasury does every day of the year: You pay the face value of the bonds, and sell other bonds to pay for them. The net is the interest. I can’t recall the exact figure, but our government has transactions that amount to TRILLIONS of dollars a year, just for this purpose alone, with the net result being the interest payment total. Thousands of bonds mature every day.

  26. Very well written article. Precise debunking of the hysteria with a simple explanation of solutions.

  27. Balanced budget amendment 18% of the previous year GDP!
    What a shocking data??

  28. Balanced budget amendment 18% of the previous year GDP!
    What a shocking data??

  29. Balanced budget amendment 18% of the previous year GDP!
    What a shocking data?

  30. This statement by the author seems obtuse. Which side is more opposed to runaway taxes and spending in the current debate?

    “The White House and congressional Dems want a free and easy boost to their ability to maintain the status quo and/or blame any future bad economic news on dingbat conservatives; Republicans want to highlight the debt limit as yet one more place where Obama and the Senate Dems are out of touch. Those of us without tribal loyalties to Team Red or Team Blue can both sides’ self-serving arguments for what they are: self-serving arguments.”

  31. Great column; I will link to it from my Old Jarhead blog. This should be required reading for all citizens. I think defaults are inevitable, but I expect them at the city and state level first. The federal government can always print money to pay their bills, taxing everyone through inflation. But there is no way to raise the real money needed to pay off the vote-buying of the last 30 years

    Robert A. Hall
    Author: The Coming Collapse of the American Republic
    (All royalties go to a charity to help wounded veterans)

  32. It is a good story, and we are getting into a very deep crevice our states and elected politicians have created for us.

    I’m reading a really good book now, “The Dismantling of American Culture”, by David Mamet, Pulitzer Prize-winning author of Glengarry Glenn Ross, which I have not yet read. The first book that I am reading is written by a former Liberal. From the book’s cover, “The struggle of the left to rationalize its positions is an intolerable, Sisyphean burden. I speak as a reformed Liberal.” I can’t wait to finish the rest of the book.

    It is interesting that most people who speak as liberals, get very angry and hurl acusations at anyone who does not agree with them.

    It is absolutely astounding that Obama is getting away with spending us into oblivion. The above explains it far better than anyone else has, and OBAMA NEEDS TO STOP SPENDING. CONGRESS CAN STOP HIM IF THEY HOLD FIRM ON NOT ALLOWING ANY MORE SPENDING, WITHOUT CUTS ABOVE AND BEYOND THE DEBT LIMIT HE WANTS. He is a big-boy and should not get everything he wants just because the democrats and their supporters scream and whine. The GOA report that outlined all the waste and fraud that is perpetuated against the American People should be addressed. This should be by a group of business people who have no vested interest in taking money for themselves or their companies, above and beyond the salary they will earn. Pay them a really good salary to do this and cut the fat from somewhere else to pay them. Most people cannot work for free.

    Millionaires and Billionaire’s should not be on this committee as most want the money to be thrown around left and right, where it will benefit them.

    Instead, let it be a Council of Citizens who directs the cuts and from where. Authorize the council’s authority and voters to supercece the authority on this issue of the congress, senate and Obama. Obama would not need to raise the debt ceiling. If the drop dead date can be moved 4 times in one year (the date when calamity strikes), then it is not a “die by (8//2/11)crisis. An important date, but the world will not end if it is not met. Congress should vote more to be added to the debt limit but it must last through a certain time frame (to be determined by the Citizen’s Council)with no more debt increases. Obama should not be allowed to allocate any of it without the approval of the Council of Citizens.

    Start with the report from the GOA on where the real waste is (and reports from others in office), verify it or decline it and let the citizens decide. Have a special election whereby cuts are proposed by the Council of Citizens and voters can vote on them. The Government has had their chance and now we need some citizens who love America and who can be impartial on what is important and what is not.

    Democrats and Republicans in office should be very afraid next year as a new wave will sweep most of them out of office, I will be a part of that wave.

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  37. >>The current cap is $14.3 trillion. The debt limit includes both debt held by the public (that is, by outside investors, which comes in at around $9.7 trillion) and “intra-governmental holdings” or debt owed by one part of the government to the other, which comes in at around $4.6 trillion).

    So let me get this straight – the Government owes ITSELF $4.6 trillion. Why is that counted against the debt ceiling AT ALL? That’s not borrowing, it’s merely saying one Gov’t agency used funds from another Gov’t agency and agreed to pay back the first agency sometime in the future. At taxpayer expense.

    Sounds like if we don’t count loaning to ones self, a quick $4.6 trillion fix to the problem.

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  38. Q: do countries elect to move D. ceilings?
    A. less developed barter
    . EU oft defaulted, UK rolls over
    its permanent ‘gilts’ i o u ‘s.
    .. web “Treasury can continue to
    issue cheques…let some one sue
    .. expect yrs in courts to revolve it”

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  43. In a rational world, there would be a high-powered “working group” at Treasury busily analyzing sources and uses of cash, in order to prioritize spending and prepare to deal with hitting the end of the chain.

    Instead, we get a lot of hyperventilating about the end of the world as we know it.

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