I am in no way a “Chicken Little” liberal, as should be obvious from reading this blog. I’m not one for pronouncements of gloom and doom on anything to speak of, with one exception; the prospect of not raising the debt ceiling. If you’re one who thinks the effects of defaulting on our national debt are overstated and that not much will happen if we fail to raise the debt ceiling, you’re in for a surprise next month.
More startling is the lack of knowledge about the debt ceiling that has been expressed by high-profile politicians. Most notably, this past week featured an interview on American Public Media’s Marketplace, a show I listen to religiously because of its lack of spin on economic matters. The interviewee was Ben Carson, and the interviewer, Kai Ryssdal, asked him a couple of very basic things about the economy. (Here is the interview transcript) First, Ryssdal asked him about his desire for a balanced budget amendment, which Carson punted very badly. Apparently, he would cut everything equally, and yet not cut anything at all.
More troubling than that answer, however, was when Ryssdal asked a very basic question about the debt ceiling. Here is the exchange:
Ryssdal: All right, so let’s talk about debt then and the budget. As you know, Treasury Secretary Lew has come out in the last couple of days and said, “We’re gonna run out of money, we’re gonna run out of borrowing authority, on the fifth of November.” Should the Congress then and the president not raise the debt limit? Should we default on our debt?
Carson: Let me put it this way: if I were the president, I would not sign an increased budget. Absolutely would not do it. They would have to find a place to cut.
Ryssdal: To be clear, it’s increasing the debt limit, not the budget, but I want to make sure I understand you. You’d let the United States default rather than raise the debt limit.
Carson: No, I would provide the kind of leadership that says, “Get on the stick guys, and stop messing around, and cut where you need to cut, because we’re not raising any spending limits, period.”
Ryssdal: I’m gonna try one more time, sir. This is debt that’s already obligated. Would you not favor increasing the debt limit to pay the debts already incurred?
Carson: What I’m saying is what we have to do is restructure the way that we create debt. I mean if we continue along this, where does it stop? It never stops. You’re always gonna ask the same question every year. And we’re just gonna keep going down that pathway. That’s one of the things I think that the people are tired of.
Yes, I know it’s really early and polls mean nothing right now, but this is a leading candidate for the Republican presidential nomination. Not only that, but pretty much the entire “Freedom Caucus” in Congress is still too stupid to even read up on the debt ceiling. The debt ceiling has nothing to do with the debt, first of all, but it feeds into the false narrative that the United States is somehow “broke.”
We’re not even close to broke; we have plenty of money as a nation, but Republicans have been cutting taxes on those with the most money, and depriving the government of what it needs to function. Here’s a clue; the deficit for FY 2015 was about $426 billion, while the interest we paid on the debt was $402 billion. That would seem to indicate that we’re not spending too much money on government programs right now. We can’t cut the deficit by cutting programs; we have to raise revenues. Raise taxes on those with the most money, and we would be able to lower them for everyone else and still have plenty of money to spend on the things we need. Under Republican rule, we act like a bunch of misers and skinflints, despite the fact that we have more wealth than any other nation on earth. By far. We don’t have to borrow so much; Republicans chose to reduce taxes and created this debt and forced us to borrow way too much.
Not raising the debt ceiling would have a massively negative effect, even on the short term, in part because our economic system is not based on cash, it’s based on confidence that cash will flow, and a default would shake that. For the record, the debt ceiling is NOT a “credit limit,” which implies there’s a limit on how much people are willing to lend us and such a limit is not apparent at all. Lots of people want to buy Treasury bills, and our debt to income ratio, as a country, is rather good; in fact, it’s probably better than most families, if you want to compare them. That means, there is no credit limit, and won’t be for some time. The debt limit is entirely self-imposed, whereas a credit limit is imposed by others.
A debt limit is our self-imposed limit on the authority of Congress and the Treasury to pay our bills; it affects bills for things we’ve already purchased. If our government decides to not pay our bills, even for an hour, not only will create uncertainty, which will have a devastating effect on the world economy, which will have a negative effect on your personal economy. This is especially true since the United States effectively caused the last economic downturn. Right now, most of the world’s bills are paid in dollars. Failing to pay our bills will shrink the value of the dollar overnight, and several other currencies could be put in peril.
Most of the world’s wealth is in the form of promises, and the value is based on confidence. You buy a home on a 30-year mortgage based on a promise that the value of the home will go up. The bank lends you that money, based on a promise that you’ll pay that money back, plus a little interest. The bank is able to make that loan to you because there is a mortgage aftermarket, and that aftermarket can only be trusted if it is regulated. Likewise, banks can only make loans because the federal government has set up insurance that guarantees most deposits. The entire economic process is dependent on governments setting up systems that reduce investment risk and create confidence. The mortgage meltdown was devastating to the world economy not because it was a loss of cash; it was a loss of confidence. Economies around the world depend on the power of the US dollar to keep them afloat, and we let them down.
We still aren’t all the way back from that, thanks to the Obstructionist Republicans, who are stopping us from actually making the major changes needed to create a solid recovery. To compound that by repeatedly bringing us to the brink of default is as irresponsible as it gets. When Standard & Poor’s reduced our credit rating, they didn’t blame Obama, they placed the blame squarely on Congress, because the debt ceiling is their responsibility.
It’s not a big deal that the average idiot in the Republican “base” doesn’t understand the concept of a debt ceiling — I’m surprised many of them can feed themselves — but for politicians who want to run the government to not understand what it is is inexcusable. There should be no debt ceiling at all, but since it does exist, it has to be used responsibly.
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