The Debt Ceiling: More Posturing from the Politicians

If Congress fails to raise the debt limit, the United States will default on its current loans and an international fiscal crisis will ensue.

The fact of the matter is that any country – whether it is Greece or the United States – that has to routinely borrow money to pay for interest on its current debt has set a course from which it cannot recover. The government is no different than you or me. If we have to routinely borrow money to pay the interest on our mortgage and credit card debt, we are living substantially beyond our means and that economic absurdity will inevitably lead to default. No responsible lending institution should lend money to an individual if it is to be used to pay interest on an existing debt. There is no difference between such an irresponsible act than lending money to people who cannot afford to pay it back. But then again, we watched the federal government force lending institutions into doing just that thus contributing to the economic meltdown as the resulting over inflated housing market collapsed.
It serves President Obama and the Congressional politicians interests to tie the debt ceiling and default together. For Obama and his Democrat colleagues, it permits them to continue to spend far in excess of our ability to pay.

For the Republicans, it provides a convenient excuse when they inevitably cave-in to the Democrat’s demands to spend more than they have. The Republicans have already signaled that they are prepared to do just that when Speaker John Boehner announced that Republicans would not allow the country to default on its debt. In January, the Wall Street Journal quoted Speaker Boehner:

“We’re going to have to deal with it as adults. Whether we like it or not, the federal government has obligations and we have obligations on our part.”
In other words, the Republicans can say that in the end they acted “responsibly.”

There are three things wrong with this.

First, as I noted above, the debt ceiling and default, while related, or not connected. Congress could easily refuse to raise the debt ceiling and NOT default on its current debt. The cash flow to the federal government is more than sufficient to pay the interest on the current debt. The Congress needs only to adopt a resolution giving first priority to servicing the existing debt. (For those of you forced to endure an education in the Portland Public Schools, a “first priority” means that the government pays the interest on the debt before it pays anything else.) The extraordinary advantage of doing this is that it then forces the government to make the cuts to the military and entitlement programs that are necessary to bring spending under control.

Using the threat of default on the national debt is much akin to the way Democrats in Oregon’s legislature deal with the K-12 education budget – they spend merrily on all of the other programs and then balance the budget on the backs of education. It permits them to wail loudly about how education will suffer if taxes are not raised.

Second, someone needs to give Speaker Boehner lessons on bargaining. You cannot give away your only strategic advantage before you sit down at the table. The Speaker has already lost one battle having done the same thing with the debate over the 2010-11 Congressional budget. When the Speaker announced that the Republicans would not shut down the government, the debate was over. The Democrats could continue to spend in excess of income and the Republicans would stand by “acting responsibly.” The result was that virtually no significant budget cuts were advanced and the $100 Billion reduction promised by the Republicans became a $47 Billion slight of hand.

Third, nobody expects the Democrats to act responsibly so why should the Republicans. The Democrats practice brinkmanship at every turn and continue to be rewarded. The Republicans need to take a page from the Democrats’ book. They need to say that they stand on principle. That they will not vote to further burden future generations. That they are tired of the entitlement mentality. That if the Democrats will not engage in meaningful reform then the government will shut down. That if the Democrats will not agree to ensure payment of interest on the existing national debt, then the government will default.

Let’s reiterate a series of responsible actions that Congress should undertake as a solution to the debt crises:

  1. Congress should refuse to raise the debt ceiling and, instead, adopt a resolution giving first priority to the payment of interest on the existing debt.
  2. Congress should amend Medicaid and the Emergency Medical Treatment and Active Labor (EMTALA) to exclude those illegally in the country.
  3. Congress should amend all remaining welfare programs to exclude those illegally in the country.
  4. Congress should remove subsidies to agricultural operations, oil and gas production, alternative energy production, and the myriad of other subsidies designed to pick the winners and losers in a competitive marketplace.
  5. Congress should raise the Social Security eligibility age by one year for those under 55, two years for those under 50, three years for those under 45, and four years for those under forty. Even at that point, the eligibility age will not have kept pace with the advancement in mortality rates in this country.
  6. Congress should restrict current and future payments under Social Security to amounts that reflect earnings on actual employer/employee contributions at a rate comparable to the S&P 500 over the same time and amortized over the life expectancy of the recipient at the time of eligibility.
  7. Congress should remove troops immediately from Iraq and Afghanistan – no more nation building – and limit active military engagements to incidents where the United States safety and security are threatened and only until that threat is neutralized. While we can provide encouragement and supplies (military and civilian) for those who seek independence and democracy, we cannot fight their wars of independence.
  8. Congress should eliminate the Department of Energy and its entire budget given that it has failed completely in its purpose – to provide energy independence for the country.
  9. Congress should eliminate the Education Department and provide block grants to the states based on advancement under national testing programs. It too has failed in its mission given the continuing decline in educational achievement by our students vs. those in other advanced societies.
  10. Congress should review and reduce financial participation in the United Nations and its various programs. The same can be said of the International Monetary Fund (IMF), the World Bank, and NATO. Our financial commitment should not exceed our proportional control.

Fundamental change is required to return to a healthy economy with robust job growth. The empty promises of President Obama have not resulted in either HOPE or beneficial CHANGE.


President Obama and the big spenders of both parties, accompanied by the major media, have cast the current debate over the debt ceiling in those terms. The problem is that while the debt ceiling and the payment of interest on the current loans are related, they most assuredly are not connected.