The debt ceiling, I'm sure you've become familiar with this term the past few weeks and days, sounds pretty ominous doesn't it? But exactly what is a debt ceiling and what does raising or not raising it mean?
The debt ceiling is the amount of debt the federal government can rack-up (note that does not necessarily mean the government has to borrow that much). The first debt ceiling was set in 1917 at $11.5 billion and has been increased 74 times since 1962 to the current level of $14.294 trillion, which was set in 2010. The current debt ceiling is estimated to be reached on May 16, 2011.
You may notice that in the above paragraph I mention that it has been raised 74 times in the past 48 years (and nearly 100 times since 1917) with 10 of those increases occurring since 2001. Now you may be asking yourself "why am I hearing so much about this now when I never heard anything about it the previous 74 times?" That's a great question, it's because the Republicans want something. Their plan is to hold the world economy hostage with the threat of not raising the debt ceiling in hopes that the Democratic majority will give into whatever demands they will come up with this time around (I'm guessing women's health will be involved). This strategy has worked well for them thus far, just look at the extension of the Bush tax cuts for the wealthiest 2% of Americans and the current FY 2011 budget debate. These were both issues where the Democrat's made concessions to the GOP even though it was in direct opposition to public opinion and to the detriment of our economic recovery. Can't blame the Republicans, go with what works until it stops working.
What actually makes up our $14.294 trillion debt? $4.62 trillion is money we owe ourselves. Confused? You should be, we're the only country that does this; when Social Security runs a surplus we take that surplus and invest it in the US Treasury, this provides a safe investment for Social Security dollars that will need to be used for future benefit payments. So this isn't true "debt" it's more of an investment. About $3 trillion is a result of the Bush tax cuts, the wars in Iraq and Afghanistan, and the Medicare prescription drug program and just over $600 billion is a result of Obama's stimulus initiatives according to the Obama administration. The majority of the remaining figure are other investments in our country.
Conservatives will argue that the only way to solve our debt problem is to stop carrying debt, they will even use the analogy of a family who needs to reduce their debt by paying off their credit cards, this is false. As I have stated earlier a lot of our debt is in the form of investments. Most Americans have a mortgage which is a debt that is larger than their annual income, does this mean they should allow their homes to go into foreclosure? Or should they try to pay off our entire mortgage balance this year and cut the rest of their household budget? Of course not because a mortgage is an investment. My wife and I have a car payment, should we use our entire household budget to pay it off now? No. Yes a vehicle will decrease in value and there is considerable cost to its operation, but the vehicle is how we are transported to our jobs, jobs which provides us with the revenue to cover our other expenses which include things such as food and clothing. Therefore our care payment is an investment. Should a person not attend college because it will require them to take on debt in the form of student loans? No, a college education will provide them with stability and a greater income that will exceed the initial investment of tuition. The idea that our government should carry no debt is ridiculous, if that was the case then the same would be expected of individuals and businesses. Debt is required to move a person or business forward, the same is true for the government.
What happens if we don't raise the debt ceiling? If we fail to increase the debt ceiling we have two options, the first is to cut the current FY 2011 budget by $738 billion. According to the economic experts I've seen interviewed this will have disastrous effects on our economy, look at how much fighting had to happen just to get to $39 billion in cuts, this would grind our economic recovery to a halt and eliminate thousands of jobs. So option 1 isn't really an option at all, what's option 2? Option 2 is to do nothing which will cause the United States to default on our debts and lead to a worldwide economic collapse. The Great Recession of 2008 would look like boom-times compared to what would happen when the entire world's economic system goes up in smoke. So as you can see we don't really have any option other than raising the debt ceiling and Republicans know it, which is why they will vote to increase it, but they don't want you to know that. They want you (and the Dems) to think they won't vote for it so that the liberals will just give them whatever they want, it's the ultimate game of chicken. But we have the advantage of knowing that they'll swerve out of the way at the last minute. We must stand our ground.
The debt ceiling vote has always come down to politics, both parties know that the debt ceiling must be raised. As an unwritten rule the minority party always votes against raising the limit while the majority party votes to increase it. Take President Obama for example; as a President who is of the majority party he is asking for Congress to increase the debt ceiling even though he voted against its increase in 2006 when he was a Senator. And just like the President many Republicans who will vote against the increase now voted to increase it in 2006. This is normally done without much fanfare but this year is different for the reason I mentioned previously, the Republicans want something. The only thing we have to fear of this debate is that it will drag on and garner wide media coverage, this will ultimately lead to a decline in the confidence of our markets as the debate drags on. When we reach the final hours of the deadline just enough Republicans will cross the aisle to vote in favor of an increase to the debt ceiling whether they get what they're asking for or not, that's their plan and it's not really a secret. The media will fall for the Republican tactic just as they have over the past few debates, but we don't have to.
Interesting....
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