Since 1962 Congress has voted to raise the ceiling 75 times without a single reduction so, practically speaking, a ceiling that is raised automatically is no ceiling at all so why not dispense with the pretense of a debt “ceiling”?
The original article by Peter Schiff has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.
The reason is politics. No Congressman wants to be on the record voting for unlimited debt, yet most are willing to rail against fiscal recklessness while raising the ceiling every time it’s reached. [Frankly,] any Congressman who gives lip service to a balanced budget Amendment but votes to raise the debt ceiling is a hypocrite.
What Happens Now That the Debt Ceiling Has Not Been Raised?
No one needs constitutional help to hold the line on the debt right now but epic levels of Federal red ink and the approach of the 2018 elections have raised the stakes. Despite the new-found urgency failure to raise the ceiling…[both Republicans and Democrats argued that doing so]:
- would be tantamount to economic suicide,
- would cause the U.S. to default on outstanding debt obligations, thereby sending interest rates sharply higher across the board,
- would cripple the economy and permanently increase debt service costs,
- would precipitate a far deeper economic contraction than what we have already seen in the last few years.
If we do today what we have failed to do in the past, we very may well default on a portion of our debt. No doubt our creditors will suffer but such near term pain will lead to a quicker and healthier recovery. Out of control Federal spending will have to be dealt with now. A downgraded credit rating would make it harder for the United States to continue borrowing, and as a result should be viewed as a blessing in disguise.
A reduction in debt levels is good economics. Remember, taxpayers will have to repay with interest anything the government borrows now. The more the government borrows, the larger it grows, and the larger it grows, the weaker the economy becomes. The less money the government borrows, the more that is available for the private sector to borrow to increase production and create jobs.
Failing to raise the debt ceiling will force Congress to:
- tell the truth to Social Security and Medicare beneficiaries who have been promised more than taxpayers can deliver,
- concede that so-called government “trust funds” are mere accounting gimmicks, and that benefits will need to be cut if the programs are to be solvent,
- tell the truth to our creditors that the U.S government has borrowed beyond the ability of its citizens to repay, and
- tell the truth to Federal employees whose salaries and benefits are unsupportable given our fiscal weakness (see these 2 articles here and here on government employee pension plans for an understanding of why such benefits are unrealistic).
Should the Debt Ceiling Be Capped At Current Levels?
Capping U.S. debt at current levels means bringing a future crisis into the present where it can be dealt with in practical terms. This is something that nobody in Washington actually wants. [Unfortunately, however,] few see the inherent absurdity in the notion that taking on more debt somehow improves the economic health and creditworthiness of the United States…
What Happens If the Debt Ceiling Is Raised In the Days to Come?
…If we raise the debt ceiling, [yet again,] we:
- postpone the crisis into an indefinite future… (but in the future the value of principal repayments and government benefits and paychecks will lose purchasing power)
- risk destroying our currency (but that…and the ebbing of a nation’s economic vitality doesn’t make for huge headlines)
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Related Article From the munKNEE Vault:
1. Top Myths on the U.S. Debt-ceiling Crisis
The debate in Washington over when and how to increase the debt limit message is less than 100% accurate. Here are some myths about the debt ceiling and the debate about raising it: