{"id":3170,"date":"2011-01-14T13:15:57","date_gmt":"2011-01-14T18:15:57","guid":{"rendered":"http:\/\/timscogitorium.com\/tinblog\/?p=3170"},"modified":"2011-01-14T13:24:01","modified_gmt":"2011-01-14T18:24:01","slug":"as-debt-ceiling-nears-the-house-floor-will-usa-hit-the-wall","status":"publish","type":"post","link":"https:\/\/timscogitorium.com\/tinblog\/2011\/01\/as-debt-ceiling-nears-the-house-floor-will-usa-hit-the-wall.html","title":{"rendered":"As debt ceiling nears the House floor, will USA hit the wall?"},"content":{"rendered":"

Treasury Secretary Tim Geithner sent a letter<\/a> to Congress last week in which he laid out the dire economic consequences should the debt ceiling not get raised in the next month or so.\u00a0 This alarm was not shared by The Economist, who pointed out<\/a> that the Treasury Department still has several cards it could play to keep us from colliding with the ceiling until about August.\u00a0 Piling on, Moody’s made noises<\/a> this week that if Uncle Sam doesn’t get his debt under control, he might lose his most favorable AAA credit rating.\u00a0 Meanwhile, House Republicans are demanding<\/a> they will not entertain raising the ceiling unless they get significant spending reductions.\u00a0 And for good measure, add to the mix a new poll<\/a> showing 71% of the public is opposed to raising the debt ceiling.<\/p>\n

Does your brain hurt yet?\u00a0 It should.\u00a0 The likelihood is that the 71% public opposition to raising the ceiling is rooted in trying to simplify this mess in your aching brain down to the notion that more debt is a bad thing.\u00a0 While there’s truth to that, constraining the debt ceiling may be the wrong lever to use to achieve that objective.<\/p>\n

\"Projected<\/a>
The helpful table from Lou Crandall of Wrightson ICAP shows that in every month this year, projected cash receipts comfortably exceed interest payments<\/figcaption><\/figure>\n

First, let’s be clear about something.\u00a0 Debt ceiling or not, the USA is extremely unlikely to default on its debt.\u00a0 The impact of default would make the 2008 economy crash look like a minor hiccup.\u00a0 The ensuing global catastrophe would hurt currency values as well as lending rates across the private and public sectors, and would leave a permanent scar<\/a> on the US economy.\u00a0 Avoiding default<\/a> merely means paying off our existing debt on schedule and not borrowing over our limit.\u00a0 As the chart to the left shows, keeping pace with our interest payments given our projected income isn’t at all unreasonable.\u00a0 But it does mean the federal budget will need to shave about $1.5 trillion from its planned spending this year.\u00a0 That’s not a haircut as much as an amputation, and without any anesthetic.<\/p>\n

This brings us to Moody’s concern.\u00a0 While some are citing the threat to our credit rating as evidence we need to stop borrowing and pay off our debt, the reality is much less draconian.\u00a0 Moody’s would be quite content if we just looked like we had a plan for eventually paying off our debt.\u00a0 However, they note that we are saddled with escalating medical costs, unfunded military adventures, deteriorating infrastructure, and a political body who adamantly refuses to raise additional revenue through taxes.\u00a0 They are merely pointing out that this is not a sustainable path\u2014and they are absolutely correct.<\/p>\n

The common thread here is that we need a solid believable plan to get our debt under control.\u00a0 It doesn’t need to eliminate the current debt or even reduce future borrowing.\u00a0 We just need to walk a plausible path that leads to eventual stability.<\/p>\n

Is the GOP helping then by using the ceiling as a lever to reduce spending?\u00a0 Does capping the debt ceiling help us get on that financial yellow brick road?\u00a0 Not really.\u00a0 Refusing to move the ceiling is like calling the bank to have them reduce your credit limit because you can’t control your spending.\u00a0 Yes, it forces you to not spend more, but it also causes the bank to rethink your credit worthiness.\u00a0 That may result in higher interest rates and\/or your inability to get credit when you really do need it.<\/p>\n

If Congress refuses to move the ceiling, our creditors will take that as a bad sign with regard to our ability to manage our finances.\u00a0 It won’t matter that we don’t default.\u00a0 It will still negatively impact the rates we pay to finance our current debt.\u00a0 And because almost all rates in the private sector are tied to T-bills, the higher rates will ripple into the rates paid by individuals and businesses as well.\u00a0 This helps no one, except maybe the Chinese and others holding our debt.<\/p>\n

Getting our federal finances in order is essential, but the debt ceiling is the wrong tool to get that done.<\/p>\n","protected":false},"excerpt":{"rendered":"

Capping the debt only helps the Chinese and others holding our debt. Getting our finances in order is essential, but the debt ceiling is the wrong tool for the job.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[54,43,23],"class_list":["post-3170","post","type-post","status-publish","format-standard","hentry","category-politics","tag-congress","tag-economic-policy","tag-obama"],"_links":{"self":[{"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/posts\/3170","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/comments?post=3170"}],"version-history":[{"count":9,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/posts\/3170\/revisions"}],"predecessor-version":[{"id":3178,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/posts\/3170\/revisions\/3178"}],"wp:attachment":[{"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/media?parent=3170"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/categories?post=3170"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/timscogitorium.com\/tinblog\/wp-json\/wp\/v2\/tags?post=3170"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}