By Andrew Hagen
Charlie Cook's column in the National Review today, discussing the prospect of yet a fourth "wave" election in 2012 in which imcumbents of both parties are thrown out. That wasn't the most interesting thing, in my opinion, though. He cited a paragraph from the Government Accountability Office (GAO) in which the debt limit is explained for what it is.
"The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred" and that "the debt reflects previously enacted tax and spending policies."
This is exactly what I was explaining to a colleague the other day. The debt limit is not a budget. It has nothing to do with spending at all. Instead it is just the ability for the government to make payments on debts incurred by previous budgets, tax cuts, expenditures, wars, etc. The debt limit doesn't allow the government to borrow more money in order to pay for new war planes, entitlements, or anything else. It simply allows the Treasury to make promised payments to bond holdes.
If the Republicans hold up the debt limit bill, then the Treasury is going to be forced to make a decision about where to put it's small reserve of cash. Do you pay social security checks and default on our bonds? Or do we make our bond payments and use social security as a hammer to beat the Republicans with? Whatever your thoughts, the honest to God pragmatic decision is to make the bond payments. Will it hurt seniors in a massive way? Absolutely. Of that there is no doubt. However, that pales when compared to the disaster that would ensue if the US defaulted on its debt (which is one of only a few countries to never have done so before) to bondholders.
Currency operates on fiat -- the belief that it is worth something because that is what people say it is worth. And people around the world trade and borrow currency based on fiat and certain indicators. When somebody doesn't pay you a promised payment, you no longer have faith, or have diminished faith, in that person or institution and therefore demand a higher return for the increased risk (higher interest rates). That is what we are up against, crippling interest rates in order to borrow money.
The US is currently able to borrow money from the world at nearly nonexistant interest rates (it's really incredible). That means that global investors have absolute faith that the US will make good on its debts. It is viewed as the ultimate safe investment. This is a good thing. It allows our country to operate the way it does and borrow money easily and cheaply when needed.
And if we really want to get cruel about the current situation, it is the governments voted in by people currently collecting social security and the generation after that have put us in this situation. Therefore, to destroy the American financial reputation for my generation is worth someone's social security check is a hard argument to make.
Do not let politicians (mostly Republicans in this case) conflate the budget, deficits, and spending with the debt limit. They are completely separate. Raising the debt limit does not open the door for more future government spending as many people seem to think. It only allows the Treasury to make our promised payments. The US government can still incur more debt, and run deficits, even if the debt ceiling isn't raised, so if someone argues that freezing the debt ceiling will curb spending, they are either blatantly lying or have a very weak grasp on financial and economic principles.
Finally, if Republicans are really concerned about decreasing spending and lowering taxes, then freezing the debt ceiling is contradictory to their desired ends. If they play chicken with the debt ceiling, and all goes to Hell, then the US will have to pay a much higher rate on future debt issued which means higher taxes in order to cover that new higher cost of borrowing, since you can't cut the government out of existence, even though you'd be hard pressed to get a Republican to acknowledge this, and even if you cut Planned Parenthood, NPR, National Endowment for the Arts, and whatever else is in vogue for the Right Wing to hate, the government still wouldn't have nearly enough.
Charlie Cook's column in the National Review today, discussing the prospect of yet a fourth "wave" election in 2012 in which imcumbents of both parties are thrown out. That wasn't the most interesting thing, in my opinion, though. He cited a paragraph from the Government Accountability Office (GAO) in which the debt limit is explained for what it is.
"The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred" and that "the debt reflects previously enacted tax and spending policies."
This is exactly what I was explaining to a colleague the other day. The debt limit is not a budget. It has nothing to do with spending at all. Instead it is just the ability for the government to make payments on debts incurred by previous budgets, tax cuts, expenditures, wars, etc. The debt limit doesn't allow the government to borrow more money in order to pay for new war planes, entitlements, or anything else. It simply allows the Treasury to make promised payments to bond holdes.
If the Republicans hold up the debt limit bill, then the Treasury is going to be forced to make a decision about where to put it's small reserve of cash. Do you pay social security checks and default on our bonds? Or do we make our bond payments and use social security as a hammer to beat the Republicans with? Whatever your thoughts, the honest to God pragmatic decision is to make the bond payments. Will it hurt seniors in a massive way? Absolutely. Of that there is no doubt. However, that pales when compared to the disaster that would ensue if the US defaulted on its debt (which is one of only a few countries to never have done so before) to bondholders.
Currency operates on fiat -- the belief that it is worth something because that is what people say it is worth. And people around the world trade and borrow currency based on fiat and certain indicators. When somebody doesn't pay you a promised payment, you no longer have faith, or have diminished faith, in that person or institution and therefore demand a higher return for the increased risk (higher interest rates). That is what we are up against, crippling interest rates in order to borrow money.
The US is currently able to borrow money from the world at nearly nonexistant interest rates (it's really incredible). That means that global investors have absolute faith that the US will make good on its debts. It is viewed as the ultimate safe investment. This is a good thing. It allows our country to operate the way it does and borrow money easily and cheaply when needed.
And if we really want to get cruel about the current situation, it is the governments voted in by people currently collecting social security and the generation after that have put us in this situation. Therefore, to destroy the American financial reputation for my generation is worth someone's social security check is a hard argument to make.
Do not let politicians (mostly Republicans in this case) conflate the budget, deficits, and spending with the debt limit. They are completely separate. Raising the debt limit does not open the door for more future government spending as many people seem to think. It only allows the Treasury to make our promised payments. The US government can still incur more debt, and run deficits, even if the debt ceiling isn't raised, so if someone argues that freezing the debt ceiling will curb spending, they are either blatantly lying or have a very weak grasp on financial and economic principles.
Finally, if Republicans are really concerned about decreasing spending and lowering taxes, then freezing the debt ceiling is contradictory to their desired ends. If they play chicken with the debt ceiling, and all goes to Hell, then the US will have to pay a much higher rate on future debt issued which means higher taxes in order to cover that new higher cost of borrowing, since you can't cut the government out of existence, even though you'd be hard pressed to get a Republican to acknowledge this, and even if you cut Planned Parenthood, NPR, National Endowment for the Arts, and whatever else is in vogue for the Right Wing to hate, the government still wouldn't have nearly enough.
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