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Sunday, July 24, 2011

Phony Fear Mongering with the Debt Ceiling

Scare tactics on economic catastrophe, automatic "default" on U.S. public debt, the political theater from Washington DC, secret negotiations on the debt limit. This is all fake political posturing. Phony baloney. A fiction used for political purposes. In a word, it's bull.

by Hal Dunn

If the U.S. government defaults on any public debts, it will only be because President Obama and Treasury Secretary Geithner decide to default on certain public debts, not because they have to. They would have to make a deliberate decision not to pay bondholders, which is highly unlikely.

The Default Myth
The Treasury Secretary isn't supposed to play politics, but at times, Geithner does just that. It's not likely that Geithner would decide not to pay bondholders, since the Treasury Secretary might end up being personally liable if there is a default. It is a myth that "not raising the debt ceiling" is equivalent to "default."

Obama claims that if the debt ceiling is not raised, there will be big trouble. And trouble is probably not an overstatement. Yes, it could be bad. The economic consequences do not look good. When a government runs up debts to the tune of $14 trillion, the outcome will not be pleasant, no matter how they slice it. There is no easy way out. However Obama has threatened to withhold Social Security checks, which is not likely to be something he would choose not to pay if money was to get real tight.

None of Your Business
On June 6, 2011, Judicial Watch filed a Freedom of Information Act (FOIA) request with the Bureau of Public Debt (BPD) seeking an answer to a simple question: What is the Obama administration prepared to do if Congress fails to raise the debt ceiling? But the Obama administration did not provide a serious response. The BPD found 172 pages of records that were responsive to this question, but the White House chose to release only 17 unhelpful pages.

Should these debt negotiations be done in secret or should they be public? Judicial Watch says it's not being done in accordance with the Constitution and they are willing to sue the Federal government to open up the debt negotiation process to the public, as they say it should be, to force it to be transparent and televised on C-Span or any neutral TV station. This would demonstrate to American citizens that it's all a political game, and it's not a serious debate to avoid default as they portray it to be.

Playing Politics
The White House wants to force the debt deal to be big enough to last beyond the 2012 elections and the GOP wants the deal to be a short-term deal, small enough so that we bump up against the debt ceiling again before the 2012 election. The GOP is betting that these debt debates hurt Obama politically more than it hurts the Republicans, so they want to guarantee that this debate is re-played again before the next election. In fact, they want it to happen next year in the middle of Obama's 2012 presidential campaign attempt to win re-election.

Both sides are playing games in an attempt to gain political advantage. The liberal Democrats want to raise tax revenues to solve the short-term "debt crisis" before August 2nd. This is short-sighted, but it could allow the government to keep on paying its bills . . . for a while. The White House and many in the media see this as the most important issue to solve right away.

The conservative Republicans want to cut spending in an attempt to help reduce the long-term problem of government debt and endless spending. This is a bigger problem than the August 2nd debt-limit issue. They know that raising tax revenues won't solve the bigger problem, so they're using this particular debt-limit debate to address the overall spending and overall debt issue.

Political gamesmanship during debt debates is nothing new in America. This sort of thing has been going on since before the USA was officially formed in the late 1700s. And the debt ceiling laws have been set and then revised again over a hundred times. But at some point, we'll need to realize there really is a ceiling that can't be adjusted upward forever.

Do the Math
The federal government takes in between $170 billion and $200 billion a month in revenues, but it only pays out $29 billion a month in interest payments on the debt. So Geithner could meet all of the federal government's debt obligations and still have more than $140 billion left over for other spending. That $140 billion is short of the $300 billion in spending the federal government is scheduled to spend for all of August, but missing any those payments would not qualify as a default on the debt.

As the Bipartisan Policy Center has confirmed, Geithner could pay: the interest on the debt, all Social Security obligations, all Medicare and Medicaid obligations, all Defense contractor bills, all Veterans payments, and all active duty troops; and still have almost $7 billion left over for other items.

Geithner would still have to cut overall federal spending by 44%, and that would have economic consequences. But those consequences would not be as bad as defaulting on the debt. Not paying civilian federal workers would be unpopular, but it's not the same as a default. Not raising the debt limit would cause a limited government shutdown, not a default, as Obama has been claiming. The mostly likely reason why Obama has not been honest with the American people about that fact is because he wants to maximize their fear.

Both sides of these negotiations have been playing these games, and not being honest with the American people. The Republicans and Democrats in Congress, as well as the Obama White House and Tim Geithner. It's political theater, and not a real worry about "economic Armageddon." The debt ceiling deadline actually passed a few months ago, and Geithner pushed it out to August 2nd. If there was any real concern, the international financial markets would have been panicking during the last several months, and that hasn't happened.

But at least the Republicans have put forth some concrete plans. The White House has not. The House Republicans have already passed Cut, Cap, and Balance. Paul Ryan has put forth detailed plans for dealing with the debt ceiling, government spending, and deficits. The GOP has presented plenty of details, while the Democrats have offered vague promises and pouty speeches. Even the Congressional Budget Office (CBO) has commented on how they can't score speeches; they need a proposal of some sort. They've got nothing to work with.

The White House has had more than two years (over 800 days) to do their job and create a budget, but they have not done it yet. Obama and the Democrats have not put forth a budget yet. Instead they have just been winging it and spending taxpayer money at will. There has been no talk of a Federal investigation to determine if there has been any negligence or to find out why they have not produced a budget after two years.

Both sides are lying. It won't be the end of the world if the debt ceiling isn't raised. It will be uncomfortable, that's for sure. But default is not inevitable just because the debt ceiling is not raised on August 2nd, no matter how many times Obama or the media repeat that lie.


Washington Examiner: There is no Risk of Default

Reason Magazine: The Facts About the Debt Ceiling

Mercatus Center - Debt and Deficits: The Symptoms, not the Disease

Daniel Mitchell: Why are Geithner and Bernanke Trying to Panic Financial Markets with Debt Limit Demagoguery

Forbes: Why the Republicans will lose the Debt Limit Fight

Mercatus Center - Debt Ceiling Key Concerns (PDF)

DownsizeDC.org - Tearing Defeat from the Clenched Jaws of Victory

Mercatus Center - Truth and Consequences: A Guide to Understanding the U.S. Government Debt and Deficits (PDF)

Fox Business - Lou Dobbs: More Transparency needed in Debt Negotiations (video)

Obama White House to American People on Debt Ceiling Plans: None of Your Business!

Washington Examiner: Washington gets $200 billion a month, Social Security costs $50 billion a month, and Obama is threatening to starve Grandma

Cato Institute: Thoughts on the Debt Limit Debate

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