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Jewish World Review Jan. 31, 2011 / 26 Shevat, 5771 Faceoff over the debt By Jack Kelly
http://www.JewishWorldReview.com |
Sometime this spring President Barack Obama and the Republican majority in the House of Representatives will play a game of chicken which could plunge our moribund economy deeper into recession.
The debt ceiling is a statutory limit Congress imposes on the amount of money the Treasury may borrow. Currently, it is $14.296 trillion. At the rate Treasury is borrowing money ($4.22 billion per day), we're likely to hit the ceiling before April Fools Day.
The purpose of the debt ceiling, which was first imposed in 1939, is to restrain deficit spending. Obviously, it's failed to do that. Six years ago, Congress debated whether to raise the debt ceiling to $9 trillion. The national debt has increased 64 percent since then.
Sen. Barack Obama voted against raising the debt ceiling in 2006. "Increasing America's debt weakens us domestically and internationally," he said then. "Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership."
Now that he's the leader, Mr. Obama no longer sees mounting debt as a failure of leadership. Treasury Secretary Timothy Geithner said failing to raise the debt ceiling could spark "catastrophic economic consequences that could last for decades."
Mr. Obama was just grandstanding back in 2006, White House spokesman Robert Gibbs essentially admitted.
If the ceiling isn't raised, the United States will default on its debts, an unprecedented event that would cause interest rates to spike, damage the dollar and destroy "millions of American jobs," Mr. Geithner said in a letter to Congress.
That's not so, said Sen. Pat Toomey, R-Pa. He noted tax revenues cover two-thirds of federal spending, and interest payments on the debt amount to only 6.5 percent of federal spending.
"If Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt," Sen. Toomey said. It will just have to stop spending on some other things.
We will have the consequences Mr. Geithner warned about anyway if the government keeps spending money the way it has. The national debt is now equivalent to the value of all the goods and services produced in the United States each year.
Eventually -- possibly soon -- investors will stop buying Treasury paper. Interest rates will spike. Either the federal government will go broke, or the Federal Reserve will print trillions of dollars out of thin air, triggering runaway inflation.
If the debt ceiling isn't raised, federal spending must be cut dramatically. Republicans in the House have proposed trimming $2.5 trillion over the next 10 years.
This is not as much as it sounds. The cuts essentially would reduce federal spending to what it was during President Bush's last year in office, when few thought the federal government was starved for funds.
Still, Democrats doubtless will claim the cuts Republicans propose would force widows and orphans to beg in the streets. The experience of our neighbor to the north suggests otherwise. In 1994, Canada's national debt was 67 percent of gross domestic product. Now it's less than 30 percent.
To do this, Canada cut its federal spending from 17.5 percent of GDP to 11.3 percent. (In the last fiscal year, our debt exceeded 94 percent of GDP.)
Canada did this without pushing widows and orphans into snowdrifts. The budget cuts were accompanied by a higher rate of economic growth, a lower unemployment rate.
Canada's economy is healthier than ours. The unemployment rate there is 7.6 percent. Ours is 9.4 percent. Last year the Canadian economy grew faster than any other in the G-8, roughly twice as fast as ours did.
The showdown may come around March 4, when the continuing resolution funding the government expires. House Republicans likely will pass a funding bill that cuts money for programs they don't like. It's likely that Democrats in the Senate will turn it down or Mr. Obama will veto it, in the hope that people will blame Republicans if the result is a partial government shutdown. That's what happened in 1995 when President Bill Clinton faced off against House Speaker Newt Gingrich.
It may not work that way in 2011. A Reuters poll released Jan. 12 indicated 71 percent of Americans don't want the debt ceiling raised. Will the president listen to them?
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JWR contributor Jack Kelly, a former Marine and Green Beret, was a deputy assistant secretary of the Air Force in the Reagan administration.
© 2009, Jack Kelly |
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