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The next major debate scheduled to rock Washington is the issue of the nation’s debt ceiling, or in other words the level of aggregate debt the government can legally accumulate as stipulated by Congress. The current debt limit of $14.249 trillion is fast approaching; the federal government will run out of budgetary measures to avoid default this August. The fast approaching deadline has many worried about whether or not the ceiling will be raised in order to sustain continued federal spending. Is this concern correctly placed? Should we be worried more about reaching the debt ceiling or about what raising the debt ceiling means in terms of federal spending?
The last time the United States reached its debt limit December 2009. At that point Congress voted to raise the limit by $1.9 trillion to the current level. This was the largest single increase to the statutory debt limit in U.S. history. Now the Obama administration and others in Congress are ready to do it again. The problem is that overwhelming majority of changes to the debt ceiling have been increases, and as of late, these increases contain no riders to reduce the debt or federal spending.
The Congressional Budget Office released its analysis of the president’s FY2012 Budget. According to this report, if Congress votes to raise the debt ceiling by $834.4 billion, the average of the last 10 increases, the federal government will once again approach the debt ceiling in less than one year. Congress will then again, as they are now, debate whether or not to increase the debt ceiling yet again, something they’ve done literally dozens of times without hesitation. When will the word “limit” finally mean that enough is enough? For the creditors who purchase U.S. Debt and loan the government money, we are well past “fool me once…” as this chart of the statutory debt limit since 1940 demonstrates:
Fooling ourselves and those who loan us money by raising the debt ceiling to cover federal expenses dozens of times over is more than shameful. The debt ceiling is clearly an arbitrary rule consistently twisted, bent, and broken by Congress. The real debate must be focused on what Congress plans on doing about runaway federal spending.
The current spending plan of the administration has the U.S. debt reaching well over $20 trillion in 4 years. The lack of seriousness about the deficit and debt issue is not going unnoticed. Just recently, Standard &Poors (S&P) downgraded the U.S. economic outlook from “Stable” to “Negative”. This also signals that the U.S. is at risk of losing its AAA credit rating, which would be a major economic blow. In response, Treasury Secretary Timothy Geithner was quick to take the airways to reassure the markets. "The Congress is going to pass an increase in the debt ceiling," Geithner said (according to the LA Times). "They recognize that. They know they have to do that. They've always done that."
What Geithner fails to address is that investors are no longer concerned with whether or not the Congress raises the debt ceiling; they are concerned with the level of debt the U.S. has already reached. In the debt ceiling debate, one thing is certain: spending must come down and new restraints need to be adopted to limit the politicians’ incentives to keep spending. Given the facts and figures, it is pure politics and almost foolish to ignore the real issue of runaway spending.