Hitting The Gov't's Credit Card Limit

President Obama has taken to the nation’s airwaves raising the specter of a default on U.S. Treasury obligations, as if the only source of funds for paying interest and debt is further borrowing. This is as believable as his promise that Americans could keep their health care plans if they like them, following the implementation of Obamacare.

According to U.S. Treasury data, the federal government has averaged $238 billion in monthly tax receipts in 2013 through July. In the same time period, it has averaged $283 billion in expenditures for a delta of $45 billion/month.  Hitting the debt ceiling does not mean that the government literally runs out of money. It is a hold on allowing continued deficit spending. It is similar to hitting the credit limit on your credit card. The difference between the U.S. government’s finances and real life pocket book issues for American citizens is that many consumers tap out their credit cards and, even then, still need more money every month to pay for basic necessities than the cash they have coming in.  That is not the case with our federal government. The $238 billion dollars/month in tax revenues which the federal government is taking in more than cover its “basic necessities.”

So what is the consequence of bumping up against the federal government’s borrowing limit? The first sentence of Section 4 of 14th Amendment states:

“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”