Raising The Debt Limit: Political Theatre Where The President Could Win & The Nation Lose

By Bill Sardi

September 23, 2013

The President just said this:

“This is the United States of America, we’re not some banana republic. This is not a deadbeat nation. We don’t run out on our tab. We’re the world’s bedrock investment, the entire world looks to us to make sure the world economy is stable. We can’t just not pay our bills.” (For verification purposes, you can hear him utter these words here.)

Maybe the President is just playing to the fears of his audience—fear that the U.S. may be close to financial ruin, or maybe he just doesn’t understand the crisis point facing America next month.

The U.S. IS a deadbeat nation. Its overseas lenders may decide to cease offering more credit if the U.S. shows it never intends to paydown the principle on what the U.S. owes them. Since borrowed money has become a financial lifeline for America, any interruption in the stream of credit would force the U.S. into an abrupt default on its current and future financial obligations.

According to Reuters news agency: “The President appealed to business leaders…. to urge Congress to approve an increase in the U.S. debt limit without any conditions attached and avoid a default that is possible as early as mid-October.”

Let’s hope the President isn’t trying to provoke a government shutdown just to pin that failure on the opposing political party. We would hope he is beyond political maneuvering, though he hasn’t been so far.

The U.S. must currently borrow to meet its obligations to pay for its military, to issue pension checks and to fund Medicare. If Congress doesn’t vote to raise its own credit (lending) limit, a default may occur. That means the U.S. may not be able to even pay the interest on its $16.7 trillion of accumulated debt which is about $395 billion a year. (It is borrowing money to do that now).

The President describes the $16.7 trillion accumulated national debt this way: “Now, this debt ceiling — I just want to remind people incase you haven’t been keeping up — raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy. All it does is it says you got to pay the bills that you’ve already racked up, Congress. It’s a basic function of making sure that the full faith and credit of the United States is preserved.”

Well, Mr. President, it does increase our debt. What he is talking about is the official debt limit of ~$16.7 trillion has been frozen while the U.S. trivially cut its rate of spending and borrows from future tax revenues to stay afloat. So he is saying we aren’t borrowing any more money than what we have already spent (if you can understand that logic).

Nor is the economy growing sufficiently to produce a recovery from the 2008 economic crash. In fact, inflation is out-pacing GDP growth. (Isn’t inflation actually generating that little bit of that GDP growth?)

The U.S. Treasury has been running a thin cash account for some time now as it only has a day or two of government spending on hand ($17-40 billion).

Bloomberg News quotes U.S. Treasury Secretary Jacob J. Lew to say: “At that point, the United States will have reached the limit of itsborrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day. The cash balance at that time is forecast to be about $50 billion, insufficient to cover net expenditures for an extended period of time.”

Few Americans realize the enormous size of the shortfall between annual tax revenues and federal government spending. The generally quoted figure is that the U.S. takes in ~2.4 trillion in taxes and spends something like $3.6-3.8 trillion for a shortfall of ~$1.2-1.4 trillion. But that shortfall figure only considers the U.S. general fund, not Medicare and Social Security or off-budget military spending, which partially depend on money from the general fund to meet their full obligations. When these obligations are considered, U.S. federal spending is more like $6.6 trillion, not $3.4-3.6 trillion says noted economist John Williams of Shadowstats.com.

Imagine Congress does vote to expand its own credit limit. That would be like a derelict spender calling the bank to say he demands the credit limit on his credit cards be raised so he can make the interest payment on his credit card debts. This is precisely what the U.S. would be doing.

continue article at LewRockwell.com:

http://www.lewrockwell.com/2013/09/bill-sardi/evil-clown-overlords/