The federal government has now reached its $14.3 trillion debt limit, even though Treasury Secretary Timothy Geithner is buying the government a couple of more weeks through some clever financial finagling. That means that the federal government cannot legally add any more debt to that $14.3 trillion. That’s the maximum. That’s what they said would be the maximum the last time they raised the debt ceiling. By setting the limit at $14.3 trillion, they were implicitly telling the American people, “The federal debt has grown so large that it now threatens our government and our nation. Even though we are raising the limit this time, that’s it. No more.”
What do you think U.S. officials did the last time the debt ceiling was raised, to $14.3 trillion? Do you think that they said, “Whew! We’ve bought a little time but now we have to really slash federal spending because we’ve got a ceiling of $14.3 trillion staring us in the face”?
Not on your life. They didn’t do anything to rein in federal spending and borrowing. Instead, they continued on their merry little spending and borrowing spree as if there were no tomorrow.
And why did they continue spending and borrowing? Because they didn’t worry one bit about the new debt-ceiling reset. They knew that when the $14.3 trillion maximum was reached, all they would have to do is raise the ceiling again. They knew that they could continue playing this game indefinitely into the future.
Oh, that’s not to say that there isn’t going to be a bunch of political posturing and maneuvering with the aim of getting maximum political benefit out of the so-called debt-ceiling crisis. Of course, there will be. But as I have stated for a long time, everyone, including the Republicans, is going to cave when push comes to shove.
Sure, there might be some spending cuts and tax increases to make the deal look good. But at the end of the process, the national debt will be permitted to increase higher than $14.3 trillion, and a new debt ceiling will be set. And the same thing will happen when that new maximum is reached sometime down the road.
It’s all one great big political fraud, one that is designed to show federal officials wringing their hands over the out-of-control federal spending and debt, while, at the same time, permitting them to continue their ever-growing spending and borrowing spree.
What should they do about the ceiling? They should keep it intact. That was the implicit promise and representation made to the American people. When they set the ceiling at $14.3 trillion, they were promising that the federal debt would not rise above that. That’s what a ceiling is. If a ceiling is going to be continually lifted, then it’s no ceiling at all. In such a case, they might as well just abolish the ceiling and openly announce that federal officials are going to spend and borrow all they want, no matter how much it gets the government closer to bankruptcy.
Then, they just need to do whatever is necessary to pay their bills out of incoming revenue. That might mean having to exit from Afghanistan and Iraq immediately. It might mean having to close Guantanamo Bay. It might mean withdrawing all troops from North Korea, Europe, Latin America, and Africa and discharging them. It might mean repealing Medicare, Medicaid, Social Security, foreign aid, or other welfare-state programs. It might mean ending the drug war.
So be it. When a family is deeply in debt and can’t afford to pay its bills, it must eliminate many of the things it spends its money on to get back on sound financial ground. By cutting out things to spend money on, income is freed up to pay for essentials and pay down the family’s debt. That’s sometimes the way life is. The operation of government is, in principle, no different.
Statists argue that there is nothing to worry about — that federal officials can continue spending and borrowing to their heart’s content. Oh, yeah? Well, how come they are so silent when confronted with Greece, Ireland, Portugal, and other countries that have gone broke because of out-of-control spending and borrowing on their welfare states? And what about the Roman Empire, the British Empire, and the Soviet Empire? What prevents the U.S. Empire ending up broke like they did?
What will be the outcome of the debt-ceiling debate? We all know what the outcome will be. A majority of congressman, consisting of both Democrats and Republicans, will cave. Amidst considerable hand-wringing and political posturing, they will vote to lift the debt ceiling once again, knowing that they can continue playing this game indefinitely into the future.
As of today, each citizen’s share of the debt is $46,189, with each taxpayer’s share coming to $129,124. Americans should bear in mind that the only way the federal government gets the money to pay off its debt is through taxation, either directly through the IRS or indirectly through the Federal Reserve’s inflationary debasement of the currency.