The debt ceiling is a construct of the congress and the executive branch. It is a way to justify spending by allowing the government to borrow money by issuing bonds. So for the federal government to hit the debt ceiling again is a slap in the face to every American. This debate to raise the ceiling is a confession to you and I that the congress and executive branches can not control themselves when it comes to spending. Consequently they look to 2 sources for income. Debt and Taxes. Let’s discuss taxes. The Government has given tax breaks to individuals and corporations to make higher tax rates palatable. They also lowered taxes on so many lower-income people that as many as 46% no longer pay federal taxes. So you can imagine that revenue for the Government does not meet the expenditures they have committed to in our name. Now that is where the debt comes in.When the country or even a state or municipality need income they sell bonds. Bonds are intended to be a short-term solution to a large expense. Sell the bonds make some interest and get the project done and pay off the bonds when they mature. Everyone is happy. Now we ascend to the federal level. Where spending on pet projects and offering perks to your friends and business are an addiction. One that keeps getting you elected. So members of Congress and even the Presidents and their departments spend freely as they can just borrow the money. And here is where it gets bad for you and I.
When the Government borrows money they issue bonds. They spend the money and have to pay it back. But in the meantime they still have the day-to-day bills to pay. Running the Government has become an expensive proposition and borrowing to do it has gotten out of hand.
Now here is the reality. We will not default on any loans if we do not raise the debt ceiling. What will happen is the Government will have to tighten its belt and spend less or take in more.
Taking in more is out of the question, the economy can not sustain a tax hike. So what is left. Cutting federal spending. And here is where the left is lying to us. They are doing (as one of my friends put it) the chicken little thing. If the ceiling is not raised we will default on our debt. This is a false statement, the reality is that the Government can not BORROW any more money to run the government. Which means they will need to control spending. Oh the horror. even people at PBS will tell you that we are on a road to destruction. Read this exchange
RAY SUAREZ: Could the cap be used as a way of simply limiting federal spending, the way I guess some people would like to see it done; Uncle Sam basically says, well, we don’t have any more money, so we just won’t spend any more money?
BINYAMIN APPELBAUM: There certainly are people who would like to try that experiment. There are a lot of very reasonable economists who think it would be roughly the equivalent of chopping off someone’s arms and legs because they don’t fit in a bed. It would be dramatic, it would be extreme, and it would require massive cuts fairly instantaneously.
RAY SUAREZ: All right, turning that around then, what are the risks involved in not raising the debt limit?
BINYAMIN APPELBAUM: You know, what’s interesting about this is, really, the risks are the same either way. It’s a question of how soon they arrive.
If we keep raising the debt limit and keep borrowing more and more money, eventually, markets will lose confidence in the ability of the federal government to repay those debts and the cost of borrowing starts to increase.
If we refuse to raise the debt limit, investors may lose confidence much more quickly, and borrowing costs start to increase. But neither extreme works really well for us in the long run.
So here is someone telling us it is going to hurt sooner or later. Note he is saying MAY lose confidence
Here it is folks. If it is going to hurt let’s get it over with and stop the madness right here and right now. Stop raising the debt limit and start cutting spending and programs. Better yet cut department staff and regulations while we are at it. A lot of pain now will stop complete collapse later. Just look at Greece.
P.S. The deficit is not the same as the debt . But it is a driver for the debt. It is sort of like making 5000 a month and running up bills each month of 6000. That is a deficit. Now you borrow money to keep spending that extra 1000 a month. That is a debt. If you only pay off 100 a month you begin to get deeper in debt by 900 a month. You do the math. This is a very simple example of what Washington is doing to us.