Tag: public debt limit

The Debt Ceiling Theater Script

Mish recently prepared a quick and easy script for all involved members to follow in case they forget their role in this cherade:

1. Obama will chastise Congress with talk of financial Armageddon if Congress does not raise the debt ceiling.
2. Congress will pretend to hold the president hostage
3. The secretary of the Treasury will get into the act with its own version of the default debate
4. Perhaps a few payments on non-critical budget items will be temporarily skipped
5. Wall Street will feign panic
6. Constituents will pressure Congress to approve a new debt ceiling
7. Congress will raise the ceiling with another useless warning about next time

Next time: Repeat 1-7.

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US Public Debt Limit Reached

The AP reports Debt limit reached, US halts 2 pension investments:

Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.

The deficit is the difference between what the government spends and what it takes in through taxes and other revenue. The Congressional Budget Office projects that this year’s deficit will total $1.4 trillion. That’s would nearly match 2009’s record imbalance and mark the third straight year in which the federal deficit has exceeded $1 trillion.

Vice President Joe Biden is holding negotiations with lawmakers over the types of deficit-cutting measures that need to be approved to win congressional approval of a higher debt limit.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit.

I’ve mentioned this before, but I still love that great logic behind threatening to vote not to raise the debt limit unless “significant cuts” are agreed upon. If significant cuts were to take place, there would be no need to raise the debt ceiling in the first place! :)

Another nice example for good old political hypocrisy is on this matter is of course Obama vs Obama on Raising the Debt ceiling.

All the threats about the US potentially defaulting in its national debt are rather unimpressive to me and the bond market is once again shrugging it off today with a drop of another 3 BP to currently 3.15 percent as these lines are written.

The US government is not going to default on its public debt, at least not before defaulting on virtually everything else as I outlined in The Government’s Insolvency.

The pension plans that payments have been suspended into (Service Retirement and Disability Fund) might give you a nice little snapshot as to who’s a low on the totem pole in terms of the seniority order I mentioned in that post.

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Republicans in Congress Boldly Pledge to Raise the National Debt Ceiling

Here’s the new House Speaker John Boehner, with the usual debt ceiling posturing that seems to be obligatory anytime it needs to be adjusted:

“I’ve been notified that the Obama Administration intends to formally request an increase in the debt limit. The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington. While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren. Spending cuts – and reforming a broken budget process – are top priorities for the American people and for the new majority in the House this year, and it is essential that the President and Democrats in Congress work with us in that effort.”

Excuse me, but if our dear and heroic Republicans were so concerned about spending and the debt, then why would he “stand for an increase” in the debt limit at all?

If spending was to be cut in any meaningful way, then why in the world would the debt ceiling need to be raised at all??

The best predictor of future behavior is past behavior. Since the “great” Reagan “revolution” in the 1980s through now the national debt has increased by about 1,300%. Republicans had plenty of opportunities to let their supposed desire for spending cuts run wild in the meantime.

Don’t hold your breath for it now.

If there are ever to be any meaningful cuts, then they will happen out of necessity due to an unmanageable public debt interest, no matter whether it be Republicans or Democrats running the racket called government at the time.

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Congress Increases Debt “Limit” to $12.4 Trillion

In yet another predictable move, Congress has increased the debt limit by another $290 billion:

Congress’s move to lift the federal government’s borrowing limit by $290 billion — enough to last about two months — sets the stage for a contentious debate early next year on government spending.

The Senate on Thursday approved the increase in a 60-39 vote that was largely along party lines. The House passed the measure last week.

The additional $290 billion in borrowing ability lifts the total public debt the federal government can hold to about $12.4 trillion and will allow the government to keep borrowing through February.

Treasury officials had warned that the current limit of $12.1 trillion was close to being breached. Congressional leaders scrambled to raise the ceiling before they began the holiday recess.

An increase in the debt ceiling is largely symbolic as it represents money already spent by the U.S. government. In the unlikely scenario where it was ever breached, however, there would be significant consequences for the financial markets. The federal government would be forced to default on its obligations, and could lose its top credit rating, having to pay much higher interest rates as a result.

Just two weeks ago, several senior Democratic lawmakers had said they were close to reaching an agreement on an increase in the debt limit of $1.8 trillion to $1.9 trillion, enough to support the federal government’s borrowing needs through 2010. That would have avoided the need to take up the issue again next year, when many Democratic lawmakers are expected to face tough re-election battles.

But when it became apparent there wouldn’t be sufficient support in the Senate for that, Democrats scaled back their ambitions and moved forward with the more modest increase.

That leaves Congress facing another debate on the issue before the end of February. Senate Majority Leader Harry Reid (D., Nev.) said this week that would be the first order of business the Senate deals with when lawmakers return Jan. 19.

Republicans are hoping to tap into the public’s anxiety about the federal government’s finances to make gains in the polls next November.

When the Senate takes up the debt issue in January, Republicans plan to hold votes on a number of measures that would seek to restrain the federal government’s ability to spend. These include discretionary spending caps, a move to strip out already-committed funding from the fiscal 2010 budget and the creation of a commission to investigate longer-term solutions to the debt issue.

I love the part about “creating a commission to investigate longer-term solutions to the debt issue”. This is precisely what we can expect from Congress. More commissions, debates, talk, surprises about this or that shortfall, and so on and so forth.

Every month someone from some party says we have to deal with the debt issue, reign in spending, cut expenses and return to fiscal discipline. Yet, when it comes to actually voting on the single measure that matters in this regard, they are rather quick to approve more of the same.

Note that the official debt numbers are a sham anyway. Total US debt is not at $12 trillion. The Treasury itself estimates that total government obligations for Social Security and Medicare are at $43 trillion, as I noted before:

The SOSI provides additional perspective on the Government’s long term estimated exposures and costs. However, it should be noted that the Government’s financial statements do not reflect future costs implied by any current policy, such as national defense, the global war on terrorism, and disaster relief and recovery. Table 3 shows the Government’s estimated present value of future social insurance expenditures, net of dedicated future revenues for the programs reported in the Statement of Social Insurance (SOSI), projected to be $43 trillion as of January 1, 2008 for the ‘Open Group’6. While these expenditures are currently not considered Government liabilities, they do have the potential to become liabilities in the future, based on the continuation of the social insurance programs’ provisions contained in current law.

A liability, or debt, is simply “the obligation of one person or group to provide future goods to another person or group.” Thus, for the discerning economist, it is rather irrelevant if the government “considers” or “officially calls” them liabilities. As far as their impact on human action is concerned, and thus all that economics cares about, they are debts.

This brings the total US government debt up to $55 trillion, an implicit mortgage burden of $491,000 per US household. Anyone in Congress wanna deal with THAT?

Of course not, they will continue to push the boundaries, and of course they will raise the limit once again, come February.

Remember:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

The public should not be deluded into thinking that such thing as a “limit” exists in the minds of their representatives.

May I ask: If all Congress keeps doing is to raise the debt limit quarter by quarter, why not get rid of the damn thing altogether?

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Geithner Asks Congress to Raise Debt Limit

Today is August 11th. I just double checked. It is not April 1st. Nor does it seem like Geithner issued the statements below for The Onion. He appears to be serious … seriously, Geithner Asks Congress to Increase Federal Debt Limit:

U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt limit on Friday, saying it is “critically important” that they act in the next two months.

Mr. Geithner, in a letter to U.S. lawmakers, said that the Treasury projects that the current debt limit could be reached as early mid-October. Increasing the limit is important to instilling confidence in global investors, Mr. Geithner said.

The Treasury didn’t request a specific increase in the letter.

“It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations,” Mr. Geithner said in a letter to lawmakers.

Mr. Geithner said the that it is “clearly a moment in our history” that requires support from both Democrats and Republicans for the increase.

“Congress has never failed to raise the debt limit when necessary,” Mr. Geithner said.

The non-partisan Congressional Budget Office said Thursday the federal government’s budget deficit reached $1.3 trillion through the first ten months of fiscal 2009, on track to reach a record high of $1.8 trillion for the 12-month period.

A statement like this could be out of some of the more bizarre sections of Atlas Shrugged, at the point where nobody really cares about anything or anybody anymore.

Is this for real? When I ask banks to loan me more money, and that it is of critical importance that they do so, will this instill confidence in other investors of mine?

How is it more likely that I will meet my obligations if I take on more … obligations?

Hasn’t Congress’s biggest failure been its lack of fiscal discipline, its rampant and neverending spending, its inability to pay down some of its debt? How then can we even for one second consider calling it a failure to not add to this public debt?

How badly has brain damage progressed in Tim Geithner’s head? How gullible and stupid does he think the people are? This guy needs to step down and needs to do so quickly. Listening to his nonsense is painful and insulting.

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