Debt Ceiling Disaster Ahead
The fiscal cliff showdown is eclipsing the much more dangerous problem the country faces.
It is almost impossible to believe, but the hysteria surrounding the so-called “fiscal cliff” is being overshadowed by an even more pressing problem. Treasury Secretary Timothy Geithner has alerted Congress that the nation will once again hit the debt ceiling on Monday, but that his department can take “extraordinary measures” to keep paying the bills for another few months. For those keeping track, the debt ceiling was raised from $14.294 trillion in August 2011, to its current level of $16.394 trillion. Thus in the span of only sixteen months, an utterly irresponsible Obama administration has added a whopping $2.1 trillion to the national debt.
As bad as that is, the administration's “solution” for out-of-control spending is even worse. As part of his fiscal cliff negotiations, the president and his minions have proposed doing away with Congress altogether when it comes to raising the debt ceiling, and giving the president unilateral power to raise it. “If the Congress in any way suggests they are going to tie negotiations to the debt ceiling and take us to the brink of default once again as part of a budget negotiation. … I will not play that game because we've got to break that habit before it starts," Obama told CEOs at the Business Roundtable held earlier in December.
Perhaps a better habit to break would be the one where our narcissistic president tries to kick the constitutionally-mandated separation of powers to the curb whenever it impedes his transformative agenda. Or maybe he could wean himself off the urge to keep blowing through trillions of dollars in deficit spending in order to underwrite exponentially expanding government.
Yet if there were only one habit this president could break, rank hypocrisy would go to the top of the list. "The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies… Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit," said then-Senator Obama in 2006.
Presidential candidate Obama doubled down on that assertion in 2008. "The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents – number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back – $30,000 for every man, woman and child,” Obama said on July 3, 2008, at a campaign event in Fargo, N.D. “That's irresponsible. It's unpatriotic,” he added.
Five years later, $9 trillion of debt has mushroomed to over $16 trillion and as far as this president is currently concerned, patriotism and responsibility no longer matter.
House Speaker John Boehner (R-OH) and Obama have reportedly held talks on the subject. Shortly before negotiations between the two men collapsed, Boehner expressed a willingness to raise the debt ceiling in exchange for significant cuts in entitlement programs. Ironically, the last time the debt ceiling debacle played itself out in August 2011, Congress was unable to strike a deal, and the Budget Control Act of 2011 that emerged from the standoff is precisely what the current wrangling over the fiscal cliff is all about. Adding to that irony is the fact that one of the main the sticking points of those negotiations was the inability to reduce the ten-year deficit by $1.2 trillion, a number less than the consecutive one-year deficits of $1.3 trillion this administration rang up in 2010 and 2011. Adding to the insanity is the reality that one of the critical aspects of the current negotiations is finding a way to undo the “sequestration” that represents the only genuine spending cuts to come out of that impasse.
Thus, despite all the drama that occurred in 2011, including ratings agency Standard & Poor stripping the nation's AAA bond rating because of fears the political class had no credible solution for reducing the debt, we are right back where we started, with one exception: the nation is $2.1 trillion deeper in debt than the last time.
Yet in order to run deficits, someone must be willing to lend the nation money. Most Americans assume the biggest “someone” is China or Japan. Most Americans are dead wrong. In 2009, foreign purchases of U.S. debt amounted to 6 percent of GDP. The current percentage has fallen by over eighty percent to 0.9 percent of GDP. So who's picking up the slack? The Federal Reserve, which is buying a mind-blowing 61 percent of government debt issued by the Treasury Department. “The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit,” wrote Lawrence Goodman, former Treasury official and current president of the Center for Financial Stability, last March.
The critical factor here is one that is rarely mentioned: the Fed is buying such large amounts of America's debt because no one else wants it. Yet in the process of doing so, it becomes necessary to print money to make those purchases. Even the most economically illiterate politician knows that when you create more of something, each individual unit of that something is worth less. Thus Ben Bernanke, with the blessings of this president and his spendthrift Democratic Party, is debasing the currency in order to maintain the fiction that trillion-dollar-plus annual deficits and $16 trillion-plus of national debt – that the president wants unilateral power to raise as high as he can – don't really matter.
But they do matter. According to the Congressional Budget Office (CBO) American taxpayers will pony up $5 trillion in interest payments on the debt over the next decade. Yet Obama, in all his class-warfare glory, has convinced substantial numbers of uninformed Americans that taxing the “rich” would solve our problems. Not even close. According to the Joint Committee on Taxation, the proposed tax increase would raise only $68 billion, by shifting the top tax bracket from the Bush era rate of 35 percent, up to 39.6 percent. Based on a projected budget of $3.6 trillion for 2013, that would run the government for less than a week. And that's a “projected” budget, because the Democratically controlled Senate has ignored its legal obligation to enact a budget, for the last three years and counting.
With regard to the fiscal cliff, part of the fear the president is attempting to instill in Americans is that, barring a deal, taxes on everyone will be raised. Geithner, much as he did the last time, is engaging in a similar kind of fear-mongering concerning the debt ceiling, contending he's got approximately a two-month window to keep the nation solvent. Yet he further hedges his bet to goose the fiscal cliff negotiations. “Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” he contended.
As an article in the New York Post points out, people of all income levels are “shocked” by how much more they will pay in taxes without a fiscal cliff deal. What's even more shocking is how oblivious they are to the reality that raising the debt ceiling guarantees the middle class will be the next target for tax increases, no matter what happens with regard to the fiscal cliff. That would be the same middle class currently infatuated with big government spending, even as a majority of them remain completely reluctant to pay for it.
Unpleasant as it may be, the debt ceiling is the last vestige of negotiating power fiscally responsible government officials have to contain the spendaholic madness that is leading us to disaster. If Republicans fail to use it to extract genuine spending cuts from this administration, America's descent into Third World-ism is a done deal. No entity, be it an individual, or greatest nation on earth, can continue to spend more than it takes in. Kicking the proverbial can down the road from August 2011 until today solved absolutely nothing. The same kind of negotiations that raised the debt ceiling from $14 trillion to $16 trillion are now aimed at raising it to…$17 or $18 trillion? Will another column written sixteen months from today be discussing a debt ceiling of … $20 trillion? Only if it remains possible to print and borrow enough money to sustain the fantasy indefinitely. It doesn't.
Arnold Ahlert is a columnist for FrontPage Magazine.