Friday, January 7, 2011

Thoughts on the debt limit

I've been reading lots of stories lately about the Federal debt limit, and whether or not the Republicans should allow it to be raised.  A number Tea Party congressmen and sympathizers are saying as loudly as they can that the debt limit shouldn't be raised, because we have to be fiscally responsible.

Great soundbites, but not very realistic.

Here's the problem.  The US Government already has spending commitments.  Unfortunately, a fair chunk of our spending is financed via debt instruments instead of paid for through direct revenues.  So, what happens when the debt limit is reached?  It's like having too much month and the end of the money.  You don't pay for something.  In a household, maybe you skip the cable bill, or you only pay part of your cell phone bill.  You even might get away with that for a few months before your creditors come after you.  Sure, you'll take a hit on your credit rating, but that's no big deal, right?

For the Feds, they take a hit on their credit rating too.  But there are large consequences.  The Government has to pay higher interest rates on T-Bills to entice people to loan money.  Bonds and securities get pummeled.  Lots of Not Good things happen.

Here's the gist of it.  The bills HAVE TO BE PAID.  The government doesn't have a choice.  The debt limit has to be raised.  Everything else is nothing more than theatre, a dog and pony show to look good in front of the electorate.  Now, I think Boehner's on the right track.  He's made statements that any increases in the debt limit should be tied to immediate spending reductions.  Symbolic?  Most likely.  Until the budgeting process kicks up, there's not a lot they can cut.  But, it's a better mindset than just increasing things willy-nilly.  I guess it's similar to actually enforcing Pay-Go restrictions.

And oh by the way, I like the noises being made about the new Pay-Go rules too.  No more "cut spending or increase revenues".  It's all "cut spending".  So, you want a new program, or want to spend more money on something?  Reduce expenditures elsewhere.  Ya know, like the government was on a fixed budget or something.  I like this idea.

1 comment:

  1. Good points, and yes the bills MUST be paid... sigh...