http://www.economist.com/news/leaders/21569423-debt-ceiling-america-serves-no-useful-purpose-and-should-be-abolished-cliff
After narrowly avoiding the fiscal cliff, the government is facing another upcoming issue with the debt ceiling. In about 5 weeks, the Treasury Department will run out of authority to borrow money once the national debt reaches the debt ceiling. If they fail to increase the debt ceiling there could be dangerous economic ramifications such as the government defaulting on it's obligations.
The last time the debt ceiling was raised, the threat of default forced the president and the Democrats into deficit cutting deals prompted by the Republicans. Many ideas are floating around to fix the problem that the debt ceiling raises such as the minting of a trillion dollar coin, invoking the 14th amendment section about public debt, and have the Treasury make interest payments on the debt. Whatever the solution is to the debt ceiling it needs to come quick because the impact of default could send the economy back into a recession.
According to Wikipedia, this is the particular article of the 14th amendment that would prevent congress from defaulting.
ReplyDelete"Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void."
The main question that I think needs to be asked is why is the debt such a big problem? Although it is a huge amount of money, it would be paid off slowly. It cannot be paid off as a lump sum because that's not the way treasury bills work. Is there really a cause for concern?
Perhaps I have always misunderstood the idea of the debt ceiling, but wasn't it intended to work as a pseudo-budget for the workings of government as a fail safe to keep fiscal situations from getting out of control? I am not sure I understand why keeping it is a bad thing when it is just a check to make sure everything below it is functioning. Everything should always be accountable to someone or something to make sure that too much doesn't happen at once. Deleting something for the sole reason that it is inconvenient to follow the rules is perhaps a bad precedent to set.
ReplyDeleteI don't think that the national debt is as big of a problem that some people have made it out to be especially since there are many other countries with a much higher debt to GDP ratio than we have and are doing fine as well as many that are in a similar situation. I think its important to keep track of the debt and keep it at a manageable number, so the ceiling seems to help the US keep some accountability for the debt and is a reason to try and keep spending reasonable. But it seems like the ceiling is being used more for political leverage for either party to gain a political advantage than as an actual way to keep spending under control. As far as defaulting on the debt goes, it doesnt even seem like a reasonable idea and I would assume that they would come to some sort of agreement before it came to that.
ReplyDeleteI do not understand why all the worry about Debt crisis...Yields on T-bills are negative out to 7 years. US citizens are paying less interest in absolute terms than they were in 2006. Inflation is below target. There's no debt crisis beyond the one the GOP is creating.
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