Debt Ceiling Debate

Once again, for the third time since August 2011, we are about to approach the debt ceiling debate. The debt ceiling is the total amount of money that the US Government is authorized to borrow to meet its existing legal obligations, which include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. Currently, the debt ceiling is set at $16.7 trillion dollars. For clarification, raising the debt ceiling does not give the government authorization to spend more; it simply allows the Government to finance existing legal obligations that have been made in the past.

The $16.7 trillion debt ceiling was hit in mid-May, and the Treasury has been using “extraordinary measures” to keep from breaching the ceiling officially. Treasury Secretary Jack Lew said recently, “The Treasury estimates, that depending on tax receipts, they don’t expect the measures to last beyond mid-October”. We find ourselves in this place once again because both parties approved permanent tax cuts and spending increases over the years, while not coming to any agreement on a new budget. The problem is multiplied by an aging population. More are drawing from Medicare and Social Security causing increased spending obligations that Congress had long since approved. These increased obligations have driven the need to raise the debt ceiling. Over the past two decades, the debt ceiling has been raised 15 times.

If the ceiling is not raised, the Government would still have enough revenue coming in to pay for services and agencies, just not enough to pay for everything. More problematic, the “everything” would include the US no longer being able to pay its bills or loans back in full and on time, which could be perceived as a default. A default on US debt, either real or perceived, could cause short-term turmoil with interest rates and Global Markets. While the obvious long-term solution for the debt ceiling issue is for the Government to agree on a budget that allows us to spend less that we bring in (a complicated topic for another day). The reality is that a balanced budget is a long-term issue. In the short-term however, the necessary evil is to increase the debt limit. The negatives of inaction far outweigh the short term negatives of an increased debt ceiling. The current goal would be that the debate be less dramatic than Congress has made it in recent years. Unfortunately, like a balanced budget; I’ll have to see to believe.