For those who insisted that raising the debt ceiling was the only solution to the federal government recently reaching the current debt ceiling, I have this simple question: Is it better to default at $14 trillion or at $20 trillion?
In other words, would taking on $6 trillion more in spending and debt as Obama has proposed create more or less risk than not raising the debt ceiling? Keep in mind that the federal government already reached the debt ceiling in June, but the treasury secretary has been using cash management (as he should) to prevent a default on government obligations.
And for those in Congress who worry about a default and therefore feel that they must vote to increase the debt ceiling and allow more spending and debt, I ask them this: What rationale will you use when the nation reaches the next debt ceiling? At what point do you set aside this falsehood that the debt ceiling must be raised?
Of course, the next time the debt ceiling needs to be raised, the nation will be in an actual crisis, unable to carry the heavy burden of ever-rising interest-carrying costs and debt service. Sooner or later, spending must be cut. Debt must be reduced. And the size of the federal government must be curtailed. Just look at Greece, Portugal, Ireland, Iceland, Spain … need I go on? Even a world superpower called the Soviet Union could not sustain unlimited spending and dissolved under the burden of its own weight as a result of too much government.
And if you were concerned about Obama’s threat that the nation would default if the debt ceiling was not raised, you need to consider that the interest on the debt in 2010 was $414 billion. When compared to the annual federal tax revenues of $2 trillion, that leaves plenty of room to ensure timely payment on all U.S. bonds. Yes, spending under Obama is at $3.4 trillion, which means that there is $1.4 trillion of excess spending over the revenue that the government receives, and that is where the answer lies – $1.4 trillion in spending needs to be cut and the government needs to reduce its budget to the pre-2007 level.
But now you’re asking: What would have happened if the debt ceiling was not raised? Would all hell break loose? Would the government default?
No, the government does not have to default (unless Obama deliberately forces it to). Not raising the debt ceiling means that the federal government would be forced to do what every private business had to do during the recession to survive: cut spending, lay off employees, sell assets, and become more efficient.
The idea that a “grand bargain” needed to be cut (a deal to cut spending to raise the debt ceiling to allow more spending) never sat well with me. It’s just common sense – taking on more debt and spending more will place the nation at greater crisis within a few short years than if we deal with that crisis now. At least now the crisis can be dealt with by reducing the size of government without defaulting on government bonds. And by the way, curtailing spending and laying off employees is not a default, as some have tried to paint it; it’s good business if the business (in this case, the government) is to survive.
Overall spending will never be cut if Congress continues to raise the debt ceiling and allows this administration to continue its spending addiction.
The only conclusion Congress should have come to was to NOT raise the debt ceiling.
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