Should We Raise the Debt Limit?

Jan 12, 2013 by

bzp046by Henry W. Burke –

Twelve years ago (on 1.10.01), the national debt stood at $5.7 trillion.  Today the current national debt (1.10.13) is $16.433 trillion.

This means the United States under Obama has racked up more national debt in the last 4 years than we accumulated in the first 225 years of our country (from 1776 to 2001)!

 

With the fiscal cliff deal behind us, the next major issue is raising the debt limit.  Because we exceeded the debt limit on 12.31.12, this is a very pressing issue.

By necessity, any discussion of increasing the debt ceiling must be accompanied by real spending cutsThe government has a severe spending problem!

 

 

We are in uncharted territory with our record deficits and debt.

 

 

Raising the Debt Limit

 

Congress first placed a statutory limit on the national debt in 1917, with the Second Liberty Bond Act.  Over the years, the debt limit has been raised about 76 times; since 2001, the debt ceiling has been increased 13 times.

 

The Budget Control Act (BCA) of 2011 created the Supercommittee and it also increased the Debt Limit.  The Debt Limit was raised in stages by $2.1 trillion from $14.294 trillion to $16.394 trillion.

 

The first $0.9 trillion ($900 billion) increase in the debt limit occurred in August and September 2011.  The next increase took place on January 27, 2012, when the debt limit was automatically raised from $15.194 trillion to $16.394 trillion (an increase of $1.20 trillion).

 

 

The national debt (Total Public Debt Outstanding) on 12.31.12 was $16.433 trillion.  This means that we exceeded the statutory debt limit of $16.394 trillion on New Year’s Eve, 12.31.12!

 

http://www.treasurydirect.gov/NP/NPGateway

 

 

 

Treasury Secretary Timothy Geithner sent a letter to Congress on 12.26.12 in which he stated that the statutory debt limit would be reached on 12.31.12.  He also stated that he could use four “extraordinary measures” to delay the overtopping by two months:

 

            These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit.  Under normal circumstances, that amount of headroom would last approximately two months. 

 

http://www.treasury.gov/connect/blog/Pages/Secretary-Geithner-Sends-Debt-Limit-Letter-to-Congress-12-26.aspx

 

 

 

Because the national debt has remained at $16.433 trillion since 12.31.12, it is obvious that Tim Geithner is employing these measures.

 

 

Consequently, the new 113th Congress that convened on 1.03.13 must address raising the federal debt ceiling.  This offers one more opportunity to confront the consequences of reckless spending.

 

 

Federal fiscal years end on September 30 and are identified by the calendar year in which they end.  For example, Fiscal Year 2012 (FY 2012) ended on 9.30.12.  We are now in Fiscal Year 2013.

 

 

The following table shows the growth in the national debt over Obama’s first four-year term:

 

 

 

Growth of National Debt Under Obama

(Trillions of Dollars)

 

 

Fiscal

Year

Date

Total

Public Debt

Outstanding

($ Trillions)

Real Deficit

($ Trillions)

CBO Deficit

($ Trillions)

2009 9.30.09   11.910   1.885     1.550
2010 9.30.10   13.562   1.652     1.371
2011 9.30.11   14.790   1.228     1.284
2012 9.30.12   16.066   1.276     1.089
Total   6.041     5.294
Average  1.510     1.324

Source:  U.S Treasury — Treasury Direct

http://www.treasurydirect.gov/NP/NPGateway

 

 

 

The national debt (Total Public Debt Outstanding) increased $6.041 trillion under Obama (in Fiscal Years 2009 to 2012); likewise, the total of the real deficits for the four fiscal years is $6.041 trillion.  The real deficits averaged $1.510 trillion per year over the four-year period.

 

 

Congress must decide how much to raise the debt limit.  The last increase under the Budget Control Act of 2011 was $1.2 trillion.  If Congress uses the $1.2 trillion figure for the next increase, the new debt limit would be $17.594 trillion.

[$16.394 + $1.2 trillion = $17.594 trillion]

 

 

How long would this new debt limit last?  Of course, that depends upon future deficits.  If we assume that the real deficits will run $1.3 trillion per year, the new debt ceiling would last less than one year.  The numbers are as follows:

 

 

 

Projected National Debt in Obama’s Next Term

(Trillions of Dollars)

 

 

Fiscal

Year

Date

Total

Public Debt

Outstanding

($ Trillions)

Real Deficit

($ Trillions)

2013 9.30.13   17.366     1.300
2014 9.30.14   18.666     1.300
2015 9.30.15   19.966     1.300
2016 9.30.16   21.266     1.300

 

 

With a $1.2 trillion debt limit increase, we would exceed the new $17.594 trillion debt ceiling later this year (around November 1).

 

Unfortunately, the Republicans will be forced to agree to some increases in the debt ceilingWe should restrict the amount of the debt limit increases to about $1.0 trillion per year and force Obama to scale back his spending plans.  If Obama wants $3 trillion and the Republicans insist on $1 trillion, the entire debate becomes quantitative.  In that scenario, public opinion will force him to yield.

 

 

Funding Priorities under a Debt Limit Squeeze

 

Whenever the debt limit is being discussed, the proponents for the increase invariably say that the U.S. cannot default on its obligations.  We need to make a distinction here — the U.S. must not default on its national debt obligations; we have to pay the interest on the national debt!  However, we could default on our federal spending obligations; we do not have to continue every single federal program.

 

 

The Total Revenue and Spending for Fiscal Year 2012 (ending 9.30.12) is shown below:

 

 

 

Total Revenue and Spending for Fiscal Year 2012

(Billions of Dollars)

 

Major Category

Annual

Amount

($ Billions)

Monthly

Amount

($ Billions)

  Revenue
Total Revenue   2,449     204
  Spending
Net Interest on Public Debt      258       22
Defense — Military      651       54
Social Security Benefits      762       64
Medicare      469       39
  Subtotal   1,882     157
Medicaid and Other Welfare      770       64
Other Activities      628       52
  Total Spending   3,538     295
  Deficit   1,089       91

 

Source:  Congressional Budget Office (CBO)

 

http://www.cbo.gov/sites/default/files/cbofiles/attachments/43698-Nov-MBR.pdf

 

 

 

The largest category in the federal budget is Welfare at $770 billion; Welfare is larger than Social Security, Defense or any other area of the federal government.  Within Welfare, Medicaid (at $251 billion) is by far the largest of the 79 means-tested welfare programs.  For some reason, welfare received very little attention in the fiscal cliff talks.  Because of its immense cost and rapidly-expanding nature, Welfare should be a major issue in the coming negotiations on spending cuts.

 

 

For this exercise, we will assume that current revenue and spending are identical to Fiscal Year 2012.  (These actual figures for FY 2012 are more reliable than numbers from an unapproved FY 2013 budget.)  The federal government has Total Revenue of $2,449 billion and Total Spending of $3,538 billion; this produces a Budget Deficit of $1,089 billion.

[$3,538 billion – $2,449 billion = $1,089 billion]

 

 

Because we will be making real-time budgeting decisions, all program amounts are monthly (one-twelfth of the annual amount).

 

 

The Revenue is $204 billion per month and the Spending is $295 billion per month; this produces a Deficit of $91 billion per month.

[$295 billion – $204 billion = $91 billion per month]

 

 

We have already reached the debt limit.  Suppose the government exhausts the “extraordinary measures” that Treasury acknowledges.

 

 

Interest on the Public Debt, amounting to $22 billion per month, would have first claim on the incoming revenue.  This leaves $182 billion.

[$204 billion – $22 billion = $182 billion per month]

Because the Administration would surely make these payments a top priority, warnings about “default” on the nation’s debt obligations are overblown.

 

 

Next in order of priority would be Defense, Social Security, and Medicare; these total $157 billion per month.

 

 

After funding Interest, Defense, Social Security, and Medicare, $25 billion is left to apply to the other $116 billion in programs (Welfare and Other Activities).

[$182 billion – $157 billion = $25 billion per month]

 

 

It would be refreshing to see the government engaged in real-time prioritizing of spending.  Real-time budgeting is not a good way to manage the government; but it could buy some time to allow the elected officials to make the needed reforms, especially in entitlement programs and welfare spending.

 

 

Under Obama, we have operated for over three years without an approved federal budget.  This is no way to run the federal government!

 

 

 

Senator Pat Toomey (R-PA) argues that voting to raise the debt ceiling without regaining control of federal spending is both irresponsible and unacceptable.  He introduced legislation in 2011, the “Full Faith and Credit Act,” which would require the Treasury to make interest payments on our national debt its first priority in the event the debt ceiling is not raised.  Paying the interest on the public debt will preserve the “full faith and credit of the United States government.”

 

 

 

Liberal lawmakers and pundits are abuzz with the idea that an obscure clause (Section Four) in the Fourteenth Amendment could grant the President the power to run over the debt limit.  The President has no such unilateral power and the whole idea is unconstitutional and absurd!  Unilateral action by the President to take on additional debt would be a clear violation of the Constitution’s separation of powers.  The Constitution vests in Congress — not the Executive branch — the power to commit to spending, raise revenue by enacting tax laws, and to incur public debt.  Apparently, Obama is seriously considering this option if he does not get his way.

 

Another ridiculous idea is the “trillion-dollar coin” or “platinum coin.”  This is based on a tiny section in the U.S. Code that allows the Treasury Secretary to “mint and issue platinum bullion coins and proof platinum coins” of a size and denomination of “the Secretary’s discretion.”  Speculation on this crazy idea was fueled when the White House Press Secretary refused to rule it out on 1.09.13.  Former Congressional Budget Office Director Douglas Holtz-Eakin said: “This would say (to the markets) they cannot manage their finances as a nation, they’re down to gimmicky coins.”

 

http://www.foxnews.com/politics/2013/01/10/legend-trillion-dollar-coin-grows-as-white-house-declines-to-rule-it-out/?test=latestnews

 

 

Lawmakers and the public should not buy the hysteria that will surround the debt limit issue.  The White House will likely use the words “catastrophic” and “recession producing” in talking about the impending doom.  When Treasury Secretary Tim Geithner was pushing for the debt limit increase in April 2011, he stated:

 

If you allow people to start to doubt whether the U.S. can pay its obligations – that would be catastrophic.

Congress is going to raise the debt limit. That’s absolutely essential to preserve our credit-worthiness. We’re a country that meets its obligations, and we have to meet our obligations, and they know that.

 

http://www.businessinsider.com/tim-geithner-debt-limit-2011-4

 

Credit Downgrades

On 8.05.11, Standard & Poor’s (S&P) announced that it had downgraded the U.S. credit rating for the first time, lowering its rating from AAA to AA+ (one notch below AAA).  This was a huge blow to the world’s economic superpower.  In its announcement, S&P had some sharp words for the Obama administration and Congress; it strongly urged them to slash the huge federal deficits.

 

Moody’s could easily make a similar judgment on the stability of the U.S.  Even the International Monetary Fund (IMF) has warned that the United States must reduce its debt or face serious economic consequences.

 

Another credit downgrade is likely, with or without the debt limit increase.

 

Obama Has a Spending Problem!

In the fiscal cliff deal that Obama offered to the House, Obama had the gall to seek unlimited authority to raise the debt limit.  Under his arrangement, he could raise the country’s debt limit anytime, anywhere, all by himself!  No Congress is needed!  Fortunately, Congress did not give Obama an unlimited credit card.

 

 

This is the same Obama who condemned President George W. Bush during the 2008 presidential campaign for adding $4 trillion to the national debt in eight years, calling it “irresponsible and unpatriotic.”

 

 

 

The federal government spent $3,538 billion ($3.538 trillion) in FY 2012; the federal government took in $2,449 billion ($2.449 trillion) in revenue from taxes.   This means that the budget deficit for FY 2012 was $1.089 trillion.  In simple terms, the government spent $1.1 trillion more than it took in from taxes.

[$3.538 trillion – $2.449 trillion = $1.089 trillion deficit]

 

 

The federal government does not have a revenue shortage; rather, the government has a spending problem!

 

 

 

In the final fiscal cliff deal, almost all of the focus was on tax increases and tax breaks for special entities.  The ratio of tax increases to spending cuts was about 40 to 1.  This is because Obama has no desire whatsoever to cut spending!

 

 

A glimpse into Obama’s ideology is given in a 1.06.13 article by Stephen Moore in The Wall Street Journal.  Mr. Moore interviewed House Speaker John Boehner 72 hours after the historic House vote to avoid the fiscal cliff.  Moore learned:

            What stunned House Speaker John Boehner more than anything else during his prolonged closed-door budget negotiations with Barack Obama was this revelation: “At one point several weeks ago,” Mr. Boehner says, “the president said to me, ‘We don’t have a spending problem.’ “

 

Throughout the negotiations, John Boehner continuedto press the spending problem with Obama.

            He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: “I’m getting tired of hearing you say that.”

 

In the interview with the House Speaker, Stephen Moore learned this about Boehner’s position on spending cuts versus the debt ceiling:

            He says that Republicans won’t back down from the so-called Boehner rule: that every dollar of raising the debt ceiling will require one dollar of spending cuts over the next 10 years. Rather than forcing a deal, the insistence may result in a series of monthly debt-ceiling increases.

 

http://online.wsj.com/article/SB10001424127887323482504578225620234902106.html?mod=WSJ_Opinion_LEADTop

 

 

Conclusion

 

We racked up more national debt in the last 4 years under Obama than we accumulated in the first 225 years of our country!

 

 

When Obama took office, the national debt was $10.6 trillion; it is $16.4 trillion today.  Therefore, the national debt has increased by $5.8 trillion in the nearly four years that Obama has been in office ($1.5 trillion increase per year).  This is two and one-half times the annual increase under George W. Bush.

 

 

If we raise the debt limit by $1.2 trillion, we would exceed the new debt ceiling around November of this year.  We should restrict the debt limit increases to about $1 trillion per year.

 

 

The U.S. must not default on its national debt obligations; we have to pay the interest on the national debt.

 

 

If the debt ceiling is not increased, the government would be forced to set funding priorities under the debt limit squeeze.  Our out-of-control welfare spending must be addressed!

 

 

It is obvious that Obama and the government have a severe spending problem.

 

 

Liberal lawmakers (including Obama) are considering the use of the Fourteenth Amendment to make an end run around Congress on the debt limit.  Such a move is unconstitutional and absurd!  They are even talking about minting a “trillion-dollar coin.”

 

 

=================================

 

Henry W. Burke

E-mail: hwburke@cox.net

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