Wednesday, December 5, 2012

After the Fiscal Cliff Comes the Debt Ceiling

Virtually all the attention is Washington today is focused on the fiscal cliff negotiations.

But soon an increase in the nation's debt ceiling will take center stage. Yes, the time has come to raise the debt ceiling once again.

In fact, the debt ceiling has been raised 40 times in the last 30 years, so the government knows best gang knows what to do. It's had a lot of practice. See White House Draws Hard Line on Debt Ceiling.

Debt Ceiling Headroom Shrinks tells the story:

"The White House and Republicans remain at odds over the “fiscal cliff,” but there’s a potentially bigger problem looming: The U.S. government last week crashed through an ominous barrier and now has less than $100 billion in headroom under the $16.394 trillion debt ceiling. . . .

 Over the past 12 months, the government has averaged roughly $93 billion in new debt per month. That means the government is now within a month of bumping into the ceiling.

Total U.S. government debt fluctuates from day to day. An influx of revenue can push debt down, but a large one-day payment to Medicare or Social Security can lead to a temporary spike.

Once the government hits the ceiling, it is much more difficult for it to issue debt and borrow money. That means the government can essentially spend as much money as it brings in through revenue, but little more. That could lead to an immediate and sharp reduction in government spending, unless Congress raises the debt ceiling or the White House takes unprecedented steps to try and raise the ceiling on its own.

The Congressional Budget Office has estimated that the Treasury Department can utilize emergency measures to postpone any potential crisis scenario until February or March.

In August 2011, the Congress passed a law that essentially raised the debt ceiling an additional $2.1 trillion."

Summing Up

The fiscal cliff emergency was 'made in Washington' by our politicians. The current 'emergency' resulted from the failed debt ceiling negotiations in the summer of 2011.

Of course, the debt ceiling emergency was a 'made in Washington' event as well.

Here's how it works.

The politicians put themselves on a budget and a maximum of government debt, aka the debt ceiling.

Then they miss the budget estimates by spending more and taking in less taxes. As a result, they need to increase the debt ceiling. And then they repeat the process all over again.

It's like me promising myself to gain no or only so much weight. Then when I fail to keep my promise to myself, I promise myself again not to gain any or only so much weight. Then when I fail to keep that promise, I promise once again not to do it in the future. And so on.

Why we have a debt ceiling has long been a mystery to me. The politicians create it, then approach it, then increase it, then approach it, then increase it, then approach it and on and on and on.

So when the election campaigns ended in November, the fiscal cliff negotiations began. And when the fiscal cliff negotiations come to an end, the debt ceiling negotiations will begin.

But what's the point?

Thanks. Bob.

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