The Politics Of Debt
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
Of course, none of them has the best interests of the American people in mind when they play. It’s all about political advantage and making the other side look bad.
It’s not about good policy. It’s about good politics. He who plays the best politics wins in their view. And that’s really sad.
The national debt ceiling is a level imposed by Congress on how much debt the U.S. can carry.
This establishes a “statutory debt limit.” That’s the outstanding debt in U.S. Treasury notes (the kind China, German, Japan and myriad other investors buy) old debt, debt held by the Federal Financing Bank and guaranteed debt.
If you want, type “national debt clock” in Google. It’s highly entertaining.
I think when that federal law was written, in the Second Liberty Bond Act of 1917, its proponents never dreamed of debt in the range of $16 trillion, but that’s neither here nor there. It’s the law.
Back then, it allowed the Treasury Department to issue Liberty Bonds so the U.S. could enter World War I. It also gave Congress the ability to control government spending.
As the deficit kept getting bigger and bigger, the government kept bumping against the debt limit.
But federal law also requires Congress to let the government borrow money needed to pay for programs Congress has passed.
So the law at least forces Congress and the president to talk about the issue.
And for a long time, it was just a foregone conclusion. They just raised the debt ceiling after a brief conversation and life went on. The debt ceiling was raised 10 times in the last 10 years, for crying out loud.
But just last year, there was a big fight over the debt ceiling – purely political – and there likely will be one again this year.
Congress finally raised the debt limit in 2011 by passing the Budget Control Act, which raised the debt ceiling but required a committee to figure out ways to reduce spending.
Having very little confidence in Congress’s ability to do that, the U.S. credit rating went from AAA to AA and the stock market lost 6 percent of its value in one day.
Now, if the debt ceiling isn’t raised, the government can’t auction off any more Treasury notes. It has to rely on incoming revenue to fund all its programs. Problem is, the government is running a deficit. There simply isn’t enough money coming in to pay all the bills.
By bills I mean programs like Social Security, Medicare, Medicaid and legions of others, and departments from agriculture to defense.
The one bill the government absolutely has to pay is interest on all those Treasury notes it has sold.
Somebody has to decide which bills would be paid first. My guess is, that interest is always going to be paid first, because if it’s not, bad things happen.
If the U.S. government defaulted on its interest payments, Social Security, Medicare and Medicaid recipients would be out of luck. Whole federal agencies would close and federal workers couldn’t be paid.
So you know the government is always going to make its interest payments, which right now, stand at $241.4 billion for 2012.
Think of that in terms of NASA at $4 billion, Department of Education at $17 billion, or Department of Transportation at $21 billion.
Interest on the debt amounts to 7 percent of all government spending. The big bills are healthcare, 24 percent; defense, 24 percent; pensions, 23 percent; and welfare, 11 percent.
In 2011, the budget was $3.79 trillion. In other words, the government had $3.79 in bills to pay. But the government only took in $2.45 trillion. That’s a $1.32 trillion deficit. So in terms of being able to pay its bills, government is in big trouble if the debt limit isn’t raised.
Now for the sad part.
The debt ceiling is probably the only thing that even remotely tends to sort of barely hint to politicians that they need to get their act together.
There’s really no other incentive for them to reign it in. Think about it for a moment.
They all want to get re-elected. How can they do that in this hyperpartisan, social-media-soaked, special-interest-influenced world?
If you’re a Republican, you want to cut taxes and give your constituents more money.
If you’re a Democrat, you want to create programs to give your constituents more benefits.
Trouble is, those are mutually exclusive agendas, especially in these troubled economic times.
No matter.
Both sides dig in when any fool can plainly see that we probably need to cut spending and raise taxes to get out of the mess these politicians have created for us.
But my guess is that will never happen because the partisan divide is widening.
Gerrymandering – the redrawing of Congressional districts to the political advantage of one part or the other – has virtually assured which party will win in any given district all across the land.
That means most Congressional elections are won at the primary level. By that I mean whoever wins the Democrat/Republican primary in a Democrat/Republican district will win the election.
The primaries bring out the most ardent party loyalist voters. That means to win at the primary level you need to be ideologically pure.
Voila!
Now you have candidates who must – by virtue of the political system that produced them – be hyperpartisan party loyalists.
Compromise?
Forget it.
Hang on, people. I think the upcoming debt-limit battle – in a presidential election year, to boot – is going to be ugly.
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Of course, none of them has the best interests of the American people in mind when they play. It’s all about political advantage and making the other side look bad.
It’s not about good policy. It’s about good politics. He who plays the best politics wins in their view. And that’s really sad.
The national debt ceiling is a level imposed by Congress on how much debt the U.S. can carry.
This establishes a “statutory debt limit.” That’s the outstanding debt in U.S. Treasury notes (the kind China, German, Japan and myriad other investors buy) old debt, debt held by the Federal Financing Bank and guaranteed debt.
If you want, type “national debt clock” in Google. It’s highly entertaining.
I think when that federal law was written, in the Second Liberty Bond Act of 1917, its proponents never dreamed of debt in the range of $16 trillion, but that’s neither here nor there. It’s the law.
Back then, it allowed the Treasury Department to issue Liberty Bonds so the U.S. could enter World War I. It also gave Congress the ability to control government spending.
As the deficit kept getting bigger and bigger, the government kept bumping against the debt limit.
But federal law also requires Congress to let the government borrow money needed to pay for programs Congress has passed.
So the law at least forces Congress and the president to talk about the issue.
And for a long time, it was just a foregone conclusion. They just raised the debt ceiling after a brief conversation and life went on. The debt ceiling was raised 10 times in the last 10 years, for crying out loud.
But just last year, there was a big fight over the debt ceiling – purely political – and there likely will be one again this year.
Congress finally raised the debt limit in 2011 by passing the Budget Control Act, which raised the debt ceiling but required a committee to figure out ways to reduce spending.
Having very little confidence in Congress’s ability to do that, the U.S. credit rating went from AAA to AA and the stock market lost 6 percent of its value in one day.
Now, if the debt ceiling isn’t raised, the government can’t auction off any more Treasury notes. It has to rely on incoming revenue to fund all its programs. Problem is, the government is running a deficit. There simply isn’t enough money coming in to pay all the bills.
By bills I mean programs like Social Security, Medicare, Medicaid and legions of others, and departments from agriculture to defense.
The one bill the government absolutely has to pay is interest on all those Treasury notes it has sold.
Somebody has to decide which bills would be paid first. My guess is, that interest is always going to be paid first, because if it’s not, bad things happen.
If the U.S. government defaulted on its interest payments, Social Security, Medicare and Medicaid recipients would be out of luck. Whole federal agencies would close and federal workers couldn’t be paid.
So you know the government is always going to make its interest payments, which right now, stand at $241.4 billion for 2012.
Think of that in terms of NASA at $4 billion, Department of Education at $17 billion, or Department of Transportation at $21 billion.
Interest on the debt amounts to 7 percent of all government spending. The big bills are healthcare, 24 percent; defense, 24 percent; pensions, 23 percent; and welfare, 11 percent.
In 2011, the budget was $3.79 trillion. In other words, the government had $3.79 in bills to pay. But the government only took in $2.45 trillion. That’s a $1.32 trillion deficit. So in terms of being able to pay its bills, government is in big trouble if the debt limit isn’t raised.
Now for the sad part.
The debt ceiling is probably the only thing that even remotely tends to sort of barely hint to politicians that they need to get their act together.
There’s really no other incentive for them to reign it in. Think about it for a moment.
They all want to get re-elected. How can they do that in this hyperpartisan, social-media-soaked, special-interest-influenced world?
If you’re a Republican, you want to cut taxes and give your constituents more money.
If you’re a Democrat, you want to create programs to give your constituents more benefits.
Trouble is, those are mutually exclusive agendas, especially in these troubled economic times.
No matter.
Both sides dig in when any fool can plainly see that we probably need to cut spending and raise taxes to get out of the mess these politicians have created for us.
But my guess is that will never happen because the partisan divide is widening.
Gerrymandering – the redrawing of Congressional districts to the political advantage of one part or the other – has virtually assured which party will win in any given district all across the land.
That means most Congressional elections are won at the primary level. By that I mean whoever wins the Democrat/Republican primary in a Democrat/Republican district will win the election.
The primaries bring out the most ardent party loyalist voters. That means to win at the primary level you need to be ideologically pure.
Voila!
Now you have candidates who must – by virtue of the political system that produced them – be hyperpartisan party loyalists.
Compromise?
Forget it.
Hang on, people. I think the upcoming debt-limit battle – in a presidential election year, to boot – is going to be ugly.
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