Barack's Borrowing Limit Boondoggle

The last thing we need is a higher debt limit.

As a fresh flood of Tea Party Republicans crashes into Washington to rip the gavel of speakership from Nancy Pelosi's cold, botoxed hand, the eyes of Americans may be on Obamacare repeal or some other pet shibboleth, but those of the elites are firmly fixed on one topic: the National Debt Limit.

Which currently stands at the unimaginably-vast $14.3 Trillion, but apparently that is not enough; the Treasury projects that we'll crash through the limit in the next couple of months.

Naturally, the Obama administration is emanating fear and dismay, as Reuters reports:

White House economic adviser Austan Goolsbee accused Republicans of "playing chicken" with the nation's financial credibility.

"This is not a game. You know, the debt ceiling ... is not something to toy with," Goolsbee told the ABC News program "This Week." "If we hit the debt ceiling, that's ... essentially defaulting on our obligations, which is totally unprecedented in American history."

"The impact on the economy would be catastrophic. I mean, that would be a worse financial economic crisis than anything we saw in 2008."

He's wrong.

Just one more, honest!

Putting Away the Credit Cards

First, we need to understand what the national debt limit actually is.  It is a law passed by Congress, stating the maximum amount of money that the Federal government is allowed to owe at any one time.

The debt limit has nothing directly to do with the actual national debt that's famously displayed on the National Debt Clock, except that the debt is not legally permitted to go over the limit.

The total national debt, like your personal debt, is driven by how much you spend over what you make.  When you make more then you spend, your debts decrease; when you spend more than you make, your debts increase.

For ordinary people, there is a natural limit to how much debt you can run up: eventually, the banks won't lend you any more money.  That's come close to happening to several European countries, but while the Chinese have made threatening noises about cutting us off, that isn't terribly likely or imminent so long as they need us to buy their manufactured products.

So the debt limit is a bit like your credit-card limit.  If you've run your credit cards up close to the max, you have the option of calling the company and asking for a limit increase.  In America's case, we're pretty sure we'd get one.

The question is, do we want to?  If your credit cards are maxed out, is a higher limit really what you need?

The Obama administration says, yes, that's exactly what we need.  Under Keynesian economic theory, the only way out of a recession is for the government to spend, spend, spend, no matter on what and no matter where the money comes from.  We are manifestly not out of the recession; ergo, we need to spend more, and that means raising the debt limit.

The trouble is, we've already tried that.  Obama's "porculus" and succeeding bills spent more than has ever been attempted in the entire history of the world - and accomplished exactly nothing.  Obama's own economists said unemployment would peak at 9% without the "Stimulus and Recovery Act;" instead, with the Act, unemployment has been hovering around 10% for many months now with no sign of improvement in sight.

Instead, in the last election Republicans made the case that what government needs to do is stop spending money, and, ideally, lower taxes so Americans have more money to spend.  They were rewarded with a House majority.

Yet Obama says we need more debt.  What's more, there's the threat that not willingly taking on more debt will somehow default on our obligations.  What can he mean?

Government Shutdown?  Only By Choice

When discussing budget conflicts, the mainstream media loves to remind us of the 1994 government shutdown, when Newt Gingrich's Republicans refused to pass either a budget or any financial authorization, and large chunks of the government "shut down" for a while until the impasse was resolved.  That, they imply, is what failing to raise the debt limit would cause.

Not so!  Refusing to authorize spending at all triggers a shutdown, but that's not what's going on here - at least, not yet.  A continuing resolution was passed, and it's legal for the executive branch to keep spending.

The trouble is that without raising the debt limit, the Obama administration can't keep spending the same amount as they've been - because that much money isn't coming in the door and it's illegal to borrow any more.

The difference is vast - Obama's deficit is about half the total spending, or put another way, he's spending about twice what he's making.  This can't go on forever.

But not letting borrow any more does not mean that he has nothing to spend.  He does!  He still has tax revenues coming in, and the authority to spend them.

Thus, there is absolutely no need for a full government shutdown, or for spending to stop.  Only for half of it to - which is what we wanted all along.

The worrying question is, which half?

The Library and Park Gambit

Every now and then, voters in a given town get fed up with their property taxes and refuse to authorize increases.  Sometimes they vote down the town budget and demand that spending stay the same as last year.

What's the first thing that happens?  The parks stop getting mowed, and the library goes to short hours.  If the cuts are really harsh, firemen and police get laid off.  In other words, the services which are visible and which voters care about get cut.

What never happens?  The bureaucrats, administrators, inspectors, and similar timeservers and nags never get laid off or their hours cut back.  Those are precisely the people that the voters want to get rid of - but, because of their intrusive control over people's lives and availability for political pressure, these wastrels are never the ones that actually do get laid off.

Only in the rare event of a determined slash-and-burn chief executive do the vast masses of government bloat ever get shaved.  Gov. Chris Christie in New Jersey has declared war on the teachers unions; other local mayors are trying to tame theirs.  It's a battle royal, and the ultimate victor remains to be seen.

In President Barack Obama, suffice to say we do not have a Chris Christie.  We know he will never, never sacrifice the vast edifice of liberal statist bureaucracy and control-freaks built up over decades.

Instead, just like the "give 'em pain" city council that sticks it to the ungrateful voters who refused to fork over more tax dollars, Mr. Obama can be expected to cut spending where the pain will be greatest.

The poor, of course, so the media can point to shivering bums on the street and blame the Republican Congress.

The military, for sure, so TV can show flag-draped coffins and blame traitorous Republicans for refusing to borrow the money for proper armor.

Mr. Obama may even steal from all Americans by sitting on tax refund checks, as New York state did last year.

He might even stop paying on our existing debt so as to, yes, trigger the default his minons are warning of.  Unlike hungry bums, this would actually do serious damage to America's reputation and economy; the only question would be, can the media persuade Americans to blame the resulting damage on Republicans or Bush?

Ready to Take Our Medicine?

The Democrat objective is to make Americans scream and howl, demanding that the debt limit be raised and spending resume.  That has worked well for a long, long time; no major entitlement program has ever been eliminated regardless of its harmful effects on the budget.

Have things changed?  Never before have ordinary, clean-cut, middle-class Americans come out in their millions to protest against the government as the Tea Parties have done.  Never before has a small-government movement managed to dethrone sitting politicians in their own primaries, and even elect some of their own to political office.

If America just wants to get back to big-government business-as-usual, Obama's gamble will pay off.  He'll cause a lot of pain with his cuts, the worse the better; the media will blame the chaos on Republicans; the "Stupid Party" will knuckle under; and we'll just go deeper in hock until the Chinese really do run out of money to loan us.

Maybe, just maybe, though, Americans have learned that you cannot spend your way to prosperity, and wealth doesn't come from a credit card.  In that case, they'll understand that the pain is being cause intentionally by their own President, and their righteous fury at feckless tyranny will only grow more intense.

Not that long ago, a freshman Senator presented with a bill to raise the debt ceiling responded with an angry critique:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

That Senator?  Barack Hussein Obama of Illinois.  He was right then, in 2006, and what he said is just as true today even though he doesn't believe it anymore.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments

I would quibble with two points: First, with the idea that we are manifestly not out of the recession. A recession is, after all, something with a definition, that being two or more consecutive quarters of economic retraction. That part is indeed over, and we have followed it instead with a couple of years of essentially no growth at all and no future growth in sight. We are actually in a *depression*, and thus a double-dip - more economic contraction, and another crash - remains likely. (I'd like to call Rush Limbaugh to straighten this out with him but I cannot stay on hold long enough.)

Second, in the last paragraph: "He was right then, in 2006, and what he said is just as true today even though he doesn't believe it anymore."
He didn't believe it then, either. One must always determine success or failure based on objectives. If his objective was to actually restore prosperity and robust growth, then he and the 111th Congress have manifestly, deliberately, and catastrophically failed. If the objective was to destroy or nationalize all he could whilst creating dependency, despair, and destruction, then the success rate would be quite the opposite.

Five years ago he was trash-talking the sitting president as the objective was to thrust himself into the public eye and bruise George Bush to the greatest extent possible. Now, he follows the second objective I stated above.

January 6, 2011 10:21 AM

To be fair to Obama it would be impossible to cut spending in half without major cuts in non-wasteful spending. As such it is time for American's to show that they are able and willing to pay for the mistakes of themselves and their forefathers to prevent that weight from being placed upon their children.

The truth of the matter is that we can not stop paying our debts. Everything else is negotiable. The hangover will be bad, but if we just keep drinking the cool-aid for too long there will not be a country left to feel the hangover.

Does America have the strength to grow up or will is do as Rome did. Only time will tell. Either way we are in for very hard times. Better now than later.

January 6, 2011 7:30 PM
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