Debt Watch | Citizens Against Government Waste

Debt Watch

The WasteWatcher

Most mundane procedural actions by Congress are not worthy of a headline or even a WasteWatcher article, but the raising of the debt ceiling will surely cause taxpayers to howl.

The debt limit was first introduced by the Second Liberty Bond Act of 1917, which enabled the government to issue long-term Liberty Bonds to keep interest costs low.  In 1939, Congress finally introduced the general limit on debt and eliminated the individual limits on different bonds.  Two years later, Congress started to increase the debt limit to finance new spending and this continued every year until 1945. 

The problem is getting worse.  Between 1940 and 2006 the debt ceiling was raised 1.3 times every year, and between 2006 and 2009 the debt limit has been raised twice a year.

In a letter to the Senate in August, Treasury Secretary Tim Geithner warned that the $12.1 trillion debt ceiling could be hit as early as mid-October.  If the debt ceiling is not raised to $13.029 trillion for fiscal year 2010, the government will not be able to continue to fund operations and make its debt payments, a catastrophic occurrence.

The House of Representatives raised the limit to $13 trillion in April as part of the fiscal year 2010 budget resolution.  According to The Hill, “Democratic leaders used a maneuver known as the ‘Gephardt rule,’ named after former House Democratic Leader Dick Gephardt (Mo.), to avoid taking a roll call vote on the debt limit increase.”

Senate rules require a vote in order to raise the debt ceiling.  Conventional wisdom dictates that the Senate will pass this either as part of a larger bill or late on a Friday night when nobody is looking.

The question is not whether or not the ceiling will be raised, it is how much and when?  The “when” question is important for the political fortunes of the party in power, which doesn’t want to remind taxpayers about the exploding national debt immediately before an election.  That is why, according to a September 12, 2009 article in the Wall Street Journal, “with the U.S. borrowing about $30 billion a week, some economists say the Treasury will need an increase of as much as $1.5 trillion if it wants to avoid another request before the 2010 midterm elections.  The U.S. could default on its debt if Congress doesn’t raise the debt ceiling….”

This is the first year in which the deficit has passed the $1 trillion mark because of already approved spending such as the bank and automobile company bailouts and the American Reinvestment and Recovery Act (stimulus bill).   Raising the ceiling by $900 billion to $13 trillion may not be enough because the impending healthcare bill, with a cost that could eclipse $800 billion, would require an additional increase.

Instead of raising the ceiling by such a large amount, Congress should cut spending.  Continuing to allow the government to print more money and go further into debt could expose the country to more serious financial consequences, such as bankruptcy or hyperinflation.

David Williams

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