As you're all aware (or should be) by now, the U.S. government has officially hit their $14.294 trillion debt ceiling.
The Treasury Department will stop issuing and reinvesting government securities in some government pension plans, so they will have cash on hand until August 2. Because neither the 'R' nor 'D' party has even the slightest intention to stop any spending whatsoever ... the U.S. government will begin defaulting on payments due at that time.
Hey look, the national debt in pictures!
So, what exactly is the debt ceiling? Put simply, it's an arbitrary limit set by Congress on the amount of money the U.S. government can borrow. The theory behind the debt ceiling, which was enacted during WWI, was that it would limit government borrowing and keep it from growing out of control.
Well, um, that sure didn't happen, did it? Each and every time the debt burden got close to the ceiling, Congress simply voted themselves some wiggle room (since 1962, Congress has voted to raise the ceiling 74 times without a single reduction).
Never wanting to let a good crisis to go to waste, Secretary of the Treasury Timothy "TurboTax" Geithner, is ringing the alarm bells ... CRISIS! CRISIS!
NEW YORK (AP) -- Treasury Secretary Timothy Geithner said Tuesday that if Republicans insist on passage of their budget plan as a condition for approving an increase in the nation's borrowing limit, they will be responsible for the consequences.
Speaking to a New York audience, Geithner said that Republicans would bear responsibility for the first debt default in the nation's history if they insist they will not vote for an increase in the $14.3 billion borrowing limit unless they win approval of a House Republican budget plan.
Your administration has known full-well what the debt limit has been for a very long time. So has CONgress. Both bodies were well aware that raising the limit is discretionary.
You seem to believe that playing the "Armageddon" card is something that can be done with impunity, mostly because your predecessor Hanky-Panky Paulson did so and Bernanke was a party to that.
The fact of the matter is that you seem to think that there's no limit to the nation's credit card. You're wrong.
Yes, I know, the bond market hasn't cared (yet) about all this idiocy. Then again it didn't care over in Greece either, right up until it did. Same with Iceland, Ireland and Portugal.
In fact, it seems to work the same way with most personal bankruptcies too. People think they can push things a bit further, a bit more, they get another credit card, they play the balance-transfer rollover game, they feel the pressure and make some sort of maneuver and then breathe easier.
All this works for a little while, right up until it doesn't in dramatic fashion. And then, once again, we hear "nobody could have seen it coming."
Well Timmy, lots of people saw this coming. I did. Hundreds of others who write on economics did. The only people who "couldn't see it coming" are those who are so arrogant as to think they can play Global Thermonuclear Financial Armageddon whenever their social spending and military adventure bonanza is threatened and who have their heads firmly buried up the bankster's asses.
Let's cut the crap: That's exactly what this has been.
The jackbooted games are completely out of control. The Federal Government has doubled in size since 2000. Have we gotten twice as much service from the government? No, we've gotten serviced instead. And 2000 was a bad time in that regard as the government was dramatically overblown and overbloated at that point in time.
The vampire needs to be put on a severe diet. Yeah, it will scream and holler, like every fat man does when told that he can't gorge at McDonalds any more. But just like the 400lb man that needs two seatbelt extensions if the government doesn't cut this crap out the nation is going to have a heart attack and die.
I say chain the 500lb vampire to its chair and cut its rations by 50%. When it screams, and it will, wear earmuffs and slam the door shut. In short, Geithner, here's my response to your threats: Pound sand.
Well, Timmy, it's time to go cold turkey. You have enough tax revenue to avoid a default. You can pay principal and interest, easily, with the tax money that comes in. You then get to choose - do you send Granny her check (after you blew her contributions over the last 30 years in a puerile display of idiocy) or do you continue to fund the magical oil "reserves" that we "defend" with our $750 billion a year in defense expenditures rather than having a cogent and defensible energy policy?
Choices, choices. They're tough.
But default, in the legal sense, is in fact a choice, as the government's income does exceed it's actual lawfully mandated debt service.
If you're still not sure about the character of our political class, you're about to find out the hard way.
There are certain times in life when a man is faced with overwhelming adversity… times when he has no reason to adhere to society’s norms anymore. It is in these instances that the true quality of his character comes shining through.
One of these situations is when he's broke. Dead, flat broke. Some people, even when staring deep into their own financial abyss, still hold to their moral principles, honor their obligations, and keep their word.
For others, the boundaries of morality are quickly blurred into shades of gray, and things like fraud, thievery, and deception become perfectly legitimate tactics in their minds.
Speaking of broke, faced with what is tantamount to the official insolvency of the United States of America, policymakers have opted to seize funds from the retirement accounts of public sector workers in order to keep the government running.
Wow. America's leaders are willing to engage in cannibalistic thievery in order to continue funding government operations. I wonder what sorts of operations are so important that they are willing to steal from their own people in order to finance? Any ideas?
Apparently, starting a shooting war in Pakistan was at the top of their list.
In the most insulting, disingenuous display of insensitivity and lack of regard following such a momentous financial decision, the US Defense Department decided to send helicopters into western Pakistan in a search for more ghosts. Pakistani military fired on the choppers, and the choppers fired back.
Seems like a good use of confiscated funds, no?
Like I said, there are certain times in life where a person's true nature comes shining through. The government is telling us here that, even when faced with insolvency, it will happily confiscate any source of capital it can, and then continue squandering it all on useless folly.
It really leaves me wondering when people are going to wake up and say to themselves, "Enough is enough!"
Hey, pillage and plunder is what governments do best!
- Treasury to raid pensions to fund government.
- Treasury's Pension Raids in Past Debt Ceiling Fights
- Stealing Your 401(k)
This is the House (of cards) that Uncle Sam Built:
'There is no alternative to raising the debt limit. It has to be raised,' the official, who spoke to the reporters on background, said. 'There’s really no way around it.'
This is simply untrue. The government has more than enough revenue and assets to pay their debt obligations. They just don't want to. Why, how would they keep buying votes and paying off "contributors" if forced to live within their means?
Sure, not raising the debt ceiling could rock the financial markets in the short-run. But it's not going to cause a major financial panic. Unless, that is, investors and traders have been doubling down on their Soma.
Just think. What if your personal household had debt like that?
When Times Are Tough, the Proper Move Is to Cut Spending
Just as most American households are much more careful about their finances now than they were during the housing-bubble years, so too should the government be.
Of course, the federal government has just done the opposite. Even while Presidents Bush and Obama both acknowledged that excessive leverage and overconsumption were problems during the housing bubble years, and even as revenues plunged, this is what happened to spending on their respective watches:
There Are Solid Reasons to Support "Fiscal Austerity"
In fact, as Tom Woods and I have pointed out repeatedly, the Depression of 1920–21 provides a textbook example of the Fed engaging in "tight-money" policies while the federal government engaged in (what are now almost) inconceivably aggressive budget cuts. The result was a short, painful, deflationary depression, followed by a decade of immense prosperity. There are other, more recent examples of debt-ridden governments slowing or even cutting spending in order to eliminate budget deficits and improve economic growth.
Murphy does however, note one way in which the analogy between households and the government is flawed:
Households (generally) earn their income through voluntary transactions in which they provide goods and services to others. In contrast, the government raises the revenue with which to provide its "services" ultimately through the threat of imprisonment.
The federal government is also sitting on a huge stockpile of assets.
Do you remember those banks we were forced to bailout? Well, they wouldn't hesitate to have you sell off your personal assets, now would they?
Murphy also explains that there is a way to maintain the current debt ceiling without cutting spending for the current fiscal year:
In all the hoopla over the debt ceiling, I haven't heard many people raise the point that the government has a huge collection of assets that could be sold to the private sector. This would cushion the blow and make the transition easier. In other words, if people say that $750 billion in spending cuts (between now and September 30) is simply "impossible," then we still don't have to either borrow more or raise taxes. We have another option: namely, the federal government could auction off some of its holdings and fill the gap that way.
For example, the Strategic Petroleum Reserve (as of late November) had almost 727 million barrels of crude oil. At current market prices, this inventory is worth more than $80 billion. The Outer Continental Shelf (OCS) contains an estimated 59 billion barrels of technically recoverable crude oil. Obviously, a barrel of oil in the hand is worth more than one under the sea floor, but clearly the federal government could raise huge sums of money by selling this property to the private sector.
In addition to mineral resources, the federal government has enormous holdings of real estate and office buildings. A Reason report quotes then-OMB Director Peter Orszag estimating in 2010 that the federal government owned 14,000 buildings and structures that were "excess" and 55,000 that were "under- or not-utilized."
Whichever party is out of power (White House, or Congress or both) threatens not to support raising the debt ceiling. Which ever party is in power talks about how irresponsible and dangerous such a move would be.
Yep. Same as it ever was ... kabuki theater starring Big Government Party R and Big Government Party D.
1. As of December 28th, 2010, the U.S. national debt was $13,877,230,355,933.00.
2. If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
3. If the federal government began repaying the national debt at a rate of $10 million dollars a day it would take approximately 3,800 years to pay off the national debt.
4. Today, the U.S. national debt is increasing by roughly $4 billion every single day.
14. When you break down the debt that the U.S. government owes to China alone it comes to over $10,000 for every single American family.
15. If you were alive when Christ was born and you spent $1 million every single day since that point, by 2010 you still would not have spent $1 trillion. Almost unbelievably, the U.S. government will accumulate well over $1 trillion more debt in 2011.
16. If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend $1 trillion.
It's impossible to be this irresponsible, literally. Government is a gang of thieves writ large. Period.