Today, President Obama threw out his latest volleys on the debt ceiling, stating in part:
"The debt ceiling is not a question of authorizing more spending. Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to." Source: Washington Post.
The Treasury Department has issued a policy document echoing similar sentiment: Debt Limit Myth v. Fact, stating in part:
"The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations . . . Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history."
What is this debt limit crisis?
Not being one to accept presumptions of disaster at face value, I have looked into the function of the debt ceiling to determine the legitimacy of the above sweeping claims. Below are my results:
· Having found no indication otherwise I accept that raising the debt ceiling does not directly authorize more spending.
· Paying already incurred debts appears reasonable, the devil is in the details of the definition of "already incurred."
· Raising the debt ceiling not only allows the payment of obligations already incurred, but also allows the payment of obligations already approved by Congress and the President, but not yet spent ["ongoing obligations"]. For example, if the debt ceiling is sufficiently raised then the executive branch could effectively pay for obligations in February, March, April, May, June, etc. of 2013. The Debt Limit: History and Recent Increases p. 4.
· Not raising the debt ceiling does not cause an automatic default on the nation's debts. The Treasury Department has about $42 billion in its bank account from which it continues funding ongoing obligations. Daily Treasury Statement.
· In order to illustrate current spending, the numbers from November 2012 are telling. The federal government spends approximately $11 billion dollars per day, while bringing in an approximately $5 billion per day, resulting in a daily deficit of about $6 billion. "How Much does the Government Spend Every Day?"
· The current debt subject to the limit is $16.393975 trillion, the current debt limit is $16.394 trillion.
Based on the foregoing:
The crisis time for raising the debt limit is now.
Based on the reports form the treasury the debt limit has been maxed out. With $42 billion in funds, and a $6 billion dollar per day deficit, we have about one week until ongoing obligations begin to go unpaid. Nonetheless, there appears to be a jump in the debt subject to limit as of late December as reflected in this chart:
This has the makings of a manufactured crisis.
Not all ongoing obligations will remain unpaid
As the treasury will continue to bring in revenue, and pay some of its obligations, it is not that every recipient of the government will go unpaid. Instead, the Treasury will have to decide which recipients to pay and which to delay payment until some later deal is reached on the debt limit.
The debt ceiling was created for the express purpose of reigning in government spending
The debt limit also provides Congress with the strings to control the federal purse, allowing Congress to assert its constitutional prerogatives to control spending. The debt limit also imposes a form of fiscal accountability that compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues. The Debt Limit: History and Recent Increases p. 6.
The debt ceiling was not created as a formality. The debt ceiling instead was the result of a compromise during World War I to finance our entry into the war. Congress retained power over setting the debt limit as part of its assertion over its constitutional powers of the purse, of taxation, and the initiation of war. The Debt Limit: History and Recent Increases p. 7. In fact, our current President, while a legislator (in additional to many current Senate Democrats), thought controlling the debt limit was an important tool to curtail executive power.
The ultimate result:
President Obama does not actually believe the fear mongering about default coming from our Treasury Department.
More importantly, President Obama actually meant to say in today's news conference:
"The debt ceiling is not a question of authorizing more spending [on already incurred obligations]. Raising the debt ceiling does not authorize more spending [on already incurred obligations]. It simply allows the country to pay for spending that Congress has already committed to [with the understanding that spending cuts would be forthcoming and the power to rein in spending with the debt limit would remain a tool available to Congress]."
Congress needs to stand their ground and hold out for the cuts promised in August 2011.