Larsen Financial is a full-service investment center that has all the products and services of the major brokerages, but without the high costs.

Learn more.

Washington Squanders, We Pay the Price

  • Washington Squanders, We Pay the Price

  • 31 July 2011 by 0 Comments

Washington Squanders, We Pay the Price

By Richard Larsen

Published – Idaho State Journal, 07/31/11

With the proliferation of apocalyptic threats in the mainstream media regarding the August 2 “deadline” for raising the debt limit, it’s important to realize why we have a debt limit. It’s designed to prevent Congress from limitlessly adding to the nation’s credit cards, by providing a device whereby Congress assesses their level of spending and to make necessary adjustments. The debt limit has been raised 78 times by my count, since 1917.

As the Congressional Research Service states, “The debt limit imposes a form of fiscal accountability, which 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.” In other words, it’s a self-imposed statutory spending restriction designed to work like a school-zone speed limit. If the nation had a balanced budget amendment on the books, there would be no need for a debt limit.

Regrettably, it appears that the only branch of government serious about reducing the nations’ debt and deficit spending is the House of Representatives. The Obama administration and the Senate majority seem to think that the only way to address our spending issue is by allowing us to spend more, facilitated by raising the debt limit!

As I’ve pointed out before, the scare tactics being promulgated by the White House and the profligate spendthrifts on The Hill, are nothing short of astounding. Obama threatens that seniors may not get their Social Security checks, while Treasury Secretary Geithner now warns of a financial Armageddon if the debt ceiling is not raised by August 2. The threats are bogus, unless they intentionally choose to make them real. We hit the debt ceiling in mid May, and the sky didn’t fall, the nation didn’t collapse, and the government hasn’t defaulted on its debt and interest payments. They’ve been juggling payments to stay at the ceiling, and they can do so after the artificial deadline as well, unless Obama and Geithner willfully choose to punish the nation for not acquiescing to their demands for more credit.

Donald Boudreaux, a professor of economics at George Mason University explains, “If President Obama follows through on his threat to withhold paying August’s Social Security obligations of $49.2 billion, it will be because he chose not to send them out. But the federal government can pay in full its $49.2 billion in Social Security obligations and its $28.6 billion in Medicare obligations — in addition to paying all of its creditors — and still have $10 billion remaining.”

“The problem is that $10 billion in August isn’t sufficient to pay for all of the other programs. An un-raised debt ceiling, therefore, will oblige Washington politicians to do what they’ve refused to do for generations: make tough choices instead of shifting the costs of today’s spending onto tomorrow’s taxpayers and continuing to spend wildly.”

It’s painfully obvious that as a nation we continually elect leaders who are more concerned about reelection assured by ingratiating themselves to the electorate by the “goodies” they send home, rather than exercising fiscal prudence to assure the perpetuity of the republic.

Let’s break this down in even simpler terms . The nation won’t default on its obligatory interest payments on the national debt on August 2 unless Obama and Treasury Secretary Geithner decide to. Secondly, interest rates are headed upward. Unless Congress gets the Senate and the Obama administration onboard with legitimate reductions in spending, not just reduced rates of growth of spending, the amount of interest the nation spends for new debt issuance will spike 35 to 50 basis points (.35 to .50%) as we face the prospect of a credit downgrade by the major rating agencies, Standard & Poors and Moody’s. They will be following the lead of Egan-Jones ratings analysts who have already downgraded U.S. debt AA+. S&P has indicated a 50/50 probability of downgrade regardless of what happens with the debt ceiling. Explaining their downgrade two weeks ago, Egan-Jones cited “the high level of debt and the difficulty in significantly cutting spending” as the reasons. This will make all interest rates go up, in spite of all the Federal Reserve has done to keep them artificially low.

This will further devalue the dollar, making imports more expensive, including oil, since the dollar is the reserve currency used for global trade.  Inflation will be even more problematic at the consumer and the producer level, as the purchasing strength of the dollar continues to erode.

The only solution is serious debt and deficit reduction, which the White House and the Senate obviously have no intention of addressing. For that to occur it’s obvious that we must replace Obama and all the profligate spenders of both parties with men and women of common sense and a commitment to exercise fiscal prudence. They have created a crisis that we will pay for: now in inflationary prices, and for generations paying for their debt.


About the

More than anything, I want my readers to think. We're told what to think by the education establishment, which is then parroted by politicians from the left, and then reinforced by the mainstream media. Steeped in classical liberalism, my ideological roots are based in the Constitution and our founding documents. Armed with facts, data, and correct principles, today's conservatives can see through the liberal haze and bring clarity to any political discussion.

Related Posts