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The Insane Use of the Word “Sanity” in the Debt Ceiling Debate

The Debt Ceiling was instituted under President Woodrow Wilson in relation to war spending.

I consider myself, for the most part a fiscal conservative – nothing annoys me more than frivolous government spending (O.K., that is not exactly true – the Twilight movies annoy me more).

Having said that, I do believe there are times when government must spend in order to prevent an economic collapse – we are in such times – what is referred to as a balance sheet recession.

I still don’t like frivolous spending or tax cuts that are just corporate welfare, but the reality is you can’t pass a spending bill on the things you need without adding in frivolous spending perks for the congressional people who lack ethics.

What really bothers me in today’s ongoing debate about our nation’s spending is the complete lack of an actual debate.  The use of the term “fiscal sanity” by any member of congress is simply Orwellian, yet here we are.

What has gotten me up in arms this morning?  Reports that the GOP is considering not raising the debt ceiling and/or shutting down the government:

GOP officials said more than half of their members are prepared to allow default unless Obama agrees to dramatic cuts he has repeatedly said he opposes. Many more members, including some party leaders, are prepared to shut down the government to make their point. House Speaker John Boehner “may need a shutdown just to get it out of their system,” said a top GOP leadership adviser. “We might need to do that for member-management purposes — so they have an endgame and can show their constituents they’re fighting.”

Read more: http://www.politico.com/story/2013/01/behind-the-curtain-house-gop-eyes-default-shutdown-86116.html#ixzz2I3gj6800

If that weren’t bad enough, Speaker Boehner also had the following to say:

“Congress is never going to give up our ability to control the purse. And the fact is that the debt limit ought to be used to bring fiscal sanity to Washington, D.C.,”

House Majority Leader John Boehner

Finally, a Republican Senator got into the act of saying economically frivolous things:

“The coming deadlines will be the next flashpoints in our ongoing fight to bring fiscal sanity to Washington. It may be necessary to partially shut down the government in order to secure the long-term fiscal well being of our country, rather than plod along the path of Greece, Italy and Spain.”

Senator John Cornyn

What exactly are the consequences of not raising the debt ceiling?

Alan Blinder, Professor of Economics and Public Affairs at Princeton University (and former Federal Reserve Vice Chairman) recently penned an article for the Wall Street Journal, The Debt Ceiling Is Scarier Than the Fiscal Cliff in which he said:

Since the federal government has never crashed into the debt ceiling before, nobody knows exactly what will happen if it does. But whatever does happen, it won’t be pretty.

At current rates of spending and taxation, federal receipts cover less than 74% of federal outlays. So if the government hits the debt ceiling at full speed, total outlays—which includes everything from Social Security benefits to soldiers’ pay to interest on the national debt—will have to be trimmed by more than 26% immediately. That amounts to more than 6% of GDP, far more than the fiscal cliff we just avoided.

How in the world could the government cut so much spending so quickly? No one really knows. That is why you hear about dark scenarios wherein the U.S. defaults on the national debt, stops paying tax refunds, delays Social Security checks, leaves soldiers unpaid, and so on. Bad things will surely happen, one of which will be a swift descent into recession. Another will almost certainly be a second ratings downgrade and higher borrowing costs for years, maybe decades, to come.

Before I go back to the two statements by the Boehner and Cornyn in order to make a point that is apolitical – I want to point out that Republicans aren’t the only ones to be foolish on this issue.

As Byron York points out (Once A Critic of Deficits):

“…on March 16, 2006, Obama returned to the same theme — “You don’t have to be a deficit hawk …” — in a sobering floor speech as the Senate considered whether to raise the nation’s debt ceiling from $8.184 trillion to $8.965 trillion. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” Obama said. “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.”

Obama ended up voting against the Debt Ceiling increase…oops.

Of course, he isn’t the only Democrat, as Byron York in another piece points out (“Actually, Democrats Have Threatened To Hold The Debt Limit Hostage“):

“Obama, Vice President Biden, Democratic Senate leadership Harry Reid, Dick Durbin, Charles Schumer, and Patty Murray — they all voted against it. (the debt ceiling increase)”

“The problem with that argument is that Democrats have indeed, in recent memory, while in the majority, threatened to stop a debt limit increase.  It happened in 2009, when Democrats controlled the Senate and a group of influential lawmakers, led by Sen. Dianne Feinstein,..”

“I will not vote for raising the debt limit without a vehicle to handle this,” Feinstein said at a November 2009 Senate Budget Committee hearing.  “This is our moment.”

Democratic Sen. Evan Bayh agreed.  “There are rare moments of leverage in this institution where you can implement fundamental change,” he said.  “This is one of those moments, we must seize it.” Democratic Sen. Kent Conrad also agreed.  “You rarely do have the leverage to make a fundamental change — a fundamental break from the current trend,” he said.  Democratic Sen. Mark Warner also favored the plan, as did Independent-Democrat Joseph Lieberman.

Perhaps you’ll now be assuaged that I’m not simply picking on the Republican party, were the Democratic party in the minority…they’d be doing the same stupid thing which would illicit the same response from me.

Back to Boehner and Cornyn.

When Boehner says “Congress is never going to give up our ability to control the purse. And the fact is that the debt limit ought to be used to bring fiscal sanity to Washington, D.C.” is he really saying something intelligent?  No, in fact it’s actually an “insane” statement (insane defined as “In a state of mind that prevents normal perception, behavior, or social interaction”).

Granted, to be in congress one must be a little insane, but  Boehner is implying that by taking a stand on the Debt Ceiling he will in essence bring some sort of fiscal restraint to our spending – he is also implying that it is the Debt Ceiling that gives congress the power to spend – he is wrong on both accounts.

First, defaulting on our debt or shutting down the government will actually cost more in the long term and likely plunge the U.S. into a deeper recession (can someone say 1937), in which the government will end up spending MORE money than they would have had they just raised the Debt Ceiling.

Second, all spending originates in the House and Boehner is the leader – meaning he has complete control of what spending comes to the floor to be voted on.  If Boehner wanted to immediately start being “fiscally responsible” he could do so by exercising his Majority power.  The Debt Ceiling does not authorize spending, it authorizes the selling of additional debt to pay for the spending already approved by congress (re-read that).

Congress already voted to spend the money….now they are saying “well, yeah, we voted to spend it, but now we are not going to fund it”….does that sound “sane” to you?

Back to Cornyn, his quote again:

“The coming deadlines will be the next flashpoints in our ongoing fight to bring fiscal sanity to Washington. It may be necessary to partially shut down the government in order to secure the long-term fiscal well being of our country, rather than plod along the path of Greece, Italy and Spain.”

Since when has the GOP been the party of “fiscal sanity” or led any fight against spending (Medicare part D, two wars, Bush tax cuts – not judging, just pointing out the hypocrisy)?

Let me get this straight – in order to not end up like Greece, Italy and Spain….we have to do something that none of those countries has yet done…shutdown the government.  

Does Cornyn really not know that those countries are “users” of a currency and not “issuers” of a currency, as the United States is?

A Senator who doesn’t understand his own monetary system…at least he’s in the majority on something.

The United States is NOT Greece, Italy or Spain – we are sovereign in our own currency and can fund any and all spending.  This isn’t to say that there are no constraints (I’ve posted many, many articles on this – but goto www.pragcap.com for more information), just that we have different constraints.

The debt ceiling debate is not about controlling spending – it never has been, it’s a partisan parlor trick used to hold a nation hostage – both parties do it and it’s getting old.  No wonder congress has such low ratings (you’ll notice I NEVER capitalize the word “congress”).

Any issue that puts me on the same side of Timothy Geithner and Ben Bernanke spooks me a bit, but in this battle they are both right – the Debt Ceiling should be eliminated.

Scott Dauenhauer, CFP, MSFP, AIF

President

Meridian Wealth Management

Scott@meridianwealth.com

 

 

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