t’s Official: Federal Debt Will Never Be Paid May 16, 2013 By Mark Hendrickson 80 Comments
82  Print This Post A trillion dollars is a LOT of money. Stacking hundred-dollar bills flat on top of each other, a forty-inch stack would be one million, a stack one-and-one-half times as tall as the Empire State Building would be a million, which a stack 631 miles high (from Pittsburgh to the other side of St. Louis) would be a trillion. That’s just one trillion. The national debt is approaching $17 trillion.

That is the official total. However, that figure greatly understates the problem by not counting unfunded liabilities. During the previous two fiscal years, the government added $2.6 trillion to the nominal national debt, but using GAAP (generally accepted accounting principles) the actual tally was over $10 trillion of new debt.

Estimates of total federal indebtedness vary according to the time frame one adopts and various assumptions about the future, but whether the actual figure is nearer $75 trillion of $221 trillion (economist Laurence Kotlikoff’s tally) the true federal debt is multiples of our GNP—an incomprehensibly high figure that can never be paid in full.

Contrary to Democratic protestations, our debt problem is essentially a spending problem. Look at this graph from the Federal Reserve:



The blue line is revenue and the red line is federal spending since the late 1940s. Uncle Sam clearly has not been starved for revenues, but it has proven impossible to keep up with the breakaway explosion in spending.

The crux of the spending problem is in the area of entitlements. Exhibit A: Federal revenues and budget requests (i.e., expenditures) for Fiscal Year 2011. Social Security, Medicare, Medicaid, and interest on the national debt totaled over $2.4 trillion versus that year’s total federal revenue of $2.3 trillion. Conclusion? What we usually think of as “the government”—the various departments, agencies, and bureaus—was financed entirely by borrowed money.

To add insult to injury, despite all the red ink, federal profligacy has continued. Absurd spending programs abound—everything from a $750,970 grant to a successful brewery, to $2 million for ten cupcake shops, to $150 million to study lesbian obesity. Program redundancy is epidemical—82 federal programs to improve the quality of teaching, 47 for jobs training, 160 to support housing, 53 to spur entrepreneurship, at least 116 financial regulatory bodies, and 56 programs to teach financial literacy (obviously not working, since we keep digging ourselves deeper into debt).

How did we get into such a mess? Here are three key reasons:

1. The moral poison in our society that has caused us to find justifications to redistribute property. Americans who would never consider entering a neighbor’s house and taking some of his property think nothing of consuming some of their neighbors’ wealth if the government takes it on their behalf.
2. The progressive ideology which transformed our concept of government from negative to positive law—that is, altering the primary function of government from trying to keep bad things, like violence or theft, from happening to us (negative) to actively trying to do things for us (positive). The problems with this are twofold: first, the government can’t give anything to anybody without first taking it from somebody else; second, once you decide that government should do “A” for Jones (say, help with his food) then why not “”B,” “C,” “D,” etc. (help with housing, medical care, retirement, ad infinitum with no logical stopping point); also, if you help out Jones, why not Schmidt, Gonzalez, Miller, and so on? In other words, progressivism is an ideology for the never-ending expansion of government spending.
3. The perverse incentives of democracy, which impel politicians to gain popularity by conferring benefits while avoiding the negative backlash that results from raising taxes. Eventually, democratic pressures cause politicians to shift the burden of their grandiose spending plans onto those who are in no position to penalize them at the ballot box—Americans who aren’t yet voters, either by being too young or not yet having been born.

To repeat: The massive federal debt never will be paid. One reason is the simple economics of debt: The more debt there is in a society, the more current income is needed to service the debt rather than to produce new wealth. The marginal productivity of debt (that is, the amount of new wealth produced per dollar of new debt added) has been declining in the U.S. for half a century. During the 2008-9 financial crisis, it fell below zero. Whatever the figure is now, we simply aren’t able to get much bang for our additional debt bucks, sort of like a junkie in the advanced stages of addiction.

There is a more ominous reason why the younger generation will find it impossible to honor Uncle Sam’s extravagant promises: Already young people burdened with college debt are delaying marriage and having children. These trends will accelerate when future congresses raise taxes to try to fulfill its entitlement promises. The result will be a population implosion. That will further increase the per-person debt burden, generating a vicious cycle that will culminate in economic cataclysm and political volatility. The unaffordable spending spree of the last generation has created an existential threat to America itself. Without realizing it, we have been voting for a coming implosion of our population and the concomitant destruction of our own society.

The practice of spending today while asking future generations to pay for it was deemed immoral by earlier generations of Americans. Jefferson spoke for the majority when he described federal debt as “swindling futurity” and a mortal threat to liberty. If generations could shift the burden of their debts to future generations, said Jefferson, “then the earth would belong to the dead and not to the living generation.”

Jefferson asserted that no nation “can validly contract more debt than they may pay within their own age, or within the term of 19 years.” By what abstruse calculations he arrived at the term of “19 years,” I have no idea. In the Old Testament of the Bible, the jubilee principle stated, “At the end of every seven years you must declare a cancellation of debts” (Deut. 15:1, NET Bible © 2006). Today, as we drown in debt and the rising generation faces the prospect of being debt slaves, it is clear that we wouldn’t be in such a woeful fiscal hole if we had adhered to the principle articulated by Jefferson and the ancient Hebrews.

So, what can the younger generation do? At some point, they will have no choice but to repudiate the national debt. That may sound radical, but even if they don’t act to repudiate the debt openly, you can bet your bottom Federal Reserve Note that the central bank will repudiate much of our debt via the subterfuge of monetary depreciation.

Our younger generations would be justified in repudiating the debt. The heavy taxes they will be asked to pay for today’s deficit spending are unjust. They amount to taxation without representation. The younger generations are not contractually bound to honor federal debt. There was no quid pro quo—they didn’t receive the benefits of the federal largess that they are expected to pay for. Not only would they be justified in taking such drastic actions, they need to do so in order to have a chance to rescue themselves and the future of America itself from the above-mentioned potentially fatal population implosion.

What form may this repudiation take? At some point, when enough of them recognize the untenable position into which their elders have placed them, the younger generations will need to coalesce around a debt-cancelling political agenda. This agenda would consist of two parts: 1) paying off federal bondholders, foreign and domestic, at X cents on the dollar (perhaps using the immense inventory of real property that Uncle Sam owes in settlement of debts); 2) dismantling the pay-as-you-go format of federal entitlements and replacing them with accounts in each individual’s name (with their contributions making no detours into the federal Treasury)—a policy based on the time-tested principles of private property and voluntary cooperation rather than on compulsory participation in programs predicated on collectivized risk.

The second step is absolutely indispensable for both practical and moral reasons. To wipe out the existing debt, but then continue the bankrupt policies of using government to confer financial privileges and redistribute wealth would simply place their own children into the same abyss of debt from which they themselves had escaped, and to lay claim to the same benefits that liquidation of the national debt would deny to older Americans. Repudiation of the debt without abandoning the corrupt politics of the transfer society would be morally indefensible.

In short, the national debt, as destructive as it is and as badly as we need to eliminate it, is only the symptom. The actual disease is the modern democratic redistributionist state that grants favors, privileges, and benefits to some citizens paid for by others. We will reap the bitter fruits of what we are now sowing.

History rhymes on debt ceiling
By Philip Wallach, - 09/16/13 11:00 AM ET
  
“History doesn’t repeat itself, but it does rhyme,” Mark Twain is supposed to have said.. The sound of our current debt-ceiling fight ought to be recognized as the recurrence of a particularly ugly and useless tone.



Contrary to claims widely circulated in our contemporary debate, attempting to restrain federal spending by threatening not to raise the debt ceiling is nothing new to American politics.  Our 2011 showdown was certainly an exceptionally bruising episode, but Republicans in the 112th Congress were hardly the bold innovators they are sometimes portrayed as. 

As far back as the 1950s, fiscal conservatives in Congress used the necessity of raising the debt ceiling as opportunities for political point-scoring.  Southern Democrat Harry Flood Byrd of Virginia, then the chairman of the Senate Budget Committee, championed the debt ceiling’s discipline against the “reckless” spending of the Eisenhower Administration.  Then, as now, the Treasury engaged in a variety of tricks to work around the ceiling when it was hard against it in 1953, 1957, and 1958. 

Of course, when push came to shove Congress raised the ceiling in each case.

If our political masters and commentariat can be forgiven for neglecting the political tactics of more than a half century ago, it is harder to understand why they have failed to recall more recent jockeying.  Congresses rejected debt ceiling increases during the administrations of Lyndon Johnson, Gerald Ford, Jimmy Carter, Ronald Reagan, and Bill Clinton, in many cases leading to funding disruptions.

The debt ceiling showdown from 1996 presents a rhyme especially suited to our own moment.  Republicans, determined to lower federal spending, said that the Democratic President could only have a higher debt ceiling if he agreed to significant cuts in programs dear to the Democratic base.  When they passed a law that would enact these changes, the President responded with a veto and a demand for a clean debt ceiling increase.

Comparing the pronouncements of then-Treasury Secretary Robert Rubin, President Clinton, and various congressional Republicans to their 2013 counterparts produces an eerie sense of déjà vu—they are often difficult to distinguish.  So, too, are the critical analyses from the press.  Then, as now, there were accusations of blackmail, pseudo-crisis, and political charades, and grave pronouncements about how American government would be irreparably harmed if the president negotiated in exchange for the necessary increase.

As the date when Treasury’s maneuvers would be exhausted approached, Rubin increasingly emphasized the possibility that social security checks would be missed.  Clinton said Republicans should “stop playing politics with America’s good name,” to which they responded with very short-term bills pushing off the day of reckoning for several months and taking steps to ensure that Social Security recipients would not be left in the lurch.  In response to Rubin’s shiftiness about the consequences of reaching various dates, some Republicans called for the Treasury Secretary’s impeachment.

Of course, when push came to shove Congress raised the ceiling.  In this case, Republicans won minimal concessions from the president, but saved face by dubbing the package the “Contract With America Advancement Act” and including in it the line-item veto—a bold proposal on which the president agreed with them entirely.

This ending is hardly the stuff of great poetry, but we should hope (and probably expect) our current showdown to follow a similar course, with the White House’s “no negotiating” position giving way to some minor concessions.

One might argue that the near-absence of this episode from our current debate is heartening: seventeen years from now, in 2030, there’s a good chance that the shenanigans of 2013 won’t seem much worth remembering.

In another way, however, the inability to absorb or retain the lessons of 1996 is quite depressing: rather than institutional learning, we have institutional forgetfulness enabling a recurrence of ugly motifs.  Though a new generation has come onto the political scene, it hardly seems too much to ask our current leaders to remember the lessons of the 104th Congress; John Boehner was the Republican Conference Chairman in the House at the time.  To his credit, then-Speaker Newt Gingrich (R-Ga.) seems to have drawn the right lesson from his experience, advising Republicans that the issue is a “dead loser” for them.

Repeating this dysfunctional process over and over, with the expectation that it will somehow deliver fiscal responsibility and low spending that would otherwise be unattainable, is lunacy.  Legislators should permanently replace the debt ceiling and turn their attention to achieving workable budget compromises through the regular order—which should itself be reformed if necessary.  If they instead insist on treating the debt ceiling as if it were a historical revelation, they have only themselves to blame when it delivers its predictable lack of results.

Wallach is a fellow in Governance Studies at the Brookings Institution and his current research focuses on institutional aspects of fiscal policy and regulation, including financial regulation and climate change policy, as well as the legal aspects of the recent financial crisis.





Read more: http://thehill.com/blogs/congress-blog/economy-a-budget/322231-history-rhymes-on-debt-ceiling#ixzz2f5bekoGb 
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Obamacare, the debt ceiling and GOP insanityBy Jonathan Capehart, Published: September 16 at 6:00 amE-mail the writer


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Speaker John Boehner, center, and House Majority Leader Eric Cantor. (J. Scott Applewhite/Associated Press)


A statistic in the latest Wall Street Journal-NBC News poll drives me nuts. It’s 44 percent. Here’s the question: “Do you think Congress should or should not raise the debt ceiling? If you don’t know enough to have an opinion, please just say so.” The 44 percent who said the nation’s borrowing limit should not be raised should have responded “I don’t know” — because then they’d be telling the truth.

Clearly, what I’m about to tell you cannot be said often enough. Raising the debt ceiling does not stop future spending. And not raising it is not the equivalent of cutting spending. Failure to raise the debt ceiling would turn the United States into a deadbeat. That’s because the money gained from raising it is needed to pay $16.7 trillion in bills racked up by Washington since the beginning of the republic. To do otherwise, to not pay the nation’s bills, would destroy the full faith and credit of the United States and take down the global economy with it.

That the electorate doesn’t understand the complexities of the debt ceiling isn’t surprising. What’s scary is that some members of Congress don’t either. A powerful chunk of the Republican caucus in the House is hell bent on forcing President Obama to defund or delay his health care law. These zealots have now voted an insane 41 times to kill Obamacare.


But that didn’t stop House Majority Leader Eric Cantor (R-Va.) fromproposing to tie raising the debt ceiling to a year-long delay in the implementation of Obamacare, some provisions of which start Jan. 1, including the health care exchanges for which enrollment begins Oct. 1. Cantor scuttled it after a revolt on the right and unified resistance from the left. Cantor and Speaker John Boehner (R-Ohio) know full well they are playing a dangerous game. That they continue to play it is further proof they live in fear of those who neither understand nor care that they don’t understand the implications of what they are doing.

Treasury Secretary Jack Lew informed Boehner last month that the nation would run out of borrowing authority to pay its bills “in the middle of October.” At that time, Lew pointed out, “Treasury would be left to fund the government with only the cash we have on hand on any given day. The cash balance at that time is currently forecasted to be approximately $50 billion.” In the world of federal finances, that’s pocket change.

Now, here’s the scary part. The venerable Bipartisan Policy Center estimates that the Treasury will run out of that $50 billion sometime between Oct. 18 and Nov. 5. That’s the “X date.” If we reach that point, all hell will break loose. The president would be in the politically perilous position of choosing who gets paid on time and who doesn’t.

“It’s time for the president’s party to show the courage to work with us to solve this problem,” Boehner told reporters on Thursday. It is long past time for the speaker to show the courage to stand up to the crazy wing of his own party. Destroying the full faith and credit of the United States while on a fool’s errand to defund Obamacare, the president’s signature legislative achievement, which was upheld by the Supreme Court, is not leadership. It’s surrender.

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