Thursday, July 21, 2011

It's not the debt ceiling - it's the debt

S&P says 50-50 chance of U.S. downgrade
Standard & Poor's reiterated on Thursday it sees a real risk that future U.S. government deficits may meaningfully miss discussed targets and that there is a 50-50 chance the U.S. AAA credit rating could be cut within three months, perhaps as soon as August.

The deficit reduction debate is coming up against an Aug. 2 deadline when the $14.3 trillion limit on America's borrowing capacity is exhausted, putting in jeopardy payments on U.S. Treasury debt as well as paychecks for federal employees and soldiers.

If an agreement is reached to raise the debt ceiling but nothing meaningful is done in terms of deficit reduction, the U.S. would likely have its rating cut to the AA category, S&P said.
I've said this (any many others have as well) in various ways and in various forums, but here it is, in as plain a way as I can put it:
The problem is not the debt ceiling. The problem is the debt.
Raising the ceiling without cutting spending does not make the problems go away. It doesn't even make the problems better. We'd be far, far better off cutting current spending to stay under the ceiling than raising the ceiling without significant cuts. We, as a country, can not afford to maintain the spending rates we currently have. The longer we wait, the more we spend in the meantime, the more intractable the problems get.
The problem is not the debt ceiling. The problem is the debt.
The President and the "Gang of Six" can throw all of the plans on the table that they want, but if they don't result in real, visible, measurable changes in the debt trajectory, they don't make any of the problems any better. (To the best of my knowledge, there's nothing in the public record to suggest that the President has offered anything that would contribute to a solution.) Until the problem starts getting better, it continues to get worse. There are no plans on the table that make it better, at least none that the President hasn't sworn to veto.

But the key thing to remember here, as he continues to threaten the elderly with delayed or withheld Social Security checks, as he continues to threaten the capital markets with unpaid bonds1 (that the country will have money to pay), is that the reason that the debt ceiling is a problem at all is because of the debt.
The problem is not the debt ceiling. The problem is the debt.



1 - It is horrifying to contemplate, in this context, the contempt and disregard that this administration showed for secured creditors in elevating the auto-workers above them in the bankruptcy proceedings at GM...

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