Here We Go Again - the Debt Ceiling Follies

The Republicans are gearing up for another go at the social safety net as a bargaining chip in raising the debt ceiling.  Of all the phony crises generated by this gang, this one appears to have the broadest appeal outside the wing nut faction.  People's memories being short and the number of safe Republican House seats being what they are, there's plenty of time for them to shut down the government before the mid-term elections.  Whether they have the stomach for another shutdown is anyone's guess.  Obama has said he will not negotiate policies based on the debt ceiling and so the stage is set.  Here for your enjoyment is everything you really need to know about the national debt. 


The US has been in debt every year since its founding with the one exception of 1835.  Public debt has been the norm, not only in the US but in nearly all countries, for the past 200 years.  The sad fact is that much of the public debt has been undertaken to finance wars. 


US public debt as a percentage of GDP (72.5%) is about in the middle of the pack - the world average is 64%.  Of the 10 largest economies, the developing BRIC nations (Brazil, Russia, India, and China) have a lower ratio.  The remaining nations in the top 10 - i.e., the large advanced industrial economies of Japan, Germany, Italy, France, and the UK- have a higher percentage of debt to GDP than does the US. 


The national debt, currently in the range of $17 trillion is not the same as the budget deficit.  The budget deficit is the difference between annual expenditures and revenues.  The national debt is the accumulation of the annual deficits plus bonds issued in support of wars.  The deficit for 2014, $514 billion, will be the smallest since 2007 - i.e., since before the economic collapse of the Great Recession. 


Basically, if Congress does not raise the debt ceiling, the US will either default on its debt (shorting its creditors) or not spend money on previously budgeted programs (stiffing its citizens). 


Until recently, raising the debt ceiling was a routine procedure.  It's been done about 90 times since 1917, when the debt ceiling was first defined.  From 1979 until Republicans gained control of House of Representatives in the 1994 elections, the ceiling was automatically raised by a parliamentary rule (the "Gephardt rule") whenever a budget was passed.


The most notorious debt ceiling debacle was in 2011, after Republicans took control of the House of Representatives.  The Dow Jones Industrial Average fell 2000 points over the July-August time frame after US credit rating was downgraded for the first time in its history.  (Hmm, are we seeing a trend here?)


The debt ceiling "crisis" exists because Republicans have chosen to make it so.  It can be solved immediately by the single step of going back to the Gephardt rule - automatically raising the debt ceiling when a budget is passed. 


If Congress can't bring itself to pass this common sense solution and must look other places to get our deficit and debt under control, here are a few suggestions.

• Increase the maximum earned income limit on Social Security. 
• Introduce another surcharge on household incomes over one million dollars but make it applicable to dividends and capital gains as well as earned income.
• Reduce wasteful and exorbitant military spending to pre-Cold War levels. In 2013 dollars this would be about 100 billion dollars - a savings of 500 billion dollars annually.  This step alone would just about wipe out our current deficit.

Useful links


America's Staggering Defense Budget [Washington Post, January 7, 2013 blog]


List of Countries by Public Debt [Wikipedia]