Raising the Debt Ceiling — A Fool's Journey

Tuesday, 08 Oct 2013 09:03 AM

By Peter Morici Twitter @pmorici1

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The federal government will default on its debt only if President Obama wills it. House Republicans, by refusing to raise the debt ceiling until they obtain budget reforms, may be the country's last hope to avoid financial ruin.

Each month, the government collects $250 billion in taxes and pays $23 billion in interest to public bondholders. If Washington can't borrow more money, it will not be able to spend all that it has planned. It comes down to who gets paid and what doesn't get bought.

Editor's Note: 75% of Seniors Make This $152,000 Social Security Mistake

Americans are not deadbeats. Families without enough money to do all they like pay their mortgages and credit cards, and cut back elsewhere.

So must Washington.

Treasury Secretary Jack Lew says he can't set those priorities. In an emergency, as the government's chief financial officer, that is exactly what he is paid to do.

However, cutting back entails postponing, for example, the expansion of Medicaid as required by the Affordable Care Act (ACA) and grants to universities for faculty summer money.

By not raising the debt ceiling, congress is not reneging on bills already racked up. The existing debt, which can be serviced by paying the interest due, covers those obligations.

Raising the debt ceiling simply permits Congress to run up new bills. And abandoning that debt ceiling discipline, as many in the financial community suggest letting Congress spend as it pleases, would be the peak of folly.

Studies by the Congressional Budget Office and Medicare and Medicaid actuaries plainly indicate if the government continues taxing, spending and borrowing, as current law requires, then all Americans, not just the wealthy, will be paying greater shares of their income on taxes and private health insurance. Federal spending on Social Security and healthcare will skyrocket and squeeze out spending on roads, education and other worthwhile activities.

Over the next several decades, budget deficits and the national debt will jump to unbearable levels.

The interest rates investors demand to purchase government bonds and resulting debt service will cripple Washington, much as those did Greece and Italy in the years before their crises.

Economic growth will slow to a snail's pace and working Americans will become much poorer. In the end, Uncle Sam will default on its bonds and pension obligations to the elderly, and many Americans will again be deprived of decent healthcare.

The president says lift the debt ceiling and he will negotiate on those issues. However, any solution requires raising the Social Security retirement age from 66 to about 70 to accommodate Americans living longer and finally doing something about the prices of healthcare services and drugs.

Yet, Obama has repeatedly stated he will not raise the Social Security and Medicare eligibility ages. During the fiscal cliff talks, he refused to consider with House Speaker John Boehner, R-Ohio, entitlement reforms to address escalating healthcare costs.

In the United States, the average cost of an angiogram is $914, but in Canada the price is $35. The price tag for an MRI in the United States is $1,121, but only $319 in Holland. And the painful list goes on.

Neither Democrats nor Republicans are willing to address those discrepancies in the implementation of the ACA or proposals to replace it.

Only taking the money away will force politicians to deal with the painful truth: the price of healthcare, not access, is the real problem and America's healthcare system is likely the most inefficient and bureaucratically corrupt on the planet.

When a board of directors considers whether to permit a CEO to take on more debt, it asks whether the business will spend the money wisely.

Editor's Note: 75% of Seniors Make This $152,000 Social Security Mistake

Americans would be nuts to want Congress to lift the debt ceiling so that the Washington establishment can continue profligate policies that will eventually bankrupt the nation.

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