The debate over whether to raise the $14.3 trillion debt ceiling rages on as the Aug. 2 deadline approaches, with no deal in site.
That's making a lot of people nervous, but they shouldn't be, says Christopher Whalen, co-founder of Institutional Risk Analytics.
In fact, the whole debate will force fiscal austerity in ways the country seriously needs.
Furthermore, the government can still finance itself after breaking the deadline by relying on cash and other assets stashed away as well as through measures such as having the FDIC sell bonds.
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"I think people who wring their hands about this debt ceiling debate and the lack of consensus and the lack of agreement are missing the point. We're not supposed to agree in the United States. The whole concept of checks and balances is that we fight and then we vote," Whalen tells Newsmax .TV.
"And if we don't have a majority behind a given proposal, then we have to discuss it some more," says Whalen, author of the recent book “Inflated: How Money and Debt Built the American Dream.”
Ratings agencies have said they may strip the country of its AAA rating if it defaults on its obligations.
Some say the country shouldn't have a debt ceiling at all, especially in light of how administration after administration has raised it in the past be they Republicans or Democrats.
Scrapping the debt ceiling, proponents say, would spare the country of the conflict.
That's a bad idea, Whalen says, adding it's not very capitalist either.
"That's the neo-Keynesian, New Deal or Socialist argument. We want to reject that," Whalen says.
"The whole point of our Democracy is checks and balances. And the one check on the executive and implicitly on the Central Bank's ability to use inflation to fuel fiscal excesses is to have the Congress say 'yes' or 'no' about the issuance of debt."
Some in Congress want a balanced-budget amendment passed in exchange for lifting the debt ceiling.
Even if they get it, there are ways around it.
"There's going to be a lot of caveats in there. You are going to have exemptions in time of war and emergency, and as we all know, everything has been an emergency for the last 20 years--housing and everything else," Whalen says.
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"It's hard in a Democracy to have a draconian rule that is impossible to evade because a Congress can always legislate it out of existence."
Washington politicians, meanwhile, remain worried over the debt ceiling, especially over downgrades from ratings agencies such as Moody's, Standard and Poor's or Fitch Ratings.
A downgrade would make President Barack Obama the first U.S. president in history to see the country's ratings slip from AAA.
“For the first time in history, our country’s triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet,” Obama told the country recently, according to Politico.com.
“Interest rates would skyrocket on credit cards, on mortgages and on car loans, which amounts to a huge tax hike on the American people. We would risk sparking a deep economic crisis — this one caused almost entirely by Washington.”
Some Republicans believe the fear of being downgraded is fueling needless panicking.
“The reality is these rating agencies have no idea how to rate a $17 trillion economy like the United States,” Rep. Darrell Issa, R-Calif., tells radio host Don Imus, as reported by Politico.com.
“They have no idea how to rate the debt worthiness of a $14 trillion debt like the United States.”
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