Best Kept Secret of the 2012 Elections

After bitterly contested debates over long-term debt last year, on 8/1/2011 the debt ceiling on the U.S. national debt was raised from $14.34 trillion to $16.39 trillion.

Bad news!…
At current spending levels the new debt ceiling will be reached on October 13th, 2012. That is less than a month before election day.

You won’t hear a peep about it, though, until after the 2012 votes are tallied.

It will be the most closely guarded political secret of the 2012 campaign!

Best Laid Plans…

Politicians had hoped that the new debt ceiling would easily carry them into early next year so the debt issue could be pushed off to the 113th Congress to deal with.

Unfortunately, extending the payroll tax holiday to the end of this year may have did that idea in!

Its impossible to collect less income for Social Security through payroll taxes AND provide all the same services without it adding more to the national debt.

That is a lesson of economics the Congress has yet to learn.

Its gonna be closer than the hair on your chinny chin chin, but it just might not make it to next year. If not, the lame duck Congress will be forced to raise the debt ceiling before the end of this year.

To avoid that the U.S. Treasury will have to be exceptionally creative to get the country through to January without shutdowns and defaults.

An Inconvenient Truth

You only have to look at the hard cold facts to understand why we are in this predicament again at such a politically inconvenient time.

The story starts on May 16th, 2011. That was the day we reached the old debt ceiling limit of $14.34 trillion.

On that day U.S. Treasury Secretary Tim Geithner began “extraordinary measures” that had been outlined in a letter to Congress earlier that month.

Geithner also sent a highly revealing detailed explanation of the effects of a government default to Senator Michael Bennet when requested.

In the Bennet letter it says:

A default would call into question, for the first time, the full faith and credit of the U.S. government. As a result, investors in the United States and around the world would be less likely to lend us money in the future. And those investors who still choose to purchase Treasury securities would demand much higher interest rates.
– Treasury Secretary Tim Geithner, Bennet letter, 5/13/2011

The extraordinary measures remained in effect for 77 strait days.

Every penny from every single pension plan the federal government could legally get its grubby little fingers on was robbed and spent. Federal loans for municipal spending projects were suspended. Interest payments on internal debt were delayed.

Congress Finally Acts

To avoid catastrophe, Congress finally made a deal to raise the debt ceiling literally the day before formal shutdowns and defaults would commence.

But for all the arguing, Congress still did not come up with a long-term debt solution!

As a result, the U.S. federal government credit rating was downgraded for the first time in history.

Fast Forward to Today

A few days ago, on April 2nd, the national debt stood at $15.62 trillion. Since May 16th the national debt has grown $1.28 trillion. There is about $770 billion left before we reach the next debt ceiling.

Since May 16th the national debt has averaged growing $3.98 billion each and every day.

Projected forward, that means we will reach the debt ceiling again on October 13th. That is a little more than six months from now and less than a month before election day.

On or about that day, once again, the U.S. Treasury will shift back into “extraordinary measures” mode to prevent federal government shutdowns and defaults.

This time, though, it will be done unnoticed. Preoccupied with the elections, the mainstream media will blithely ignore it.

Politicians will get down on their knees and pray that no one notices until after the elections. They will quietly sweat it out hoping we make it to January.

The Big, Big Problem

If the Congress does nothing and the “extraordinary measures” last 77 days, like they did last time, then it only takes us to December 29th… not quite into January.

The government will really have to start shutting down for real if that happens.

But it get worse…

On the last business day of December there is always a big jump in the national debt because interest payments on U.S. Treasury securities come due.

Last December 30th the ND jumping a staggering $97 billion that day! $97 billion is more than the entire yearly budgets of the Department of Homeland Security, Department of Energy and the Department of Agriculture COMBINED!

Conclusions

Raising the debt ceiling isn’t even remotely close to the biggest headache facing Congress before the end of this year.

The Bush-era tax cuts are scheduled to expire on December 31st. Every American faces a big tax hike if nothing is done.  The “tax cuts for the rich” and “pay their fair share” mantras will again be raised.

That will spark another epic ideological battle between two incompatible fiscal political positions.

Congress believes, raising the debt ceiling is small potatoes compared to that.

The debt ceiling, however, reminds us and outside investors in U.S. debt that this nation has no long term plan to fix $118 trillion in unfunded liabilities. That, ultimately, is a far greater problem than the Bush-era tax cuts.

Arriving when it does only reminds us of big government’s pandemic incompetence.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Apr 5, 2012, in 2012 Elections, debt ceiling, Debt crisis, economics, Life, National Debt, news, Opinion, Politics, Thoughts. Bookmark the permalink. 6 Comments.

  1. I am not at all surprised by this news. I predicted this months ago. Our revenues have not been meeting forecasts and as you say we have not been funding Social Security at normal levels. I will link your article on Mondays. This has to see the light of day.

  2. If you like this article you’ll like the next one I’m writing even more!

    Timely for our upcoming Tax Day, April 17th, it outlines where all the money goes!

  3. Great article. You have been beating me to the punch lately. I have been working on a post about the debt for some time now. It is a hugely complicated issue and I am having a hard time wrapping my head around it all. The two conclusions that I have been comfortable making is that: 1. this is not a new problem, and 2. this is not a partisan problem (both parties are guilty and equally so.) The interest on the debt, as you mentioned in a previous post, is going to be very burdensome. It is projected to exceed the Department of Defense budget by 2019! That would make interest payments at about 20% of our total budget!

    The most interesting graphs I have produced have been about the growth rate. There is an amazing trend during the post-WW2 Era. From Truman through Johnson the debt increased 29% from Nixon through the present (Obama) the debt has increased 4,383%!

    Looking at the numbers I have become very pessimistic and think that there is a chance (within my lifetime, I am currently 31) that the US may default and or have to go through a debt restructuring.

    I would love to blame this on short sighted politicians but I think that everyone is at least a little guilty.

    • I wrote this article because I finally decided to formally calculate how long it would take until we hit the debt ceiling again when I saw the ND hit $15.6T.

      I knew we’d reach the debt ceiling sooner than politicians had hoped… the numbers confirm it.

      I didn’t produce it myself, but the opening graphic I found makes the problem hit home like a sledgehammer. Its almost a pure logarithmic progression!

      Both of your two points are 100% accurate. It took the combined efforts of Republicans and Democrats to put us into this pickle.

      Sadly, you are also correct that within your lifetime you will experience Greek-like fiscal calamity brought on by out-of-control government spending.

  1. Pingback: The Debt Ceiling Circus and Tax Circus are Coming to D. C. « Conservatives on Fire

  2. Pingback: Taxmageddon: A Sliver of Hope « Inform The Pundits!

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