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.
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!
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.