Myth Busting the Debt Limit

OMG!  If Congress doesn’t raise the debt ceiling, we’re going to default!!!

Well, no.  Hitting the debt limit is not the equivalent of a default, and it’s annoying that the wire services are using the word “default” in their headines about the debt limit.  But hey, they’re just journalists, not economists or business people… or, apparently, anyone who’s ever used a credit card.

So let’s just slog through some of this hysteria:

Myth 1: “If we don’t raise the debt limit, other countries will think we don’t have enough money to pay our bills!”

No.  Being in debt means we don’t have enough money to pay our bills.  We’re already there.  Feel better?

Myth 2: “If we don’t raise the debt ceiling, it will trigger a default!”

No.  A debt ceiling is like the USA’s personally imposed credit limit.  We can raise it and go into even more debt (and we probably will, more’s the pity).  Or we can keep it where it is.  In that case, the government is required by the Constitution to pay its debt.  That means that debt servicing payments, which currently account for about 10% of the tax revenue the government takes in, get paid first.  That 10% would have to be cut from other government programs.  Considering the spending binge Congress has been on since Obama got into office, I think we can manage to cut 10% of government programs without the US as we know it ending.

Myth 3: If we don’t raise the debt limit, our credit rating will be downgraded!

This is less a myth than something that could happen in any case.  Folks, we’re headed toward a Greek style government collapse.  Now we have an advantage over Greece in that we actually still create and produce things – for now.  But here are some stats from the Wall St Journal (which concludes that Congress should raise the debt ceiling and we’re not in any real trouble – I disagree with the writer’s analysis but thought you should know should you be too busy to click over):

–Debt-To-GDP Ratio: 152.3% vs. 99.5%

These are the gross debt-to-GDP ratios projected for the end of 2011 by the International Monetary Fund. The ratio includes all state and local government debt. By 2016, Greece’s debt-to-GDP ratio is predicted to be 145.5% compared with 111.9% for the U.S.

So we’re clearly better off than Greece, but a debt to GDP ratio over 100% is a bad thing.  And if we raise the debt limit, what happens?  That’s right, we increase our debt!   I.e., our debt/GDP ratio continues to go up.  How do you think the ratings agencies will feel about that?

In conclusion, it’s probably a moot point because the majority of Republicans in Congress are weak kneed, soul sucking politicians who only care about their next round of golf and keeping power.  But at least you’ll know better.

Ignorance is bliss, isn’t it?

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About Mystic Cowgirl

I worked overseas in the aid game for longer than I'd like to admit and learned several important things: 1) Third World countries aren't poor because America is rich. They're impoverished due to socialist governments that provide neither rule of law nor basic infrastructures; 2) These socialist governments redistribute wealth from taxpayers to the government workers. There's no benefit to the poor or downtrodden, and certainly not to the general welfare in terms of infrastructure improvements. 3) America is moving toward the Third World model. Rule of law has been subverted because equality under the law is disappearing as special interests carve out exemptions to regulations and special favors under the law. The redistribution of wealth to government began decades ago -- total compensation for government employees now outpaces salaries in the private sector.
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One Response to Myth Busting the Debt Limit

  1. Pingback: Debt Deal and the MSM | FemCon3

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