The Debt Increase Deal

There's been a lot of  misinformation bandied about in the debate that led to the enactment of an increase in the debt that the federal government can legally incur. Therefore, before getting to my position on the issue, I'll endeavor to clear up some of the confusion.


The terms "deficit," "debt," and "default" have been confused with one another, so I'll begin by clarifying what each of those terms means:


Deficit is the difference between the money that one has and the greater amount that the same individual spends. For example, if I spend a dollar while I have only 60 cents, I have a 40 cent deficit, and that exactly has been what the American government has been doing on a gargantuan scale.


Debt is what makes this possible. It is that 40 cents I borrow to be able spend the full dollar instead of limiting my spending to the 60 cents that I have.


Default is a failure to meet one's obligations. In the debate on the federal debt ceiling, the term was used to refer to the possibility of the government being unable to pay interest or principal obligations on the bonds it previously had issued in the course of incurring debts to cover it deficit spending. The government also is obligated to pay its employees for services performed for it, to suppliers for goods it has received or has contracted to receive from them, and to the Social Security Administration for funds it has looted from the supposed trust fund. While failure to meet any of those obligations also would constitute a default, that was not usually the default that was referred to in the course of the debt ceiling debate although such defaults also were threatened.


The big lie in the debate was that failure to raise the debt ceiling would result in a default because the the government would be unable to meet its obligations to pay interest or principal obligations on previously issued bonds as such obligations became due. That was a false claim. With the revenues coming in every month and what it has on hand, the government thus far always has had more than enough funds to meet its interest payment obligations. Principal payments always could be made from the proceeds from sales of new government bonds on a dollar-for-dollar basis that would not increase the government's total indebtedness. The new bonds simply would replace the old ones without any increase in the total amount outstanding.


The same resources -- incoming revenues plus cash on hand -- also have been sufficient to date to meet the government's Social Security obligations and its previously incurred obligations for goods and services.


However, the goods and services -- which have been soaring for years with the explosion in the size and scope of government -- would have had to be slashed going forward. The seemingly inexorable expansion of government would have had to be reversed. The government would have had to begin shrinking if it could not continue to incur ever more deft to finance never ending deficit spending. The government would have had to restrict its spending what is coming in to its coffers.


My preference would have been a refusal to increase the debt ceiling . . . to force the government to shrink to the size and scope contemplated by the Constitution. After all, if not now, when?


The better argument against this is not the bogus default claim but rather that doing so would put the nation on an uncharted course. That is true. But the founders put the nation on an uncharted course when they adopted the Declaration of Independence in 1776. That worked out pretty well for about a century and a half during which America became the hope and envy of the world. Then we lost our way, deluded by illusions of omnipotence. Blinded by the enervating wealth and comfort of the greatest economic machine ever to exist, we began to abandon the concept of individual freedom and responsibility that had enabled able, talented, and hard working people to create that machine. We began to consume, rather than permitting the continued development and growth of our resources. We now have persisted in that destructive course, consuming our seed corn, for about a century or perhaps a bit more.


The uncharted course argument is false because continuation on our present course, while charted, is charted to take us right over the cliff. It is not sustainable. Taking on ever more debt will avoid neither a rightful, justified, and overdue downgrade in the rating of the government's debt instruments nor a default that will be hastened as interest rates rise and our economy grinds down even further.


I submit that the uncharted courses is preferable as the only one offering any possibility of avoiding a national death spiral.


It may be that the debt increase deal, which is perhaps the most that could be achieved in the nation's current political context, will turn out to be the first step toward the shrinkage course. There are some signs of hope, though no guarantees, in the legislation, and only time will tell. History, however, is devoid of examples of  societies that have recovered their vitality after having sunk as far as we have. It is replete with those that have succumbed to the death spiral.