Why Not Raising the Debt Ceiling Might Not Be Such A Bad Idea

by Frank Hill, Telemachus

The debt ceiling is due to be voted on soon and we have come around more to the position that the best thing Congress can do is to leave it alone as is today. $14 trillion, $294 billion is the legal limit of all of our borrowing can be under existing law.

What would happen if we don’t raise the debt ceiling? Would the known universe as we know it fall in over our heads like a black hole sucking the life out of everything that comes near it?

Nope. Not even close to what some of the Chicken Littles are saying in Washington from Secretary Geithner on down.

We wrote about this before (see ‘Debt Ceiling’) and now we think not raising the debt ceiling will have the same salutary effect on the federal budget as would a constitutional balanced budget amendment. We desperately the BBA now based on the last 10 years of desultory performances by Congress and Presidents on fiscal matters, wouldn’t you have to agree?

We have done a little research into the matter and apparently the very first thing that will be paid for in the event of not raising the debt ceiling is? (drumroll please)

‘Net interest on the existing national debt.’

What? You mean the first thing that gets paid is some interest coupon to some Saudi sheik or Chinese bureaucrat? What about my Social Security check or Medicare benefits? What about paying for these great SEALS who took out Obama? What about the sublime Lawrence Welk Museum that some Congressman tried to get funded to the tune of $500,000 to build it in his hometown of Strasburg, North Dakota to celebrate the life and times of ‘Mr. Wunnerful Wunnerful’ himself?

They all may get funded to some extent nonetheless, just not until after the interest is paid on the existing national debt.

That is the way it is with debt, ladies and gentlemen and has been since ancient times, except with the Biblical Jubilee, that is. You borrow money from someone and they expect to get paid on time and regularly for the use of that money by you, not them. And since we owe over $9 trillion in cold hard cash to debt holders, we will pay out over $261 billion this year in interest

costs alone.

(forget the fictitious and deliberately misnamed ‘SS Surplus Trust Fund’. It is as ‘real’ as the pink elephants Dumbo saw in his dreams)

But let’s think seriously about this for a moment: What would happen if Congress decides NOT to raise the debt ceiling in a couple of weeks? What would happen then?

First of all, after all of the echo chamber pundits inside the Beltway get resuscitated after fainting in shock and horror, the first check that will be written to anyone will be for the interest owed to the Saudi sheiks and the Chinese bureaucrat. And so will the second and the third and every other debt obligation as they come due.

We certainly have enough to pay the interest on the $14 trillion credit card bill we have rung up. Just ask Visa or America Express...they love it when you keep paying that monthly interest to them.

Over the course over a year, every single penny of that $261 billion in net interest will be paid to creditors (but not a single hard dime will be paid to the Trust Fund ‘Imputed’ Interest fund simply because it is 'imputed' interest, not paid interest). So the US credit rating will stay intact and foreign investors will still buy US-denominated bonds because, well, we are still ‘safer’ than anywhere else in the world.

Who do you think will crumble into the dustbin of history first, The U.S. of A or China? (don’t answer that...China has been around for 5000 years and we have been around only a measly 222)

And then what? We are pretty sure Congress will continue to pay the Team VI SEAL members to go after the other bad guys in the world along with the rest of the brave men and women now serving our nation in the armed forces.

But they will also not be able to fund any new defense programs or initiatives until and unless they cut back or eliminate past programs, many of which date back to the WWII era. (Our favorite was the elimination recently of the Federal Helium Reserve Program that started after World War.....I!)

And then every seniors’ Social Security checks will be paid on time. Except maybe, just maybe Congress will take a look at the $3000 check we are sending to multi-gazillionaire Warren Buffet each month and start to wonder what kind of social safety net we really want to have or need when even the likes Warren Buffett are ‘entitled’ to such taxpayer-assisted funds. (call it ‘welfare’ if you want....we are of the belief that anytime a federal check goes to any person or business in the form of grants, support payments or economic assistance, it fits the true definition of ‘welfare’ as defined in Webster’s Dictionary)

And then Medicare benefits will be paid....you know that. But maybe Congress will finally address the upwards cost-drivers in health care such as defensive medical practices and tort reform and maybe raise the retirement age for people going forward to 70 to keep in proportion to longer life expectancies to stretch out limited funds?

Guess how much of the current budget will be left after these three parts of the budget are paid plus Medicaid? 19%. If defense and entitlements are left untouched and unreformed for the next five years, all that will be left will be under 10% to pay for all the transportation, energy, environmental, education programs and Lawrence Welk Museums we all say we love and want.

So let the games begin. Congress, don’t increase the debt ceiling. PLEASE force yourselves to set spending priorities on a vertical scale 1-10,000...and then live within your means, i.e., ‘spend only what comes in in the form of current income and payroll taxes’.

(Editor's Note: Frank Hill's resumé includes working as chief of staff for Senator Elizabeth Dole and Congressman Alex McMillan, serving on the House Budget Committee and serving on the Commission on Entitlement and Tax Reform. He takes on politics from a fiercely independent perspective at the blog Telemachus).

Related discussion at Memeorandum.


  1. I totally agree the debt ceiling must not be raised. The spending by the govt is so out of control it is really beyond words, spending is what led to the increased 'borrowing' 'debt' and in the instance of SS trust 'theft'. I don't believe however; that it is fair to label SS as welfare. It is a mandated tax imposed by the govt. if somebody pays 200-400 dollars a month to SS for decades, they deserve a Return on their investment and some sort of annuity type of payment. The trust fund money is gone and is essentially now part of the national debt in a sense. I guess we will sell more treasuries to OPEC nations, China and Japan to repay our social security I.O.U.'s , in addition to increased SS tax and retirement age. The system definately needs some reform. SS and Medicare is a perfect example of why we don't want govt to run and administer healthcare.

  2. It is important to note, as interest rates begin to rise, so too does the cost to service our debt, small increased amount to huge costs.

  3. SS is not a trust fund, hence it does not have any obligation to pay anyone an ROI on anything.

    it was just a mandatory tax, plain and simple.

    we coulda fought it 30 years....but it was not done.

    so we are stuck with a sub-performing government 'retirement' (sic?) plan with below 1% annual ROI compared to Chile where they get annualized 9.3% returns PLUS a cash payment PLUS the residual amounts go to their spouses and/or families upon time of death.

    what do we get when we die in America if we die 1 second before midnight before the day you turn 66? nothing, nada, zippo....

  4. It was my understanding that any surplus was to be used to purchase treasuries that earn interest. Instead the money was spent and some type of special issue govt I.O.U. was actually given. I don't think these pay interest, maybe you know? In 2010 there was approx 25 billion shortfall, so I guess the feds conjured up more cash or sold treasuries to the Chinese to make up the shortfall. All while employee payroll tax was reduced by a third. Sad things are, in my twenties I paid as much or more into SS than I did my 401k's and IRA's , only in my thirties as my salary increased did I begin to invest more for myself. The govt has us now, many of our parents and grandparents rely heavily on SS to live, the surplus from previous years was spent, and our taxes are now paying for these older generations.

  5. there is absolutely no 'real' money paid in interest on the SS Trust Fund. it is all 'imputed' meaning 'guessed at' and put on the books as a plug number.

    there is no 'real' trust fund either for SS...in fact, before the 1983 SS Act, there was no 'surplus' to earn fake interest on either...it was just pure cash-in, cash-out for SS.

    and that was all just excessive taxation that amounted to nothing really. It still generates close to $200 billion per year in SS taxes paid to the guvmint which essentially 'masks' the size of the deficit by making it appears smaller than it really is.

    If they say the deficit this year is 1.5 trillion.....it really is $1.7 trillion in real terms if you back the SS excess taxes out.

    We shoulda gone to the Chilean model 30 years ago when it woulda made a huge difference. (see http://www.investors.com/NewsAndAnalysis/Article/570629/201104291742/Chiles-Private-Social-Security-System-Turns-30.aspx)


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