The Debt Ceiling Charade

July 14, 2011 05:03

How the debt ceiling is eventually resolved only changes the timing and extent of the economic collapse.  In that sense, it has no bearing on the ultimate fate of the nation.

By Monty Pelerin (pseudonym) at American Thinker


August federal government revenues are anticipated to be $172.4 billion; spending, $306.7 billion.  This shortfall of $134 billion is no surprise.  The monthly shortfall annualized represents a yearly deficit of $1.6 trillion, in line with the deficits of the last two years.

All one can do is move items around, an exercise akin to furniture rearrangement on the Titanic.

The quandary shown above is what will likely lead to an increased debt ceiling.  That does not solve the country’s problem, yet it solves the politicians’ problem.  It appears to make the problem go away, but only cutting spending will solve the real problem.  That hard decision recognizes that resources are limited.  It kills the image of government as Santa Claus, something politicians are unwilling to do.

There are disturbing signs the US is close to being unable to borrow in credit markets.

The profligacy of the US government cannot continue.  It cannot continue to spend 42 cents more than every $1.00 it collects.  We are potentially  close to the point When Lenders Stop Lending, perhaps one event away from a financial catastrophe that will reduce us to Greece.

Even their “aggressive” proposal, expecting to cut spending by $2-4 trillion, is weak.

It is backloaded over a ten-year period and could be changed by any future Congress.  It would not even cover the costs of interest rates returning to normal levels.  Lawrence B. Lindsey, former economic advisor to President Bush, estimates a return to “normal” interest rates of the past two decades would result in a ten-year cost to government of $4.9 trillion.

Monty Pelerin is a pseudonym derived from The Mont Pelerin Society used at the site Monty Pelerin’s World which is at has featured many articles from “Monty”


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