Kevin Price
GOP is playing a dangerous game with debt ceiling
By Kevin Price
The GOP House of Representatives that was elected in 2010 was placed there to put America's fiscal house back in order. The current strategy of opposing the raising of the debt ceiling is not what the country needs. It is irresponsible on so many levels.
Many in the Congress who are saying they are opposed to raising the debt ceiling added to the debt. In fact, with the exception of very few members, all of them added to the debt through huge spending programs and "small" earmarks. All of these have added up to a point where the ceiling needs to be raised, or else. Most Americans hear such ominous language and they respond with "or else, what?"
The people in Europe are beginning to wake up to the consequences of delaying tough decisions until "later." The Economist reported that "Last month Portugal's parliament voted against a package of austerity measures that would have been necessary to avoid a European Union bail-out. Immediately, the country's costs of borrowing went through the roof. Last Wednesday, Portugal auctioned 1 billion euros of 12-month bonds at a yield of 5.902%; at the previous auction of 1 billion Euros on March 16th, the yield was 4.331%. Now Portugal will end up having to adopt basically the same package of austerity measures, or something worse, as a condition to receive the European Union bail-out. So their parliament's rejection of the austerity measures cost Portuguese taxpayers 15.71m euros on that bond issue alone, in return for which they got exactly nothing."
The Economist also noted that the United States is facing a similar dilemma. The 112th Congress, which the GOP majority was propelled to power because of untold numbers of Tea Party activists, was only able to secure $80 billion in cuts in the most recent budget. In the opinion of this writer, the Republicans who voted for that budget, have morally obligated themselves to support the debt ceiling. After all, that budget package is what raised the debt to such high levels. It is the epitome of hypocrisy to be opposed to the debt ceiling increase, yet to have added to the debt that created our current crisis.
By August 2nd the situation better change or the consequences will be huge. The Economist magazine asks the chilling question, "What happens if the world's most trustworthy borrower reneges on its debt?" It answers the question by drawing on history, noting "Yet history suggests that even a technical default can be costly. America's only known instance of outright default (other than refusing to repay debts in gold in 1933) occurred in 1979 when the Treasury failed to redeem $122m of Treasury bills on time. It blamed unprecedentedly high interest from small investors, a delay in raising the debt ceiling and a word-processing-equipment failure. Although it repaid the money and a penalty to boot, a later study by Terry Zivney, now of Ball State University, and Richard Marcus of the University of Wisconsin-Milwaukee found it caused a 60-basis-point interest-rate premium on some federal debt. Today that would cost $86 billion a year or 0.6% of GDP, a hefty penalty for something so avoidable."
Today, however, this would not be a minor incident or computer error. It has been watched closely by the markets and the results will be most profound. Some economists estimate that it could lead to an additional ten percent of the budget being required to pay the interest on the debt if they fail to raise the debt ceiling. Many others believe that may be a conservative estimate.
The vast majority of Republicans that are now risking a dramatic increase in the cost for the country to borrow money, voted for the spending that led to it. They are playing politics with our financial future. The answer will not be raising taxes, which will further hurt the economy's ability to rebound and generate revenue, but in cutting spending. They must say "no" to tax increases and "yes" to spending cuts, but they must get the ceiling increase passed and then, "sin no more" by voting against spending increases in the future.
© Kevin Price
July 17, 2011
The GOP House of Representatives that was elected in 2010 was placed there to put America's fiscal house back in order. The current strategy of opposing the raising of the debt ceiling is not what the country needs. It is irresponsible on so many levels.
Many in the Congress who are saying they are opposed to raising the debt ceiling added to the debt. In fact, with the exception of very few members, all of them added to the debt through huge spending programs and "small" earmarks. All of these have added up to a point where the ceiling needs to be raised, or else. Most Americans hear such ominous language and they respond with "or else, what?"
The people in Europe are beginning to wake up to the consequences of delaying tough decisions until "later." The Economist reported that "Last month Portugal's parliament voted against a package of austerity measures that would have been necessary to avoid a European Union bail-out. Immediately, the country's costs of borrowing went through the roof. Last Wednesday, Portugal auctioned 1 billion euros of 12-month bonds at a yield of 5.902%; at the previous auction of 1 billion Euros on March 16th, the yield was 4.331%. Now Portugal will end up having to adopt basically the same package of austerity measures, or something worse, as a condition to receive the European Union bail-out. So their parliament's rejection of the austerity measures cost Portuguese taxpayers 15.71m euros on that bond issue alone, in return for which they got exactly nothing."
The Economist also noted that the United States is facing a similar dilemma. The 112th Congress, which the GOP majority was propelled to power because of untold numbers of Tea Party activists, was only able to secure $80 billion in cuts in the most recent budget. In the opinion of this writer, the Republicans who voted for that budget, have morally obligated themselves to support the debt ceiling. After all, that budget package is what raised the debt to such high levels. It is the epitome of hypocrisy to be opposed to the debt ceiling increase, yet to have added to the debt that created our current crisis.
By August 2nd the situation better change or the consequences will be huge. The Economist magazine asks the chilling question, "What happens if the world's most trustworthy borrower reneges on its debt?" It answers the question by drawing on history, noting "Yet history suggests that even a technical default can be costly. America's only known instance of outright default (other than refusing to repay debts in gold in 1933) occurred in 1979 when the Treasury failed to redeem $122m of Treasury bills on time. It blamed unprecedentedly high interest from small investors, a delay in raising the debt ceiling and a word-processing-equipment failure. Although it repaid the money and a penalty to boot, a later study by Terry Zivney, now of Ball State University, and Richard Marcus of the University of Wisconsin-Milwaukee found it caused a 60-basis-point interest-rate premium on some federal debt. Today that would cost $86 billion a year or 0.6% of GDP, a hefty penalty for something so avoidable."
Today, however, this would not be a minor incident or computer error. It has been watched closely by the markets and the results will be most profound. Some economists estimate that it could lead to an additional ten percent of the budget being required to pay the interest on the debt if they fail to raise the debt ceiling. Many others believe that may be a conservative estimate.
The vast majority of Republicans that are now risking a dramatic increase in the cost for the country to borrow money, voted for the spending that led to it. They are playing politics with our financial future. The answer will not be raising taxes, which will further hurt the economy's ability to rebound and generate revenue, but in cutting spending. They must say "no" to tax increases and "yes" to spending cuts, but they must get the ceiling increase passed and then, "sin no more" by voting against spending increases in the future.
© Kevin Price
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