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The federal government once again has reached the
limit of its legal ability to borrow money, meaning it cannot issue new Treasury
debt without action by Congress to increase the debt ceiling limit. As of
this month, our “official” national debt- which doesn’t
include the staggering future payments promised to Social Security and
Medicare beneficiaries- stands at $14.2 trillion.
The debt ceiling law, passed in 1917, enables
Congress to place a statutory cap on the total amount of government debt
rather than having to approve each individual Treasury bond offering. It
also, however, forces Congress into an open and presumably somewhat shameful
vote to approve more borrowing. If the new Republican majority in the House
of Representatives gives in to establishment pressure by voting to increase
the debt ceiling once again, you will know that the status quo has prevailed.
You will know that the simple notion of balancing the budget, by limiting
federal spending to federal revenue, remains a shallow and laughable campaign
platitude.
It is predictable that Congress will once again
merely delay the inevitable and raise the debt ceiling, after the usual
rhetoric about controlling spending, making cuts, and yes, raising taxes. We
have heard endless warnings about how irresponsible it would be to
“shut down the government.” The implication is that sober,
rational, mature pundits and politicians understand reality, while those who
oppose raising the debt ceiling limit are reckless ideologues who will harm the economy just to make a point.
But like any debtor that has to reduce its spending,
the federal government simply needs to establish priorities and stop spending
money on anything other than those priorities. Interest payments on our
federal bond debt likely will amount to about $500 billion for fiscal year
2011, an average of $41 billion per month. Federal tax revenues vary by
month, but should total around $2 trillion to $2.5 trillion for FY
2011– an average of perhaps $180 billion per month. So clearly the
federal government has sufficient tax revenue to make interest payments to
our creditors. For now, those interest payments represent about 12% of the
total federal budget.
What nobody wants to admit is this: even if the
federal government has only $1.5 trillion remaining to spend in 2011 after
interest payments, this is PLENTY to fund the constitutional functions of
government. After all, the entire federal budget in 1990 was about $1
trillion. Does anyone seriously believe the federal government was too small
or too frugal just 20 years ago? Hardly. So why have we allowed the federal
budget to quadruple during those 20 years?
The truth is, in spite of how cataclysmic some might
say it would be if we did not pass a new debt ceiling, it is hardly the
catastrophe that has been advertised. The debt ceiling is a self-imposed
limit on borrowing. The signal congress sends to worldwide markets by raising the debt ceiling is simple: business as usual will
continue in Washington; no real spending cuts will be made; and fiscal
austerity will remain a pipe dream.
When our creditors finally wise up and cut us off,
we will be forced to face economic realities whether we want to or not. It
would be easier to deal with the tough choices we face now, on our own terms,
rather than wait until we are at the mercy of foreign creditors. However,
leaders in Washington have no political will to admit that we cannot afford
to continue spending without any meaningful limit. They prefer maintaining
the illusion and putting off reality for another day.
Ron Paul
www.house.gov/paul
Copyright Dr. Ron
Paul
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