Raising the Debt Ceiling is Inevitable

It fair to say that most people do not understand the intricacies and machinations of the “debt ceiling” debate underway in the U.S., involving the President, Congress, Republicans Democrats, with the rest of the world looking on.

What can be guaranteed is that the ceiling will be raised from its present horrendous $14.3 trillion – that’s 14.3 plus 11 zeros (00.000,000,000).

The alternative would be the U.S. defaulting on its debts, losing its Triple A credit rating, unable to pay the seniors their benefits, or the military and creditors beyond Aug. 2.

Basically, the Republicans – led by the rash of new Tea Party Representatives elected last November – want draconian cuts in government spending coordinated with raising the debt ceiling.

President Barack Obama wants the debt ceiling raised, along with select spending cuts and tax increases.

So far, it’s tax increases that Tea Party Republicans and others dislike.

Obama and Democrats feel if spending cuts are in order, taxes must be raised to bridge the gap. That strikes many Republicans as self-defeating.

One aspect missing from Obama’s figuring is that if the debt ceiling is raised, and more tax money is available, spending will increase -- not diminish. That’s just the way it is with governments—all governments.

The more money that’s available, the more they spend.

Obama (and Congress) may agree on some cuts, but if taxes are raised along with raising the debt ceiling, government spending will inevitably increase  in other  areas.

Government rarely cuts programs once they’ve been started.

We members of the public know this. It is part of the reason why stock market investors are not yet panicking over the gloom and doom being dispensed by Republicans and Democrats -- and certainly  by this very strange American president who seems in over his head.

Obama makes declarations of intent without actually doing much.

One of the intangibles necessary for America’s financial recovery is the confidence felt by the American people. Without confidence, the unemployment rate will rise, businesses will stagnant, fear will become endemic. Entrepreneurs run for cover.

It hasn’t reached that stage yet – witness the stock market which still seems to rally and thrive. Right now the hedge is gold – soon to top $1,600 and ounce, and a fair bet to hit $2,000 the way America is groping.

Greece can flounder and default without Americans seeing themselves in a similar situation. But if Italy, Spain, Portugal go down the tube, the picture changes.

A sure way to undermine middle America’s already fragile confidence is to raise taxes. Canadians feel the U.S. taxes are reasonable (compared to their own), but Americans feel they are already taxed to the hilt. They aren’t, but that’s irrelevant if they think they are.

Where Americans have a good understanding of their government, is that more taxes mean more government spending. Common sense dictates that it’s a false hope to think you can spend your way out of economic malaise.

Anyway, it’s all academic. The debt ceiling will eventually be raised and an accommodation will be reached. The Republicans are probably more right than wrong, but in the national interest they will compromise.

But if they compromise too much, woe betide them in the 2012 election.