By Michael Master
It is obvious from most statements and articles that the Treasury Dept and the Fed do not really know what will happen if the debt limit is not raised. Government officials can only say: “do you really want to take that risk?”
Moody and the other rating organizations say that USA debt instruments will be downgraded if government spending is not cut immediately even if the debt limit is raised. According to HuffPost AOL News of July 21, 2011, the Treasury and the Fed already have contingency plans so that life will continue as usual. Philadelphia Federal Reserve Bank President Charles Plosser said that the Fed and the Treasury have been planning for months how to handle the situation so the American economy is not interrupted.
What the Fed and the Treasury do know is that the government will be able to pay most of its bills because it has an ongoing income of revenue every day from tax receipts. They also know that the government will have to prioritize what bills will get paid and what ones will not. And they know that the government will have to immediately cut back on its spending which will be good news to the rating services that might actually help increase the ratings of government securities.
Social Security checks will go out on time … not late as Obama tried to scare us. Medicare will be paid on time. And the military will get paid on time.
So maybe government workers will have to take a pay cut. That is OK since government workers already make 30% more than their counterparts in the private sector according to USA Today, which is part of the reason why the USA has a debt limit problem. Maybe marginal programs and payments to foreign governments will have to get cut. Maybe Obamacare will have to be repealed. Maybe the Department of Education and the EPA will have to cut back. Maybe the USA will have to get out of Libya and Afghanistan. Maybe NPR and Planned Parenthood will no longer get any money from the government.
Maybe these are the reasons why Obama is so worried about not getting the debt limit increased. His programs might get cut.
Obama increased spending by $700 billion per year (27%). So why is it so bad to cut back on spending the same as it was increased? Maybe the only way to get the government to cut spending is to take away its credit card.
It sounds to me like those Congressmen who want to raise the debt limit without cutting spending immediately are probably afraid that spending on their pet projects and pet lobbyists will get cut. It sounds like those businesses who want the debt limit raised are afraid that they might not get any more money from the government tit if it is not.
To me, it also sounds like not raising the debt limit might just be a good thing. Certainly, there will not be any gloom and doom. As said by Rahm Emmanuel: “never waste a crisis.” Maybe the USA will benefit more by not increasing the debt limit. Maybe that is the only way to cut government spending.
Obama said to Boehner and Cantor, “don’t call my bluff.” Well, maybe it is time to call his bluff. He isn’t holding anything in his cards. Since the Fed and the Treasury have already planned for the worst and say things will be OK, call Obama’s bluff. Cap the debt limit and do not raise it.
Michael Master is the author of “Save America Now!” It can be ordered at http://www.amazon.com/gp/product/1616235756
