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What Happens If Debt Ceiling Isn't Increased ?

By Da King Published: July 12, 2011

Treasury Secretary Timothy Geithner warned that not raising the debt ceiling would be "catastrophic". He said it would lead to millions of job losses, a collapse of America's credit rating, huge increases in the interest rate, and a devaluation of the dollar. Geithner may be exaggerating, but he's correct about the negative effects in general.

A couple days later, a CBS poll asked it's viewers if the debt ceiling should be increased. A whopping 69% said NO. I can only assume the CBS viewing public didn't really understand what they were being asked.

Republican presidential candidate Michelle Bachmann, who leads in the Iowa polls, said last night on The O'Reilly Factor that she wouldn't vote to raise the debt ceiling "no matter what", even if a deficit reduction plan is reached. Bachmann contended that the country could still operate without borrowing more money. As a member of Congress, Bachmann should know better.

Let's take a look at what might happen if the debt ceiling is not raised. The first thing that would happen is, we couldn't borrow any more money to fund the federal government, meaning that the government would have to live within it's means. That's a wonderful concept. Everyone should live within their means, but the government hasn't done so for a very long time. That's why we have a $14.4 trillion national debt. The government is the all-time poster boy for irresponsibility.

For the federal government to live within it's means, it would have to operate on the revenue it has coming in, which in 2011 is about $2.2 trillion. Unfortunately, our federal government is currently spending about $3.8 trillion. If the debt limit isn't increased, about 40% of the government would have to cease operating. And that is where the problem lies. What would we cut ?

Here's a list of federal expenditures for 2011, ranked by cost.

Defense (including wars and associated costs) - $964.8 billion
Health Care (Medicare/Medicaid, etc) - $882.0 billion
Pensions (Social Security, etc) - $793.2 billion
Welfare - $495.6 billion
Interest - $206.7 billion
Other Spending - $158.4 billion
Education - $129.8 billion
Protection - $60.7 billion
Transportation - $94.5 billion
General Government - $33.2 billion

The cost of the first three items on the list (Defense, Pensions, and Health Care) comes to $2.64 trillion. That is already more than the entire revenue of the federal government ($2.2 trillion). Clearly, a lot would have to go. We couldn't afford to fight these wars any more, but then again, we can't afford to fight them now. Allow me to rephrase. We wouldn't be able to fight the wars anymore, unless we were prepared to eliminate either Medicare/Medicaid or Social Security. I think it's time to get out of the Middle East wars anyway, so let's consider them gone.

Let's prioritize the things we'd HAVE to pay without a debt ceiling increase.

1. We'd have to fund General Government in order to accomplish anything else. Cost - $33.2 billion

2. We'd have to pay the interest on the debt ($206.7 billion), or else we'd lose our credit rating. We'd become a deadbeat country, and as Geithner said, that would cause interest rates to soar and the dollar to collapse. It would be disastrous for our economy.

3. We'd have to pay Social Security and other pensions, which are backed by the full faith and credit of the United States. Cost - $793.2 billion.

Now we have some decisions to make. Do we fund Medicare/Medicaid, Welfare programs, Education, Defense, Transportation, or what ? We won't have anywhere near enough money to fund them all. Being the kind and compassionate people we are, let's say we fund Medicare and Welfare programs.

4. Health care - $882 billion

5. Welfare - $ 495.6 billion

Let's find out where we're at. the cost of these first five parts of government comes to....$2.41 trillion. Uh oh. We're short. Let's assume we could make various cuts and knock off $200 billion from Medicare, Medicaid, Social Security, and Welfare. We'll only pay 90% of the promised benefits.

So, we've spent all the federal revenue, and we have no military, no Defense budget, no Transportation budget, No Education budget, no Department Of Homeland Security, FBI, ATF, no Post Office, no EPA, no foreign aid, no Federal Justice system, and no spending on anything else. All we are able to accomplish by living within our means is to maintain most entitlement spending and pay the interest on the debt.

(Note - Entitlement spending is going to go WAY up in the future)

Or, we could screw the senior citizens, the sick, and the poor worse to pay for some of those other things.

"Screwed" is the operative word here. We would be. I'm all for reducing spending, but it has to be done in a thoughtful, gradual manner. We can't go from a $1.6 trillion deficit to a balanced budget overnight, and a Presidential candidate such as Michelle Bachmann should know that much, at the very least. The last Presidential candidate who voted against raising the debt ceiling, after which we made him President, was Barack Obama...and look where that has gotten us. We're on the fast track to national bankruptcy.

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