- NOTE: This article was first posted on July 30, 2011.
America’s debt crisis is coming. The Congress might pass a law that would increase America’s debt ceiling by August 2.
Recently the Dems employed scare tactics and asked for higher government spending, while the Tea Party-fueled Republican Party urged for lower spending, budget cut, lower taxes, less regulations, and limited government.
How can Obama finance his ObamaCare lunacy, which is his number one campaign mechanism for the 2012 presidential election, without breaching America’s debt ceiling?
But of course, Obama’s Harvard diploma and rocks star personality can never suspend the laws of economics and supply and demand.
Republican Rep. Ron Paul warned that default by inflation, which is likely the approach to be taken by the Obama administration, is worse than default by not raising the debt ceiling.
He said that devaluing the dollar has led to record prices in gold bullion.
“Default is coming. The only argument that’s going on now is how to default, not send the checks out or just print the money. In all countries our size, they always print the money,” Paul said.
“They’re going to raise the debt limit, and then they’re going to print the money, and then they’ll default by inflation, and that’s much more dangerous than facing up to the facts of what’s happening today.”
On Thursday the Republican-dominated House had passed a bill, which would have lifted the debt ceiling only for the time being. Democrats had opposed it as unacceptable and “extremist” – while conservatives influenced by the Tea party argued that it did not go far enough.
John Boehner, the Republican Speaker of the House, gave an impassioned appeal to his colleagues in the House to approve his plan, slamming his fist on the podium several times. However the U.S. Senate rejected the bill, which was proposed by John Boehner, the Republican Speaker of the House.
In retaliation to the Senate’s rejection of the Boehner debt plan, the Republican-controlled House also rejected Senate Democrats’ plan to raise the debt ceiling.
Here’s a report from Bloomberg:
The House voted 246-173 against Senate Majority Leader Harry Reid’s proposal to lift the $14.3 trillion debt limit by $2.4 trillion. This mirrored the Senate’s rejection of House Speaker John Boehner’s plan the night before.
Reid and House Minority Leader Nancy Pelosi are to meet with President Barack Obama at 3:30 p.m. today, according to a White House official.
Reid said his plan aims to attract bipartisan support because it includes no tax increases and would cut spending by the same amount as the debt-limit boost. As the Senate prepared for action on his plan late tonight or early tomorrow, Minority Leader Mitch McConnell said Republicans will block a vote on the Democratic leader’s measure.
Republicans said the Democrats’ plan is unacceptable in part because it doesn’t ensure long-term deficit reduction, including cuts to entitlement programs. They also said it relies on a budget “gimmick” by counting as deficit reduction plans to bring troops home from Iraq and Afghanistan, while the Congressional Budget Office has counted the drawdown in its scoring of the financial impact of the plan.
Pres. Obama, in his last-ditch effort to save his political agenda, took to the airwaves to urge Congress to make a compromise. He even quoted former President Ronald Reagan to support his case for a “balanced approach”. Here’s an excerpt of his speech:
America, after all, has always been a grand experiment in compromise. As a democracy made up of every race and religion, where every belief and point of view is welcomed, we have put to the test time and again the proposition at the heart of our founding: that out of many, we are one. We have engaged in fierce and passionate debates about the issues of the day, but from slavery to war, from civil liberties to questions of economic justice, we have tried to live by the words that Jefferson once wrote: “Every man cannot have his way in all things…Without this mutual disposition, we are disjointed individuals, but not a society.”
History is scattered with the stories of those who held fast to rigid ideologies and refused to listen to those who disagreed. But those are not the Americans we remember. We remember the Americans who put country above self, and set personal grievances aside for the greater good. We remember the Americans who held this country together during its most difficult hours; who put aside pride and party to form a more perfect union.
That’s who we remember. That’s who we need to be right now. The entire world is watching. So let’s seize this moment to show why the United States of America is still the greatest nation on Earth – not just because we can still keep our word and meet our obligations, but because we can still come together as one nation. Thank you, God bless you, and may God bless the United States of America.
In his speech on the Senate floor, Sen. Marco Rubio exposed Obama’s and the Democrat’s deception, delaying tactics, and black propaganda against the Tea Party house members. (See related post)
The Senator also talked about the Democrats’ delaying tactics and delaying votes, as the budget issue “has been delayed at least for the last two and a half years.”
“In the two years before I even came here, this chamber neither proposed nor passed a budget. It is a startling figure that for the last two years this government has operated without a budget. So think about that. Two years have gone by without a budget. The first two years that the President was the president, no budgets,” Rubio said.
When reminded by democratic Sen. John Kerry about the absence of negotiation in the Senate, Rubio said that it was impossible to “negotiate with someone who doesn’t offer a plan.”
“How do you negotiate with someone who will not offer a plan and will not put it on the table?”
Sen. Rubio further stated:
“We’ve all talked about tax reform. Flattening and simplifying our tax code. And if there are things in that tax code that do not belong there because they are the product of good lobbying instead of good policy, then let’s go after those things. We’ve talked about that. Let’s talk about that.
“I think we all agree that there has to be some changes in discretionary spending, but we also agree that doesn’t solve the problem. That’s a small piece of our overall budget. That we have to save Medicare because it goes bankrupt if we leave it the way it is. That we have to save Medicaid because it goes bankrupt if we leave it the way it is.
“And I can tell you that history will back up what I’m about to say and that is that there is no government run by conservatives, Republicans, put whoever you want there, if you give government the opportunity to spend more money than it has, it will do it. It will do it every time.
Matthew Melchiorre, research associate at the Competitive Enterprise Institute, called Obama, Treasury Secretary Geithner, and the not-so-fiscally-conservative Republicans “false prophets of debt-ceiling doom”. He said that the American voters are no longer buying the Obama administration’s “fear-mongering” tactics, as a Gallup poll indicates that, 53 percent of Americans who follow the debt-ceiling debate “very closely” oppose increasing the limit, while 37 percent favor an increase.
Melchiorre said the following in a Foxnews op-ed:
Contrary to what spendthrift politicians have been saying, reaching the federal debt ceiling does not automatically trigger default. The debt limit simply caps the amount of debt that the U.S. Treasury may issue. The Treasury has the ability to prioritize its payments to bondholders and sell off assets (like TARP funds and gold) to avoid a default situation. Debt interest payments total $214 billion for 2011 – that’s less than 10 percent of $2.2 trillion in expected tax revenue this fiscal year.
Obama’s claim that seniors may not receive their Social Security checks for August is dubious, given that the program’s annual cost is $727 billion – 33 percent of revenue. Medicare and Medicaid combined come in at $846 billion – 38 percent of total tax inflow. Paying interest on the debt and providing entitlements still leaves more than $400 billion in unspent tax revenue, plus $2.4 trillion in assets left over to cover remaining government obligations, according to Veronique de Rugy and Jason Fichtner of the George Mason University Mercatus Center. The argument that America won’t be able to pay its bills without a debt-ceiling increase is simply incorrect
John Allison, former Chairman and CEO of BB&T Corporation and Distinguished Professor of Practice at the Wake Forest University School of Business, is primarily the responsibility of President Obama.
“The debt ceiling crisis is primarily the responsibility of President Obama. As Harry Truman so aptly commented; “The buck stops here.” It is the President’s responsibility to lead a bipartisan solution to solve this basic operational issue, not to advance his ideology or to politicize the process,” said Allison.
“He had the opportunity to do so based on the excellent work done by his appointed commission headed by Erskine Bowles. If he had aggressively pursued the plan offered by the Bowles team, which he created, the Republicans would have had to follow (although there would still have been a debate).”
Peter Schiff, President and Chief Global Strategist for Euro Pacific Capital, on the other hand, said that Obama has continued and increased the reckless spending of the Bush administration. Schiff said that there is no truth to the Obama administration’s claim that “a failure to lift the debt ceiling will cause a catastrophic Treasury debt default.”
“The US Treasury has tax revenues that cover the service of its current (staggering) debt of some $14.3 trillion.”
Schiff further said:
If the debt limit were not raised, the Administration would be forced to literally choose which checks to send and which to cancel. On the chopping block could be Social Security checks, Medicare reimbursements, military salaries, federal pensions, and myriad boondoggles that the federal government has taken upon itself to fund. Perhaps the President would cancel his next campaign stop to save the expense of fueling Air Force One? Not likely!
While President Obama would find himself walking through a minefield of special interest groups as he chose where to cut, I expect the overall effort to be broadly popular. This is, after all, what the boisterous American Tea Party has been demanding all along. And the ultimate result would be a renewed faith in the US dollar and Treasuries.
In fact, the Republicans have in their hands the opportunity of a lifetime, the chance to force the Administration into good sense, while avoiding the political fallout.
Increasingly, it appears likely that the Republicans will buckle. If they do, Americans will be faced with a package that both sides will claim as a victory. The losers will be hard working, patriotic Americans and those around the world who believed the United States was good for its word.
But how is America’s debt crisis going to affect the Philippines? This source gives the following observation:
The implication for the Philippines and other small developing economies is not direct. The Philippine government and corporations are not big creditors to the US government; China’s are. But the effect is indirect. The cost of credit and new borrowings will rise due to this huge economic uncertainty. Since the Philippine government is a net borrower every year because of its own budget deficit every year and a high public debt, then the cost of Philippine borrowings will rise. We shall be watching this development.