Posted by: Debby Durkee | April 21, 2011

What should be done about the debt ceiling?

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What should be done about debt the ceiling?

The folks over at National Review Online have done the country a favor by having a symposium by knowledgeable folks in the economics/finance world about what’s the best way to deal with the debt ceiling. We’ve heard all kinds of catastrophic scenarios about what would happen if we didn’t raise the debt ceiling. Well, what really would happen? In this symposium there are those who say we should, and some who say we shouldn’t, and some who say we should but with really big concessions from the Democrats on spending and caps on spending. Here a few excerpts, but make sure you go read it all.

Joseph Burke (assistant professor of economics at Ave Maria University)

The United States should not raise the debt ceiling. The current unfunded liabilities of the United States are $113 trillion, mostly because of Medicare. This is more than $1 million per taxpayer. Now more than ever, there is the political will for serious fiscal reform. This is what the American people want: It is why the Tea Party was formed, and why the Republicans were successful last fall. This is a historic moment, and if the Republicans kick the can down the road, they will pay dearly for it next year.

Medicare reform should be a priority; the age of eligibility for benefits should be increased, and all entitlement programs should be means-tested. Obamacare should be repealed, as it will increase the cost of health care and, by extension, our Medicare liability…Snip –

Douglas Holtz-Eakin (president of the American Action Forum)

Yes, Congress should raise the debt limit. Being a good steward of the U.S. credit rating means that it has to pay Obama’s credit-card bill. And it should do so as quickly as possible — on the day it returns from recess.

Yes, Congress should attach conditions to raising the debt limit. Being a good steward of the U.S. economy means that business as usual — a clean increase in the debt limit — cannot be an option. Quickly changing direction is imperative to avoid the looming financial crisis. Simply passing a straight-up debt-limit increase would send financial markets the message that the U.S. is content to continue toward its fiscal abyss.

Conservatives should attach to the debt limit annual caps on total spending for the next ten years equal to those in the House-passed budget. There are other viable contenders ranging from alternative spending limits (such as those proposed by Senator Corker) to a balanced-budget amendment that limits taxes and spending (such as that of Senators Hatch, Cornyn, and Toomey).  Snip –

Phil Kerpen (vice president for policy at Americans for Prosperity)

To win the debt-ceiling showdown, the Republican House leadership must first do what all 47 Senate Republicans did when they voted for the Toomey-Vitter amendment — debunk the false assertion that failure to raise the debt limit is tantamount to a default on Treasury bonds. Buying into this scare story — as too many otherwise-thoughtful Republicans have done — gives away any real leverage because it makes not raising the debt ceiling unthinkable.

The Toomey-Vitter approach, also known as the Full Faith and Credit Act and championed in the House by Tom McClintock (R., Calif.) and Scott Garrett (R., N.J.), would take away from the administration the discretion to default on Treasury bonds. It would require bondholders and Social Security recipients to be paid first in the event the debt ceiling is reached. There is more than enough revenue on a cash-flow basis to take any default risk off the table.

Passing this legislation in the House — even though the Democrats already have stopped it in the Senate — would help educate the public that default is not at stake. It would demonstrate that failure to raise the debt ceiling would cause a default only if President Obama and Treasury Secretary Geithner recklessly chose to put payments to vendors or other expenditures ahead of debt service.

By passing the Toomey-Vitter bill, the House can gain real leverage to demand that the administration make deep cuts in spending and fundamental reforms like the Medicaid block grants at the heart of the Ryan budget — or face the daunting prospect not of default, but of operating the government on a cash-flow basis.  Snip –

There are four more ideas in this symposium. Please educate yourselves so you can get an idea of what you think might be the best solution. We need to have at least a loose grasp of this so we can immunize ourselves from the propaganda out there. These seven knowledgeable people have differing suggestions, but they have one common theme: they all want the same thing – to get our fiscal house in order and they have the good of the country in mind. Please read it all, and read some of the comments to the article as well. NRO has some interesting readers.


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