According to a report in this morning's New York Times the federal government has reached its $14.3 trillion debt limit. That would not be a problem, well, not as big a problem anyway, if the government did not need more money to get it through the year, but it does. Discussion is under way on what to do about it. Republicans want spending cuts. Democrats want to increase revenue. It is anticipated that a compromise will be reached. A compromise will have to be reached. It is inconceivable that taxes could be raised or spending cut enough to put the nation back in the black any time soon.
There is talk in Washington that something will have to be done. Unfortunately, such talk is rarely little more than symbolic. When Washington speaks about addressing spending it is trying to send a message that it is serious about addressing the issue even, or especially, if it is not serious about it. Nevertheless, it is a necessary message to send, not just to the public, but to our lenders as well. You know you are in trouble when lenders begin to get squeamish about lending you more money.
The government is in serious financial straights. There will be stern countenances and grave pronouncements but the debt limit will be raised. A balanced budget is flat out of the question. In 2009 the government had a $1.84 trillion deficit. Last year it ran a deficit of $1.26 trillion. It is anticipated that the deficit for this year will be a more modest $929 billion. Even if the trend continues, it will be many years before black ink is seen. The debt is going to go up as sure as the sun is going to rise. The only question is by how much.
A debt limit that can be raised when it becomes inconvenient is not a limit. It is at best a hurdle. Until we can pass a balanced budget why even talk about addressing the debt?
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