TAs we march towards another debt ceiling limit…
The U.S. Treasury Secretary, Jacob J. Lew, wrote a
letter to Congress this week stating the U.S.
government will hit the debt ceiling by October. He
wrote, “…Congress should act as soon as possible to
protect America’s good credit by extending normal
borrowing authority well before any risk of default
becomes imminent.” (Source: U.S. Department of the
Treasury, August 26, 2013.)
Lew added, “Protecting the full faith and credit of
the United States is the responsibility of Congress
because only Congress can extend the nation’s
borrowing authority. Failure to meet that
responsibility would cause irreparable harm to the
American economy.” (Source: Ibid.)
Will Congress raise the debt ceiling again? It
certainly will!
Since 1960, Congress has raised the debt ceiling 78
times—49 times under Republican presidents and 29
times under Democratic presidents. (Source: U.S.
Department of the Treasury web site, last accessed
August 27, 2013.)
The debt ceiling, which is set by Congress, puts a
restriction on how much the national debt can be
increased.
On August 23, 2012, the U.S. national debt stood at
$15.97 trillion. Fast-forward one year to August 23,
2013, and our national debt hit $16.73 trillion.
(Source: Treasury Direct web site, last accessed
August 27, 2013.) This is an increase in the
national debt of 4.75% in just one year. Of course,
in all 78 times Congress raised the debt ceiling,
the new debt ceiling limit was later hit and needed
to be raised again.
Our government continues to post an annual budget
deficit. For the four fiscal years from 2009 to
2012, the federal government posted a deficit of
more than $1.0 trillion annually. This year, it may
be less—but not by much.
The letter to Congress by the U.S. Treasury
Secretary is a simple request to increase the credit
limit on America’s credit card—just as a family that
spends more than it earns might do.
One might think this cannot go on forever—the debt
ceiling being raised and the government subsequently
hitting that new limit. But when we look at the fact
that our debt-to-gross domestic product (GDP) ratio
is only 105% and Japan’s debt-to-GDP is 205%, our
national debt would have to double to $32.0 trillion
for us to match Japan’s debt-to-GDP. But, of course,
at that level of debt, instead of the U.S. dollar
being the reserve currency of the world, it would
likely become the “laughing stock” currency of the
world.
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