Debts and Shutdowns

What I don't understand is why people are okay with raising the debt ceiling. 


As default looms, I am sure we have all heard someone make the above statement.


The budget and the Debt Ceiling are two separate issues. The Democrats put forth a budget of about $1.4 trillion and the GOP came back with a budget of around $900 billion. (keep in mind, this is only for a short term CR that will expire in December, when we would go through this whole thing all over again) The Democratic controlled Senate, passed the GOP budget, which negates any talk of the Democrats refusing to compromise. 


The Debt Ceiling is entirely different. It has nothing to do with increasing spending. The debt ceiling allows us to pay our bills that we have already incurred. In generic terms, it would be as if you took out a mortgage on your home for $200,000.00. You and your spouse live there and make payments for five years and then one day your spouse says, "We can't afford this mortgage anymore, so I won't let you make anymore payments." You don't move, sell, or rent. You simply stop paying on a loan that you already have taken out.  Once you default, your interest rates go up, your credit score drops, and you eventually could lose your home.  That is what the debt ceiling is about. It was put into law before WWI because we had never taken on a project that could cost as much as a World War. Congress allowed President Wilson "X" amount of dollars, which they would have to increase if needed. 


Many believe the President can prevent the default unilaterally.  There is a constitutional argument if the President can truly do it on his own. He could advise the Treasury Department to mint a $1 Trillion coin, but even that is subject to what would most likely go to the Supreme Court. The other thing is that Obamacare (remember when this whole thing was about Obamacare?) is fully funded no matter what. Proving that this debacle is only political posturing on the part of the republicans. They needed to stop the ACA from going through because they knew people would benefit from it and it would favor the Democrats.  Possibly propelling them to victory all the way through 2016 and beyond. The poles are showing that they were right. Obamacare has increased 7 points in about a week's time. (the same amount of time that the insurance exchanges have been open) The GOP also made all of these “socialist, marxist, fascist” arguments against Social Security, Medicare, and Medicaid; even civil rights to some extent. They were wrong on everyone of these issues. They can't afford to lose again. But they asked for this fight and now they got it.


Furthermore, the whole issue of our debt is nothing more than GOP talking points. In 1945, our GDP was only about $225 billion (today it is around $17 trillion). After WWII our debt was 125% of GDP, or about $260 billion. FDR, Truman, and Ike knew that we needed to increase spending in order to boost our economy. We invested in infrastructure like nobody's business, creating jobs all across the country. Republicans will claim that WWII brought us out of the depression, which is partially true. However, it wasn't "war" that brought us out, it was the government spending on that war. We tend to measure our debt in percentage of GDP. In 1945 it was 125%. By 1960 our debt shrank to 60%. It was cut in half. The interesting thing is when you look at real dollars it stayed at about $260 billion. This is because we grew our economy. It went from $225 billion up to around $500 billion. So we didn't decrease our debt; we grew our economy. Just like we should be doing now.  We can’t, nor has any country ever, cut our way to prosperity.  Government spending equals private sector growth. Don't forget, it was Reagan who was the first president to take our debt over $1 trillion. And GW Bush who came in office to a budget surplus and turned it into record deficits. It is called the “2 Santa Claus Theory”. Jude Wannisky came up with it after LBJ destroyed Goldwater in 1964. They saw the Democrats providing the New Deal and the Great Society, which was winning elections.  So the Republicans decided on a new strategy. When in power, the GOP would spend like drunken sailors (Reagan and Bush) and as soon as they lost to the Democrats, they would scream about the debt (Clinton and Obama). It is playing out just as they planned, but the outcome is backfiring.

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