Schemes to Avoid the Debt Ceiling

With the federal government pushed up against the debt ceiling again, get ready for more political drama.  Obama is perceived as the winner in the fiscal cliff ordeal (and it is the American people who are the losers, whether they know it or not).  In the upcoming debt ceiling debates, Congressional Republicans hold the stronger card.

There are now all of these different schemes being discussed to avoid this clash (which would make for another clash).  Some people are proposing this idea of creating a one trillion dollar platinum coin to fund the Treasury.  Of course, this is absolutely no different than simply monetizing government debt.  It is purely inflationary.  Luckily, it is being seen as the ridiculous idea that it is by most Americans.

There is also an idea that Obama could simply raise the debt ceiling by invoking a clause from the 14th Amendment.  I already disliked this amendment for many reasons.  This is just one more reason to not like it.  It has to be the most convoluted amendment ever written.  It is a perfect piece of government work.  Everything is vague and foggy.  Everything is left open to interpretation.  And of course we can always count on the Supreme Court and those enforcing the laws to interpret it in such a way as to expand the power of the central government.

Let's just pretend for a minute that the Republican politicians in the House of Representatives actually did care about smaller government.  Let's pretend that they aren't really just lying to their constituents about less spending and lower taxes.  Let's pretend that they really do want a balanced budget.

Even if Obama pulled one of these schemes to circumvent the debt ceiling, the Republicans in the House can still balance the budget.  All spending bills are supposed to originate in the House.  The Republicans control a majority in the House.  They can simply refuse to pass a budget.  Or they can appropriate just enough money (still well over $2 trillion per year) so that there are no more deficits.  It is really that simple.  But don't worry.  It won't happen.  The Republicans in Washington DC just like to talk and pretend about smaller government.

I frequently hear statements in the so-called mainstream media that the government will default on its obligations if the debt ceiling is not raised.  But this is completely false.  There will still be a couple of hundred billion dollars per month flowing in from various taxes.  This is more than enough to pay the interest on the debt.  It is even enough to fund Medicare and Social Security.  After that, it will get really tight.  Most everything else would need to be cut drastically or eliminated.  Perhaps this would be a default on promises made to Americans by politicians running for office.  But these promises always get broken anyway.

As always, the Republicans in the House will capitulate.  They will raise the debt ceiling for some bogus cuts that take place in the future and aren't even actual cuts.  Both sides will continue to play this game until the Fed has to stop monetizing debt due to higher price inflation.  At that point, interest rates will go up and the federal government will be forced to cut spending.  The laws of economics are not limited to Greece.