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There is No Government Crisis (4 minute read time)


govt shutdown 2The only potential “crisis” is that most people are doing just fine with 17% of the government shut down.  God forbid the nation gets by with less government spending.  Like a household after a pay decrease, spending priorities need to be made to make do with the money that is coming in.  The U.S. Government will collect around $2.4 trillion in income tax this year and the interest on our debt is around $500 billion, therefore if made a priority, there is plenty of money to pay the debt.

Why haven’t you heard about this in the news?  Many newscasters & journalists either do not understand this or simply report the information they are fed from the Associated Press (AP) or simply act as political mouth pieces.

I have posted information from two different sources. The latter was written yesterday and posted on CNBC. The first article below was written back in July and they both lay it out very well.  We are in week two of a partial government shutdown and the world has not come to an end as many politicians tried to scare us into believing.  The first article below rips on the President’s administration quite a bit and although they are the “top dog” in all of this, some republicans have not done nearly enough to dispel the myths of the impending non-crisis.

Seven Myths About the Looming Debt-Ceiling ‘Disaster‘ (click on link to read entire article) By FoxNews.com

If Congress and the president don’t raise the debt ceiling, the consequences will be disastrous, politicians and pundits tell us, — the equivalent of an economic Armageddon. And President Obama warns that the consequences are so dire that he cannot possibly tolerate any delay in making an agreement. He announced yesterday that any debt deal must be completed by today, July 15th.

But the list of terrible things to come, if the government is stopped from continued deficit spending, goes on. Failure to raise the ceiling, it is warned, will dramatically raise mortgage interest rates, cause housing sales to plunge, create panic on world financial markets, and destroy the value of the dollar.

Here’s a look at 7 myths that the Obama administration is pushing on the American people:

1) Not increasing the debt ceiling means the U.S. government will default on its debt. This is probably the biggest lie that almost all other claims arise from. Default occurs if the government stops paying interest on the money that it owes. Not increasing the debt ceiling only means that the government can’t borrow more money and that spending is limited to the revenue the government brings in. And, with interest payments on the debt making up less than a ninth of revenue, there is no reason for any risk of insolvency.

Time after time, congress and the president have failed to agree on a debt ceiling increase and still there has been no default. Examples include: December 1973, March 1979, November 1983, December 1985, August 1987, November 1995, December 1995 to January 1996, and September 2007.

Indeed, this really shouldn’t even be a point of debate. The 14th Amendment to the Constitution requires that the debt payments come first before any other spending.

2) Until the debt ceiling is raised, uncertainty over the payment of U.S. debts will create chaos in financial markets. Given that the Constitution mandates U.S. debts be paid before any other spending and that sufficient money will be available to cover our interest payments, the only uncertainty arises from Obama’s actions. Will he try not to pay the interest? Even a delay of a day in paying this interest will create a default. Court action could eventually force Obama to follow the Constitution but a default would have already occurred. But there is a simple way to end this uncertainty: have the president declare now that he will indeed follow the Constitution and make those payments.

Failure to increase the debt ceiling clearly doesn’t mean default. During one three-week period at the end of 1996 and the beginning of 1996, some of the government shutdown when a similar battle over the debt ceiling occurred, but there was no default. President Clinton used the revenues that were coming in to pay the interest on the debt.

3) Obama doesn’t know if there is money to send off Social Security checks on August 3. The president knows very well how much revenue will be available to send out checks on August 3. Indeed, enough money will be available to not only pay the interest, but to also cover all Social Security, Medicare, Medicaid and children’s health insurance, defense, federal law enforcement and immigration, all veterans benefits, Response to natural disasters. Terrifying elderly people who are dependent on their Social Security checks may make good politics, but it is unconscionable. Yet, these scare tactics aren’t really very surprising. The Democrats behaved no differently when they ran television ads bizarrely depicting Rep. Paul Ryan (R-Wis.) as pushing an old lady in a wheel chair off a cliff.

4) Mortgage interest rates will rise dramatically if the debt ceiling isn’t increased. Not true. Indeed, the opposite is more likely, for not raising the debt ceiling stops the government borrowing more money. Less borrowing by the government could lower mortgage rates as there would be more lending available for potential homeowners. The interest rate paid by the government might go down for a second reason. Just as banks charge individuals a lower interest rate for those who have less debt compared to their incomes, the same is true for governments.

5) Time is Running Out on Debt Deal, and it must be done immediately. Despite Obama’s insistence that a deal be completed by July 15 and Geithner’s claim that a deal had to be reached by July 22, as already noted, there have been many times over the last few decades where negotiations have extended past when the debt limit has been reached. The longest delay lasted three weeks. Besides claiming that there will be a default, no explanation has been offered for why the debate is any different this time.

Possibly all these claims of urgency are part of some grand strategy to scare people, but that strategy depends on voters not knowing what is necessary for a default to occur.

6) If government spending is cut, there will be a depression. Obama promised that a “temporary” increase in government spending would “stimulate” the economy, but he is now telling us that we can’t cut that “temporary” increase — that we are stuck with it.

If Obama’s program — including a 28 percent spending hike since 2008 and more than $4 trillion in deficits — worked so well, why has our unemployment rate risen more than elsewhere? The European Union, Canada, South America, Japan, and Australia have all had smaller increases in unemployment compared to the U.S. after Obama’s “stimulus.” We have also had these shutdowns before and the numbers don’t show any negative impact on unemployment or GDP. Figures for the longest shutdowns during the fourth quarter of 1995 and the first quarter of 1996 are available here.

7) The value of the dollar will plummet. Again, the supposed collapse occurs when we default. But there won’t be any default. In addition, less government borrowing means lower future taxes, thus making the U.S. a more attractive place to invest. More foreign investment will actually cause the dollar to rise.

It is time for President Obama and his administration to stop scaring people. Cutting government spending back to its 2007 level won’t be the end of the world. After all, during the 2008 presidential campaign, Obama himself repeatedly promised “a net spending cut.”

From CNBC: Misunderstanding debt ceilings, deficits and defaults:(click to read article) Published: Monday, 7 Oct 2013 | By: | Radio host and CNBC contributor

The biggest news this week revolves around the debt ceiling, deficits and defaults. However, this discussion seems to breed rampant confusion.

Our financially incompetent government has met the financially illiterate public—and in many cases the financially illiterate media too—to spread myths, lies and misunderstanding as far as the eye can see regarding the ongoing U.S. debt issues. Here’s what’s real- and what’s not- in the government debt narrative.

Debt is not the only method to finance overspending

When our government spends more money than it takes in, as it has been doing both consistently and at an accelerating pace for the past 30 years, it has to find a way to pay for that overspending. As any individual or business knows, there are choices you face when you need more money than you have at hand. You have to find a way to bring in more capital through making more money, selling some assets or securing financing.

That’s the same decision the U.S. government faces as well. While raising taxes is an unattractive option given our already slow growth environment, plus the rampant government waste and mismanagement, the U.S. has plenty of assets that it could sell or lease in order to raise money to pay for overspending

For some reason, the option of utilizing our assets is never legitimately discussed.The default choice for the government for the past three decades has been borrowing to pay for its overspending. Because of that, over the last dozen year we’ve added more than $11 trillion in debt, creating the current balance of approximately $17 trillion that we owe and leaving us paying far too much of every dollar for past spending in the form of interest expense (approximately 9% for FY 2013). In layman’s terms, we are paying more and more of every tax dollar to finance past overspending instead of for investing in our future. Debt cannot be used as a continual financing solution without dire consequences.

Failure to raise debt ceiling doesn’t mean default

Somehow, the media and political narrative has been that if we don’t raise the debt ceiling we will default on our debt. It’s a convenient and scary cause-and-effect scenario. The problem is that it’s blatantly untrue as well. Failure to, or postponement of, raising the U.S. debt ceiling means that the government has exhausted all of its borrowing options and it cannot legally borrow any more money (a provision that would have been prudent to enforce long ago).

Our credit rating is threatened by much more than a default

We lost our AAA credit rating for the first time ever from S&P in 2011 based not on a default (which was threatened but never happened), but instead on our overall accumulation of debt, lack of a credible plan to reduce it and overall problematic policy making governance.

(Read more: Moody’s CEO: US default ‘extremely unlikely’)

All of those issues have gotten worse. We have more debt than two years ago and there has been no improvement in our political dis-accord, the financial savvy of our lawmakers, or in our governance in general.While we certainly don’t want to compromise our future financial flexibility, we also need to get a grip on the situation that our ballooning debt, lack of financial accountability and imbalanced budgets have put us in. We are dangerously close to having said situation spiral entirely out of control.

Honesty is the best- and only- policy

Certainly growth is our best path to prosperity, as it will bring in more revenue to address spending and debt repayment.

But in the meantime, we cannot solve our real issues around debt if we aren’t honest about them or if there’s rampant misunderstanding of them. We need to have a dialogue based on the reality of the situation and put pressure on our lawmakers to act responsibly instead of politically.


See other archived blog posts:

What Big Bird Teaches Adults About Government’s Wasteful Spending

Obamacare – Pass on Insurance? – Train Wreck Coming

$1 Million in Life Insurance Not Enough – Time to Reevaluate


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