Eliminate the Debt Ceiling

The chart that proves concern about a US debt default is rising http://t.co/ZLqMNYnpeN
— Joseph Weisenthal (@TheStalwart) October 2, 2013

Markets are growing more anxious about the risk of a US default if the debt ceiling isn't raised by Congress before the deadline. 

Joseph Cotterill posts this chart from BofA/ML showing the interest rates on various short term government T-Bills 

As you can see, right around the "danger zone" (around October 17, when the debt ceiling is due to be breached) investors are demanding a higher yield to hold those assets, reflecting some degree of concern and risk that the government's timely redemption of these bonds won't occur

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That chart and brief commentary is from Business Insider.

Eliminating the debt ceiling altogether is not a new idea. 

This is not the lunatic fringe talking. This is a realistic suggestion based on a principle that every household should understand well.

The way to stay out of trouble is not to borrow more than can be repaid. 

The problem is spending, not borrowing. 

The so-called "debt ceiling" is an artificial construct. It creates an illusion that monetary policy will correct the mistakes of fiscal policy. 

Unfortunately, few people have no idea there is a difference is between fiscal and monetary policies.  Perhaps a simple analogy can help. 

When Prohibition failed the sale and consumption of alcohol became legal. Saloons, retail stores and restaurants selling and serving alcohol have covered the landscape ever since. Unfortunately some individuals have a drinking problem. Some are self-identified alcoholics. Others are in denial. Most people avoid problems by moderate drinking, but for some it is best to avoid drinking altogether. But eliminating all alcohol did not stop the problems associated with alcohol. In fact, it made them worse. Debt is like alcohol. It's time to stop imagining that Debt Prohibition is the remedy for debt problems.  The only lasting remedy is spending discipline.

►Don’t raise the debt ceiling; eliminate it

January 23, 2013

As the President has reiterated time and again, raising the debt ceiling does not authorize any new spending, but rather simply allows us to pay our bills for expenditure decisions already made–including Social Security and Medicare commitments. The country does need to have a debate about spending and taxes, but not whether we should pay our bills. And budget mechanisms – such as pay-go financing – can be really helpful in keeping our books balanced. But the debt ceiling imposes no discipline on those important decisions and simply serves as a provision that can be exploited for political purposes by the opposition party each time the country comes close to hitting it. The debt ceiling should not be raised; it should be eliminated.

► Obama Could Negotiate to Eliminate the Debt Ceiling
September 28, 2013

Norm Ornstein: "There is one area where Obama could and should be willing to negotiate with Republicans--to take the default option, the full faith and credit of the United States, off the table permanently. Senate Republican Leader Mitch McConnell provided the vehicle to do this in the eleventh-hour resolution of the debt ceiling crisis in 2011. The 'McConnell Rule,' as it was called, allowed the president unilaterally to extend the debt limit, while also providing for a congressional resolution of disapproval. If both houses of Congress disapproved of the president's action, the resolution would be sent to the president. He could veto it--but it would take two-thirds of both houses of Congress to override his veto." 

"Institutionalizing the McConnell Rule would be valuable enough that it should extract some real concessions from the president to achieve it."

► Suspending the debt ceiling is a great idea. Let’s do it forever!
January 22, 2013

House Republicans are choosing to "suspend" rather than "increase" because it sounds really bad to say you voted for an increase in the debt ceiling. What, $16.4 trillion in debt isn't enough for you? 

Well, no, it's not. It's not enough even if we pass Paul Ryan's budget tomorrow. It's not enough even if we begin bringing the debt-to-GDP ratio down. The debt ceiling isn't adjusted for inflation or economic growth. It's just raw dollars. So even when our finances are fully in order and the national debt is holding steady or declining as a percentage of our economy, we typically still have to raise the debt ceiling. That's why, in 1997, when we the economy was booming and a surplus was around the corner, Congress had to raise the debt ceiling by $450 billion. 

But that takes a long time to explain, and you have to use the words "inflation" and "economic growth" and "absolute dollars" a lot. Those aren't words that really work when you're responding to a challenger's attack advertisement, and politicians know it. That's why they hate voting to increase the debt ceiling, even when the budget is under control.

► Want to get rid of the debt ceiling forever? Join the club.
January 23, 2013

Every time Congress threatens not to raise the nation's debt limit, experts ask this very question. Congress already has control over the country's deficits by setting tax and spending levels. Why should politicians also hold a separate vote permitting the U.S. government to finance those deficits — especially since there are such dire consequences if Congress fails to act? 

Below, we've assembled a long list of prominent analysts, economists and government officials who have argued over the years that the debt ceiling should be abolished. 

[It's not just my idea. Check out the list assembled at the link.] 

► Moody's suggests U.S. eliminate debt ceiling
July 18, 2013

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's said in a report. 

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report. 

The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement. 

Moody's said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.

However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk," Hess said. 

Don't take my word for it. Do your own search for "eliminate the debt ceiling" and see what comes up. 

The Suicide Caucus  is the political equivalent of a pre-cancerous polyp in the colon. Members of that group are not apt to grasp a word of what I just took published.  It should be clear now that Congress needs the political equivalent of antivenin serum (better yet, invasive surgery)  to protect itself from further poisoning by that group of extremists. If they are not stopped now they will poison the whole water supply.