Are Our Debts Impractical?

By: David Heacock

The level of irony in Washington seems to have reached a new high this week. In the final press conference of his first term, President Obama stated “The full faith and credit of the United States of America is not a bargaining chip….We are not a deadbeat nation.” And speaking at the University of Michigan Federal Reserve Chairman, Ben Bernanke, declared that there’s no “practical value” in maintaining a debt ceiling.

Essentially, it is being put forth that paying bills with increased borrowing is right and honorable, and insisting on cutting costs to fit budget constraints is “irresponsible” and “absurd.” President Obama urged “We’ve got to break the habit of negotiating through crisis over and over again,” but isn’t it a bit short-sighted to simply write off our current expenses and add them to our growing national debt? Are we not treating America’s currency as “bargaining chip” by increasing our dependence on foreign credit?

As long as we continue to defer our bills to our national debt we will be having this conversation “over and over again.” In 2011, we faced a similar situation and Austrian School economist, Robert Murphy, gave a clear explanation of the game being played in Washington:

“The numbers are not forcing this position. It is a political choice. The government doesn’t want to cut its spending- it likes things the way they are - and it’s trying to scare the American public into thinking financial Armageddon will occur unless we allow them to borrow trillions more dollars than they’re able to take in through taxes. And that’s simply not true. In fact, it’s the opposite. The only way we’re ever going to get out of this financial mess is if the government starts living within its means, and the best way to do that is right now when the public has its attention - and this is really a hot-button political issue. So, people should urge their congressman not to raise the debt ceiling.” –Robert Murphy, Ph.D.

Don’t be fooled by the debt ceiling myths. Keeping the ceiling at $16.394 trillion would not trigger a default on debt unless the Treasury opts to not pay interest payments. What it would cause would be a “prioritization of debt,” demanding Congress to discriminate less important appropriations and either reduce, or cut their funding.

“At some point we run into a ceiling that we can’t raise, and that’s the lending ceiling, because our creditors don’t want to loan us any more money… We can print money, so we can default through another vehicle. Instead of refusing to pay, we can pay with money that has very little buying power. So, from the perspective of our creditors, that’s the same thing as a default. If we pay our creditors money that has little value, that’s the same thing as not getting all your money back – you’re not getting all your purchasing power back. That is the real danger that we face if we keep raising the debt ceiling because we’ve borrowed too much money.” –Peter Schiff, CEO Euro Pacific Capital

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