U.S. Budget Debate Heats Up as the National Debt Clock Ticks Down

No Debt Resolution in Sight, as the Nation Hits Its Borrowing Limit

by Lee Avery on May 24, 2011

There has been much apocalyptic talk about what disaster may ensue if Congress fails to renegotiate the national debt ceiling and the country spirals into default. Economists’ forewarnings have been rampant and unequivocally ominous.

Having been acutely aware of the deadline for months, Congress began drafting a comprehensive spending plan, which successfully passed in April, only to arrive at a more thorny debate – delineating a realistic debt limit for the country. With the ominous forecast of the S&P’s published lowered outlooks regarding U.S. borrowing, lawmakers have a formidable task before them.

This prompted U.S. Treasury Secretary Tim Geithner to warn Congress that swift and definitive action must be taken. In a letter to Congress, Geithner presages dire repercussions: “Default by the United States on its obligations would have a catastrophic economic impact that would be felt by every American.”

The nation reached its $14.3 trillion debt ceiling in mid-May, leaving the federal government scrambling to conclude negotiations on revising the nation’s debt ceiling. If Congress fails to raise the debt limit come August, the nation will find itself burdened with the monolithic task of raising $738 billion.

To avoid exceeding the limit, the government has agreed to temporarily halt its investments in two federal pensions plans, as Congress was formally notified soon after the ceiling was reached.

At a press conference, Geithner informed the public, “We have now set in motion a series of extraordinary measures that will allow the government more time to raise the debt limit.”

Those measures involve tampering with or borrowing from special government funds.  Some conservatives have discussed the necessity of resorting to more desperate measures, as in selling off government assets, such as land, buildings or some of the 261.5 million oz. of gold in Fort Knox that the Treasury Dept. owns, valued at almost $400 billion.  Even if such measures were taken, however, the country would only have bought 3 months’ time before it was faced once again with the same dilemma.

The more vocal majority of Republican Party lawmakers remain adamantly opposed to raising the debt ceiling until some sort of long-term plan to resolve the budget with concrete feasibility is clearly outlined. Conservatives are outright negating the possibility of resolution without slashing expenses. “Raising the debt ceiling without dealing with the underlying problems would be totally irresponsible,” says one Republican representative.

Republican House Speaker, John Boehner, asserts, “Without significant spending cuts and changes in the way we spend the American people’s money, there will be no increase in the debt limit. And the cuts should be greater than the accompanied increase in the debt limit that the President is given.” Extrapolating from that statement, dollar for dollar, such a proposition would entail making $2 trillion in spending cuts. Considering that last month the government was on the brink of shutdown in the battle over $38.5 billion in cuts, a significantly smaller amount than that which the country now faces, Boehner’s suggestion appears wholly unfeasible, leaving both parties in deadlock.

Financial experts and economists warn that if the U.S. even came close to defaulting on its debt, interest rates would skyrocket, the stock market would plummet as well as the gross national product, and immediate and drastic layoffs would sweep the country.