Debt ceiling battle heats up again

Think that confrontations over the debt ceiling left town with the Obama? You might want to think again.

“I urge you to raise the debt limit before you leave for the summer” [on July 28], Treasury Secretary Steven Mnuchin told the House Ways and Means Committee on Wednesday according to the Wall Street Journal. Mnuchin said that he prefers a clean increase without conditions.

In response, the House Freedom Caucus released a statement opposing a clean increase. “The U.S. federal government is drowning in debt, yet continues to spend into oblivion on the backs of future taxpayers,” the statement said. “We have an obligation to the American people to tackle Washington’s out of control spending and put in place measures to get our country on the right fiscal course.”

The Freedom Caucus adopted a three-fold position on the issue. First, they categorically oppose a clean increase. Second, the group agrees that the debt ceiling should be address by Congress before it recesses for the summer. Finally, the statement demands “that any increase of the debt ceiling be paired with policy that addresses Washington’s unsustainable spending by cutting where necessary, capping where able, and working to balance in the near future.”

The government reached the debt ceiling imposed by Congress in March. Since then, the Treasury Department has been using cash conservation methods to keep the government operating. The shuffling of funds is a temporary solution that typically is only viable for a few months.

Previous estimates indicated that congressional action on the debt limit would need to be taken by late September or early October. Earlier this week, budget director Mick Mulvaney told Politico that the date might come sooner than expected.

“My understanding that the [tax] receipts, currently, are coming in slower than expected and you may soon hear from [Treasury Secretary Steven] Mnuchin about a change in the date,” Mulvaney said before the House Budget Committee.

The US national debt currently stands at $19.9 trillion. The House Freedom Caucus and other Republicans fought the Obama Administration on the debt ceiling several times during the past eight years. In exchange for increasing the debt limit, the GOP was able to win some concessions on spending from Obama and the Democrats. 

Originally published on The Resurgent

Defunding Obamacare is GOP’s ‘mission impossible’

In recent weeks there has been a push among members of the Republican Party and Tea Party activists to “defund” the Affordable Care Act, “Obamacare.” The Republicans have devoted considerable time and energy to the repeal of Obamacare, which is driving up health insurance costs around the country according to UPI. According to NBC News, by the beginning of August the Republicans in the House had voted to repeal Obamacare no less than 40 times.

The problem for the GOP is that Democrats control the Senate and the White House. Repeal bills from the House die in the Senate, usually with a party line vote. If a repeal bill did somehow pass the Senate, it would face a certain veto from President Obama.

If Republican bills to repeal Obamacare have failed 40 times, what makes them think that a bill to defund the president’s health care reform can make it through the Senate? The plan, formulated by Senator Mike Lee (R-Utah), centers around a pledge to “not support any continuing resolution or appropriations legislation that funds further implementation or enforcement of Obamacare.”

The defund Obamacare movement has several hurdles. The first is getting enough Republican support. Lee’s plan is supported by Senators Ted Cruz (R-Tex.), Marco Rubio (R-Fla.), and Rand Paul (R-Ky.). In all, about a dozen Republicans have signed onto the plan so far. Cruz told CNN on August 27 that 41 senators or 218 representatives would be needed to make the plan work. There are currently 233 Republican representatives and 45 senators. This means that the plan would require near unanimity among Republicans.

The second hurdle is negotiations with congressional Democrats. While the Democrats have never voted to repeal Obamacare, some new Democrats accept that Obamacare is deeply flawed and unworkable. Others might be persuaded to work with Republicans to fend off election year challenges. A compromise with congressional Democrats would be difficult but not impossible.

The final hurdle is President Obama. In 2011 and 2012, the two parties entered negotiations to raise the federal debt ceiling. At the end of 2012, the parties negotiated to avoid the tax cliff, a number of new taxes and tax increases scheduled to automatically go into effect. In each case, Obama adamantly opposed even token spending cuts. According to Bob Woodward’s book, “the Price of Politics” (excerpted in the Washington Post), Obama was willing to take the country to the brink of default and total financial collapse to avoid cutting federal spending in 2011. The story was the same in the tax cliff negotiations when, as reported by Examiner in December, the president refused to consider any plan that did not raise taxes.

The first test of the plan to defund Obamacare would likely come by mid-October when the federal government reaches its spending limit. Congress must act to raise the debt limit again before the limit reached and President Obama is refusing to even enter into negotiations over the increase. Where once Obama was considered by some to be “the adult in the room” during negotiations, he now seems more akin to a toddler who holds his breath until he gets what he wants. This is the man with whom the Republicans plan to issue an ultimatum to defund his signature piece of legislation. Last week, Cruz told Fox News that he believes that the president might agree to defund the Affordable Care Act. He did not say how he thought Obama might be persuaded to do so. A more likely scenario is that Obama would act unilaterally to raise the debt ceiling without Congress as the Democrats threatened last January.

Rasmussen reported on August 26 that a majority of Americans are still opposed to Obama’s health care law by a margin of 54-41 percent. Nevertheless, a poll commissioned by Republican members of Congress in early August found that 71 percent oppose shutting down the government to fight Obamacare according to the Washington Examiner. Among Republicans, 53 percent oppose a shutdown compared to 37 percent in favor. A more recent Rasmussen poll on August 27 found that 42 percent of Republicans thought a government shutdown would be good for the party while 28 percent thought it would hurt and 14 percent believed it would have no impact.

In practical terms this means that a government shutdown could jeopardize Republican chances of victory in the 2014 elections. As detailed in Examiner last week, Democrats are defending 20 seats to the Republicans’ 15. Of seven open seats, five are currently held by Democrats and three of these are in red states. The current Rasmussen generic congressional ballot favors the GOP by one point. The GOP had a similar edge in the 2012 elections and actually lost two seats in the Senate.

With less than two months left before Congress must act on the debt ceiling, it is unlikely that enough Republicans will sign onto the plan to block funding for the law. If Republicans did unite around the effort, the result would most likely result in a stalemate that would bring the country to the brink of a government shutdown. Given President Obama’s past history in such showdowns, he would be willing to allow the country to default and use the ensuing crisis as a weapon against the GOP. For example, Obama could delay military pay and entitlement checks or even making payments on the national debt while blaming Republicans. Republicans would be forced to choose between defunding Obamacare or a national default. Few would choose to default.

Even if Republicans were successful in their defunding effort, it might still not stop Obamacare. A Congressional Research Service report requested by Tom Coburn (R-Okla.) in July indicates that implementation of Obamacare would likely continue in a government shutdown for two reasons. First, some funding from discretionary and mandatory funds would still be available. Second, exceptions to the Anti-Deficiency Act would allow some pre-authorized spending to take place.

The long odds against defunding Obamacare bring to mind Pickett’s Charge or the Charge of the Light Brigade, a valiant effort that is doomed to almost certain failure. Nevertheless, some Republicans might personally benefit from a situation even as their party loses. The Washington Post points out that Cruz, Rubio, and Paul may well use the effort to make themselves more attractive as presidential candidates for 2016.

Coming soon! A better plan for Obamacare.

Originally published on Elections Examiner

Poll: Most Georgians approve of Obama

According to a new Gallup poll, a slight majority of Georgians approve of President Obama’s job performance. By a margin of 48 to 44 percent, Georgians favor the president. The approval rating is actually one point higher than the percentage of the vote that Obama won in Georgia in 2008.

While not in the top ten Obama-approving states, at number twenty Georgia ranks higher than many of the swing states from the 2008 election. This fact is somewhat surprising considering the size of the Republican victory in Georgia in 2010.

Florida falls just after Georgia with a 47-45 approval margin. North Carolina is next with a 46-46 split. Two other swing states, Ohio and Indiana, both disapprove of President Obama. Ohio’s margin is 45-47 percent, while Indiana’s is 42-50 percent. All four states were won by President Obama in 2008.

Missouri and Montana, two swing states won by John McCain in 2008, now strongly disapprove of President Obama. Missouri disapproves by 42-50 percent. Montana is one of the most unfavorable states to Obama. Thirty-six percent of Montanans approve of the president, while 55 percent disapprove.

President Obama’s national approval rating is 42 percent according to Gallup, which means that his approval in Georgia is actually higher than the national average. President Obama’s strongest support is in the northeastern states as well as Illinois, Delaware, Maryland, and Hawaii. His strongest opposition is in the South and Midwest.

In what must be seen as a disturbing sign for the Obama re-election campaign, the president’s approval rating was higher than fifty percent in only sixteen states and the District of Columbia. This means that even before the unpopular debt ceiling compromise, Standard and Poor’s downgrade of the U.S. credit rating, and this week’s turmoil in the financial markets President Obama faced an uphill battle in next year’s presidential campaign. The state polls were taken from January through June 2011 so the president’s approval rating could be much worse than the polls reflect given the upheaval of the past few weeks.

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Barack Obama’s awful, no good, very bad day

Barack Obama has had a bad day. His bad day actually started last Friday when the stock market dropped 500 points on news of Europe’s failure to deal with its own debt crisis. After the close of markets that day, Standard and Poors, one of the rating agencies for financial bonds, made a long feared announcement that it was downgrading the credit rating of the United States. To make matters worse, the U.S. federal debt was revealed to have reached 100 percent of GDP a few days earlier, a milestone not seen since 1947.

Over the weekend, investors and ordinary Americans (who are one and the same if they have a pension, an IRA, or a 401k) contemplated how the downgrade would affect Wall Street and Main Street. To add to the somber mood, on Saturday, August 6, an Afghan insurgent shot down a U.S. Army CH-47 Chinook transport helicopter killing thirty Americans, including members of a U.S. Navy SEAL team. Seven Afghan soldiers and a civilian interpreter were also killed.

There was much speculation as to what would happen when the financial markets around the world opened today, the first trading day after the announcement of the downgrade. What happened was what some observers called a financial “bloodbath.” The stock market crashed for the second time in two trading days. The Dow Jones Industrial Average fell 635 points to a level that erased almost ten months of gains. Financial markets around the world were hit.

At this point, many economists are warning that the United States is likely entering a second recession. In a Dick Morris column, James Fitzgibbon, director of the Highland Fund called today “the second phase of the meltdown.” Fitzgibbon believes that “stocks, real estate will collapse and keep falling into 2013. The lows of 2009 will be easily taken out on the downside.” Chillingly, Fitzgibbon believes that the worst is yet to come: “The real horror will be later in the year when the U.S. Treasury Bond goes into a freefall. Then a depression is possible. Soaring interest rates. Collapsing asset values. Contracting economic activity. Surging unemployment. And business closures.”

This is a particularly bad day for Barack Obama for several reasons. ABC News notes that the selloff sharpened after the president spoke in the afternoon and called for more taxes. This shows that investors have lost faith in President Obama’s vision for the nation. They realize that the fiscal problems of the United States are too great to be fixed by raising taxes on the wealthy. The only solution to the problem of overspending and deficit reduction is to cut spending, a prescription that President Obama and the Democrats have steadfastly resisted.

The second reason that today was a bad day for President Obama is that he must realize that the new crisis is his fault. This is not a crisis that he inherited from George Bush. This one is purely of his own making. The debt crisis is due to the fact that President Obama’s Keynesian stimulus projects have failed miserably while increasing the federal debt by a third. President Obama has no serious plan to repay any of the money that he has borrowed in the name of the American people.

The president must also realize that, as the U.S. economy sinks into another recession, his hopes for re-election also diminish. Voters generally vote their wallets. If times are good economically, they vote for the incumbent. If times are hard, they vote against the incumbent. In a Gallup poll taken before the recent stock market crashes, President Obama’s approval rating was down to 43 percent (with 48 percent disapproving). With the bad economic news, his approval rating will only fall further.

This is not altogether unfair. The current carnage in the world’s financial markets is the logical end result of his policies. His administration has been an unending saga of new regulations on business, not the least of which is Obamacare, that stifle job growth. His solution to the first economic crisis was to borrow money and spend it on pet projects. An additional attempt to resolve the crisis was to print more money through the Federal Reserve’s quantitative easing programs. As a result, the United States has the highest unemployment in recent history, a downgraded credit rating, and a devalued dollar, all due to President Obama.

In Georgia, the unemployment rate is even higher than the national average. According to the Georgia Department of Labor, Georgia’s unemployment rate is at 9.9 percent while the national rate is 9.2 percent. Three years after the initial crash of 2008, Georgia’s foreclosure rate remains the sixth highest in the nation according to the Atlanta Business Chronicle. This has led to falling tax revenues for the state and local governments, which has in turn led to massive layoffs of government workers and teachers. Untold numbers of Georgia businesses have failed. Georgians have watched their retirement plans dwindle year after year. After the events of the past few days, it seems that all of this will get worse. Barack Obama lost Georgia by five percent of the vote in 2008. He will likely lose by much more in 2012.

The last bad thing that happened to Barack Obama today is that Timothy Geithner informed the president that he would not resign as secretary of the treasury. As one of President Obama’s most trusted economic advisors, Geithner bears much of the responsibility for the current economic fiasco. Federal Reserve Chairman Ben Bernanke and Austan Goolsbee, chairman of the president’s Council of Economic Advisors, are also reportedly not resigning.

It is a bad day for President Obama. Unless he reverses his economic course, a change that he is most likely incapable of making, he will go down in history as a latter-day Herbert Hoover. He will be the president who spent the United States into an economic calamity, the likes of which has not been seen in eighty years. That is bad for President Obama, but worse for the rest of us.

If you disagree with the analysis presented in this article, please read “Serious questions for liberals, Democrats, and other Obama supporters.” If you can answer the questions presented, the author would welcome your response, either through email at thorntondavid@yahoo.com or as a comment.

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What the downgrade of federal debt means to you

When the world financial markets open today, it will be the first chance that they have had to react to the news of the downgraded U.S. debt. The announcement of the downgrade by Standard and Poors came last Friday after the close of the markets on a day that had already seen a huge decline in stock markets around the world.

As Georgians learned in 2008, what happens on Wall Street and Washington affects lives in Georgia. The financial crisis that began in New York’s banks and investment houses froze credit in Atlanta and caused the local real estate market to crash. Next, new construction projects stalled and Georgia’s unemployment rate skyrocketed as the effects of the deepening recession spread throughout the state and the country.

The current crisis is different from 2008 in many ways. The debt crisis has been long in coming and was not unexpected. For over a year, rating agencies have warned that a downgrade of U.S. debt was possible if the government did not take steps to reduce borrowing and deficit spending. With the recent debt limit crisis, many investors had already included concerns about the national economy in the value of their investments.

Adding to the seriousness of the new crisis is that, in a flurry of borrowing after congress raised the debt limit, the federal debt exceeded the gross domestic product (GDP) of the entire country. Last Wednesday, August 3, the treasury borrowed $238 billion which put the national debt at over 100 percent of GDP. The last time that the national debt exceeded GDP was in 1947 as the country demobilized after World War II according to Yahoo News.

This will undoubtedly be a volatile day of trading around the world as many investors panic and sell. The fact that the downgrade occurred on a weekend and investors have had two days to calm down may temper some of the trades.

The twin shocks to the market will likely cause more long-term economic damage. As Martin Feldstein, former chairman of President Reagan’s Council of Economic Advisors, recently pointed out in the Wall Street Journal, the Obama Administration’s policies of spending borrowed money and devaluing the dollar have led to the slow growth in GDP. Employment is closely related to GDP. If the economy is not growing, jobs are not being created, and it is difficult for the unemployed to find work.

The Wall Street Journal points out that different commodities may be affected in different ways. Copper, which is used in many products, is considered a bellwether for the economy and is already down eight percent in the past week. This signals fears of a second dip in the recession. Because oil prices often rise and fall with the larger economy, if investors believe another economic downturn is likely oil prices may fall. This could translate into cheaper gas prices for Georgia drivers and lower energy costs. On the other hand, gold prices often rise in times of economic uncertainty. Gold may be driven higher as the debt continues to increase and the dollar continues to weaken. Gold is already trading near record highs.

Another likely effect of the downgrade is a rise in interest rates. For the past few years, the Federal Reserve has kept interest rates low in an attempt to jumpstart the economy. The downgrade means that rating agencies feel that U.S. treasury bonds are more risky due to the increasing federal debt. Since the bonds are more risky, investors are likely to want more interest for loaning money to the federal government (i.e. buying treasury bonds).

According to the Center on Budget and Policy Priorities, six percent of the federal budget is currently spent on interest. If the government has to pay more interest that percentage will grow. If more money goes to interest that means that less money will be available for spending on other programs. This will exacerbate the federal spending crisis.

Adding to the uncertainty is the fact that U.S. treasury bonds are probably still the safest investment in the world, even after being downgraded. This is not so much an endorsement of U.S. treasury bonds as an indictment of the economic status of the rest of the world. The U.S. is broke and dealing with out-of-control spending, but it is still in better shape than Greece, Spain, France, Italy and many other nations around the world. This may mute the effect of the downgrade.

Although no one knows for sure what will happen, the downgrade likely means that the unemployment rates in Georgia and the United States will remain high. Rising interest rates will mean that mortgages and other loans will be more expensive. As interest rates rise on adjustable rate mortgages, there may be more foreclosures. The upward pressure on interest rates will prevent a recovery in Atlanta’s real estate market, which has been hard hit by the recession.

As the borrow-and-spend situation eventually becomes untenable, the federal government will likely be forced to adopt austere spending cuts like those of Greece. This will eventually mean that benefits in the big entitlement programs, Social Security, Medicare and Medicaid, have to be cut. These cuts will affect millions of the poorest Georgians. Other payments from the federal government to the states, such as highway funds, may also be reduced or eliminated.

The United States has reached a point where it is obvious that the federal government must cut spending. As the price of borrowing increases, interest and debt repayment will become ever larger shares of the federal budget. As the economy falters, tax revenues will fall and make the problem even worse. The only solution is to reduce spending without raising taxes, which would also send the economy back into a recession.

 

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Debt limit and federal default: What they are and what they mean to you

As the deadline for an agreement on raising the debt ceiling approaches on August 2, it remains to be seen whether the Democrats and Republicans in Congress can reach a compromise that will allow the federal government to continue to meet its obligations. Many Americans do not understand the background of the debt limit debate. Many others don’t believe that it will have an impact on them.

Technorati Tags: Government,Barack Obama,spending,deficit,debt limit,debt ceiling,bankrupt,default,compromise,tax,spend

The debt limit is the congressionally imposed limit on borrowing. According to Factcheck.org, the federal government is currently borrowing thirty-six cents for every dollar that it spends. Part of the problem is that tax revenues have fallen since the onset of the recession in 2008, while federal spending has increased. When the federal government reaches the limit of what Congress allows it to borrow, it will have to begin choosing what bills to pay and which ones to default on.

The situation is similar to that of many families in Atlanta, around Georgia and throughout the country that were financing a plush lifestyle with mortgages and credit cards before the recession started. The breadwinners in the family took pay cuts, like many others in the country, but imagine that in this case, rather than cutting back on spending when they realized that they were bringing home less money, they started borrowing more in an attempt to preserve their old lifestyle. In fact, with the huge increases in federal spending, it is like the family took a pay cut and then went out and bought a new luxury car on credit. Everything that they used to pay cash for, the family now charges to their credit cards. The hope is that if they can borrow until more money starts coming in and avoid making painful spending cuts entirely.

The problem is that there are consequences to excessive borrowing. The federal debt limit is analogous to the family’s credit limit. The family, like the federal government, cannot borrow indefinitely. Sooner or later, the overspending family will max out their credit cards. As their debt increases, it will get harder to find places to borrow more money and the interest rate for their borrowing will increase because loans to this family will be considered more and more risky for the lender. Eventually they will be forced to stop borrowing and make cuts to their spending when they are not able to borrow any more money.

At this point, the federal government has refused to make meaningful spending cuts and is seeking to raise the credit limit on its old credit card and apply for new ones. One price that the government might pay for running up the balance on its credit cards even higher is a downgrade to the United State bond ratings.

U.S. treasury bonds are currently rated AAA and are considered the safest investment in the world, but massive increases in federal debt and spending have led rating agencies to warn that they may have to downgrade the rating on U.S. bonds. This is akin to the hypothetical family’s credit score being downgraded from 700 to 600. It means that interest rates will be higher for future bond sales which will increase the cost of government borrowing. It also means that unless changes are made, further downgrades could come soon.

It is likely that the federal debt limit will be raised, but that won’t solve the federal government’s problem. The fundamental problem is that the government spends much more than it receives in taxes. Like a family with a pay cut, the federal government faces two options. First, it can cut spending and live within its means. The problem with this option is that federal spending is made up of popular but expensive programs. Any attempt to cut any federal program meets with resistance from voters and activists. It is like facing opposition from mother for cuts to the grocery budget. Brother doesn’t want to spend less on video games while sister needs her clothing allowance. Father doesn’t want to eliminate cable television from the family budget.

A second option is find a way to increase the money coming in. For the family, that means finding a job that pays more or working a second job. For Congress, it would mean raising taxes. The problem with this option is that, just as most Americans can’t find a higher-paying job, they also can’t afford to pay higher taxes without further damaging the economy.

Ironically, the Laffer Curve, an economic principle, shows that beyond a certain point even an increase in taxes won’t generate more tax revenues. As tax rates increase, so much money is leaving the private economy and going to the government that it discourages investment and production. Consequently, tax revenues fall and the government collects less money. Even if the government can generate some additional tax revenue by raising taxes, the government’s spending problem is so large that it cannot be solved without spending cuts.

If Congress fails to raise the debt limit, the government will not be broke because some tax money will be coming in; it just won’t be enough to pay everything. The government will have to choose which bills to pay and which ones to defer until it has more money, just as many families have to choose which bills to pay. Theoretically, the government could pay important bills, like Social Security payments and military salaries, while delaying payment on less important things like Senator Harry Reid’s cowboy poetry festival and the thousands of other wasteful items in the federal budget. In the final analysis, practically everything the government spends money on, especially the big-ticket items like Medicaid, Medicare, Social Security, and defense, will have to be reconsidered and restructured, but that is a long-term problem.

In the short term, the effect of a default would depend on what Treasury Secretary Tim Geithner and President Obama decide to stop paying. They could choose to stop making Social Security payments to increase pressure on Republicans. They could divert money from defense and other federal departments to keep social spending active. Many government employees might be laid off.

Companies that do business with the federal government would likely not receive payments. That might mean that workers at these companies would be laid off or go unpaid. The uncertainty in the economy could cause the stock market to crash.

Georgia and other states might not receive federal grants and subsidies which would mean tighter states budgets and more layoffs for state employees. Many of these states, like Georgia, have already made painful cuts to state government budgets and experienced rounds of layoffs rather than financing their spending with more debt. Unlike the federal government, thirty-seven states have balanced budget laws that do not allow a deficit to be carried forward according to the National Conference of State Legislatures. Georgia does not have such a law.

If the U.S. bond rating is downgraded, interest rates will likely rise on treasury bonds. The increase in interest rates will ripple through the economy. Interest rates will rise on everything from mortgages to credit cards. Borrowing will be more expensive for American companies and consumers as well as the government.

The ultimate outcome of the battles over spending, taxes and the federal debt remain to be seen. What is obvious is that the U.S. is on an unsustainable course. The failures of national economies such as Greece are a warning to Americans that reckless spending cannot be financed with borrowing indefinitely without doing serious damage to the nation.

Social Security and the debt limit

Ida May Fuller (Public Domain)

President Obama’s warning that a failure to increase the debt limit may mean that there is not enough money in the federal treasury to send out Social Security checks should put a stake through the heart of the myth that there is a Social Security trust fund. In an interview with CBS News, President Obama said, “I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.”

For decades now, Social Security has been sold to the American public as a retirement plan. Many Americans believe that their Social Security taxes go into an account that is held for them until they retire. In reality, Social Security is a pay-as-you-go program in which current tax receipts are used to pay the benefits for current retirees.







Social Security was enacted into law in 1935. According to the Social Security Administration, the first Social Security beneficiary was Ida May Fuller of Ludlow, Vt. Fuller began collecting benefits in 1939 after paying into Social Security for less than three years. Her contributions (taxes) totaled $24.75. Fuller lived until 1975 and collected a total of $22,888.92 in Social Security benefits. This is equivalent to a return on her “investment” of over 900 percent. Current Social Security returns are approximately two percent.







If Social Security were a true retirement plan, Fuller’s benefits would never have lasted for 36 years. Fuller’s benefits were being paid by the Social Security taxes of current workers rather than Fuller’s own contributions and interest.







According to the Social Security Administration’s website, the 1935 Social Security Act established a trust fund for Social Security benefits. On one part of its website, the SSA calls it a myth that the Social Security funds have been placed into the general fund of the federal government. However, on another page, the SSA admits that Social Security taxes are invested in securities and that “the cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.”




In other words, money in the Social Security Trust Fund is given to the general fund of the federal government in exchange for “special-issue” securities. The trust fund is filled only with s to repay the funds borrowed by the federal government. Thus far, the federal government has always repaid the funds with interest, but if the federal government is in default then it might not be able to do so.







The AARP notes that fourteen percent of Georgians, primarily seniors, receive Social Security benefits. For more than thirty percent of these seniors, Social Security is the only source of income.







If the Social Security Trust Fund were a true retirement plan in the form of a privately administered investment plan, it would be required to maintain a certain ratio of liquidity to invested assets. Instead, Social Security relies on current tax receipts and the repayment of funds borrowed from the trust fund by the federal government. Since current taxes cannot pay current benefits, if the government cannot repay its borrowed funds (with more borrowing), then it might well not be able to pay benefits to current retirees.







It is likely that Congress and the president will come to an agreement that will continue to fund the federal government, but taxpayers should remember the summer of 2011 as the time when the myth of the financial security of Social Security was deflated.







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The first fight of 2011

The federal debt clock in April 2008.  It is now over $14 trillion. (Jesper Rautell Balle)

Georgia’s congressional delegation became more Republican this year, partly on the promise to repeal and replace Obamacare.  Now, as the new congressional term begins, one of the first actions taken will likely be a vote in the House of Representatives for repeal.  This vote, however, will not mark the first real fight of 2011. 

The vote for repeal is likely to pass the Republican-held House, but its chances are far less certain in the Senate, which still has a Democratic majority.  Even if the bill passes the Senate, it would face an almost certain veto from President Obama.  Chances of convincing enough of the surviving Senate Democrats to vote for repeal can be found somewhere between slim and none.

Instead, the first real political fight of 2011 in which the Republicans have a chance to make a real difference and not just take a symbolic stance will likely come when the Democrats try to increase the federal debt limit.  The debt limit is the legal amount that the government is permitted to borrow.  It was most recently increased in May 2010 to a $14.3 trillion.

If the debt limit is not raised, often as part of a budget bill, the Democratic spending train will be stuck in the station.  The government will soon reach a point at which it can no longer legally borrow money.  In practical terms, this means that the government will be forced to cut spending.  Ironically, this is precisely what the Republicans were sent to Congress to do.

Failure to raise the debt limit would put the Obama Administration, and by extension the entire federal government, in a bind.  President Obama’s prescription for the economy has so far been to spend money.  So far, this has resulted in a stagnant economy with high unemployment and very slow growth.  Without being able to borrow to finance his programs, from implementing the new health care bureaucracies to stimulus spending, Republicans would be able to “starve the beast” and reverse the government growth of the last two years.

Keeping the current federal debt limit would also tie in with the Republican promise to enact “cut-go.”  The Democrats had enacted a “pay-go rule when they took Congress in 2006 that required new spending programs to be paid for, rather than financed through debt.  In reality, pay-go was waived so often as to be meaningless.  Pay-go also allowed programs to be financed through increased taxes, where cut-go will require new spending to be offset by spending cuts elsewhere.  If the Republicans hold to this promise, it will start to reverse the federal habit of deficit spending.

There are political risks to not raising the debt ceiling.  Most obvious is that the Democrats will attempt to finance new programs through raising taxes rather than through spending cuts.  Given the broad public support for the extension of the low Bush-era tax rates, this would likely be an unpopular move with most voters that would ultimately hurt the Democrats.

Newt Gingrich and Bill Clinton faced a similar situation.

More likely is that the Republicans would provoke a confrontation with President Obama, in which the Democrats would seek to deduce deficit spending by cutting popular programs such as Medicare and Social Security.  They might also threaten a government shut-down of the sort that cost Republicans support in the Clinton era.  Whether it would play out the same, given the voter anger at Democratic policies and spending, is an open question.

Republicans have the advantage in this looming battle.  A strong showing at the polls last November that sent additional Republicans, including Georgia’s new Representative Austin Scott, to Congress is fresh in Democratic minds.  This gives the Republicans a momentum that they have already used to block December’s omnibus spending bill and pass the compromise that extended the Bush-era tax cuts until 2012 and reduced the revived death tax.

Closely related to this fact is that Senate Democrats are very vulnerable in 2012.  In the next election, 23 Democratic senators will be up for re-election compared to only 10 Republicans.  Many of these Democrats will face tough re-election battles.  Given the current climate of voter anger at federal spending and the growth of government, many Democratic incumbents will not want to go on record with votes supporting more federal debt and spending, let alone tax increases.

More importantly, the house of Congress that is now controlled by the Republicans is the House of Representatives.  According to the Constitution, all spending bills must originate in the House.  This means that Republicans will have control over the federal budget.  Of course, the GOP budgets will still have to pass the Democratic Senate and survive an Obama veto.

In the final tally, an important part of the battle will be played by the Tea Party and other citizen activists.  If voters remain engaged and angry, it will place pressure on both parties to change the status quo in Washington.  In particular, it will keep the pressure on Republicans who campaigned and won on promises to reduce wasteful deficit spending and stop the rampant intrusion of government power into private life.

http://www.examiner.com/conservative-in-atlanta/the-debt-ceiling-will-spark-2011-s-first-fight">