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ECONOMY: DEBT LIMIT INCREASE – What does it mean?

Posted by FactReal on February 4, 2010

Economy United States Federal Debt Raising the Debt Limit….Prelude to Tax Increases?
Isn’t it great to be government? Spend, waste, and spend without care. Once they reach their credit limit, they go ahead and authorize a credit increase for themselves. But it gets worse. They are putting themselves into a corner
with only 2 exits: raise taxes or cut programs. Using the year 2009 as reference, it is very unlikely that the Obama administration and the Democrat-majority in Congress will choose to cut spending.

Raising the Debt Limit…again…and again…
Just last Christmas Eve, the Senate raised the cap on federal borrowing to $12.4 trillion.
Last week, the Senate adopted the debt limit increase. Every Democrat voted in favor.

Today, the House of Representatives approved increasing the debt limit to $14.3 trillion:
The bill: H.J. Res. 45.
The votes: 217-212.
All Republicans and 37 Democrats voted against.

It’s Naked Politics

That’s enough to keep Congress from having to vote again before the November elections on an issue that is feeding a sense among voters that the government is spending too much and putting future generations under a mountain of debt to do it.

Moody’s, the credit-rating agency, warned that the U.S. might lose its AAA rating

Moody’s has warned that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit. 

…Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020. [But using] the general government measure…used internationally, this ratio would be well over 100 per cent in 2020.”

What Happens if the U.S. Loses its Triple-A?

If the U.S. lost its Triple-A rating, the country would have to spend more to borrow, creating further financial pain…

Already, annual interest on the U.S. debt, which equals the size of Belgium’s economy, would cover the annual budgets for 18 government agencies, including the legislative and judicial branches, and Homeland Security.

While the U.S. budget is essentially a detailed wish-list, which Congress can ignore, the country is spending about $2 for every $1 it collects.

PayGo, Spending Freeze, and the Deficit Commission

The Administration now supports pay-as-you-go rules, which forces Congress to restrict new spending or hike taxes so as to not add to the federal deficit.

Never mind that the entire government has already violated the paygo rules already, by spending $3.8 trillion while taking in only $2.4 trillion in tax receipts annually.

If the rules are broken, Congress would theoretically enforce automatic cuts to programs like Medicare, farm subsidies and veterans’ pensions, analysts note…

Skeptics say Congress can easily break the rules, by declaring some spending an “emergency,” such as extending jobless benefits for the long-term unemployed.

Obama’s Freezing Proposal is a Joke

The Administration is proposing freezing spending to create $250 billion in savings over the next decade. The spending freeze would affect $477 billion out of $3.5 trillion in annual outlays, or 17% of the budget.

But the spending freeze doesn’t go into effect until 2011, cementing in place increased spending on programs that have already had at least a 22% increase in their annual appropriations in the past two years–another 25% increase including stimulus, analysts note.

Fully seven-eighths of federal spending is excluded from this freeze. [That’s 87.5%]

Our debt

Already, the accumulated debt amounts to roughly $40,000 per person. And the debt is increasingly held by foreign nations such as China.

The problem

Washington’s spending is eating up the largest portion of the economy in America’s post-World War II history. The White House now forecasts a $1.565 trillion budget deficit for 2010, spending about as much as the economy of Mexico…

Total U.S. debt has already veered higher than $14 trillion, equal to the U.S. economy. The president’s budget projects the government’s debt doubling to $26 trillion over the next decade.

Collapsing Ceiling

The U.S. will spend close to $45 trillion over the next decade — roughly the amount of money we spent on all the budgets from 1789 to 2006 combined. This is fiscal insanity. Spending must be cut.

A steep market dive on Thursday was blamed on turmoil in Europe. Why? Nations like Greece, Portugal and Spain let their debt reach unsustainable levels, killing economic growth, boosting joblessness and leading to violence and strikes. Consider it a warning.

Such a fate lies in America’s future unless we act — and soon — to rein in runaway spending and return control of the economy to the private sector. If we don’t, default and economic ruin await.

It’s time to realize that big government can’t satisfy our wants and needs. Nor does it create jobs or wealth.

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