The Debt Ceiling Fiction

By Alan Caruba

When asked why someone said something idiotic or some group is advocating something moronic, I am apt to wearily reply that there is no defense against stupidity.

There is a defense and it works over the long run. It is called the truth.

It is interesting to watch how “the truth will out” as they say in detective novels. In our society, so in thrall to the mainstream press and media, the truth circulates swiftly through that portion of the population that first suspects something is amiss and then outward to the general population that can no longer ignore it.

That long, slow process occurred with the Watergate scandal that ultimately forced President, Richard Nixon to resign in 1974. It began with a 1972 break-in at the Democrat headquarters in Washington, D.C. and then just unraveled a little bit each day. It enshrined two young reporters from The Washington Post in journalism’s pantheon of heroes and probably caused a goodly number of college kids to change their major to journalism.

The Founding Fathers who fashioned a federal government after the Articles of Confederacy proved a failure for the new nation not only knew history, they were an unusually brilliant collection of scholars; even if self-taught as was common at the time. What they knew well was human nature and they knew that men were inclined to criminality and stupidity. Thus, the Constitution deliberately divides the powers vested in the legislature, the judiciary, and the executive. It also deliberately slows down the legislative process.

The system largely worked until eleven southern slave states became so incensed over trade laws passed by northern states and the growing abolition movement that they decided to secede from the Union in 1860. Abraham Lincoln said no. Then he sent a huge army to back it up.

If they had had a crystal ball, all would have known that technology would replace slave labor in a remarkably short time. If they had any sense, they would have worked out a compromise, but the stupidity factor interfered. Even the Founding Fathers “four score and seven years” earlier knew that the issue of slavery would threaten the new republic.

Big problems and big issues cannot be ignored forever.

To give you an idea how big the problem is, a CNSnews story reported that “Treasury Secretary Timothy Geithner oversaw the largest increase in the national debt of any Treasury secretary in American history, presiding over a $3.7 trillion increase in debt…In fact, the debt accrued under Geithner is greater than all federal debt accrued in the first 204 years of the nation’s history.”

The United States now finds itself less than a month away from defaulting on its loans because, in just two and a half years, the current President has allowed the debt to increase to $14.2 trillion, an amount that equals the entire annual Gross Domestic Product. That’s not break even. That’s broke.

The Republicans have put forward a plan to solve the debt problem. The Democrats have not even produced a budget in more than 800 days.

That’s why this goes way beyond mere partisan politics. This is a nation that has managed, mostly due to government “entitlement” programs to bankrupt itself. The Democrats refuse to discuss modifying them in any way. Instead, they want to raise taxes on people (40% do not even pay taxes) who need that money to pay mortgages, auto loans, and all the other demands of life. Raising taxes during a Recession or a Depression is well known to be a very dumb idea.

Democrats keep insisting on it, claiming that squeezing more out of “millionaires and billionaires” will solve the nation’s problems. No, it won’t. And everyone knows this, but Democrats will not admit it. Their base is made up of union members and the usual disaffected people waiting for a handout.

Largely unmentioned is the way neither the current, nor former chairmen of the Federal Reserve had the slightest idea why all the things the government tried to do, nor their own ability to raise or lower interest rates, was having any affect on high unemployment and a stagnating economy. And that was their job!

In the July 4 edition of Business Week, Zachary Karabell, an author, historian, money manager, and economist asked a very important question, Does Government Matter? “Today, the ability of any state to govern and control its own domestic economy is severely constrained,” said Karabell.

“A global market of buyers and sellers sets interest rates, and short-term rates (which are all the Fed can directly control) are only one factor”, adding that “the ecosystem of global capital, in which trillions of dollars, goods, and services are traded daily, transcends the reach of any one government.”

The argument, an old one, is which is better, big government or small? Fiddling with the economy has usually done more harm than good. Government has an obligation to govern prudently and to encourage the free market to perform. Ponzi schemes like Social Security and Medicare invariably suffer the fate of Bernie Madoff, they collapse.

While the rest of us watch from the sidelines, the two major political parties posture and bluster over a “debt ceiling.” The nation has hit that ceiling and raised it many times.

There is no ceiling left. There’s just a trap door that leads to a failed economy. We’re tapped out. No one is going to want to purchase our treasury notes if we don’t change course. The debt ceiling financial fiction will be raised.

There are men and women in Congress who want to resolve the current crisis and there is a man in the White House who was never eligible to be president and would much rather blame everyone else, play golf, increase taxes, and raise money to run again.

© Alan Caruba, 2011