Tuesday, November 20, 2012
Abolish the Debt Ceiling?
Earlier this week, Treasury Secretary Timothy Geithner got up on Bloomberg TV and argued that the debt ceiling should be abolished. For those of you familiar with the debt ceiling, it is a mechanism that has been in place for nearly the entire existence of the United States, which puts a dollar figure on the amount of money we are willing to borrow. Beyond that number, the Federal Government is not allowed to issue new treasury notes. Congress has historically voted to raise the debt ceiling with little resistance, but following the victories of the Tea Party in 2010, new members of the house refused to raise the limits without compromising on cutting spending. This lead to a showdown which shook the markets, but ultimately resulted in an agreement to cut defense and other discretionary spending by 10% across the board.
While Secretary Geithner rightly points out that these kind of fiscal showdowns can have a negative impact on the economy, whats more important is empowering our legislature with the tools to take leadership on the real pending fiscal crisis. Our growing debt obligations are like a car heading full speed towards a brick wall. The further we kick the can down the road, the harder it is to slow that car down. The reality is that our government will not act on long term problems unless the horizon for consequence is within the site of their next election cycle. Given a choice between making tough unpopular decisions and inaction, elected officials will choose inaction every time. The debt ceiling needs to continue to be the tool that forces the hand of elected officials, and even if its just to kick the can again, to force a vote of accountability. Eliminating the debt ceiling to save a few dollars now will only ease the road to a heaping wreck of an economy later.