While the debt limit was suspended last year by Congress, allowing them to borrow as much as they wanted to finance projects, it has now been brought back into effect starting this past Monday. Late last week Treasury Secretary, Jacob Lew, suspended Treasury securities and decided to stop making investments in a pension fund for government employees.
The debt has finally caught up with the GDP which, to policy makers, is not a good sign. While Lew urges Congress to raise the ceiling based on the newly enforced cap there is talk that the federal government will be able to last until October or November through various “extraordinary” measures. Though what constitutes these extraordinary measures? The measures are explained more here. Part of the measures, before Congress is able to pass any sort of debt ceiling, include suspending new investments in the Civil Service Retirement and Disability Fund.
Previously the debt limit has caused major problems on the United State’s political scene, first in August 2011 when we saw a downgrade of the nation’s credit ratings, the first ever seen by the United States. Then in October 2013 we all remember the government shutdown caused, partly, by the disagreements about the national debt. Some believe that now again, will be a time partisan issues will come to the forefront but Senate Majority Leader Mitch McConnell assured the public that this would not happen.
What do you think, should we be concerned with the national debt?
http://www.nytimes.com/aponline/2015/03/13/us/politics/ap-us-treasury-debt-limit.html?_r=0
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What purpose does a debt limit serve? Does it get Congress to pass budgets that are balanced, or is it merely an act of political cowardice?
Note of course our class discussion…more on Fri 20 March.
As we discussed in class, most of the U.S. national debt is owed to public. Can government then simply roll it over? I used to think that the U.S. chose not to because its international reputation will be at stake. Apparently, not really, at least according to Professor Smitka. To answer your question, I think we should be concerned about the current level of national debt. Not that I believe debt is always bad, but an excessive amount can surely retard economic growth.
After discussing this topic in class it is interesting to note that the headline numbers can most definitely be misleading. In terms of the 18.1 trillion we can already decrease this by about 1/9 or 2 trillion just based on how much has been bought up by the Fed and how much the government essentially owes to itself.
According to Paul Krugman, the idea of a “Debt Crisis” is a purely political, that is to say fictitious issue. The idea of a “Debt Spiral” is unfounded as projections of the cost of borrowing are likely to be not much higher than the overall economy’s rate of growth.
http://www.nytimes.com/2014/07/21/opinion/Paul-Krugman-An-Imaginary-Budget-and-Debt-Crisis.html?_r=0
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