The next fiscal fight

From cliff to ceiling


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Readers' comments



Of course it should be gotten rid of. But that is not really the issue. As long as the Tea Party crazies are bent upon "cutting spending" they will never permit that. And they control the House of Representatives. The definitive way to cut through the silliness is to mint a platinum coin of a very large amount, say 100 trillion dollars, and be done with the issue for, hopefully, ever. The objections to doing so are mainly from those who don't understand the determination of the crazies and who are "fraidycats" who won't do the obvious, sensible and legal thing.

gaudysnail in reply to saagua

So you're saying that current government spending levels are sustainable, and that attempting to curb government spending is folly as it relates to the national debt? Your use of hyperbole and ad-hominem attacks cripple the point you're trying to make. I am no "tea party crazy" person, but your commentary here is willfully ignorant and inflammatory.

TwoGunChuck in reply to gaudysnail




Politicians being what they are, I have a feeling that if the first result of Congress members' refusal for more borrowing was that they themselves didn't get paid, there would be an immediate change in the dynamics of this issue.


The rest of the world is right to distrust America, a falsely labeled "democracy" in which the GOP party received millions fewer votes yet still retains a double digit advantage in the lower house, an institution the founders originally designed to reflect the popular will. A small, undeserving political class in the House is holding the whole nation hostage. Such a situation should not, does not instill any kind of trust.

Unfortunately, this condition is not easily remedied. Decades of hard work will likely be required to turn our Federal Government back into a true democracy. In the mean time, may your bond investments be diversified and your durations short.

WT Economist in reply to RoyFan51

FYI it has turned out this way before. The Republicans became the dominant party at the national level in 1968 when Nixon won, a shift postponed by Watergate and solidified when they retook the Senate and Presidency in 1980. But they did not win the House until 1994, fourteen years later.

The reasons are the power of incumbency, gerrymandering, and the indifference of many Americans to legislative offices (at the state level it is even worse). So regardless of the founders' intentions, the House actually LEAST reflects changes in the popular will.

TwoGunChuck in reply to RoyFan51

Roy, as long as representatives in the house are allocated to states according to state population, as the constitution requires, you can expect that party percentages in the house will not exactly reflect the popular vote. If the house vote in California were 100% democratic, but 51% republican in all other states, and each district in each state exactly mirrored the state's overall percentage of democratic and republican votes, then you would have an overhwlmingly republican house but a sizable democratic majority in the popular vote. Nothing odd or interesting about this. If you want to change the constitution, go for it.


What about issuing separate bonds for different programs?

You could have different rates for war bonds, old person bonds, highway bonds etc.

The rates could then differ between programs, and each could have its own debt ceiling (wouldn't that be just awesome?). We could see how much it costs to borrow for each, and we could default on one without defaulting on the others.

Bond holders would get a wider variety of rates & risks, which might have great appeal.

It would also help them lend in good conscience.

teacup775 in reply to shubrook

Didn't Congress orignalky do this? Specific taxes for specific things. etc? Over the years they kept making their lives easier to amalgamating taxes and spending.

I like more the idea of cutting off citizenship and stripping their assets, but am more fond of flinging them into a pool of sharks.

Robert Del Rosso

I am not an economist, but I believe the Debt Ceiling should be retained.

Moreover, I feel that there is one way to solve the Debt Ceiling problem: Every time an unbalanced budget is approved by Congress, the Congress MUST also approve the new Debt Ceiling that is implied by a budget that would increase the National Debt.

A new Debt Ceiling would be part of each unbalanced Budget.

If the Congress refuses to increase the Debt Ceiling, then it must, then and there, specify and vote to approve a combination of tax increases and/or spending cuts that would balance the Budget, making increasing the Debt Ceiling unnecessary.

I would use “script” merely as a transitional tool to go from Budgets where no Debt Ceiling was specified, to Budgets where it is.

(As far as the charge that NO budget has been approved for the past 3 or 4 years----- I wish someone would please explain how that has happened, and how the government continues to operate in such a situation.)

IMHO, as long as we separate the 2 processes, (the Budget and the Debt Ceiling), we leave ourselves open to blackmail by those who would like to damage America’s Credit Rating and “drown the Government in a bathtub”.

Or, having the Debt Ceiling, as a New York Times reader wrote: “left as a loaded weapon on the Republicans' desks”. And we know how Republicans feel about weapons.

saagua in reply to Robert Del Rosso

If you examined the issue you would find that budget deficits are constant elements in most national budgeting. Without them there would be no reason for government bonds and financial market want government bonds. The US has had budget deficits for decades without any problem. Only recently did the deficit balloon due to the super recession of 2008 and it is now declining. (It also ballooned during WWI and WWII and declined rapidly thereafter.) The debt ceiling is merely a meaningless device that exists only in the US (and benignly in Denmark) and that now is being used to force spending cuts that otherwise would not occur. Retaining it is absurd, but since the Tea Party crazies won't allow it to be repealed, using the coin option is sensible, legal and would provide a permanent solution.

Mr. Dean in reply to Robert Del Rosso

Still not sure what use the debt ceiling has in your analogy, other than to put us at risk of default if we enter a recession and the deficit is higher than anticipated. CBO already provides deficit/surplus estimates, so there's no new information being provided.

saagua in reply to TwoGunChuck

You forget that the present deficit exists along with very low tax rates on the rich and that raising their taxes would cut the deficit quite rapidly. In addition the bloated military adds far too much to the deficit and should be downsized sharply. And why is growth slow? Partly because of the nature of the 2008 downturn (see Rogoff) and partly due to the refusal to use fiscal stimulus to boost the economy. Doing sensible things (the Tea Party permitting) would solve the problem without any great effort. Your slur on the President is contemptible and makes clear your lack of objectivity.

Aloft085 in reply to Robert Del Rosso

Not a bad theory, but in practice Congress does not know exactly how much each budget will cost. Exact figures are only estimates by the CBO and others. It would also surrender one of the few levers that we have to force our government to live within its means.

WT Economist

The debt ceiling serves a very useful purpose. It requires to Congress, every now and then, to at least confront the extent to which they, their constituents and interest groups are spending the income of future and younger Americans, who are worse off.

The fact that it has become more difficult to increase the debt ceiling is down to two things. Some of the Republicans now realize that for 30 years they are the party most associated with selling the future, and are trying to change their image before all the beneficiaries of their policies are dead and they expire with them.

And the evidence that younger generations are and will be worse off is becoming more obvious and difficult to rationalize away, causing some in Generation Greed to feel bad about what they have done. They like to get what they want without feeling bad about it.

I believe you have to have a way to lean against people's worst instincts. I don't get the feeling that the generations in charge are so reluctant to sell out the future that it has to be made easier to do so.

saagua in reply to WT Economist

If you want to spend less then appropriate less. Appropriating expenditures that the administration is required to make and then refusing to allow it to raise the funds to do so is stupidity squared. It is like writing a check and then telling your bank not to cash it or withdrawing money so your account can't cover it. You think that is a smart way to behave?

Aloft085 in reply to saagua

Appropriating less is a lot easier said than done. We tried this last year, and the media blamed a potential government shut down on Republicans. So they caved into the pressure.




saagua in reply to Mr. Dean

Exactly. Some of the comments here are amazingly, well, stupid. One problem is that ordinary people who know nothing of macroeconomics think "cutting spending" is virtuous always and everywhere. Most people think they "overspend" and thus it is the acme of virtue and wisdom to "spend less". In short they don't understand that national finance isn't like personal finance at all and they use a model of thinking that doesn't apply.

jouris - old account in reply to saagua

They also are clueless that the money which they are getting paid by the government is one of the things that will disappear if they succeed in cutting spending as much as they demand. Cause and effect are missing from their view of the situation.

New Conservative

I applaud the herculean effort made by the author of this piece to say that the debt ceiling is a bad idea and that it threatens global catastrophe while studiously avoiding condemnation of the Republicans.

How is threatening to destroy the US and world economy unless you get what you want not something that a Bond villain would do?

New Conservative in reply to TwoGunChuck

And how would crashing the economy make those graphs less steep?

The best deficit reduction program by far is economic recovery.



Paul Marks in reply to New Conservative

You produce no evidence that a big reduction in government spending would "crash the economy" - it did not after World War II (contrary to the united predictions of the Keynesians,) the economy prospered. And it did not when Warren Harding reacted to the bursting of the World War One credit money boom (in 1921) by reducing government spending by some 25% (from a peacetime total) - Harding's reaction of cutting government spending and letting the market clear by allowing wages and prices to adjust (all these actions were attacked by his own Commerce Sec Herbert "The Forgotten Progressive" Hoover - who did the EXACT OPPOSITE after 1929 as President) allowed the economy to quickly recovery from the crash of 1921.

As for implying that Richard Price Controls Nixon was a fiscal conservative - that at least made me smile. In reality Nixon was just as big a Welfare State fan as President Johnson was (the spending inreases under both are about the same).

If you want to attack Richard Nixon why not attack him for crawling to the largest scale mass murderer of all time (Mao - see "Mao: The Untold Story"), or for such unconsitutional actions as the already mentioned general price controls, or his unconstitutional creation of the EPA?

Accept to attack Nixon for these bad things would be against your ideology - which is about a million miles away from conservatism.

New Conservative in reply to Paul Marks

I'm not saying the reduction in spending would be what crashes the economy. It would be the self created bond crisis. It makes no sense to forestall a possible future bond crisis by purposefully having one now.

Second thing, the world market is a bit more integrated now then it was during Hoover's time.

I;m not saying Nixon was a fiscal conservative. I'm saying that he tried and fail to use the fact that the treasury is part of the executive branch to block some congressional spending he didn't like and Supreme Court told him this was illegal.

I was attacking the idea that the treasury, at least on overall government spending, is an agent of the Executive. It has to spend to cover the obligations that congress makes. period. If it does anything else, it's violating the constitution. Refusing to raise the debt limit and then blaming the president for going over is like ordering your own accountant to launder money for you and then turning him into the cops. "I'm shocked! Shocked! to see my accountant spending all of this money that I told him to spend."

Finally, I live in Taiwan and I moved here because Taiwan (the capitalist, white terror side of the Chinese Civil War) has universal health insurance while the PRC does not.

Mao the Untold Story is a hit piece written against Mao ironically in the Maoist style.

Back when they used to do struggle sessions, the communists would start with the conclusion "Mr. Huang is a capitalist roader" and then they would go back through Mr. Huang's entire life and interpret each piece of evidence so as to support that conclusion. So if he sold his neighbor a chicken, that was supporting capitalism, or if he failed to sing loud enough during patriotic songs etc. No other explanation for those actions would be entertained.

With Mao: The Untold Story. The starting assumption is that Mao was a sociopathic evil genius. While I agree with that assessment, the book in trying to denigrate Mao gives him far too much credit. He becomes the masterful puppet master pulling all of the strings and planning 5 moves ahead.

Nationalist failures are credited to amazing communist spying, not their own incompetence. (Go read about what happened to Sun Li-jen, the American trained Chinese general who commanded China's best army when it was fighting in Burma. But despite leading China's best trained and most modern troops in one of their few victorious WW2 campaigns, when the Civil War came, Chiang sent the troops to Manchuria and sent the one commander who knew how to use them to Xinjiang, 1000 miles away.) The book names certain generals as communist spies based on their failure to prosecute the Civil War successfully. It's even more bizarre because in at least one of these cases, we do know, and the CCP has admitted, that General Hu Zongnan's Chief of staff, Xiong Xianghui was a CCP spy. Never ascribe to malice what can be explained through stupidity, but this book does that all the time. Yet the authors want to place blame higher up. The CCP becomes much more impressive if it could suborn several 4 star generals as opposed to just staff officers. It gives the CCP too much credit.

Similarly, if the display of rank incompetence when fighting the communists was proof of being a communist spy, then Chiang Kai Shek would have to be on the list.

P.S. It's "except" not "accept."

New Conservative in reply to Aloft085

Actions speak louder than words.

Republicans were the ones who dismantled a balanced budget in the early part of the Bush presidency.

I'll believe in a balanced budget when they propose one with the cuts they want made explicit and written down.

It's one thing to say you want a balanced budget or to end poverty, but the devil is in the details and the Republicans haven't provided any.


Fortunately you are based in Great Britain, if you were American the GOP would have you on trial for heresy, for inviting the breakdown of all order, for causing cucumbers to marry pickles ...


Not only US but many developed economies have External Debts running upto more than 100% of their GDP. They seem to have very healthy appetite for debts and are able to digest it as well. How long can a country continue to borrow and what or who decides the limit? Also with a very sluggish economy if the Government spends less then won't the economy shrink, at the same time if the Government continues to spend it only increases the debt burden. I think in times like these the cut down in Government expenditure should be supplemented with an increase in Private sector spending and they should be given incentive to do so. Private sector spending would ensure that debt burden is not increased, economy doesn't shrink and people continue to earn and spend to boost economy.


There is no reason debt principal and interest obligations CANNOT be made primary such that NO payments can be made by the Treasury UNTIL all National full faith and credit obligations are currently paid. This will take the National Debt out of the clown acts of Any Congress. After that is made permanent law, other changes such as abolishing the Debt Limit and replacing it with a Budget requirement can be considered. Congress has NOT passed a budget for nearly four years! If spending is not grounded in any affirmative authorization or fiscal plan of any kind, then repeal of the debt ceiling will just allow spending without limit or authorization.

Mr. Dean in reply to john4law

Congress has absolutely passed appropriations bills governing spending. A quick Google search will show that the FY 2012 bills were signed into law by the president on 12/23/2011.

Spending can only be exactly what Congress appropriates. It can't be any higher, or any lower, and Congress says.

john4law in reply to Mr. Dean

Sorry but that ISN'T what I said. I said Congress has not passed a BUDGET since 2009. You should know that is TRUE and Congress under the 1974 Budget and Impoundment Reform Act has been REQUIRED to enact a Budget each year BEFORE it appropriates ANY MONEY!

Congress trashed the Executive's control and management of spending and budget issues and enacted a control system it has
IGNORED and spent money wildly WITHOUT CONTROLS of ANY KIND!!

Mr. Dean in reply to john4law

The "controls" are the same as they've always been: you need approval of both House and Senate, and either the president's signature or a supermajority to override the president's veto. The whole "budget vs. appropriations" debate is semantics, and is ridiculous.


Indeed, there were more jobless over the past year, according to Eurostat data, in the 17-nation Eurozone -- where the number of newly unemployed was 2.015 million, compared to 2.012 million for the EU. Facing a bust property boom and riddled with bad debt in its banks, Spain recorded the highest unemployment rate of all the European countries -- at 26.6 percent, worse even than bailed-out Greece. Among under-25s, both countries saw unemployment rates hovering around 57 percent. According to Eurostat figures seasonally-adjusted for comparative purposes, the November unemployment rate in key rival economies was 7.8 percent for the United States and 4.1 percent for Japan. "2012 has been another very bad year for Europe in terms of unemployment and the deteriorating social situation," said European Commissioner for Employment, Social Affairs and Inclusion Laszlo Andor. Giving his annual report on employment trends, he said that "appropriate labour market reforms and improvements in the design of welfare systems" could make countries more resilient to economic shocks. I thank you Firozali A.Mulla DBA


We have yet to go far in employment data. The number of Americans filing new claims for unemployment benefits rose last week, the Labour Department said on Thursday, but details of the report suggested the jobs market continued to grow at a moderate pace. Other data suggested the economy remained on a steady growth path, with sales at wholesalers rising by the most in more than 1-1/2 years in November, keeping inventories balanced. Initial claims for state jobless aid increased 4,000 to a seasonally adjusted 371,000. The prior week's figure was revised to show 5,000 fewer applications than previously reported. Claims tend to be very volatile around this time of the year because of the holidays and seasonal layoffs, making it difficult to get a clear picture of the labour market's health. While claims increased last week, there was nothing in the data to suggest deterioration in labour market conditions. "Jobless claims data continue to suggest steady but modest U.S. employment gains," said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto. The four-week moving average for new claims, a better measure of labour market trends, increased 6,750 to 365,750, still at a level consistent with steady job gains. U.S. financial markets were little moved by the data. I thank you Firozali A.Mulla DBA


The the democrats threatened to let the W Bush taxes expire to raise tax revenue. The republicans are using the debt ceiling as leverage to cut expenditures. What is on the other side of the fiscal cliff is Greece. QE slightly lowers the T-bill interest rate and also slightly lowers interest expenditures; but now that we have above a 2% inflation rate, QE is no longer desireable.



Why is there such a paucity of reporting/discussions in main stream news media and among politicians/bureaucrats and interest groups of the US potentially adopting a national sales tax (IE: a country-wide 'Value Added Tax') similar to the national sales tax/VAT tax mechanisms which have been in place in virtually all other industrialized nations world-wide* for decades??

Although objected to by many upon its implementation over 20-years ago, Canada's national sales tax, the so-called GST Value Added Tax, is now widely accepted across the country and is credited by respected economists with enabling many of Canada's most vital federal and provincial govts' programmes' continuation and, in some cases, badly needed expansion...

Substantial additional and increased sources of revenue are needed by the US govt to continue provision of irreplaceable federal and state-delivered programmes and services...

Considering the dire consequences for ordinary Americans- and for the US's international partners around the world- of dramatic cut-backs in federal spending (on things such as education, research and development, defense, health care and old age security):

1) Why aren't ALL 50 U.S. states obliged to have a 'state sales (VAT) tax'?;

2) Why aren't the US's politicians, news media and leading economists discussing the potential attributes and negatives of the US adopting a country-wide 'Value added Tax'??

Roderick V. Louis,
Vancouver, BC, Canada

* G7 and most European Union member countries

Paul Marks in reply to roderickvlouis

The vast majority of American States do have a sales tax - you are talking about imposing a national sales tax ON TOP OF the State sales taxes (which are sometimes very high already).

And as you should know, what saved the Canadian Federal budget was CUTTING GOVERNMENT SPENDING - something most American Democrats will not even consider doing.

Still B.C. is a wonderful part of the world.


When did Senate pass a budget last time? Why did the markets ask for a Debt ceiling in PIIGS countries? They will soon ask for one in UK also. Unless China or Middle East is willing to pay for prime Martian Real Estate, there has to be a ceiling at some point.Even the Sun set on the British Empire one day after 300 glorious years.



Mr. Dean in reply to PamSkeen


Given that people are still giving the USFG free money out to 10 years, I think we're still doing ok. We're paying less total interest on the debt than in 2006.

PamSkeen in reply to Mr. Dean

You are correct Mr. Dean, but consider this: A middle class wage earner such as myself could make payments on a trillion dollar loan if said loan was "interest only" and the interest rate is 0%. Question is...what will happen to my trillion dollar loan when interest rates go back up to historical norms?
Me thinks America faces a debt induced economic collapse.

Aloft085 in reply to Mr. Dean

Mr Dean, the same was the case for Greece until relatively recently. Corrections often happen rapidly, as investors change their assumptions in the face of declining value. Another example of this is the 2008 financial crash.


It isn't a debt ceiling if you can keep moving it up.

At the end of the day there's only so much you can borrow, and that depends on the market, not Congress. We're getting closer and closer to that. These spats are annoying, but I think they're useful warnings.

That are capacity to borrow is limited isn't because of the other party. Please don't find that out.

Pompatus in reply to Pompatus

I think it makes perfect sense to condition raising the debt ceiling on some entitlement reforms. If we don't cut entitlements, we will default. And as much as you may not like hearing that Mitch McConnell, you really really don't want to hear that from the market. The republicans are doing their job.


Phtt! Yeah, I guess there's no good reason for scarcity. But that's just how it all works. I also don't like sadness, death, and pain. Believe it or not, we can't afford to have even beggars ride.



jouris - old account in reply to Aloft085

No. Because people who voted to requires spending at a certain level, and to limit taxes to a lower level, have no moral authority to object to the borrowing necessary to do what they have voted to require. Those who do that are exactly what bampbs called them: low-life welchers.

If you want to cut spending, fine. Cut spending when the time comes to pass the next budget -- that's where you mandate spending. You've got the votes; do it. But if (in reality, when) you don't, don't decide to stiff the people that you promised to pay.

Aloft085 in reply to jouris - old account

Your argument is convoluted. A vote not to raise the debt ceiling is the same as a vote to dramatically and immediately cut spending. Besides, you'll recall that the same people attempting to cut spending now were also attempting to cut spending last year when this budget was passed. They were more or less blackmailed into accepting current levels of spending by political opponents who would have allowed the government to shutdown.

I agree that allowing the US Federal government to hit the debt ceiling is not ideal. It should not happen. Ideally, Congress would vote to cut long-term spending in exchange for an increase in the debt limit. That not only is a realistic political compromise, it also makes the most sense financially.

jouris - old account in reply to Aloft085

Ah, but which spending? The problem is that Congress has passed laws requiring certain spending. And that spending cannot be done with the funds available and without borrowing.

Now if the Congress would be so good as to prioritize the spending that they have legally required, then we might get somewhere. But no, all of the spending is of equal priority. So what do you think the administration should cut? And how do you expect them to reach that conclusion without violating Congress' clear orders to spend it?

jouris - old account in reply to Aloft085

Let me try it this way:
- you have $1.
- you will take in $20.
- you are in debt for $15.
- you are required to spend $15 for item X.
- you are required to spend another $15 for item Y.
- you are required to pay $5 in interest on your existing debt.
- you are not allowed to borrow more than the $15 that you already owe.

Quite simply, you cannot do all of those things. Either you don't spend all of the money you are required to spend, or you borrow more than you are allowed to. Can you say Catch-22?

Aloft085 in reply to jouris - old account

Jouris, that's for the courts and the President to sort out, if it should come to that. To be quite honest, I don't care. What matters is that the pain is significant enough to force the President to compromise, which he currently has said he will not do. I am myself a government employee (USAF Pilot), so I'd lose my wage as well, but I'm willing to suffer it if it'll help get our fiscal house in order. We simply cannot allow problems like this to fester, they're of a life-changing magnitude. I visited Greece a few months ago, and the people there are seeing nothing but wage cuts for the foreseeable future. I don't want that for my country.

So what you are saying is that, Congress having given mutually contradictory orders, it is up to the Executive and the Judiciary to decide which of those orders to obey and which to ignore. That seems like a serious abdication of responsibility to me.

Now if the Congress were serious, what they would do is pass a law mandating cuts, and dare the President to refuse to sign it. Or, things being how they are, pass such a law thru the House, and dare the Senate to not pass it. But they won't. Because most of those in the legislature calling for spending cuts (I except those of us outside) are utterly unwilling to actually make cuts themselves. Or even admit what they would necessarily be.

They're fine with calling for someone else to propose cuts . . . after which they will throw a fit about all the critical spending that was included. Because they can't admit (probably not to themsleves; certainly not to the constituents they have been misleading) that it simply isn't possible to balance the budget without cutting things that their constituents will not countenance having cut.

ZA Observor

It's dangerous that the world economy is held hostage by the artifice of a US 'debt ceiling limit', created by Republicans a year ago as a Trojan Horse to scupper US economic recovery and prove Obama wrong.

Ostensibly, the debt ceiling 'bargaining tool' - aptly described as a weapon of mass financial distruction - was crafted by Tea Party advisors in order to force a 'spendthrift' Democrat government to slash expenditure - principally on benefits - in order to repay national debt [something that cannot be accomplished by any US government, but rather through the World Trade Organization and trade agreements].

Jack Lew and Obama could take the wind out of deficit reduction plea bargains, simply by sourcing revenue elsewhere. IF the Bank of England can be made to hand over gilts interest payments to slash national debt, why not the Federal Reserve? Why should all the free money floating bankers boats, not be redirected at least in part to repay some of the debt that finances them?

With less than 5 weeks to go, there's precious little time for Jack Lew to find creative solutions to redirecting QE money, force the Federal Reserve and banks to align, and sell a new budget deal that allows the debt ceiling impediment to world economic recovery in demand, to be removed. 'Saving face' to get approval by the Republican controlled House, require some broad budget re-framing where both sides agree to "park" the more complex duality of revised social benefits and tax structures.

That, in turn, may only be possible if both sides agree to a bipartisan Senate working committee tasked with researching, modelling and reviewing changing population demographics actuarially, within a brief to negotiate sustainable updated core benefit proposals and tax structures before the budget in 2014.

Disturbingly, there seems no evidence of any such strategic or tacical planning and interaction between gridlocked politicians, locked as they into polarised positions by vested interests of the super-PACS who funded their election.


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