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Wednesday, March 08, 2006

A Lesson in Debt

Speaking of the blog DFLers.org, how wise is it of these officially sanctioned blogs of supposedly serious organizations to employ rank amateurs to blog on their behalf? This alternative media has grown into a significant avenue for the dissemination of information - does it really make sense to continue to turn this responsibility over to interns and newly minted PolySci graduates? This post by Jess McIntosh, Maxed Out, struck me as a prime example of the sort of undeveloped thinking that doesn't belong on a big time blog:

The piece is a breathless rant assailing the Bush administration's request to raise the debt ceiling, and it begins like so:
What happens when you or I reach our "debt ceiling"? Well, Visa cuts us off, of course. It's a well-known fact that one can't borrow more than one was loaned. That would be irresponsible. Right? One might even say "reckless," or "a financial risk" - the kind that could only be perpetrated by a clueless teen-ager, a hopeless gambler, or George W. Bush.
She then goes on to alert us to the doom portended by this request:
Only when the debtor is the president, the creditor isn't Visa - it's Congress, and the penalty for an overdraft isn't a call from a collection agency - it's our nation's first-ever default on its financial obligations.

For those not sufficiently frightened by the way I italicized that last bit, check out this analysis:

An actual default on the debt, a situation when the government misses making payments to current bondholders, is a doomsday scenario considered highly unlikely given what it would do to the government's credit rating.
The cause of this impending disaster? You guessed it:
So how did we get in this mess? Let's recap. Unprecedented tax breaks to the wealthy will create jobs and boost our economy. The war (or should I say "reconstruction") in Iraq will practically pay for itself. America will land safely in the black.
To read this hyperventilating analysis, you would think that this request by the Bush administration (specifically, Secretary of Treasury Snow) to raise the debt limit is wholly unprecedented, a newly minted fiscal outrage initiated by George Bush. It is the analysis of someone with an obviously limited historical grounding.

A little Googling and trip to the website of the Concord Coalition confirmed what I already knew: requests to raise the debt ceiling are not unusual and do not necessarily correlate with fiscal rectitude or a lack thereof:
Has this happened before? Yes. The Clinton Administration undertook similar measures in 1995 and 1996, and the Bush Administration resorted to such tactics twice last year [2002] alone.
I can imagine that someone who might have been a mere teenager in 1996 might not remember these occurances.

The Concord Coalition primer on this subject also points out that an increase in the debt ceiling may even be necessary in times of budget surplus:
Four years of government surpluses (1998-2001) allowed the federal government to buy back, or "pay down", $466 billion in public debt. Over those same four years, however, intragovernmental debt increased $675.9 billion. As a result, the total debt subject to the limit rose from $5.4 trillion in 1997 to $6.2 trillion at the end of fiscal year 2002.
The key is the "intragovernmental" category of debt:
Government debt is categorized as either intragovernmental debt (debt the government owes itself such as the Social Security Trust Funds, the Medicare Hospital Insurance Trust Fund, and the Medicare Hospital Insurance Trust Fund), or debt held by the public... Unchecked growth in either category of debt... will generate pressure to increase the debt ceiling.
In other words, as the Social Security Trust Fund grows, so does the need to increase the debt ceiling. That is not to say that an increase in public debt will not also create such pressure, but it is a common mistake arising from basic economic and historical ignorance to assume that an increase in the debt ceiling reflects general fiscal malfeasance.

If I were Jess McIntosh, I'd stick with the easy stuff - attack President Bush for excessive spending on education... that's an outrage that has contributed to the budgetary mess she cites. But I guess a good DFLer doesn't want to talk about the spending side of the equation.


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