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The “Debt Ceiling Crisis” Is Accounting Nonsense

Posted by: Linda Carbonell on April 11, 2011.

04-11-2011 by L. S. Carbonell

The next big scary monster in Washington is the debt ceiling. The Republican Party has created the idea that raising the “debt ceiling” is disastrous while economists, bankers and the administration keep saying that not raising it would push our nation into defaulting on our debt obligations, raise the interest we pay on our national debt and tank the economy again.

Here are the facts: Our “national debt” is $13.86 tillion, but $4.5 trillion isn’t real. Only $9.36 trillion is actually money our nation owes to somebody else in the form of bonds that have been sold to foreign banks and governments. The rest, that $4.5 trillion, is money our government owes our government. It is money that one agency, like the general fund, has borrowed from another, like Social Security. Now, the way a nation’s credit rating is gauged is by measuring its national debt against its yearly gross domestic product – the value of all the goods and services that a country produces. Ours is $14.67 trillion. Ninety percent is considered the danger point. Above that, a country’s growth slows significantly. Below that, the country’s economy will grow well and it will be considered a very good risk for borrowing. Right now, using the $13.86 trillion number, our debt is 94% of GDP. That is too high. But, if you take the $4.5 trillion out of the mix, as most countries do, you have a 63% debt to GDP ratio. That’s very good. We could even go as high as $13 trillion in foreign debt and still have a good ratio.

We don’t need to “raise” our debt ceiling. All we need to do is remove interagency debt from the “national debt.” That would decrease our debt ratio, increase our economic health index and make us one of the more stable economies in the world.

Here’s the part that literally amounts to pea-soup-density smoke and mirrors on the part of the Republicans. They are demanding at least $100 billion in spending cuts a year to “save” our country. But our deficit is running at around $1 trillion a year. Their cuts would not balance the budget. They would miss that mark by $900 billion a year. Their own budget would continue to raise our national debt by at least $900 billion a year, while gutting all our social safety nets and leaving the Pentagon with a $700 billion a year budget to play global cop. The Republican Party has managed to convince around 70% of us that raising the debt ceiling is bad, but they will have to raise it to accommodate their own budget.

Of course, this whole argument would be moot if the Republicans weren’t so busy protecting Bank of America’s “right” to not pay any corporate taxes. The whole deficit crisis would melt away if they weren’t insisting that Americans don’t deserve full-time jobs with decent pay and benefits; if they would reform the tax system so that the rich pay a fair share. Spending is half the deficit issue – the other half is reduced revenues caused by tax breaks and the recession.