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Home Publications Blogs Beat the Press It's a Debt Ceiling Crisis, Not a Debt Crisis

It's a Debt Ceiling Crisis, Not a Debt Crisis

Friday, 29 July 2011 04:45

The NYT headlined a section that gave some facts on the size of the debt, its holders, and the reaching of the debt ceiling, "Charting the American Debt Crisis." Actually, there is no debt crisis. Investors were willing to lend the U.S. government trillions of dollars at very low interest rates. There is no evidence that this was about to change any time soon. The United States and other countries have had much higher debt burdens and still faced no problem borrowing.

The problems at the moment stem from the refusal of Congress to raise the debt ceiling. This would be like a family where one member burned the check book (assuming no Internet banking). The problem is arranging to get new checks, not that there is no money in the account. The NYT should be able to keep this straight.

Comments (3)Add Comment
Bubble Reaps Rubble While Debt Has No Regret
written by izzatzo, July 29, 2011 6:55
Actually, there is no debt crisis.

What a whopper from Whose Your Nanny Baker. The debt added under the second term of Boy Monarch Bush was over 50 times that added by Obama as warned of repeatedly in the mainstream news media to no avail.

Like the housing bubble detected early on by Baker, the deficit hawks were on top of a coming debt crisis way before it got out of control. Don't blame those who sounded the alarm. Blame the ones who ignored it.

Stupid liberals.
It's The Sleaze
written by Ron Alley, July 29, 2011 8:02

You are being much too kind. The Republican position is pure sleaze.

Congress (during most of the relevant years controlled by Republican majorities or filibuster enabled Republican minorities) has run up a huge debt. The size of the debt, when expressed numerically, is not debatable except in the he said, she said alternative universe of the main stream media. The debt ceiling requires Congress and the President to acknowledge the reality of the accumulated debt and the need to manage the federal budget in an honest, forthright manner that is an anathema to politicians.

Its as if a builder has a line of credit from a bank that enabled the builder to by materials and pay workers to build a home. The terms of the line of credit are that on completion of the home the builder must go into the bank and sign a note. If the builder refused to sign the note unless the bank gave him a repossessed pickup for one dollar, the banker (and most observers) would have no trouble refusing the extortion attempt and calling the builder a sleaze.

That is exactly how the debt ceiling debacle has been created. The Republicans have enacted tax cuts and fought wars on a line of credit that requires them to sign a note. They refuse to do so and they just sleazy extortionists.
It's not a checking account, it's a HELOC
written by Wisdom Seeker, July 29, 2011 1:12
Dean, normally I greatly appreciate your work, but I just think you have this one wrong.

You write " The problem is arranging to get new checks, not that there is no money in the account. "

No, the problem is that there is no money in the checking account, and while the home equity line is still open at a low rate, it's an adjustable rate and it's also not clear whether the lenders will support an increase in the line! It's not prudent to borrow more unless you have a really, really good spending plan that will help you get out of debt.

This is not fantasy, it was a painful, real experience for millions of Americans who had Home Equity Lines of Credit during the housing bubble. Many of them thought of their line as their emergency spending reserve. Rates were historically extremely low, and it seemed like the borrowing could go on forever. But when the bubble burst and the home values dropped, lenders pulled in their lines and that credit wasn't there when people needed it.

If Uncle Sam's monetary and credit aggregates were increasing along with the economy, it would be one thing. If we'd bothered to save from 2002-2007 so we had a low debt/GDP ratio to start with, that would be one thing. We are in neither of those situations.

The nation's debts (state, federal, corporate, household) are unsustainably large for the current size of the economy.

Furthermore, Washington's spending choices are demonstrably not improving the economy. The idea that we should throw more money into bad policies seems like the definition of insanity - doing the same thing over again and expecting a different result?

At this point I'd rather print more, than borrow more. And I wouldn't do either without a serious course change in Washington, focusing on domestic jobs without deficits, and the elimination of the unsustainable trade deficit.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.