Sunday, May 15, 2011

Key Facts on the U.S. Debt Limit

by Gary Varvel
Key Facts

The US is expected to reach its statutory debt limit of $14.3 trillion on or before May 16.
  • The Debt limit was last raised in early February 2010
    - Senate vote: 60-39 (Late January)
    - House vote: 27-212 (Early February)
  • To avoid default, Congress must pay $207 billion in debt interest.
    - Federal revenue: $2.2 trillion
    - Federal spending: $3.3 trillion ($1.1 trillion more than revenue)
FY11 can be fully funded without raising the debt ceiling.
  • Congress shouldn’t be rushed or bullied into raising the debt limit.
  • No one is asking the US to default on its debt.
  • All that is needed to avoid a default is to make payments on the interest.
  • The Treasury is able to delay a default date by selling assets, shifting cash around, and borrowing money from the Fed that does not count to the debt ceiling.
Historical Context
  • Congress has never failed to increase the debt limit.
  • In the last 10 years, the debt ceiling has been raised 10 times.
  • Since 1940, the debt limit has been raised 100 times.
  • Geithner has changed the default date 4 times in 2011 alone, the latest projection being August 2.[1]
Institutional reform is needed to fix a broken system.

  • The debt ceiling does not effectively restrain spending, yet is simply raised at Washington’s whim, at a historic average of 1.5 times per year.
Cutting spending is not something to be delayed.

In the end, we are at greater risk to default under Washington’s charge card and excessive spending.
  • American families cannot just increase their credit limit when their credit card debts become too burdensom, and Congress should not either.
  • Excessive government spending has economic consequences for all Americans: higher cost of living, higher interest rates, and higher taxes.
  • Interest and mandatory spending, such as Social Security and Medicare, will consume 90 percent of the budget by 2020; leaving 10% for everything from defense to education and infrastructure.
  • Our heavy debt load is a bipartisan issue; spending doubled under President George W. Bush and is expected to double again under President Obama.
  • We have seen Washington come together to make significant cuts to spending. The debt ceiling must be handled with the same sobriety and focus.

[1] Treasury Department’s Predictions:
January 6, 2011 Debt ceiling: between March 31 and May 16, 2011.
March 1, 2011 Debt ceiling: between April 15, 2011 and May 31, 2011.
April 4, 2011 Debt ceiling: no later than May 16, 2011.
May 2, 2011 Debt ceiling: still May 16; default August 8.

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