Debt Ceiling Vote Explained – What Media ISN’T Telling You

by Darwin on August 3, 2011

The debt ceiling vote was consummated on August 2, 2011 just in time to avoid a technical default on US government obligations.  I’ve been tracking this issue of the US hurtling toward bankruptcy for the entire year and this is a more current update to my initial post predicting how this whole charade would play out – and I was pretty close.  But rather than pat myself on the back, let’s look at the actual debt ceiling deal details, winners and losers and what the media isn’t talking about:


Here’s What the Mainstream Media ISN’T Talking About

I’ve been hearing a lot about how anyone who pushed fiscal restraint in the US is a terrorist.  The Tea Party, Republicans, and Americans – terrorists are among us!  This is what MSNBC and activists are regurgitating and it’s really quite amusing.  I mean, they actually PREFER that we continue to spend ourselves into oblivion?  Oh wait, we’ll keep spending like there’s no tomorrow, but then just tax the rich to pay for it.  Well, that’s not gonna work.  We need to reign in the spending.  But our past debt and our current spending isn’t the real issue.  Look at this chart, courtesy of BusinessWeek.  This is the real issue:


(click to enlarge)




While much of the debate, and the vote centered around discretionary spending cuts, setting up more committees to figure stuff out later (let’s see how that pans out) and minor tweaks other programs, nothing was done to address the real issue – future promises which are unfunded – primarily Social Security and Medicare.


 $211 Trillion… I Said Trillion

What the analysis shows is that concluded that the fiscal gap—which is the NPV of all future expenses minus all future revenue— amounts to $211 trillion.  So, while Congress was quibbling over a trillion here and a trillion there, going out further in time, we, our kids are completely screwed.  And what is being done about those future entitlements?  Nothing.

If this concerns you and you want to stay abreast of what’s going on with our nation’s finances, developments in tax law and fiscal austerity (both of which are a mathematical certainty), make sure to subscribe free to RSS or Email updates;

…and below, you’ll find the original post in its entirety from January 2011:

The US debt ceiling is about to get a lot of press.  As you may be aware, we’ll soon be celebrating a new milestone – $14 Trillion in debt! In order for the US to continue spending at our current pace, finance our debt, and meet all the obligations, entitlements, discretionary spending and everything else required to run our government, we need to borrow roughly $1 Trillion annually just to keep up.  These deficits continue as far as the eye can see:

source: wikipedia

No Debt Ceiling Vote Without a Fight

While the debt ceiling needs to be raised to continue with the status quo, apparently, Republicans are threatening to disallow such an increase, which may very well result in another strategic showdown like we just saw with the 2011 Tax Deal enacted during the lame duck Congressional session.  In return for their vote to increase the debt ceiling, expect to see major spending cuts forced into the deal.

Paul Ryan, who will be heading the House Budget Committee has stated that he wants to see $100 Billion in cuts targeted right off.  This would bring us back to 2008 levels, which seems reasonable at a distance.  But given the massive expansion in government payrolls, regulatory bodies, stimulus programs, and other spending programs, it may be a daunting task.

Without getting political on you, the key point here is, there’s a very big showdown coming again in February, and now that Republicans have overtaken many seats in both the House and the Senate, they may be able to extract some significant spending cuts.  Personally, I feel ALL facets of the budget must be cut – everyone should share the burden.  As soon as you say there’s a single “sacred cow”, then the politics begin in earnest.  “How can you cut education while we’re bombing so-and-so; how can you cut Social Security 50 years from now, etc.”.  Politicians may be forced to make some rather unpopular choices – or just maintain the status quo to better their chances at reelection by doing nothing.

So, buckle up and await the next big showdown you’re going to be hearing a lot about.  Last time around, Republicans were able to extract a massive payroll tax holiday, freeze tax brackets for all and get a reasonable inheritance tax enacted.

Should We Increase the Debt Ceiling With No Strings Attached?

Or Extract Spending Cut Concessions?

{ 11 comments… read them below or add one }

101 Centavos January 6, 2011 at 7:32 am

Darwin, our elected nobility has demonstrated over and over again that they have poor impulse control with other people’s money (ours). So, the show will go on. Soon the electorate will have forgotten (if they even noticed in the first place) that we’ve crossed the $14T mark, and the press will be talking about the $15T mark as some new kind of Rubicon.


retirebyforty January 6, 2011 at 1:37 pm

We should cut budget, but we all know what the congress will do. I agree with 101 C above, we’ll continue until we hit the tipping point.


Hanover January 6, 2011 at 2:16 pm

[“US Debt Ceiling Explained…”]

Uhhh… you did not ‘explain’ the Debt-Ceiling at all.

But nobody ever does. That’s a big part of the problem.

What is the PURPOSE of the Debt Ceiling ?? Why does it exist ? Why does anybody care ?

The Debt-Ceiling was supposed to be a legal ‘Firewall’ against Congressional over-spending. That debt limit/ceiling would be carefully calculated maximum amount of Federal ‘borrowing’ that Congress could prudently
engage in. It was much like private individuals figuring out how much they could really afford in mortgage/car-loan/credit-card/etc debt — except it would be a formal Federal crime for Congress to exceed their pre-determined debt limit.

Of course, the Debt-Ceiling law had no practical effect on spendthrift Congressmen — they merely voted to raise the debt-ceiling routinely to match whatever their grand annual spending plans turned out to be … with no concern about fiscal prudence whatsoever. It’s a grand charade dutifully & solemnly reported in the media — but NEVER ‘explained’ to the public.

The Debt-Ceiling law was a foolish concept from the getgo; it has NO enforcement mechanism against individual Congressmen — and is easily circumvented, as has been demonstrated for decades… and this year, too !


Darwin January 10, 2011 at 9:25 am

Well, perhaps it will become an election issue in 2012 – surely, representatives will point out who voted for, who voted against and what kind of spending cuts they extracted for their vote, no?


krantcents January 6, 2011 at 2:51 pm

Expecting our elected officials to do something different is the definition of insanity. I realized I can only control my actions, so that is what I do!


Invest It Wisely January 10, 2011 at 8:46 am

I agree with cutting spending, but it’s the hardest thing to do since it actually angers some voters while it pleases others, and there are no proper incentives to cut spending as the people are essentially held hostage! With any private company, you can withdraw your investment or decide to stop shopping there. Can you stop paying taxes to the US government or even a part of it? Can you say “I’m not sponsoring the Iraq war with my tax dollars any more”? With so many dollars out there, is it easy to avoid the inflation tax? Well then… 😉


Darwin January 10, 2011 at 9:27 am

good point; gotta pay those taxes one way or the other. Voters could always vote with the debt in mind – the challenge is convincing Americans that this actually matters. Most are still in the “what’s in it for me” mode. Tough to wean them off.


Bret @ Hope to Prosper January 10, 2011 at 9:25 pm

Since 65% of the federal budget is now spent for entitlements, that is what is going to need to be cut the most in order to reign in the deficit. Even if we spent zero on the military, we would still be in the red.

Will our elected officials have the courage and politcal will to cut entitlements?

I wouldn’t count on it.


Darwin January 10, 2011 at 11:08 pm

Nope. Re-election is priority #1.


Monticola Liberum April 19, 2011 at 5:32 pm

My humble recommendation for the upcoming debt ceiling debate:
Obama is insisting on a “clean” bill, with no attached budgetary restrictions. I say give it to him, pass a debt ceiling increase no higher than required to avoid default this fiscal year with the provision that any future increase requires a 3/5’s super majority in both houses. This would handcuff ALL future Congresses and Administrations, regardless of party, from increasing spending except in case of true emergency. Inflation control would become a major concern as the discretionary spending projects politicians are so fond of claiming credit for at ribbon-cuttings were squeezed out of the budget by an ever-inflated dollar.


Harvey June 1, 2011 at 9:38 pm

Most Americans can’t comprehend this debt, but if we allocate it to each family unit that files a tax return, we will all have roughly $180k of Federal Debt for each tax filer. We are adding $3t until elections in 2012. That’s roughly $13k in each of the next 2 years for each family unit. Ask yourself, if you had a choice, would you volunteer to add $13k over the next 2 years to get to $180k? How are you and your decendents going to pay it back? Yes, we enslaving our decendents unless we stop the spending.


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