The Federal Debt Ceiling

In the middle of May, the federal government will reach its Congressionally authorized debt ceiling. Unless the Congress increases the debt ceiling, the federal government will be unable to pay its debts. The United States will default on its financial obligations.

Some members of Congress are saying that they will not vote to increase the federal debt ceiling. The problem is, there may be enough members of Congress making this threat to actually prevent the federal debt ceiling from being raised.

This is so irresponsible it approaches madness. If those who are threatening to keep the federal debt ceiling at its current level, thereby assuring that the United States will default on its financial obligations, are not insane, then they are diabolical. I don't use that word lightly, nor do I use it without understanding its literal meaning.

The issue of whether the United States government would have debt was fought out over 200 years ago, between Alexander Hamilton, our first Secretary of the Treasury, and Thomas Jefferson, our first Secretary of State and the founder of the original Republican party. The dispute was referreed by none other than George Washington, our first President.

Secretary Hamilton won, and the United States has had a federal debt ever since.

But, we've never defaulted on the payments due on that debt. Never. Hence the saying, "sound as a dollar." That saying did not become common by accident. It became common because when someone owned a financial obligation of the United States of America, whether that be a treasury bond or a dollar bill, they could be certain that financial obligation would be honored.

Our national financial system is based on this concept: the United States will never default on its financial obligations. That's why a treasury bond is considered the standard by which every other financial investment is measured. A treasury bond has been an investment in which there has never been any risk. Therefore, if an alternative investment couldn't net an investor at least as much as a treasury bond, it was clearly unsound.

But, more than that, the world's financial system is based on the concept that the United States will never default on its financial obligations. Everyone in the world trusts the United States to pay its debts, and investment decisions in every corner of the globe have been made on that assumption. A previously safe assumption.

However, now it is no longer safe.

And just the fact that it is not a safe assumption - entirely aside from whether we actually default on our debt - is already causing damage in the financial world, which will eventually spill over and affect every man, woman, and child in the world negatively. Some will be hurt much worse than others.

Just making people think we might not pay our debts, just letting people think we might not pay our debts, has terrible consequences. Already, major banks are developing contingency plans for how they stay in business - not how they continue to make a profit, how they stay in business - if the debt ceiling is not raised. That costs money. Real money. Out of the real pockets of real people.

If a member of Congress wants to control or reduce the federal debt, the way to do that is by controlling the federal budget. Not by threatening to default on our financial obligations. Unless, of course, your real objective is to destroy the federal government or, even more diabolical, the United States of America.

I have already heard it said in defense of the threats to vote against raising the federal debt ceiling that "Senator Obama did it."

I have two responses to that defense.

First, it was wrong for Senator Obama to do it. That doesn't make it right now. There was a difference when Senator Obama voted against raising the federal debt ceiling. There was no way there were going to be enough votes against raising the debt ceiling to actually defeat the bill. So, no one anywhere actually considered that there was any chance the United States would default on its financial obligations. But, that didn't make it right for Senator Obama to vote against it. It was wrong. And the fact that it provides an excuse - no matter how flimsy - for madmen to justify their similar votes now is just one reason why it was wrong. (See my previous articles where I refer to the Law of Unintended Consequences.)

My second response is: Do the people who are threatening a default of the United States' financial obligation really want to gauge the appropriateness of their behavior by Senator Obama's actions? Really? "It's okay for me to do it because Obama did it"? Really?