The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
Subscribe to the Flinchum File
View Archives

What’s the Point ??

Let’s say you have two neighbors.  Neighbor #1 picks up a baseball bat and hits neighbor #2, before handing the bat to the neighbor he just hit.  Neighbor #2 takes the bat and hits neighbor #1, before handing the bat back to neighbor #1.  As they continue to hit each other, do you think they are just plain stupid?

The Federal debt ceiling is equally stupid.  If a Democrat occupies the White House, the Republicans howl about spending money on poor people.  If a Republican occupies the White House, the Democrats howl about rich people who don’t pay their “fair share.”  But howling is all they do – Republican or Democrat!  And they know it is a waste of time and energy!

No other developed nation uses such a stupid budgeting technique as the debt ceiling.  It has never saved a dollar.  It has, however, caused several government shutdowns, wasted vast amounts of time and shaved our GDP growth rate.  This embarrassing political theater has already cost us one of our three AAA credit ratings.

It’s not good for the stock market either!  For example, the debt ceiling showdown in 2011 caused the S&P to drop 17% between July 22 and August 8.  It also caused T-bills to spike and caused Consumer Confidence to drop by 24%.  But, it didn’t save one dollar of government spending.

Today, the current national debt of almost $28.7 TRILLION is bumping up against the debt ceiling (see ).  Congress does not return until mid-September, and the odds are that another government shutdown is likely by late October.  To keep government functioning in the meantime, the Treasury is using “extraordinary measures”, which means shuffling cash between accounts . . . just like a Ponzi scheme.

The debt ceiling is a stupid self-imposed problem that should be discontinued as a budgeting technique!  The disadvantages outweigh the advantages.  Besides, it simply doesn’t work!