The Bush administration is not only facing the loss of creditability in the world of foreign affairs, it’s facing a disaster in its line of credit. How quickly can things fall apart if the nation can no longer borrow?
The United States of America hit the national debt ceiling 56 days ago as of Tuesday, April 15, 2003, and there hasn’t been a peep about it.
The dogs of war are one thing, but conducting an expensive invasion at a time when the credit card has expired and, for some reason, has not been automatically renewed can be disastrous. The implications are enormous.
Worst case scenario.
Investor creditors lose faith in U.S. Treasury securities. Not only do they stop buying Treasury securities, stop loaning the government money, but they cash-in what they’re now holding. A run on the U.S. Treasury for up to $3.7 trillion in immediate repayment could collapse the United States of America overnight.
One of the nice things about U.S. Treasury securities is that they can be cashed-in at any time. Investors do not have to wait for maturity and can recoup their original investment whenever they feel like it. It’s American taxpayers who guarantee the national debt, all of it. Are you ready to pay them back?
The burden of repayment would fall directly on the 138 million working Americans and other taxpayers. It would not be the responsibility of children, the unemployed, or most of the retired people. Happy-go-lucky estimates telling you that the tab for each person in the country is about twenty thousand dollars ignore or conveniently forget this. It’s more than double that figure.
At a time when the U.S. Dollar is losing its place to the Euro, when we’ve got a large trade deficit and majorities in the rest of the world liable to boycott American products, this is definitely not the time to be forced into any sort of national debt payoff.
Second worse case scenario.
The Federal Reserve, an independent privately held banking organization, is forced into picking up more and more of the Treasury securities constantly being sold just to maintain the national debt level. The Federal Reserve already holds about fifteen percent of the national debt.
Mr. Van Zeck, head of the U.S. Treasury’s Bureau of Public Debt, claims to be selling about $2 trillion a year in Treasury securities merely to replace those maturing at the rate of about five billion a day, weekends included. These securities are not new debt and sales continue while we’re at the debt limit.
If investor confidence drops off and the Federal Reserve increases it’s holdings we could end up with the “Fed” replacing the Treasury. Say “goodbye” to another big element of the Constitution.
Third worse case scenario—happening now.
Since the start of fiscal 2002, the Bush administration has borrowed $638 billion in new debt; $421 billion during the four quarters of fiscal 2002, and an additional $218 billion in the first quarter of fiscal 2003. The Bush administration has put the national debt on its way “to the moon, Alice.”
Since January, and under the direction of a new Secretary, the U.S. Treasury has been in a holding action on borrowing new debt that in smaller steps carried us to the debt limit on February 20, 2003. Since that date, the Bush administration has been unable to borrow new money from either investors or Social Security and other entitlement surpluses.
As a result, all expenses for the invasion of Iraq from that time forward, including the $80 billion just approved by Congress, must come from existing programs. It must come out of the fiscal 2003 budget’s planned discretionary spending for education, agriculture, homeland security, and other programs. And this budgetary planning was unrealistically and irresponsibly inflated in the first place.
Having experienced a revenue shortfall in fiscal 2002 when the budget was $2.1 trillion, the Bush administration went right ahead with an increased $2.2 billion budget for fiscal 2003, finally approved about a month ago. And all indicators are that there’s going to be even a greater shortfall this year. (see: “What Price War” where this is laid out in detail.)
Every City and State government in the country is feeling the effects of money taken from existing programs. Job layoffs and cutbacks in our own needs are felt at all levels while the federal government plans to rebuild foreign nations and conduct other invasions. We are supposedly freeing other people while depriving and shackling ourselves.
Obviously, once the debt ceiling is raised or done away with entirely (a proposal in the new fiscal 2004 budget) the Bush administration will continue its trip to the moon. We will quickly make up for borrowing lost in this dry period and money will flow from the open borrowholic tap once more, all at the expense of future generations.
Two big questions.
Why hasn’t Congress raised the debt limit? With or without fanfare and political point making, this is a simple and usually automatic task. So far, discussion is not even scheduled. Could it be that the Bush administration does not have the votes?
If the government will not accept fiscal responsibility, balance its own enormous budget, and begin living within its means, not raising the debt limit is certainly one highly effective way to force it.
Secondly, how long will investor confidence hold? When do you think investors will realize that these securities are backed solely by full faith and credit in every taxpayer in the country and the people are just about tapped out? Will investors start believing that their money is not as “safe” as they’ve been told?
Paddy Chayefsky’s “we’re not going to take it anymore” is already coming to fruition. There are several movements to disrupt income taxes and the “We The People” Foundation questions its very legitimacy.
“Published originally at EtherZone.com : republication allowed with this notice and hyperlink intact.”