Over the last couple of weeks, the president has demonstrated his great ability to lead by making several speeches on the state of America’s finances, particularly the debt ceiling. Like most of the president’s speeches, they were thinly-veiled campaign-style speeches with promises promptly proved to be false. Submitted for your approval are the top five lies about the latest debt ceiling hike, and related issues, brought up by President Obama in early October.
1. Hiking the debt ceiling does not add to our debt.
And because it’s called raising the debt ceiling, I think a lot of Americans think it’s raising our debt. It is not raising our debt. This does not add a dime to our debt.
Of course allow me to preface this by saying that legislation which authorizes higher borrowing limits does not, by itself, lead to more debt. However — and this is a gigantic caveat — the bill just passed not only hiked the debt ceiling, but also authorized spending at the rates used during the 2013 fiscal year. Accordingly, the debt must necessarily rise unless revenue has somehow vastly exceeded expenditures. This is unlikely.
The reality: After President Obama signed the law, the United States debt jumped $328 billion dollars in one day – a record. This pushed the total United States debt over $17 trillion for the first time. We’re #1! We’re #1!
So much for “this does not add a dime to our debt.”
2. Hiking the debt ceiling pays for what Congress has already authorized.
It simply says you pay for what Congress has already authorized America to purchase, whether that’s the greatest military in the world or veterans’ benefits or Social Security. Whatever it is that Congress has already authorized, what this does is make sure that we can pay those bills.
This is another ridiculous assertion. First of all, Congress authorizes spending and the bill is signed by the president into law. The President is very coyly trying to push the “blame” for our budget woes on Congress, as if Congress made the decision on what to spend money on by itself. Of course, there is no question that we spend too much — and this is one of the root causes of our fiscal woes. America has had several years of trillion dollar deficits and pundits on the left are celebrating a projected deficit that is only $642 billion, as if this is something to be lauded.
The whole hullabaloo over the last few weeks was that the government was shut down because there was no budget authorization in place for the new fiscal year. How exactly did Congress authorize spending for the next fiscal year when they did not authorize spending past September 30, 2013? Once again, this is another talking point that makes little sense. Since there was no spending authorization from October 1, 2013 forward, a debt ceiling hike by itself would not pay for what Congress had already authorized.
3. The Republicans caused the S&P credit downgrade
Now the last time that the tea party Republicans flirted with the idea of default, two years ago, markets plunged, business and consumer confidence plunged, America’s credit rating was downgraded for the first time…
This line is repeated frequently by folks who want to scapegoat fiscal conservatives. It is absolutely ridiculous and is not the stated reason for S&P’s 2011 downgrade:
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
S&P explicitly said that we have a spending problem. Sorry, Mr. President — the S&P did not say that the tea baggers refusing to give you a ten trillion dollar debt ceiling hike was the cause of the downgrade.
The S&P, though late to the game, is absolutely right. The United States really should not have a AAA credit rating with $17 trillion in debt, years of near-trillion dollar deficits, another ~$100 trillion in unfunded liabilities, and no serious plan to remedy both.
Speaking of the deficit…
4. Obama: Slayer of Deficits
Since I took office, the deficit is coming down faster than any time in the last 50 years.
Well, Mr. President, when you signed a law from the Democrat-controlled Congress which authorized the first nominal trillion dollar deficit and continued those deficits for years, it’s not shocking to make the claim that you’re cutting the deficit really quickly afterwards (and, of course, with a GOP Congress). The fact that the economy is on the mend helps too, since more folks being employed brings more tax revenue to the federal government. It’s also clear that the sequester helped in this regard as well, which at least slowed the rate of growth in federal spending. This is nowhere near what we need to fix our financial mess, but it’s a start.
The one caveat I’ll place here is the fact that the $642 billion deficit for FY 2013 is a projection and involves a bump in revenue from the 2012 “Taxmageddon.” I wrote about this here, but the essence is that businesses and individuals made tax maneuvers in 2012 anticipating a big tax hike in 2013, which increased government revenues collected in 2013. This means that tax revenue may be artificially inflated in FY 2013.
5. America is a democracy.
But I’m not going to do it until the more extreme parts of the Republican Party stop forcing John Boehner to issue threats about our economy. We can’t make extortion routine as part of our democracy. Democracy doesn’t function this way.
For the love of everything good and holy in this universe, America is not a democracy. We are a Republic. We have separation of powers for a reason — to balance the branches and to keep them all in check. Unfortunately, for almost a century, the Executive Branch has wielded too much power. This distorts the way our country should be running and distorts the market through more governmental interference.
To paraphrase Ben Franklin, who famously quipped when asked what type of government America would be under the Constitution: we have a Republic, if you can keep it.
As always, free markets are better markets.
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Since the debt ceiling has been resolved for the time being, we will be returning to our regularly scheduled economic program. Look for lots of earnings reports this week, as well as initial jobless claims (335k consensus).
On Tuesday at 8:30 a.m., the September Jobs report will be released, having been withheld due to the shutdown. The consensus is 185,000 jobs created in September.
Have a great week!