Five Facts about the US Debt Limit

It's all debt limit, all the time, it seems. Everyone's talking about what may or may not happen when the U.S. government finally butts up against its legal borrowing limit on August 2. That's the date that Treasury Secretary Timothy Geithner says the feds will max out the credit lines that account for about 40 per cent of all current spending, says Nick Gillespie, editor in chief of Reason.tv and Reason.com.

While the debt limit is important, it really represents the pretext of a battle over spending and revenue between Republicans and Democrats, with each side waving away the other's claims. Stuck in the middle are the American people.

To help clarify the discussion, Gillespie provides five facts about the debt-limit discourse worth keeping in mind.

August 2 is an arbitrary date.

Reaching the debt limit is not the same as defaulting on the federal debt.

Both sides are using the August 2 deadline to negotiate terms; the plain fact is that both sides are trying to get something out of the current moment.

This is no way to run a country. A February 2011 Government Accountability Office (GAO) report on the debt limit has sparked a lot scrutiny because it found that in some (though not all) recent cases where debt-issuance auctions were delayed, markets responded by increasing the government's borrowing costs. The real takeaway, however, is that procedural changes adopted from other countries might help to actually link spending to its effect on national debt.

This is no way to run a country, part two. The debt-limit debate has to be properly understood in its larger context of a country whose spending has effectively run amok for at least the past 10 years, during which time federal spending has increased by over 60 per cent in inflation-adjusted dollars.

Source: Nick Gillespie, Five Uncomfortable Facts about the Wonderful, Horrible Debt-Limit Debate, Reason Magazine, July 8, 2011.

For text: http://reason.com/archives/2011/07/08/five-uncomfortable-facts-about

For more on Tax and Spending Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=25

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 19 July 2011