If the Debt Ceiling Goes so Does the US Economy

I wanted to laugh at this ridiculous headline in the Washington Post - "Ditching the debt limit is one of Trump’s best ideas yet" - but it is much too dangerous of an idea to laugh at.

The article, written by Heather Long, argues that since the debt ceiling is ineffective and is a "political football that has repeatedly put the “full faith and credit” of the United States at risk," it should be done away with.

Long is correct to say that the debt ceiling is totally ineffective considering it has been raised so many times that it is hardly a ceiling. But she is incorrect to say that the ceiling puts the credit of the US at risk. In fact, the ceiling is there to preserve the credit of the US. It is supposed to keep borrowing and spending in check.

"We should absolutely get rid of the debt ceiling. We should never put at risk the country's creditworthiness by having such last-minute, nerve-wracking debates on whether to fulfill our financial obligations to global creditors," Bernard Braumohl, chief economist at The Economic Outlook Group, told the Post.

What Mr. Braumohl is actually saying here is, let's raise the debt ceiling so we can finance deficit spending and pay off debt at the same time. A continuation of what has been happening in Washington.

The recent bi-partisan agreement reached by both sides of the political aisle that addresses the debt ceiling and flood relief temporarily suspends the debt ceiling and has put in place "extraordinary measures" to push back the deadline for another debt increase into 2018.

Read: McConnell: No debt ceiling vote needed until 2018

As it currently stands, the debt ceiling is entirely ineffective. This should not be given as a reason to rid it from the governments financial considerations but a reason to actually enforce it in order to effectively pay off debt and shrink the size of government. Enforcing the debt ceiling would force Congress to set spending priorities and make real spending cuts.

But if the ceiling goes away entirely, this will ease any pressure government has to keep borrowing and spending in check. It will cause the current explosion of the national debt to only explode even louder. This is what will put the credit worthiness of the US at risk.

There are only two ways that this type of debt can be managed. It will either be managed by higher taxes or money printing from the Fed. Either of these options will totally weigh down the overall economy as the middle class will be slammed with higher costs to the government or a devalued dollar.

And what about the creditors? Is it possible, as the US goes further in the black hole of debt, that the creditors could oppose a lending ceiling?

Peter Schiff writes:

In the end we may be able to repeal our self-imposed debt ceiling, but our creditors may not care. When we drop even the pretense of a theoretic limit to our profligacy, our lenders may decide its time to impose a lending ceiling of their own. That is a ceiling we have no power to raise, and it could force our leaders to finally make some very unpopular choices. Massive cuts to government spending, including to current Social Security and Medicare benefits, huge middle class tax hikes, or an actual default on the national debt. Since neither of these alternatives is politically viable, I believe the coward’s way out will be a massive QE program where the Fed buys the bonds our creditors no longer want. This could be the worst possible choice for the U.S. economy, and investors should be prepared. It could produce a dollar and sovereign debt crisis that will dwarf the financial crisis of 2008 with respect to its impact on the American economy. It could make hurricane Irma look like a sun shower.

It is easy to see the scenario Schiff describes above. A situation in which the politicians in Washington give a reason of "national security" to fund the national debt with the printing press of the Fed. This would be coffin nails for the US Dollars status as the world's reserve currency.

Each time the can is kicked down the road regarding the US debt limit, the closer the government debt bubble comes to bursting. The never ending deficit spending is the real crisis. Raising the debt ceiling is only a continuation of the crisis.

All options for managing this enormous amount of debt are going to be painful for the average American. The American people are already paying more in taxes than on clothing and groceries combined. There is little wiggle room when it comes to raising taxes if we want to keep the middle class we currently have.

If the debt ceiling goes, so does the middles class.

If the debt ceiling goes, prepare to welcome full-blown monetary crisis mode and kiss the US economy good bye.

I'll leave you with Ron Pauls wrap up on the idea of scrapping the debt ceiling.

We are running out of time to avoid a major economic crisis. Congress must immediately begin cutting spending. New spending for legitimate emergencies must be paid for with spending cuts. Overseas militarism and corporate welfare should be the first items on the chopping block. Domestic welfare spending should be gradually deceased so as not to hurt those dependent on the programs. Reducing the size and scope of government is the only way to stop the swamp from draining our prosperity and our liberty.