For more than two months, Treasury Secretary Timothy Geithner and President Barack Obama have been working in concert to amplify a fiscal crisis that doesn’t exist to the extent they’d have us believe.
Treasury set the wheels in motion with an Oct. 31 press release, predicting that we will reach our debt limit of $16.4 trillion by year’s end, but that it will take “extraordinary measures” to avert a crisis.
In a Dec. 31 letter, Geithner informed congressional leaders that the United States had earlier that day hit the borrowing limit on its credit, just as Treasury predicted.
The implication was clear — we were in a fiscal “crisis mode,” and something should be done quickly. The letter came when the Senate and House were embroiled in their “fiscal cliff” debate, which resulted in substantial tax hikes with no budgetary cuts.
What the letter omitted was that there was no need to borrow the funds. Treasury already had sufficient money in reserve, and every penny borrowed merely added to the reserve. CNSNews.com reported that Treasury closed its books on Dec. 31 with $92.72 billion in cash on hand, although “as recently as Nov. 28, the Treasury had gotten by with only $16.103 billion” in reserves.
Was Treasury fulfilling its own prophecy, or was it ramping up a crisis? I say both.
Flash forward to this week. In a letter dated Monday, the same day as Obama’s news conference, Geithner reminded Congress that as of Dec. 31, the United States reached its debt limit and had been employing “extraordinary measures” to keep us afloat since. In case Congress didn’t take the hint, he mentioned “extraordinary measures” no fewer than three times.
In the last paragraph of his letter’s first page, Geithner wrote:
“It is important to point out that extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved.”
Sound familiar? If you saw the president’s news conference that day, you heard this litany repeated over and over.
Neither Geithner nor the president mentioned the true purpose of raising the debt limit — to allow us to borrow more money.
Both the president and his Treasury secretary warned that if the debt ceiling weren’t raised, we would default on our debt obligations, as well as Social Security, Medicare and other entitlements. Hogwash.
We already have a healthy reserve of funds, and we have cash coming in, in the form of tax receipts. Even if the piggy bank is finally broken, Treasury still won’t default on our obligations, unless it chooses to.
J.D. Foster, writing for the Heritage Foundation, pointed out that should the Treasury be depleted, it would force government to do what it’s been unable to do for decades — prioritize.
Very simply, reaching the debt limit means spending is limited by revenue arriving at the Treasury and is guided by prioritization among the government’s obligations. How the government would decide to meet these obligations under the circumstances is a matter of some conjecture. Certainly, vast inflows of federal tax receipts—inflows that far exceed amounts needed to pay monthly interest costs on debt—would continue. Thus, the government would never be forced to default on its debt because of a lack of income.
Although I agree that hitting the debt ceiling is a matter of true concern, it’s by no means the crisis depicted by the White House and Treasury. Rather than panicking with temporary Band-Aids, the 113th Congress’ first order of business should be to recognize that our real problem is profligate spending and a sea of red ink.
Congress should, therefore, tackle the root cause of the problem — not the effect. In the meantime, if Geithner is confused as to his next step, there’s always Turbo Tax.
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