TRUTH OR CONSEQUENCES OF DEBT LIMIT DEBATE
It is time for the US Government to level with the American People concerning a good many things, but most pressing is the current debt limit debate. First, Americans need to know the law that makes all this fun possible was passed in 1917, the Second Liberty Loan Act.
On October 1, 1917, the US Government offered Liberty Bonds to raise money to fight World War I. The Act set an artificial limit on how much the government could raise and spend. Keep in mind, the 1917 Act was passed soon after the 16th Amendment to the US Constitution which was Ratified early in 1913: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
The 65th Congress obviously was sorting out just how far its newly enacted powers went and sought to placate Americans by setting such limits. Evidently, Congress is still sorting it out 106 years and 53 Congresses later.
The US Supreme Court upheld Obamacare in its 2012 Ruling and its mandate to have health insurance or pay a penalty by invoking the US Government's unlimited taxation power based on the 16th Amendment. The last thing Americans need is a federal government that has unlimited power to tax.
The Biden Administration may attempt to invoke a Civil War era 14th Amendment clause to bypass the Congress to avert default. The fact is that the Executive Branch can just about spend whatever it wants to at any given time, but eventually must have approval of the US House of Representatives where all government appropriations must originate. Technically, the US Government cannot spend a dime until the US House of Representatives first approves it. There is no specific time limit, but the authorization must be passed by the end of the current Congress which runs until January 3, 2025.
What is very troublesome is that a law passed 106 years ago and was meant to cover the sale of Liberty Bonds in wartime which would mature 25 years hence and could be recalled by the government after 10 years is still being adhered to.
Since the maturation date some 81 or 82 years ago, the Congress has increased the debt limit exactly 100 times, 56 times under Republican Presidents; 44 times under Democratic Presidents.
And the increase has been mostly automatic. Americans only go through this heartburn when the White House and both Houses of Congress are not perfectly aligned under the control of a single political party.
This leads to the second important point: has the debt ceiling been effective in controlling the rise in the national debt? No. Obviously, it has been an abysmal failure or there would be not be the need to raise the debt ceiling on essentially what has become better than an annual basis.
In the United States, the two major parties have definitive character on this score. When the Republicans last controlled everything in Washington during the 115th Congress (2017-2019), they were getting bogged down and were not getting anything done.
House Speaker Paul Ryan decided if Republicans could not agree on taxes, they are useless as a political party. The Trump-era tax cuts were like the Reagan cuts in the 1980's and the George W Bush cuts in the 2000's. They did not help economy one bit and just ran up the national debt to record levels. Why? The tax cuts were not targeted correctly and as the Democrats like to say, the rich laughed all the way to the bank.
But the Demorats (sorry I missed the “c”) are just as responsible for the $31.4 trillion current debt limit. Their character – their primary concern - is to develop the next whiz-bang social program that will resolve all social ills.
Any government program requires substantial amounts of money. Lots of it. Worse, there is what I call “government creep”. Legislators at any level must understand that if they vote to start a new government program, the program will only grow and require even more money and resources. But worst of all, they tend to be permanent thereafter and are rarely successfully repealed.
For instance, Social Security is supposed to be the best social program ever devised. It was passed in 1934 and set to expire in 1939. It was never legally renewed, but just as with the Second Liberty Loan Act, is still in place today.
Third, the power and size of the federal government is the oldest topic for political debate in US history. From the beginning, just how the 13 original Colonies could “form a more perfect union” was in question.
James Madison was a clever Man. He was well aware that the northern States wanted a powerful central government and the southern States wanted a more decentralized, weak federal government. As the primary author of the US Constitution, he decided to place the Presidential Oath within the document itself: "I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."
Having to “preserve, protect and defend the Constitution of the United States" sounds like the primary duties of the President and the federal government are national security and defense, but few domestic responsibilities. Those were left to the state governments.
In fact, the power centers when the US Government came to be on April 30, 1789, were the state legislatures. They approved the Constitution, elected the US senators and generally asserted their authority over the federal government. That is how it supposed to be today.
But just as with its taxing power, the federal government has grown way too big for its britches. Uncle Sam must be placed on a serious diet.
While that is the stance of House Speaker Kevin McCarthy in the current negotiations, he always knew that this is only a negotiating ploy just as it had been for John Boehner and Newt Gingrich in previous confrontations with Democratic Presidents Barack Obama and Bill Clinton. But Joe Biden is far more stubborn.
So where does this leave us? US Treasury Secretary Janet Yellen tried to gild the lily a bit when she warned everyone in March about the imminent debacle of default. That just invited McCarthy to wait and wait until everyone is in panic mode to gain leverage.
It is bewildering that Joe Biden, who was a US Senator 36 years, honestly believes the the national debt has accumulated over the entire of American history instead of the maximum 30 years for treasury securities.
The US government has only one debt free year in its history – FY 1832 (July 1, 1831-June 30, 1832). The first national debts were assumed war debts from the States during the American Revolutionary War.
The first Treasury Secretary Alexander Hamilton had the National Bank created to handle the repayment of these debts and it just so happened Andrew Jackson vetoed the renewal of the bank just as FY 1832 was completed. There was no National Bank until the Federal Reserve was created in 1913 – the same year the 16th Amendment was ratified.
Also in 1913, the 17th Amendment was ratified that required the direct election of US senators by the people rather than by the state legislatures. In 1913, the state governments – and the American people - lost all their constitutional leverage over their federal government and didn't realize it. The stupidity of what is now happening is the result.
While debt is not necessarily bad, too much can bankrupt the future. What most Americans do not understand is that the national debt draws private investment to be paid off and that takes vital investment capital away from the private economy forever and can never be recovered.
At a certain point, enough private capital will not be available to sustain the economy and the resultant crash will make the Great Depression look like a picnic. Just as Karl Marx predicted, capitalism will have collapsed under its own wait.
To illustrate, Keynesian economics is based on deficit spending and artificially stimulating the economy until it can be strong on its own again and then repaying the debt – which has never really happened in practice. That is where the current $31.4 trillion debt came from.
What happens when deficit spending is not possible and the US government can no longer meets its obligations and raising the debt limit is an exercise in creating hyperinflation through just printing money?
TRAILBLAZER TO REVIVAL OF THE AMERICAN DREAM has the answers
https://www.svctrailblazerpublications.com/trailblazer-to-revival-of-the-american-dream-1
https://www.svctrailblazerpublications.com/international-bestselling-books