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Kimberly Amadeo

Stop Playing Chicken With the Debt Ceiling

By June 2, 2011

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Rep. Ron Paul (R-Texas) recently urged his Republican colleagues to stop pulling a "stunt" by "Saying no to the debt ceiling," since they will probably raise the national debt ceiling anyway to avoid severe financial disruption. He would like them to, instead, focus on the important issues facing the economy including real cuts to this year's budget, not over the next 10-15 years. He said the U.S. is, in effect, defaulting on its $14 trillion debt by allowing the dollar to decline, making debt held by foreigners less valuable every year.

An important area Paul would like to see cut is military spending. Paul said, "Let's start with the military industrial complex and these useless, very damaging wars" in Iraq and Afghanistan, he said. He would also like to cut subsidies to agribusiness. Although he didn't vote for Paul Ryan's Road Map, he does want to see entitlement programs, such as Medicare and Social Security, cut. Furthermore, he called for a return to the gold standard as a way to restore the integrity of the U.S. monetary system.

What Happens If They "Just Say No to the Debt Ceiling"?

Once the debt ceiling is reached, Treasury cannot auction new Treasury notes. It must rely on incoming revenue to pay ongoing Federal government expenses. This happened in 1996, and Treasury announced it could not send out Social Security checks.

Competing Federal regulations make it unclear how Treasury could decide which bills to pay,and which to delay. The uncertainty would raise the yields on Treasury notes sold on the secondary market, causing some mortgage rates to rise. If Treasury defaulted on its interest payments, foreigners would dump their holdings. The dollar would plummet and, Voila! the euro or yen or even yuan might become the world's the dollar's status as a global reserve currency. Think it couldn't happen? Not much demand for the British Sterling anymore.

What It Means to You

Contact your Congressmen, and tell them what you would and wouldn't like to see cut. Here's how to write an effective letter -- How to Write Your Congressman.

Learn more about the FY 2011 and FY 2012 budgets, so you are informed. It's your money, after all.

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Representative Ron Paul (R-Texas) (Photo Credit: David McNew/Getty Images)

Comments

June 7, 2011 at 11:32 am
(1) Barry W. Shook says:

Whether we want them to or not, the politicians will raise the US ceiling of debt because we can’t afford the economic chaos that would occur if they don’t. Regardless of all the grandstanding to the contrary, they WILL raise the ceiling of debt the USA can incurr.

June 7, 2011 at 9:04 pm
(2) Rld2Mad says:

Where does it end? 14 trillion? That’s not the actual debt. It is much higher. Perhas as much as 65 trillion when all sources of debt are added up. We have been painted into a corner from which we will never emerge unscathed.

June 13, 2011 at 4:22 pm
(3) Doug says:

I believe that you totally took Ron Paul out of context as I believe his position is ‘not’ to raise the debt ceiling as our government ‘can’ muddle through on incoming day to day revenues.

Insanity: Doing the same thing over and over and expecting different results.

We’ve raised it so many times with the ‘promise’ that the spending cuts would come…………….did they? This fear mongering re the “debt ceiling” reminds me of the ‘emotional’ rhetoric of 9/11 which has cost this country trillions.

Get off the ‘fear’ bandwagon…………….don’t raise the debt ceiling and force these congressional idiots to do something which benefits the American public…………….get serious about reducing spending, at least matching England with their common sense austerity program.

Doug Ralston

June 13, 2011 at 5:17 pm
(4) Kimberly says:

Hi Doug,

In general, Dr. Paul does say the debt ceiling should not be raised. However, in this particular interview he said they are going to raise it anyway, so why waste all this energy saying they aren’t.

My point, as is yours and Dr. Paul’s, is that the politicians need to get serious about proposals to reduce the debt. A big piece of that has to be cuts in defense spending, which he has the courage to advocate.

Kimberly

July 12, 2011 at 8:57 pm
(5) Doc 1958 says:

thats strange the same people who are screaming for cuts are the same ones who raised the debt ceiling 7 times during Bush ‘s administration and spent like drunken sailors.Could it be they want Obama to be responsible for their crap ,he is the scapegoat while the GOP laugh at the US Citizens,while they themselves are on the Govt Dole!!??

July 13, 2011 at 10:09 pm
(6) Kimberly says:

@ Doc1958 – That’s a good point. I was writing about the growing debt, which doubled during the Bush Administration, and was a lone voice out in the cold.

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