Raising the debt ceiling……

Note from Rourke: I value everyone’s opinions – even those that differ from mine. With that said….I present this guest post.

Raising the Debt Ceiling Can Prevent the Forthcoming Recession- Give It A Thought

by Sophie Kinsella

The Congress has decided to reduce the federal deficit to the gradual economic recovery. As its immediate effect, it is presumed that when the economy will recover, the federal budget will be balanced. A sustained economic growth should be followed by a well structured and balanced budget for the government. As the general health of the US economy will revive eventually people will start living a debt free life and the frequent service of a debt Settlement Company won’t be required any more. However there will be a significant cut in federal spending if the federal debt ceiling does not arise in the near future. Read on to know more extensively in this regard.
The statistics says the present federal spending is 25% of the Gross Domestic Product (GDP), 15% of the GDP is federal revenue and the remaining 10% of the GDP is the federal borrowing. However if the US economy fail to raise the debt ceiling the federal borrowing will come down to 0%. This will play s crucial role in lowering the federal spending from 25% to 15% of GDP. Since federal spending forms 25% total spending in the economy, total expenditure on goods and services will be reduced by at least10% and will further results in lowering the spending by 40%.

It is anticipated that the US economy can be hit by a sudden blow of new recession with an abrupt 10% cut in spending on goods and services in the forthcoming summer. In case the debt ceiling is not raised then certainly there will be layoffs of workers in firms producing military hardware, workers on highway maintenance projects and in other developing sectors as well. As a result, these unemployed workers will strive to curb their expenses on goods and services which will eventually lead to more layoffs in firms that are supplying these goods and services. The worst fear that arises out of this entire situation is, unemployment and downsizing will spread its tentacles to all economic sectors in US. This will certainly be marked as the end of the economic recovery and make the way to a new recession.

Implementing a NUBAR (normal unemployment balanced budget rule) can help the government to form and maintain a balanced budget. It is required by the Congress every year under a NUBAR statute. To know how NUBAR will be enforced, you need to know the estimate of federal spending and revenues which the Congress Budget Office (CBO) technicians are required to provide a month before the beginning of the new fiscal year. This is possible only if the unemployment rate remains within control.

The CBO estimation claims that, if spending exceeds revenue then Congress will have a month’s time to regulate its spending and revenues. In case this plan fails, the NUBAR statute will suggest an automatic across-the-board uniform percentage cut, on all spending programs and an equal percentage hike on all taxes. This will certainly assist congress to avail a budget that the CBO has calculated.

To conclude, NUBAR will implement balanced budget when the economy is normal but allow a fiscal stimulus to combat a recession in future. In case the government rises the debt ceiling it will certainly be a great help to avoid new recession and enforcing a NUBAR statute will certainly address the debt problem sooner or later. However with no conclusion reached yet the entire world waits eagerly to see what lies ahead.


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15 Comments

  1. Sophie Kinsella? AKA Madeleine Wickham?

    Great commentary from someone that still pays taxes
    to support the lavish lifestyle of the British royal family.

  2. A few comments:
    1.) I’m not an economist or versed in finance, but this just sounds like a bunch of round-about crap, right from the 1st paragraph.
    2.) In the third paragraph, they should change that to FUBAR!
    3.) Why doesn’t congress and federal employees take a pay-cut for a change! Congress votes themselves a raise EVERY YEAR!!!

  3. BS!! In the last year that Republicans controlled congress and Bush was in office, 2007, the deficit was below 200 billion and had been falling for years. After the Democrats took back congress and Obama got reelected the deficit was above $1.5 trillion. So how can you possibly argue that reducing borrowing back to the 2007 level would somehow destroy the economy? It is the debt that will destroy the economy. It is the debt we must stop.

  4. Only problem with raising the debt celing is that our wonderful politicians will just keep on spending regardless of a balanced budget. We give out so many entitlements to people that are just to damn lazy to work. We need to cut back on entitlements and make people work for a living. For the elderly and the disabled it is a different story that is what the money is saved for. We need to cut back on food stamps and lower the amount of weeks that a person can collect unemployment. These are two things that allow people to not work and still live. If they have the threat of no food and no money they will step up the process of looking for a job.

  5. It is way past time for the Federal government to curb its spending and they no longer have the confidence of the American people that they can do what needs to be done. Most of us are not interested in hearing from any politician that they’ll be fiscally responsible if we allow them to borrow more money now.

    If not raising the debt ceiling causes a depression, then so be it. In the longer term, it will prevent a greater depression.

    A drunk man doesn’t need another glass of Dickel Reserve to make him sober.

  6. Personally this whole debt ceiling garbage irritates the hell out of me. All this talk about how we should raise it so we don’t default… What a joke. We have already defaulted!

    If a normal person was in that much debt would creditors really keep extending credit lines to “bail that person out?” Of course not, raising the debt ceiling does nothing but buy us a little bit of time. Eventually the house of cards will come crumbling down.

  7. well , WW2 got us out of the great depression . With our Soviet military budget and bulk of our ground forces on foreign soil already , and picking the right allies ( somebody big and mean like China or Russia ) it could work again . Besides , if the world economy does collapse , somebody is going to get trigger happy anyway because they have nothing to loose .

  8. Raising the debt ceiling for those who are addicted to taxpayers’ money should be denied! Every American should focus on being personally debt free (the only exception would be a mortgage). Imagine if EVERY American were to stop using credit cards, have a savings account and demand that all levels of government adhere to this? When I retired from the Army I was in debt of over $18,000. I took a pay cut with the following job and decided that (after being exposed to Dave Ramsey in my church) enough is enough! I paid off that debt in 11 months! Was it a little painful? Yes, however, it would’ve been alot more painful if we continued.
    Anyhow, that is my little rant. Should we raise the debt ceiling? HELL NO!!! Make our government live within its means! Then, as time progresses, watch how the leaders, particularly the POTUS prioritizes his spending. My guess, he cut a little on entitlements, however, the security of our country will cut a big cut! It always does when you have progressive liberals in charge. It’s ALL about the votes and staying in power. My solution; term limits and a balanced budget amendment!

  9. I couldn’t disagree with this post more, and I have trouble understanding how it got onto this otherwise great blog.

    Yes, decreasing federal spending will necessarily decrease the part of the GDP that is federal spending. The problem with pretending that’s a bad thing is that any metric that ostensibly measures the health of the economy shouldn’t include government spending at all. A much more useful metric would be the GDP excluding the government portion.

    The total amount of human resources and capital that exists in the economy doesn’t depend on government spending. All that raising government spending accomplishes is to increase the proportion of all those resources allocated by central managers, thus decreasing the proportion allocated by countless economic transactions made by 300 million people acting freely with their own money.

    There’s no reason we shouldn’t be able to decrease federal spending to the level it was prior to 1913, when I think it was something like 3% of the GDP. And there’s no reason to put off doing that any longer. Frankly, I would fully support cutting it to 0%.

    • Hi Eric –

      I disagree totally as well however I agreed to publish the post when asked and I did not want to go against my word just because I disagreed with the content.

      Thanks!

      Rourke

  10. Rourke – Good on you for posting something you don’t agree with, because in this world it’s necessary to respect others points of view, and encourage reasonable discussion.

    Sophie – While I do not agree with the content of this post, thank you for sharing it! It is well written and thought out, and an interesting read. Thank you for sharing it!

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