Tuesday, September 8, 2009

Senate must raise debt ceiling above $12T

I'm back at it after the holiday and the unofficial start to fall. Activity always picks up on Wall Street this time of year as hedge fund managers leave the Hamptons and come back to work. We'll likely see volume pick up among other things. I'm still expecting to see some weakness heading into fall, and have a few stocks I'd love to pick up.

I saw this headline out about the Senate having to raise the debt ceiling. This is dangerous territory. The dangers of excess debt are very troublesome. You can look throughout history and individuals, corporations, and governments that take on extreme levels of debt well, lets just say its doesn't end well. Here's the news story on this (From The Hill):

The Senate must move legislation to raise the federal debt limit beyond $12.1 trillion by mid-October, a move viewed as necessary despite protests about the record levels of red ink.The move will highlight the nation’s record debt, which has been central to Republican attacks against Democratic congressional leaders and President Barack Obama. The year’s deficit is expected to hit a record $1.6 trillion.

Democrats in control of Congress, including then-Sen. Obama (Ill.), blasted President George W. Bush for failing to contain spending when he oversaw increased deficits and raised the debt ceiling. “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said in a 2006 floor speech that preceded a Senate vote to extend the debt limit. “America has a debt problem and a failure of leadership.”Obama later joined his Democratic colleagues in voting en bloc against raising the debt increase.Now Obama is asking Congress to raise the debt ceiling, something lawmakers are almost certain to do despite misgivings about the federal debt.

The ceiling already has been hiked three times in the past two years, and the House took action earlier this year to raise the ceiling to $13 trillion. Congress has little choice. Failing to raise the cap could lead the nation to default in mid-October, when the debt is expected to exceed its limit, Treasury Secretary Timothy Geithner has said. In August, Geithner asked Senate Majority Leader Harry Reid (D-Nev.) to increase the debt limit as soon as possible.Changing the debt cap “does provide an opportunity to look at fiscal policy and what its failings are, and ideally it could give both sides an opportunity to think about what we need to do so we don't keep raising the debt limit,” said Robert Bixby, the executive director of the Concord Coalition, a
fiscal watchdog group.“But probably as a practical matter, it will get more attention as a partisan back-and-forth,” Bixby said.When the House raised the debt limit to $13 trillion as part of a budget resolution approved in April, Democratic leaders used a maneuver known as the “Gephardt rule,” named after former House Democratic Leader Dick Gephardt (Mo.), to avoid taking a roll call vote on the debt limit increase. The Senate isn’t so lucky. It lacks a similar mechanism, meaning each senator must cast a politically perilous vote on raising the debt ceiling. The Senate Finance Committee will “carefully review Treasury's request on behalf of the American taxpayers,” according to an aide to the committee's chairman, Sen. Max Baucus (D-Mont.).“Sen. Baucus understands the critical importance of signaling to the world that the U.S. maintains the confidence and security to continue to lead the global economy out of recession,” the Baucus aide said. “The request to raise the debt limit is serious and must be addressed thoroughly and in a nonpartisan manner.”The aide
noted that Baucus is pressing the Treasury Department to be more transparent about its efforts to pull the economy out of recession.“He will continue to demand the necessary communication and cooperation going forward,” the aide said.

Both the White House and the independent Congressional Budget Office last month said that they expect the debt to increase by another $9 trillion over the next decade. Should the Senate follow the House's lead and set the new debt limit at $13 trillion, lawmakers would probably have to raise the limit again next year, when the Obama administration expects to run a $1.5 trillion deficit.The business community has supported Geithner's push for a higher debt ceiling. Bruce Josten, the top lobbyist for the U.S. Chamber of Commerce, said it's essential to the U.S. economy.“If we fail to address this in a timely fashion, then you run the risk of having to curtail government operations,” Josten said. “The last thing our economy and the world economy needs is greater uncertainty throughout global credit markets.”Josten said that the high level of debt is a reality during the recession, but it's unsustainable and needs to be reduced by reforming Medicare and Social Security.“While we can freely and openly acknowledge completely and lobby to raise the debt ceiling and incur some more debt, the longer trends ultimately need to be reversed,” he said.Congress
raised the debt limit just a few months ago when it passed the $787 billion
stimulus package.



We've raised the ceiling three times in the past two years. This isn't a Republican or Democrat issue, its a Washington issue. Most members of congress have no real economic sense in my opinion and realize the problems their actions are causing.

How irresponsible is it to continue handing out money via various stimulus programs when our country is already at dangerous debt levels? The simple answer I can come up with is that no one wants to take the political hit for cutting back and thus making us endure some short-term pain for the long-term health of our country. This will never be accomplished by career politicians and Washington insiders. They are too worried about keeping their jobs. They are playing a game that has worked for a long time, but the rules are changing, and there is too much at stake now.

Anyways, there is my rant that comes along about once a month. Have a great week everyone!

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