Dancing on the (Debt) Ceiling

In 1986, Lionel Richie released a whimsical album called Dancing on the Ceiling.  It was a fun song with no political overtones, but as we get closer to the debt ceiling we just may see politicians do some dancing on the (debt) ceiling.

With trillion dollar deficits and a scarcity of spending cuts, it is expected that there will be a need for an increase in the statutory cap on the national debt (read: a raising of the debt ceiling) in May.  The debt ceiling is the maximum amount of debt a country can take on.  Currently, according to the Treasury Department, the debt has surpassed $14.2 trillion.

What once was just a financial formality to keep the government running, politicians are starting to use the debt ceiling as a political tool.  According to Politico, “Many congressional Republicans insist they won’t vote to raise the debt unless the president agrees to spending cuts or process reforms designed to prevent future debt increases.”  While that is noble, that could also be problematic.  According to the same Politico article, “Most economic experts say national, and most likely international, economic calamity would ensue if the United States were to default on its obligations. On a political level, that would create a crisis for anyone in elective office. But the president, depending on a fragile recovery as he seeks reelection in 2012, has the most to lose of anyone in Washington.

There may be a solution.  Senator Pat Toomey (R-Penn.) noted in a January 19, 2011 op-ed in the Wall Street Journal that “if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default? To make absolutely sure, I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised. This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

Not raising the debt ceiling could mean catastrophic consequences for the country and businesses.  Not cutting spending and not addressing the deficit and debt will drag down and threaten the recovery.  Americans are tired of the same old song and dance and are ready for real reform and economic growth, hopefully without raising the debt limit.