On February 16, 2011, White House Press Secretary Jay Carney fielded questions from the press about President Obama’s newly released budget.  Watch how Carney tries to explain that adding trillions of dollars in new spending does not increase the national debt.

From the Wall Street Journal

By KARL ROVE

President Obama’s 2012 budget is not a serious governing document. It’s a political one, designed to boost his re-election chances.

By repeatedly saying that his budget reduces the deficit by $1 trillion over 10 years, he hopes the numbers make him sound fiscally conservative. But he puts off 95% of the deficit reduction until after his term ends in 2013. And he assumes that economic growth in the next few years will be at least 25% higher than credible economic forecasters estimate.

Mr. Obama’s budget includes $1.6 trillion in tax increases that are real enough—but most of the spending cuts are not. For example, as Rep. Paul Ryan, the House Budget Committee chairman pointed out to me, the administration projects war costs for Iraq and Afghanistan at surge levels for the next decade, and then conjures up about $1.3 trillion in defense savings by assuming drawdowns in each theater—drawdowns that were already in the cards. Outside of this sham transaction, according to Mr. Ryan, there are only $104 billion in real spending cuts over the next 10 years.

Mr. Obama wants House Republicans to take the lead in cutting current spending and proposing future restraint in entitlement and other mandatory spending. He’s betting that letting Republicans take the lead will cripple them. This misreads public opinion. But it is plausible to believe that Republican mistakes can help revive Mr. Obama’s political fortunes. So it’s important that the GOP offers real budget cuts without coming across as angry and frenetic. Republicans need to patiently show what they are doing and why, and to express their sadness and disappointment over Mr. Obama’s failure of leadership.

Congressional Republicans need to make methodical and sensible recommendations for cutting discretionary outlays and restraining future entitlement spending. They must explain to the public why the Obama budget will lead to our nation suffering horrific tax increases, massive austerity cuts, and real human suffering. They need to show that the president’s fiscal path is, to use a favorite word of his, unsustainable.

Read the rest of the column

From the Washington Times

President Obama‘s budget, released Monday, was conceived as a blueprint for future spending, but it also paints the bleakest picture yet of the current fiscal year, which is on track for a record federal deficit and will see the government’s overall debt surpass the size of the total U.S. economy.

Mr. Obama‘s budget projects that 2011 will see the biggest one-year debt jump in history, or nearly $2 trillion, to reach $15.476 trillion by Sept. 30, the end of the fiscal year. That would be 102.6 percent of GDP — the first time since World War II that dubious figure has been reached.

And the budget projects the government will run a deficit of $1.645 trillion this year, topping 2009’s previous record by more than $230 billion. By contrast, 2007’s deficit was just $160 billion altogether.

Still, amid the other staggering numbers in the budget Mr. Obama sent to Congress on Monday, the debt stands out because Congress will need to vote to raise the debt limit later this year, and because the numbers are so large.

In one often-cited study, economists Carmen Reinhart and Ken Rogoff have argued that when a nation’s gross debt passes 90 percent it hinders overall economic growth.

Read the rest of the story.

By Charles Hugh Smith

When some newly elected members of Congress declared their resistance to increasing the nation’s debt ceiling earlier this month, it set off a firestorm of frenzied warnings that a refusal to raise the limit on the U.S. debt would trigger financial Armageddon.

For example, Austan Goolsbee, the chairman of the president’s Council of Economic Advisers, said in an interview on ABC’s This Week, “If we hit the debt ceiling, that’s essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic.”

Treasury Secretary Timothy Geithner weighed in with a warning that failure to raise the debt ceiling would have “catastrophic economic consequences that would last for decades.” According to Geithner, the national debt is currently $13.961 trillion, and the legal limit for government borrowing was set by Congress last January at $14.29 trillion.

But shrill predictions of impending doom don’t shed much light on the issues raised by the debt ceiling issue, which could have serious long-term consequences for all Americans. So let’s start with the basics of the nation’s fast-rising debt, and why Congress has to keep raising the debt ceiling every year.

See full article from DailyFinance: http://srph.it/eFfRKo

Up until World War I, the US government needed permission from Congress every time it wanted to borrow money from the public. In 1917, Congress passed the Second Liberty Bond Act which gave the U.S. Treasury a debt ceiling of f how much it could borrow from the public without seeking Congress’s consent.

Congress has raised the federal debt ceiling 14 times in the last 12 years.  But the rate at which these expansions have been approved has dramatically increased over the past 3 years.  Since 2007, Congress has raised the debt ceiling a total of six times, and appears they will need to do so again in March 2011.

From the San Jose Mercury News

The United States just passed a dubious milestone: Government debt surged to an all-time high, topping $14 trillion — $45,300 for each and every person in the country.

That means Congress soon will have to lift the legal debt limit to give the nearly maxed-out government an even higher credit limit or dramatically cut spending to stay within the current cap. Either way, a fight is ahead on Capitol Hill, inflamed by the passions of tea party activists and deficit hawks.

Already, both sides are blaming each other for an approaching economic train wreck as Washington wrestles over how to keep the government in business and avoid default on global financial obligations.

Bills increasing the debt limit are among the most unpopular to come before Congress, serving as pawns for decades in high-stakes bargaining games. Every time until now, the ending has been the same: We go to the brink before raising the ceiling.

All bets may be off, however, in this charged political environment, despite some signs the partisan rhetoric is softening after the Arizona shootings.

Treasury Secretary Timothy Geithner says failure to increase borrowing authority would be “a catastrophe,” perhaps rivaling the financial meltdown of 2008-2009.

Congressional Republicans, flexing muscle after November’s victories, say the election results show that people are weary of big government and deficit spending, and that it’s time to draw the line against more borrowing.

Defeating a new debt limit increase has become a priority for the tea party movement and other small-government conservatives.

So far, the new GOP majority has proved accommodating. Republicans are moving to make good on their promise to cut $100 billion from domestic spending this year. They adopted a rules change by House Speaker John Boehner that should make it easier to block a debt-limit increase.

The national debt is the accumulation of years of deficit spending going back to the days of George Washington. The debt usually advances in times of war and retreats in peace.

Remarkably, nearly half of today’s national debt was run up in just the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.

With a $1.7 trillion deficit in budget year 2010 alone, and the government on track to spend $1.3 trillion more this year than it takes in, annual budget deficits are adding roughly $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends.

In a letter to Congress, Geithner said the current statutory debt ceiling of $14.3 trillion, set just last year, may be reached by the end of March — and hit no later than May 16.

From CBS News

News poll finds that Americans strongly prefer cutting spending to raising taxes to reduce the federal deficit. While 77 percent prefer to cut spending, just nine percent call for raising taxes. Another nine percent want to do both.

Yet most Americans could not volunteer a program they’d be willing to see cut in order to reduce the deficit – only 38 percent could name a program they would support cutting. The top responses were military/defense (six percent), Social Security/Medicare (four percent) and welfare/food stamps (four percent).

However, Americans are more willing to consider cuts when presented with specific ideas, as the chart above illustrates. The most popular ideas for reducing the deficit are to reduce Social Security benefits for the wealthy, reduce the money allocated to projects in their own community, reduce farm subsidies and reduce defense spending. More than 50 percent supported reductions in each of those programs.

Democrats and independents were more likely to favor cuts to defense spending than Republicans, only 39 percent of whom favored cuts there to reduce the deficit. Republicans were most likely to favor reducing money for projects in their area (73 percent), reducing social security for the wealthy (66 percent), reducing farm subsidies (58 percent) and reducing money for student loans (54 percent.)

Democrats were most likely to support reducing social security for the wealthy (60 percent), reducing defense spending (58 percent) and reducing farm subsidies (55 percent).

Forty-seven percent say it will be necessary to cut programs that benefit people like them to reduce the deficit. Forty-one percent say it can be reduced without cutting programs that benefit them.

Seventy-two percent say that deficits can be acceptable in emergency situations and when kept manageable. Eighteen percent say deficits are never acceptable, while seven percent say the government should run whatever deficits are necessary.

Most Americans do not know exactly how the government spends its money. For example, when asked what percent of the budget goes to earmarks, 41 percent said they make up less than 20 percent of the budget, 13 percent said 20-50 percent, 4 percent said more than 50 percent and 42 percent didn’t know. Earmarks actually make up less than one percent of the budget.

From the Financial Times

It was the most startling of warnings. If the US does not get its finances in order “we will have a European situation on our hands, and possibly worse”, claimed Paul Ryan, the new Republican chairman of the House of Representatives budget committee.

The consequences of not tackling the country’s mounting debt burden would be dire, he last week told an audience of leading budget experts and economists at a gathering in Washington. “We will have the riots in the streets, we will have the defaults, we will have all of those ugliness problems,” he said, referring to “French kids lobbing Molotov cocktails at cars, burning down schools because the retirement age will be moved from 60 to 62”.

As it stands today, the US borrows about 40 cents of every dollar it spends. Curbing the budget deficit has been the stated mission of Mr Ryan, a rising Republican star, for several years. But such calls for action have multiplied in Washington in recent months, igniting what some say is the fiercest debate over fiscal and budgetary policy in decades.

The risks are big. If the government rushes into austerity, cutting too much and too quickly, it could stunt economic recovery. But if the political system cannot forge some kind of consensus on steps to restore US deficits to sustainable levels, the danger is potentially even greater: a sovereign debt crisis in the world’s largest economy.

“It’s a weak period for the economy, so I don’t think you want to do serious deficit reduction anyway, but we are playing a dangerous game and we will start to pay a price for fiscal irresponsibility,” says Ethan Harris at Bank of America Merrill Lynch.

The big fear is that if no action is taken, investors might eventually punish the US for its fiscal laxity. That would raise borrowing costs for businesses and consumers, force severe austerity measures and risk social unrest. Not only America’s triple-A credit rating could be threatened; some point to consequences in foreign affairs and defence as well. Mike Mullen, chairman of the joint chiefs of staff, last year warned that the debt pile could limit the flexibility of the US in funding its military – in his eyes the “most significant threat to our national security”.

Read the rest of the article.

From Reuters

Some 71 percent of those surveyed oppose increasing the borrowing authority, the focus of a brewing political battle over federal spending. Only 18 percent support an increase.

The poll underscores the tough task ahead for U.S. lawmakers as the debt nears its current ceiling of $14.3 trillion. Treasury Secretary Timothy Geithner last week warned that a failure to raise the borrowing limit in the coming months could lead to “catastrophic economic consequences.”

Brian Riedl, the lead budget analyst at the conservative Heritage Foundation, said the poll findings put “a lot more pressure on those who want to raise the debt limit to make a convincing argument to a very skeptical public.”

Republicans, who won control of the House of Representatives in November on a promise to scale back government, hope to pair any debt-ceiling hike with a commitment from President Barack Obama to reduce long-term spending.

Republicans have vowed to slash $60 billion from the budget as soon as March, but many of those cuts are not likely to be popular with the public.

The United States posted an $80 billion budget deficit in December. The government has now posted a budget deficit for 27 straight months, the longest streak on record.

A deal to extend tax cuts this year that was approved by Congress in December is expected to put a hole of more than $800 billion in the deficit over the next decade.

Obama wants broader tax reforms although it will be hard to get them through a divided Congress in the next two years. His administration is exploring ways to boost tax incentives for corporate investments, Geithner said.

Read the rest of the article.

From CNBC

By John Carney – Felix Salmon calls the debt ceiling “built-in systemic stupidity” and asks why we have it at all.

I’m happy to provide the answer.

The first answer is that the constitution requires a debt ceiling, at least indirectly. Congress is saddled by the first article of the constitution with the power to “borrow Money on the credit of the United States.” It long ago abdicated a portion of this power by enabling the Secretary of Treasury to approve debt issuances without the specific approval of Congress. But its not clear that, absent a constitutional amendment, Congress can delegate this power altogether.

Prior to 1917, Congress had to approve each individual issuance of US debt. This power was rarely used. The first post-constitutional issuance of national debt was undertaken to pay for the War of 1812. The next time the US government went to the debt markets was during the depression of 1837-1843. In these issuances, further votes of Congress were required to authorize the government to make principal and interest payments as they became due.

It wasn’t until the Mexican War in 1847 that Congress first authorized the US Treasury to issue debt on which interest and principal payments were automatically approved. The real debt explosion, however, occurred during the Civil War—when the national debt ballooned to $2.75 billion from just $58.5 million. But even during the Civil War, the specific kind of debt issued by the US Treasury had to be approved by Congress. Both the terms of the debt and the interests rates to be paid were subject to the approval of Congress.

Read the rest of the post here.