Debt Ceiling Strategy

As sure as many of us would like to see the debt limit not increased, I believe this to be highly impractical, given the enormous size of the Federal Government. Obviously, the debt limit and the size of the Federal Government go hand-in-hand, but, by taking the approach of forcing the government to scramble to avoid a default, there will be many unintended consequences. On the other hand, an increase of something like $2T would be reckless, and deservedly doom the Republicans. The primary reason for not wanting to extend the debt ceiling (other than the obvious fact that we’re out of money), is that most of us don’t have the confidence that our elected officials will follow through and bring the government back to fiscal sanity. An approach is needed that ties the hands of the spenders, and puts the debate into a context that everyone can understand.

Most people understand the value of a dollar. If you go into Dollar General Store, you will get a handle on this concept immediately. Most people also know the value of $20,000, in that this amount of money will buy a reliable car. Most people can deal with $150,000, as this will buy a townhouse or house in many parts of the country. Unfortunately, as the value gets to $1M, $1B, and $1T, the connection with understanding money evaporates. Our elected officials are getting away with thievery, because they are speaking in a language that is incomprehensible. Any new strategy to deal with the country’s debt needs to be brought back to the terms of the common American.

The Republicans in the House of Representatives initially had the right idea with respect to the FY2011 budget. The strategy was to produce short-term CRs that contained cuts that were difficult for the Senate to reject, and that would be difficult for the President to veto. Unfortunately, they abandoned this strategy, and, instead tried to put in riders that would never make it through the process. The result was unsatisfactory. I’m looking for real results, not political statements, even if I agree with them.

The best way to bring the debt into control is to put it in the face of the country frequently. The way to do this is not to extend the debt ceiling for a specific period of time, but, to extend it for a specific amount of money. I propose that the debt ceiling be raised by no more than $100B at a time. The $100B figure translates to about $325 per American, and, at the current spending rate, this amount of money would last for about a month. This is a convenient amount and time duration, in that everyone can see that the government is costing them an extra ‘car payment’ every month. Everyone will understand this.

In exchange for the $100B in debt ceiling increase, the Republicans in the House should add riders that will trim the budgets of various agencies and programs. These bills should not completely remove funding for things like NPR and Planned Parenthood, they should reduce the funding by a small percentage each cycle. Let’s have a 3% cut each cycle in the Obamacare $105B slush fund each cycle. Let’s trim the HHS budget and the IRS budget by 1% every cycle. Even if the percentage of the trimming is in the 1% range, it won’t take long for the compounding of the cuts to be meaningful.

Could the Democrats and Obama be successful in demagoguing this strategy and these levels of cuts? It will force them to cry wolf often, and Americans will never see the wolf show up. Will the markets gain confidence in that this problem is being addressed every month? I think that this approach builds far more confidence than seeing another $2T in debts accompanied only with a list of empty promises from the government. Will Americans tire of seeing a new “car payment” show up every month with no car to show for it. You betcha. Let’s measure the politicians by how long they can stretch out the debt ceiling increases.