Q. and A. on the Debt Ceiling
By MICHAEL COOPER and LOUISE STORY
Published: July 27, 2011

For a time it seemed safe for many people going about their summers to try to ignore the debt ceiling drama playing out in Washington. If Wall Street had not seemed overly concerned that the United States was headed toward default, why should anyone else worry? And there is the long history of crying wolf in Washington: in April everyone finally got up to speed on the threatened shutdown of the federal government just in time to see it averted by an 11th-hour deal.

But now, palms in Washington are beginning to get sweaty, the stock market is sliding and President Obama is breaking into “The Bachelorette” to address the nation about the debt crisis. Perhaps the time has finally come for a crash course in all things debt ceiling.

Q. Republicans and Democrats alike keep talking about the need to reduce the federal deficit. Won’t refusing to raise the debt limit cut the deficit?

A. No. The debt limit, or ceiling, which is the amount that the nation is allowed to borrow, must be raised if the United States is to pay for all the things that Congress has already bought: the spending in the budget bills it has already passed, the Social Security checks promised to retirees, the payments due to private companies with federal contracts and the interest on bonds it has sold. Washington has long spent more money than it takes in, and planned to make up the difference with borrowing. Both parties agree that this cannot go on forever. But if the debt limit is not raised, it will not cut the nation’s deficit or allow the government to get out of its existing obligations. It will simply make it impossible to borrow the money that the government needs to pay for them.

Some Republicans argue that the dangers of a default are being overstated, and that the only way to curb the nation’s debt problem is to reduce its legal ability to borrow. (As a senator, Mr. Obama voted against raising the limit himself.) But economists say the dangers of default are real, with ramifications ranging from slowing the economy to making mortgages and car loans more expensive. But analysts say that freezing the debt ceiling would have little immediate effect on debt levels. “While debates surrounding the debt limit may raise awareness about the federal government’s current debt trajectory and may also provide Congress with an opportunity to debate the fiscal policy decisions driving that trajectory, the ability to have an immediate effect on debt levels is limited,” the Government Accountability Office reported. “This is because the debt reflects previously enacted tax and spending policies.”

Q. This sounds like an odd system. Do you mean that Congress can pass a budget that requires borrowing, and then argue later about whether to approve that borrowing? [CONTINUE READING at NY Times]
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By DEADLY CLEAR

Maybe a default will force the government to stop the foreclosures and reconstruct the loans with the borrowers in order to create revenue streams and needed cash flow – not to mention starting to stabilize the economy.

Thousands (if not millions) of American homeowners are depressed and tired from fighting to save their homes from banks who defrauded investors, borrowers and the government by inflating appraisals, manipulating underwriting guidelines, over-rating bonds and writing more loans than they could legally hold in the nations biggest securitization Ponzi scheme.

In the wake of this mess created by Wall Street banksters who are skating out from criminal penalties and buying their freedom to continue the same ruse, are two and half political parties that are splintering into several factions.  It’s similar to a family feud caused by a corrupt brother-in-law who sold drugs to children and nobody wants to admit they’d all be better off once he went to jail.  Everybody’s fighting and the drug dealer is still on the streets.

The debate over the debt is really late and lame.  Raising the debt ceiling does not stop the bad acts.  Our lawmakers need to address the core issues – the reasons they got to this point in the first place… Wall Street stole $$TRILLIONS of retirement and pension funds from all over the world. We have shortages because the Wall Street banks needed to be propped up. Maybe the funds went for wars, maybe to the Cayman islands – wherever they landed it was bad for America.  This needs to be corrected now.

If the political parties are going to make a deal – regulating derivatives should at the center of attention.  Otherwise, we’ll be right back here shortly after the next election.