The government officially has reached the $14.29 TRILLION debt limit last week. However, the US Treasury has taken steps to keep the country afloat until August. Since a federal law prohibits the federal deficit from exceeding $14.29 trillion, the federal government is now operating on IOUs while the 112th Congress continues to debate whether to raise the debt ceiling. As occurred in both 1996 and 2002, the Treasury Department has suspended payments to retirement funds until August 2nd, which is when the federal government would default if the 112th Congress does not raise the debt ceiling. Geithner repeated a warning that if lawmakers do not increase the borrowing limit by Aug. 2, the government is at risk of an unprecedented default on its debt.
A default on its debt by the United States would be disastrous on the American people and it will send the economy into a meltdown that would make the financial meltdown of 2008 look mild. The United States hasn’t defaulted on its debt since 1790. However, if the debt ceiling is not raised, the US economy will reach a halt since the Department of the Treasury would be forced to cut government spending. Even though, this is an option to consider I do not see it an option that the government will since a default would severely damage the country’s credit and ability to borrow and possibly lead to a stock market crash, the weak economy will be sent into depression and it would wreak havoc on the property markets in the form of massive layoffs, and increases in interest rates.
Raising the debt ceiling does not increase spending. It ensures that the United States will pay for what Congress has already authorized. In short, it guarantees that the federal government will pay its bills. However, who will want to continue to absorb US Debt?
Here is some information that most people are not aware of the magnitude of the situation:
* During April 2011, the federal government incurred a deficit of $40.5 BILLION, according to the Treasury Department.
* The deficit recorded throughout fiscal year 2011 is greater than the deficit recorded at this point in fiscal year 2010. In fact, the deficit in fiscal year 2011 is currently 8.1% greater than this point in fiscal year 2010 or $70.2 billion.
* This apparent growth in the deficit is a result of increased federal expenditures, despite an increase in federal revenues. In other words, the federal government has received more tax dollars this year, yet these tax dollars have not been able to offset increases in expenditures. Individual income tax receipts in fiscal year 2011 currently totals $837.5 billion, whereas individual income taxes at this point in fiscal year 2010 totaled $718 billion, which is a difference of $119.5 billion. On the other hand, corporate income taxes for fiscal year 2011 currently totals $129.9 billion, whereas corporate income taxes at this point in fiscal year 2010 totaled $144.7 billion. As a result, receipts from individual income taxes have increased 14% thus far in fiscal year 2011, while corporate income receipts have decreased 10%.
* Tax refunds from the federal government have also declined. Tax refunds to individuals in fiscal year 2011 currently totals $206.3 billion, whereas tax refunds to individuals at the same point in fiscal year 2010 totaled $217.2 billion, which is a difference of $10.9 billion. Changes to tax code, such as the expiration of the first-time home buyer tax credit, are responsible for decreased refunds to individuals in the current fiscal year. Tax refunds to corporations have also decreased in the current fiscal year. Tax refunds to corporations in fiscal year 2011 currently totals $49.8 billion, whereas tax refunds to corporations at this point in fiscal year 2010 totaled $67.6 billion, which is a decline of $17.8 billion. Therefore, the federal government has reduced its amount of tax refunds to both individuals and corporations in the current fiscal year.
* Among the 28 major federal agencies, 17 of these agencies have spent more thus far in fiscal year 2011 than at the same point in fiscal year 2010. The agencies with the greatest increases in expenditures include the Department of Health and Human Services with an increase of $21.7 billion, the Social Security Administration with an increase of $15.6 billion, and last but certainly not least is the Treasury Department with an increase of $123 billion in the current fiscal year.
* The Labor Department has incurred the greatest reduction in expenditures among all the major agencies in 2011. The Labor Department has reduced its expenditures $21.6 billion in the current fiscal year as compared to the same period in fiscal year 2010. This decline is a result of fewer individuals who are eligible for unemployment benefits, as well as those who are eligible receiving less benefits. The International Assistance Program has the next greatest reduction in expenditures, with a decline of $1.4 billion in fiscal year 2011.
Once the debt ceiling is raised then what? Our Government must come to the plate. The raising of the debt ceiling is just a band-aid on a gushing wound. It will only provide a short-term solution. Politicians must stop bickering over their special interests and put the people of the United States first and make the decisions entirely on what is best for the country and not for special interest groups and pet projects. This is no time to play chicken with the debt limit, we can no longer kick the can down the road on bringing the debt and deficits under control. We are running out of time; We must reform our financial structure, spending and budgeting of this country.
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