Common Sense from the Huffington Post

July 18th, 2011 by Lee Eldridge

Alan Schram from the Huffington Post has written an interesting article explaining how the debt ceiling worries are overblown. Here’s a segment of the article:

But the disaster scenario — default on US debt — is still unlikely. First, because a compromise that involves deficit reduction along with a debt ceiling increase is still the most likely outcome, as it is the most sensible, even for our politicians with their polarizing agendas.

And second, because the US government collects much more in taxes than the amount necessary to service the debt. So even in the unlikely event that the debt limit is not increased, the coupons on US treasuries will still be paid and Treasury will prioritize other government expenditures, even if it has to shut down non essential government services.

More importantly, the debt levels are not the main concern. The real threat to the country’s long term financial health is the ongoing deficit. US revenues were about $2.2 trillion last year. Expenditures were $3.5 trillion. Interest payments were only about 6% of that. Entitlements — Medicare, Social Security and unemployment insurance — accounted for roughly 58% of total expenditures. And defense was another 20% (it seems strange that any country would dare to have 150 military bases around the world and be involved in three wars while running a deficit of over $1 trillion a year, but, that is a whole other topic).

Such perennial deficits are obviously untenable. It is the one issue we simply must deal with, and it is certainly not impossible. If we limit government spending to the level it was in 2007, not exactly the age of austerity, we will have a balanced budget within three years. If we than keep it at that level for ten years, we will also substantially reduce our debt levels. This will return the country to very solid financial footing.

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