| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 Asia Economy


How to use our RSS feed

Follow Finfacts on Twitter

Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.


Finfacts is Ireland's leading business information site and you are in its business news section.


Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News


Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News




Content Management by interactivetools.com.

Analysis/Comment Last Updated: Jul 1, 2011 - 8:08 AM

Dr. Peter Morici: No US default, no shutdown inevitable if debt ceiling talks fail
By Professor Peter Morici
Jul 1, 2011 - 6:38 AM

Email this article
 Printer friendly page
Chairman of the Joint Chiefs of Staff Admiral Mike Mullen, President Barack Obama, and Secretary of Defense Robert M. Gates salute as troops parade past the reviewing stand during the Armed Forces Farewell Tribute in honour of Secretary Gates at the Pentagon in Arlington, Virginia, June 30, 2011.

Dr. Peter Morici: The United States does not have to default on its debt, and the social security and Medicare checks can go out even if Republicans and President Obama cannot strike a deal to raise the debt ceiling by August 2.

Even though the government cannot borrow additional money, it still has tax revenues equal to about 55% of expenses - - $2.2trn against expenses equal to about $3.8trn for a $1.6trn deficit. With those tax revenues, Washington can fund interest on the national debt, social security, Medicaid, and crucial national defense responsibilities. With the interest on the debt honored, the government can sell new bonds to replace bonds that come due without piercing the statutory debt limit.

Interest, benefits to seniors and defense would absorb virtually all tax revenues. It would appear the other functions of government would have to shut down, but the Administration has other options.

Often overlooked, the Treasury can print money to pay its bills. Before you gasp that Washington would be flooding the world with greenbacks—it doesn’t have to be.

The Federal Reserve holds on its balance sheet about $2.6trn in securities, mostly Treasury bonds, which it could sell to absorb the money the Treasury prints to pay its bills. At $1.6trn a year, that could keep the government running past the next election.

Also, since 2007, government spending has jumped $1.1trn but only $200bn was needed to cover inflation—the $900bn additional was new programs and benefits and higher pay. That has increased federal spending’s share of GDP from 19.6% to more than 25%.

Temporarily, slicing that additional government spending by $450bn, by executive order, would likely stand up in court as an emergency measure. Especially if President Obama and Secretary Boehner sat down and did a deal, alone and with no help from their partisan friends but if necessary.

It would be good politics for both sides—either the President is right and Americans would see how painful it is to cut government that much, or Republican would be able to point that we are better off.

The Treasury would have to print about $1.2trn a year in new money, and the Fed would sell an equal amount of securities from its balance sheet; however that maneuver would take us until a new Congress is seated and a reelected President Obama or his successor has a clear mandate.

Before you say this is kicking the can again, consider that in 2012, both the President and his opponent would have to table specific alternatives for slashing the deficit and restoring normal operations, and the winner would emerge with a mandate for his plan.

Right now, neither side is tabling credible plans. The president’s taxes on the rich and other schemes would only slash at best $150bn annually from the $1.6trn deficit, and the Republicans about a similar amount in spending cuts they have managed to propose.

Neither side is talking about harnessing the rapidly rising prices the government pays for health care—both sides just talk about trimming benefits a bit or the pain of it. 

The United States pays double, or more, than European governments for drugs, and suffers from large disadvantages in insurance administration, hospital efficiency and tort costs. Regulating those prices is tar baby no one in Congress or the White House wants to put his arms around - - but we are not getting out of this mess without doing so.

Ditto for retirement ages for social security and the vast array of federal pensions, and state pensions the federal government indirectly helps finance.

The absence of frank discussion of financing options beyond August 2 is the fault of two men. Though Treasury Secretary Geithner serves at the pleasure of the President, and Fed Chairman Bernanke must answer frequently to Congress, both men have a responsibility to articulate the genuine budget and economic challenges before the nation, and both men can easily find other satisfying and better paying jobs in a pinch.

In similar crises, past cabinet members have stepped up—consider the conduct of senior Justice Officials in the last days of the Nixon Administration, and Alan Greenspan was not afraid to talk frankly about federal policies.

Secretary Geithner needs to draft plans to keep the government going and be quietly frank with political leaders about those plans. And, Chairman Bernanke would then concur with how the Fed can respond.

Sadly Geithner and Bernanke are shirking responsibilities. Geithner’s substantive shortcomings are widely speculated; however, Mr. Bernanke is a bright man and has no alibis to offer.

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone




Goolsbee Talks Economic Recovery: Austan Goolsbee, Council of Economic Advisers chairman, assesses whether the economy will improve and whether a tax hike is the answer for solving America's debt ceiling debate:

Greenspan One-on-One:

Related Articles
Related Articles

© Copyright 2011 by Finfacts.com

Top of Page

Latest Headlines
Disastrous 44-year War on Drugs and ignoring the evidence
HSBC & Tax Evasion: France/ Belgium issued criminal charges; UK/ Ireland nothing
Analysis: Germany world's top surplus economy; UK tops deficit ranks
Facts do not always change minds - can even entrench misinformed
Finfacts changes from 2015
Facts of 2014: Guinness not Irish; 110 people own 35% of Russia's wealth
In defence of dissent and Ireland's nattering nabobs of negativism
Dreams of European Growth: France and Italy facing pre-euro economic problems
Globalization's new normal needs permanent underclass - Part 1
MH17 and Gaza: who is responsible?
Israel vs Palestine: Colonization set for major expansion
Aviva Ireland's 'fund' runs dry and life cover to die for
We wish Martin Shanahan - new IDA Ireland chief - well but...
Ireland as an Organised Hypocrisy is in lots of company
Dr Peter Morici: Friday’s US jobs report won’t alter Fed plans to raise interest rates
Own Goal: Could FIFA have picked worse World Cup hosts?
Ireland: Spin and spending will not save bewildered Coalition
Irish Government parties set for 2-year vote buying spending spree
European Parliament: Vote No. 1 for Diarmuid O'Flynn in Ireland South
Dr Peter Morici: US April jobs report may show 215,000 added in April
Dr Peter Morici: Hardly time to call Obamacare a success
Celtic Tiger RIP: Change in conservative Ireland six years after crash
Dr Peter Morici: Five things to know about the Fed’s obsession with inflation
In age of acronym/ Google, Trinity to rebrand as 'Trinity College, the University of Dublin’
Hoeness case part of ‘painful’ change for Swiss bankers
Dr Peter Morici: The Cold War was only on vacation
Dr Peter Morici: US economy drags on Obama's approval ratings; Don’t look for changes in Washington
Dr Peter Morici: Bitcoin debacle shatters the myth of virtual money
Dr Peter Morici: US Tax Reform: Eliminate the income tax and IRS altogether
Wealth threatens the simple life in Gstaad, Switzerland
Irish journalists get cash payouts over 'homophobic' defamation claim
Irish academics get lavish pension top-ups as private pensions struggle
Dr Peter Morici: Inequality is President Obama’s highest priority, but solutions are naive
The Finfacts Troika: Better times ahead and a hangover to forget?
Dr Peter Morici: Volcker Rule arrives with the hidden jewel in Dodd-Frank financial reforms
Ireland's toothless fiscal watchdog threatens to bark
Analysis: Germany's current account surplus - - Part 2
The end of western affluence?
Bono's hypocrisy on Africa, corporate tax avoidance in Ireland
France like Ireland is run for the benefit of the old