On Nov. 3, the United States was scheduled to hit its debt ceiling – the self-imposed limit on how much the government can borrow. But, in a flurry of bipartisan cooperation, Congress has now suspended the debt limit until 2017.
Hitting the debt ceiling is always good political theater. Keeping this in mind, everyone should be well aware that the ceiling itself has little meaning. Congress can hoist the ceiling as high as it likes, or remove it altogether, with a single vote – something it has done, on average, twice each year since the Nixon administration.
But on Nov. 8, the country will celebrate a very real and very ominous limit – Deficit Day. On this day, the government spends the last penny it has collected for the year from taxes and fees.
The debt ceiling is an artificial crisis. The hype around this artificial crisis means that few notice the real culprit – Deficit Day, which ultimately points to the scope of the United States’ economic woes.
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From 12:01 a.m. on Nov. 9, until midnight on New Year’s Eve, every dollar the federal government spends goes on the nation’s credit card. Washington’s spending is so much larger than its income that the government can’t pay for the last 52 days of this year’s operations.
Washington ran out of money 50 days before the end of 2014, 72 days before the end of 2013, and a whopping 112 days before the end of 2012.
Simply put, we have a government that is too big for our economy to sustain. This year, the federal government will collect almost $3.2 trillion from all revenue sources combined. This is about as much as it spent in 2008.
The U.S. economy today is just large enough to support the government we had in 2008. By extension, our economy likely won’t be strong enough to sustain the government we have today until 2024. By 2024, we will have a much larger government.
Some would like for us to believe that the government’s debt doesn’t actually matter. They are technically correct. It’s the interest on the debt that matters, and the debt itself is irrelevant – until it isn’t. And we are well past the point where the size of the debt is irrelevant.
The federal government officially owes more than $18 trillion, but the official debt doesn’t count unfunded liabilities. The government will not have the money to cover the retirement and medical benefits it has promised to current and future retirees.
How much is this figure? Estimates range from the obscene (around $90 trillion) to the astonishing (around $200 trillion). The government currently pays about 2.4 percent interest on its debt. Using merely the obscene estimate, it would cost the government almost $3 trillion annually to pay the interest on its debt and unfunded liabilities.
Three trillion dollars is almost the total amount of money Washington collects in a year. If we count its unfunded liabilities, the federal government is currently bankrupt. The fact that politicians refuse to discuss bankruptcy tells us that, when push finally does come to shove, they will simply vote not to pay those liabilities.
The question is not whether the federal government will go bankrupt, but rather, what novel spin politicians will employ to hide the fact that it is. And Congress will not be able to change that sad fact by passing yet another extension for itself when that day finally comes.
Antony Davies is an associate professor of economics at Duquesne University. James R. Harrigan is director of academic programs at the nonprofit Strata.