Wednesday, June 15, 2011

Playing chicken with the federal debt ceiling.

The US Congressional Republicans are playing chicken with the federal debt ceiling; the limit on the federal government’s ability to borrow money. The Republicans had a majority in the US House of Representatives and the US Senate from January 2001 to January 2007, during the Republican administration of George W. Bush, and in those years they raised the debt ceiling four times (’02, ’03, ’04 and ’06).

January 2007 to January 2009, still the Bush administration, the majority in the two chambers of the US Congress changed hands and had gone to the Democratic Party. The debt ceiling was raised three times in that interval: ’07, ’08 (twice).

The federal deficit was $5.7 trillion when George W. was inaugurated in January of 2001, and was $10.2 trillion dollars on the day before President Obama’s inauguration (see the US Treasury web site detailing the deficit, “to the penny” ).

In the first few years of the W. Bush administration Vice President Dick Cheney was quoted telling the Treasury Secretary, Paul O’Neill, that, “deficit’s don’t matter.” During the current, Obama, administration private citizen Dick Cheney is on tour and television proclaiming that the federal deficit is a major threat to the US economy; a really convenient memory loss.

In the long term the deficit really is a problem, but the US economy went from record breaking growth in the Clinton administration to a recession (that went to the brink of depression), starting in December 2007. Reducing the deficit now will result in federal departments and programs being scaled back or shut down. That would negatively impact businesses that supply federal programs with products or services. It would also reduce federal employment; the businesses that cater to federal employees would suffer.

One might ask, “How does all that affect me?” Well, if you’re a federal employee on the brink of unemployment the consequences are obvious… If you’re investor you might ask your broker, or financial planner, how an investment portfolio might perform if major investors started to believe, regardless of fact, that the US government might actually default on some of its debt; put something soft twixt your chin and the floor.

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