Phase In
Debt-Limit Hikes
By DICK MORRIS
Published on
TheHill.com
on December 18, 2012
Everyone in Washington knows two things:
1.) Obama will try to wriggle out of any
spending cuts enumerated in the fiscal-cliff deal. We all know from
experience that whenever there is a 1-1 ratio between spending cuts and
revenue increases, the ratio falls apart in reality. The tax increases
slow the economy, curtailing growth and increasing entitlement spending.
Unless there is an enforcement mechanism, spending goes up, not down.
2.) The Republicans will not refuse to raise the
debt limit and thus cause the nation to default. If House Speaker John
Boehner did not let the government shut down over the 2011
continuing-resolution battle or the subsequent debt-limit fight, he
won't let it close down now.
So, as things now stand, any leverage the Republicans get from the
debt-limit fight is purely theoretical and not real.
Here's how to make it real:
The Republicans should offer to pass a bill now setting a debt limit
that rises each quarter pegged to one-third of the revenue growth of the
preceding quarter. Thus, two-thirds of all revenue growth -- natural or
due to tax hikes -- would go to deficit reduction.
Republicans are unwilling to pull the trigger on default by refusing to
raise the debt limit. But a bill to allow gradual increases in the debt
limit, at a pace slower than revenue growth, need not trigger default.
Instead, the president would be forced to prioritize his spending and
borrowing so as to avoid default, pay the military and send out Social
Security checks. All the rhetorical handles he has to battle an effort
to kill the debt-limit increase will be gone in the face of a phased-in
debt-limit hike.
A spending deal with deficit-reduction targets really cannot be
enforced. But if those goals are linked to the debt limit, they are
self-enforcing.
Obama wants to not only raise the debt limit, but to eliminate it.
Without a debt limit, there is no way to stop or even to slow government
borrowing. The two normal constraints on public debt growth are not
applicable. For other borrowers, lenders can refuse to lend. But the
federal government is not planning to borrow from lenders. It will
borrow the money it prints and gives to banks in return for worthless
mortgage-backed securities. And, in usual circumstances, the interest
rate rises as the debt becomes larger and less sustainable. But with the
fund for debt service coming from the federal printing press, the
Treasury can hold the interest rates to an artificial level of 3.5
percent, as at present.
It is only through debt limits that there is any check on federal
borrowing, or even on federal spending. We need to cut off the credit
card Washington uses to pay its bills.
But the all-or-nothing approach of current debt-limit brinkmanship
leaves false draconian choices for both the president and the Congress
and, of course, rattles the markets. But if the debt limit is slated to
go up enough to meet debt service and other vital needs, but not enough
to give the president all the money he wants, it can be a real check on
executive profligacy.
The Republicans need a financial equivalent of the "flexible response"
doctrine Kennedy brought to U.S. defense, rejecting the "massive
retaliation" doctrine of Eisenhower as too drastic ever to really be
used. If the only option is the nuclear, then there is no option.
Obama's been re-elected, but you can
still prosper in spite of his 'plans'. Let us show you the investment
cure! CLICK HERE to learn more about a proven strategy, free!
Subscribe to Dick's Newsletter
|