Tuesday, May 24, 2011

Federal Debt Ceiling

The excessive federal spending is enabled by the Federal Reserve, which buys (through the "primary dealers") the debt issued by the Treasury. This is the funding mechanism of outrageous deficits. If the dollar was backed by something tangible, this scheme of uncontrolled deficit spending would end. Since the dollar is backed by nothing, the attempt to control deficit spending is the debt ceiling which prohibits the Treasury from issuing debt beyond the debt ceiling. Politicians have found they can simply raise the debt ceiling.

In the following article, Ron Paul points out that future obligations are not included in the debt ceiling calculation.

Stop Raising the Debt Ceiling
The federal government once again has reached the limit of its legal ability to borrow money, meaning it cannot issue new Treasury debt without action by Congress to increase the debt ceiling limit. As of this month, our “official” national debt- which doesn’t include the staggering future payments promised to Social Security and Medicare beneficiaries- stands at $14.2 trillion.

The debt ceiling law, passed in 1917, enables Congress to place a statutory cap on the total amount of government debt rather than having to approve each individual Treasury bond offering. It also, however, forces Congress into an open and presumably somewhat shameful vote to approve more borrowing.
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