On May 16, 2011, Washington gave an ultimatum. America will default on its debt obligation. It was the time when Democrats screamed that the debt limit would reach its maximum. It was the time when Obama claimed the "sky is falling." Now, Washington is giving us till August 2, 2011, as the deadline that America will lose it credit rating and default on its loans. To the average American, it is difficult to imagine anything coming from Washington D.C.
Currently, the US Treasury is tapping federal employee pensions and prioritizing other funds (taxes) to pay America's debt. Also, the US Treasury took money from special accounts held by the Federal Reserve. Even though, the Treasury said that juggling the finances will lead to higher interest rates, the American population does not want. Treasury Secretary Geithner wanted to use the tactics Bill Clinton used on Congress in 1995, but that is comparing apples to oranges. If Geithner wanted to scare Social Security recipients from their checks, the treasury secretary needed to look at those figures closely.
The numbers are much bigger this time than in 1995. In 1995, the debt stood at $5 trillion. Also, in 1995, the government was spending less than $2 trillion than compared today's figure. Therefore, staying under the debt limit for more than four months would now take a few weeks.
Geithner states the government will collect $2.2 trillion in taxes this year; and as require by law, the government will spend $3.7 trillion. The treasury secretary is claiming a budget shortfall to cover the debt obligation. If the government cuts spending, it would free more money to pay America's obligations. The GOP is asking Geithner to pay interest on the debt first. By keeping interest payments current, America would avoid default. The GOP stressed that furloughing workers and stop further additional suspending is not the same thing as defaulting on our bonds.
The Obama Administration is exaggerating the situation. Even though, it is an emergency, cut spending will alleviate the majority of headaches.
(CNBC) More than 150 economists back U.S. House of Representatives Speaker John Boehner's call to match any increase in the debt limit with spending cuts of equal size, according to a letter released by the Republican leader's office Wednesday.
The letter will give Boehner an important talking point as he and his fellow House Republicans meet with President Barack Obama at 10 a.m. to discuss the debt limit and other fiscal issues.
"An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government's spending addiction will harm private-sector job creation in America," the letter said.
The Treasury Department has warned that the country could face a default that could push it back into recession and roil markets across the globe if it does not raise the $14.3 trillion debt limit by Aug 2.
Treasury has been tapping federal employee pensions and other funds to pay the nation's bills since it reached the current debt limit on May 16.
Republicans say they will not back any increase that does not include steep spending cuts and other limits to ensure that debt stays at a manageable level.