Today, Treasury Secretary John Snow is warning Congress of the same thing ex-Treasury Secretary Robert Rubin did ten years ago: The USA will soon risk default on its Treasury securities unless the fixed-dollar debt ceiling is raised.
Reuters knows exactly what is about to happen:
The call for an increase in the debt ceiling typically provokes a round of criticism from opposition politicians over excessive government spending and the process is drawn out until nearly the last possible moment.
The fixed-dollar-amount "debt ceiling" is a platform for political grandstanding, not a ceiling that carries any meaningful financial significance. Ten years ago, it was the Republicans who played political chicken with the president by placing our nation’s creditworthiness at risk. This year, will it be the Democrats . . . or possibly a few Republicans who covet the political label "fiscally responsible"?
I don’t know about you, but this particular political game is one of the few I cannot stomach. It doesn’t matter which political party is threatening to force the USA into default on its Treasury securities. I do not find it funny, cunning, or cute; I find it infuriating. (How ironic it is when politicians force our nation to the brink of bankruptcy—to earn the label "fiscally responsible." I bet Alexander Hamilton spins in his grave every time this comes up.)
In any case, rather than just get angry again, I decided to propose a superior alternative to the current, near-meaningless fixed-dollar-amount debt ceiling. I hereby propose that we lock it down at the following level:
Official USA Debt Ceiling = 80% of GDP
Here’s a graphic that helps place the “new idea” for a debt ceiling into context; click to enlarge:
I picked 80% GDP just to get the conversation started. I’d personally settle for anything between 75% and 90%, I don’t care. I just want to see our soapbox politicians and agenda-driven journalists forced, for once, to talk about how to grow the economy—a “brand new” third way of decreasing the debt burden (...besides the usual tax-hike or spending-cut rhetoric).
Defining the Debt Ceiling in terms of the debt-to-GDP ratio would force the word “growth” into the conversation, and would prevent the demagogues from using our nation’s hard-won creditworthiness as collateral for their political bets.
My congressman and two senators will be hearing from me on this issue. How about yours?
-----------
UPDATE, 1/6/06; Reader Krzysztof Swietlinski writes:
Just wanted to let you know that my native country, Poland, has in its Constitution a debt ceiling set to 60% of GDP ... We are close to it now and it is such a wonder to see our government and politicians trying to keep GDP growth as high as possible.
