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Full Faith and Credit
by James Turk

I wrote the following 22 years ago this month. As the French say, Plus ça change, plus c'est la même chose! Nothing has changed except the data, which I have updated in brackets so that I can make some comparisons in my comments below.

“Full faith and credit. Bring these words to mind as you read in the papers about the machinations going on in Washington as the politicians there wrestle with the federal debt.

The government puts self-imposed limits on its capacity to borrow. The limit must first be passed into law, and this is achieved, as with all national laws, by passing a bill in Congress which is then signed by the President. The limit on the national debt is presently $2.32 trillion [$12.104 trillion], and the outstanding debt is just a few [hundred] billion shy of this level. Therefore, the government must stop borrowing – which means it won’t have the money to pay its bills – or Congress must pass a bill which the President signs so that the limit will be increased, which will enable the government to borrow more money so that the house of cards can get even bigger.

The federal debt limit was increased to this level on October 21, 1986 [February 17, 2009]. At that time, Congress raised it from $2.111 trillion [$11.315 trillion], an increase of $189 billion [$789 billion]. Thus, in a little over nine [not quite six] months, the federal debt has increased by about $180 billion [$870 billion], which is about $20 billion [$145 billion] a month or $240 billion [$1.740 trillion] a year.”

The federal debt presently is $11.66 trillion, ‘just’ a few hundred billion shy of the statutory limit. Given the present rate of federal spending, in two months the limit will be reached again. In fact, The Wall Street Journal today reports: “U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt limit on Friday, saying it is "critically important" that they act in the next two months.”

Obviously the politicians won’t stop spending money. There is no self-restraint in Washington. As a consequence, another increase in the statutory limit can be expected, which will be the 72nd increase since the limit was first imposed in 1940. This debt will be adding more straws to the camel’s back and further diminishing the reliability of what used to be unquestioned, namely, the ‘full faith and credit’ of the US government.


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