Myth of the month: Debt limit about paying bills

Bill McBride has hit this several times: Bernanke to Congress: Do your job, Pay the Bills. In doing so, he reveals a political bias.

The debt limit is a financial control. As with any complex system, government expenditures need many controls at many levels. In personal finance, the debt limit is your credit limit. It is a last ditch control.

A more basic financial control is a budget. That is where you plan your spending to meet goals against expected income. The problem the U.S. government has right now is that it doesn’t have a budget thanks to obstructionism of the Senate majority leader. For the last three or four years, the government has been going on a continuing resolution basis using the first budget approved by the President and Congress in 2009.

The President’s assertion about raising the debt limit in order to pay for things Congress has budgeted for sounds very nice. The problem is that the last time Congress passed a budget was two sessions ago. The tactics of the Democrats then are to bypass the upheaval in Congress due to the 2010 election and since.

What has happened in recent history when debt limits have been reached is the threats about teachers, firemen, and police. In other words, when government is faced with having to cut back on expenditures, they try extortion on their constituents. The programs that get put up for suffering are the high value or high emotion ones. The lack of seriousness in such behavior is starting to grind on those constituents but it appears that the President and others haven’t got the message, yet.

This is why the ‘just to pay the bills’ idea is insidious as well as just false. For McBride to fall for it demeans an otherwise excellent finance and economics blog.

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