Obama’s Debt Limit Double Talk

us capitolPresident Obama’s reluctance to negotiate with Republicans concerning the Patient Protection and Affordable Care Act (PPACA) is not surprising. After all, the law was duly enacted and survived Supreme Court scrutiny largely intact. The President and Democrat leaders confidently believe that since they did not need to compromise with Republicans to pass the most partisan piece of major legislation in the last hundred years they should not have to start now.

While the Democrats’ stance on the PPACA is understandable, their unwillingness to compromise on the debt limit is an entirely different matter.

On October 1, President Obama preemptively stated that he would “not negotiate over Congress’s responsibility to pay bills it’s already racked up.”


We need politicians who understand that real leadership requires making choices between priorities using limited resources.

The problem with the President’s talking point is that his signature is an integral part of “racking up” trillions of dollars of borrowed spending. Most of our federal elected officials, including the President, begin with the premise that they should spend on any priority they please without regard to the tax revenue actually coming through the door.

President Obama’s main problem with the debt limit is the “hard” ceiling it creates on spending. If the ever-increasing nature of the debt limit is any indication, he is not alone in Washington. Rather than calling for fiscal restraint, President Obama makes the case that Congress is somehow morally compelled to raise the debt limit to enable borrowed spending.

Imagine a credit card holder arguing to his creditors that his financial woes are caused by an inability to raise his credit limit rather than his wild spending habits. What if he argued that cutting him off would create a hardship for all the merchants who rely on his continued purchasing? Would he earn any more sympathy from his creditors by expressing indignation at his inability to spend? Why should the results be any different simply because the scale increases with the federal government?

Even with Washington’s abject fiscal irresponsibility, America remains able to borrow at incredibly low rates. A 52-week Treasury Bill carries a yield around one tenth of one percent.

While borrowing remains cheap, both Republicans and Democrats must agree to significant spending reforms in exchange for a little more borrowing capacity. The idea is not novel. Companies routinely engage in leveraged finance, especially when they can borrow cheaply, because they recognize the flexibility will enable them to improve spending choices, invest in efficiency, and produce a higher return in the long run.

The key to success is actually changing spending habits. Leveraged finance works when it creates a return or efficiency in excess of its costs. It will fail if it is used as a capital infusion to maintain current practices. The situation in Washington is no different.

Right now, most federal politicians seem more concerned with how we should spend beyond our means than the fact we are spending beyond our means. We need politicians who understand that real leadership requires making choices between priorities using limited resources.

By virtue of the fact America is continually hitting its debt limit, the only non-negotiable item for taxpayers on both sides of the political spectrum should be spending reductions. The debate should be over where to pull back federal spending rather than whether to make cuts at all.

President Obama said he is “not going to allow anybody to drag the good name of the United States of America through the mud,” and he can do just that by demonstrating a willingness to rein in Washington spending in exchange for a debt limit increase.

 


Cameron Smith is vice president and general counsel for the Alabama Policy Institute an independent non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families. He may be reached at camerons@alabamapolicy.org or on Twitter @DCameronSmith.