We must increase our debt limit so that we can pay our bills.
This is the thrust of President Barack Obama’s insistent demand that our debt ceiling be raised, and that it be done with no strings attached. The graph below, via Zero Hedge, however, illustrates the foolishness of continually expanding our country’s debt. It shows government debt as a percentage of GDP compared to the annualized rate of change in economic growth.
It’s hard to get any clearer than this demonstration of the inverse relationship between government debt growth and economic growth. It’s not just that growing debt impedes economic growth; the reverse is true, also: reducing government debt (not just reducing debt growth rate) allows the economy to grow.
If you borrow money to pay your bills, you aren’t paying your bills, you’re just changing creditors. I’ve said it before, and I’ll say it again: it isn’t sufficient simply to raise our debt ceiling. Any raise must be coupled with commensurate real spending cuts—that is, cuts in current year spending, not pseudo-cuts in the out years. It’s only by reducing current spending below current revenues that the current deficit can be reduced—which by itself still isn’t enough. The current deficit must be reduced to the point it disappears, and a current surplus is generated. Year after year.
Current deficits, after all, are current borrowings, and these only add to existing debt. The only way we can reduce our country’s debt, and so to eliminate the need to raise the debt ceiling—the only way—is to cut current spending to levels below current income. Any junior high student on an allowance understands that.