The Orange County Register
http://www.ocregister.com/
April 29, 2011
Oh, wait. I suppose I ought to explain who Paul O'Neill is. A decade ago, he was President George W. Bush's first Treasury secretary. I have no very clear memory of him except that he toured Africa with Bono and they were photographed in matching tribal dress looking like Col. Gadhafi's Mini-Me twins at a Tripoli sleepover. Other than the dress-up fun, I've no idea why they were in Africa, but you paid for it, so I'm sure there was a good reason.
Anyway, Secretary O'Neill popped up the other day on Bloomberg Television to compare debt-ceiling holdouts to jihadists. "The people who are threatening not to pass the debt ceiling," he said, "are our version of al-Qaida terrorists. Really."
Really?
Absolutely.
"They're really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk."
But hang on, generally speaking, when you hit your "debt ceiling," your credit is at risk. If you've got a $10,000 credit card, and you run it up to the limit, but you need a couple more grand right now, pronto, because you outspend your earnings by 50 percent every month, and you have no plans to change that anytime soon, well, the bank might increase the limit to $15,000, or $20,000. Or they might not. There is a question mark over your credit because there is a question mark over your creditworthiness: It is at risk.
Paul O'Neill seems to regard that attitude as unhelpful. So does Timothy Geithner, his successor at what is still laughingly known as the United States Treasury. Secretary Geithner says that even to be discussing the debt ceiling is "a ridiculous debate to have."
Ridiculous?
Absolutely.
"I mean, the idea that the United States would take the risk that people would start to believe we won't pay our bills," continued Geithner, "is a ridiculous proposition, irresponsible, completely unacceptable." The best way to convince people to believe we'll pay our bills is to borrow up to our limit, and then increase the limit and borrow a whole bunch more. This would be the 75th increase in the debt ceiling in the past half-century. Let's just get it done, and resume the party.
But if Geithner thinks that even discussing the question is "ridiculous," then, as my colleague Jonah Goldberg put it, why have a debt limit at all? What's the point?
Well, because it gives us more credibility with our creditors, right? Even if we set the debt ceiling way up in cloud-cuckoo land to a bazillion trillion gazillion dollars and 83 cents, even a debt limit entirely unmoored from reality still gives the impression we haven't quite flown the coop.
Yes, but why does the U.S. government need to maintain credibility with its creditors when increasingly it's buying its debt from itself? Every month there's more and more U.S. Treasury debt and fewer and fewer people who want it. The Chinese are reducing their exposure. The investment behemoth Pimco, which manages the world's largest mutual fund, recently dumped U.S. Treasuries entirely. To avoid the failure of U.S. bond auctions, or an increase in interest rates to make them more attractive to rational lenders, the U.S. government's debt is bought by the U.S. government's Federal Reserve.
I tried up above to come up with a real-world comparison for the debt ceiling – imagine you've got a credit card limit of 10K, etc – but it's harder to do that with the Fed's policy: Imagine your left hand issues an IOU to your right hand in return for an email with a large number on it ...oh, never mind, it'll only make your head hurt. "Quantitative easing" is extremely quantitative if not terribly easing, so raising the debt ceiling would enable us to issue more debt for us to buy from ourselves. You can see why Secretary Geithner thinks that's a no-brainer.
While Jonah Goldberg was asking why have a debt limit at all, Michael Kinsley took it to the next stage: "If the national debt doesn't matter, why have taxes at all?" Particularly when you no longer have to "print" money, you can just quantitatively ease yourself into it. Once we raise the old debt ceiling, we'll be pretty much at the point where the U.S. government is spending four trillion but only taking in two trillion: For every dollar we raise in taxes, we spend two. No surprise there: The "poorest" half of the population pay no federal income tax. They're not exactly poor as the term would be understood in almost any other country, but in federal revenue terms they're dependents, so in order to fund government services for the wealthiest "poor" people on the planet we borrow money from a nation of subsistence peasants where pigs are such prized possessions they sleep in the house.
But, if you can spend four trillion, of which two trillion is borrowed, why not borrow three and make even more Americans dependent? Hell, why not borrow the whole lot? After all, the sums we're borrowing right now – $188 million every hour of every day – are unprecedented. Wouldn't it be easier if we just made them even more unprecedented? That way we could have a federal budget of six trillion, of which, say, five trillion is raised by issuing Treasury bonds for the Federal Reserve to buy. That would stimulate the economy by creating 17 jobs for any remaining Americans who still feel the need to leave the house every morning.
Now I think about it, I seem to remember Secretary O'Neill and Bono were swanking around Uganda and Ethiopia in tribal garb as part of the Irish rocker's campaign for African debt-forgiveness. Now there's an idea. And, if it works for Africa, why not closer to home? After all, Bono supported the IMF's Heavily Indebted Poor Countries Initiative, and America is way more "heavily indebted' than Uganda will ever be.
Under the 2011 budget, every hour of every day the government of the United States spends a fifth of a billion dollars it doesn't have.
Who does have it?
Er, the Federal Reserve?
A few years ago, I raised the ceiling on my own house. You can do that – up to a point. It depends on whether your foundation is solid and your framing is structurally sound. But, even if they are, you take it too high, and the roof falls in. We're structurally about as screwed up as you can get, and the foundation is badly cracked. But hey, let's just jack the roof up a little higher one more time. What could go wrong?
At this stage, nothing does more damage to our "full faith and credit" than business as usual. If you're going to bandy glib, witless al-Qaida analogies, the conventional wisdom Paul O'Neill represents is the real suicide bomb here. Men like O'Neill and Geithner think they're quantitatively easing American decline. They're not. They're quantitatively accelerating American collapse.
Onward and upward!
©MARK STEYN
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