Will the US Default If The Debt Ceiling Is Not Raised 1

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					The current debate on raising the debt ceiling in Congress has been
demagogued by both sides of the aisle recently as the Congress gets
closer to the "day of reckoning" where the government will run out of
money sometime in June. The Republicans and some Democrats in Congress
have stated that unless it is accompanied by significant budget cuts,
they will not vote to increase the debt limit. Secretary of the Treasury
Timothy Geithner has warned of dire consequences if the debt ceiling is
not raised including default on the Country's debt.Let's take a look at
this issue and see if we can determine fact from fiction. First of all,
the US government is actually taking in an average of $177 billion per
month. Of this amount, the cost to service the debt is approximately $19
billion per month. If the debt ceiling were not increased, the government
could pay the $19 billion to service the debt and have $158 billion left
over to pay the rest of its operating expenses. The government spends
approximately $276 billion per month, not including servicing the debt.
There would therefore be a deficit of approximately $118 billion.
Clearly, this is not a sustainable situation for any long period of time,
but would the government default on its debt in the short-term? Clearly
no. It would have to prioritize which programs it funded and which it
does not, but clearly the government would not immediately default on its
debt as some in the political sphere have asserted.While the concept of a
debt ceiling is nothing more than an artifice that was made up by
Congress with no real significance (since its always raised), raising it
will ultimately be necessary to continue to operate the government. If
the issue can serve as a negotiating tool for Republicans and some
Democrats to use to force the substantive budget cuts, then it should be
used as such. As can be seen from the above analysis, a short-term
failure to raise the debt ceiling will not result in an immediate default
as the demagogues in Congress and the government suggest. While the
short-term effect will be deleterious to the financial markets, the long-
term benefit of addressing the Country's budget deficit will be well
worth any short-term disruptions.See this and other articles of interest
on the subjects of finance, investment, politics, and world events at The
Intelligent Observer: http://theintelligentobserver.wordpress.com

				
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posted:7/14/2011
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