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Pros and Cons of Raising the Debt Ceiling

Factors That Apply to Stabilizing the National Debt

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To Raise or Not to Raise the Debt Ceiling and How to Stabilize Debt Over Time

  • Jul 26, 2011
The most persuasive reason to increase the public debt is that the population has grown from
180MM people in 1960 to over 300MM today. A larger population means more
infrastructure and social service needs. Other reasons to increase the public debt include
payment of current expenses, additional targeted stimulus for small business and out of the norm
requirements to wind down ongoing conflicts in Iraq and Afghanistan.

The Gross Public Debt rose to 121% of GDP in 1946 and dropped steadily to 32% by 1975. The millenium began with the Gross Public Debt at 57% of the GDP and closed at 94% of the GDP in 2010. This year's Gross Public Debt at 94% is still well below the 121% in 1946 circa the end of  World War 2. Our economic history shows that the public debt tends to increase quite considerably during wartime.

World class increments in infrastructure may be paid for by toll receipts on roads,
customer fares on rails and tolls on bridges or tunnels. The Eisenhower Administration
model for highway expansion is cited as a success in its time. Upgrades to the high
speed wireless data network are slated to reach 98% of Americans.   In time, these
upgrades can be paid for with incremental cash flows emanating from increased
public usage.

Opponents of raising the public debt point to enforcing debt discipline now .
The opposing argument points to the growing $14 trillion dollar debt which breaks down to
$47,000 for every citizen in the United States.

$14 trillion/ 300 MM population = $47,000 per person

The figure above is smaller per person assuming contributions from corporations and other legal entities . In the past, economic growth has been the great equalizer.  Increments in economic growth
mean that the Gross Domestic Product (GDP) is larger; and therefore, the Gross Public Debt becomes
a smaller and smaller proportion of GDP if spending is held constant.  At some point, the deficit
disappears and a surplus surfaces to save the day.  And so, the key question involves the likelihood
of continued and incremental economic growth. To date, corporate profits have been on the rise.
Ford Motor Company, GM and Chrysler are now operating at a profit.

Historically, the challenge has been to obtain a meaningful spike in demand for goods and services
as a condition precedent to spur economic growth. Growing exports are another important
indicator of increments in GDP in the not too distant future. United States exports are projected
to double by 2014 or sooner according to assumptions in the 2012 Budget submitted 2-14- 2011.
Real GDP now grows at 3% which is an improvement over the commencement of the
Great Recession.

The Department of Defense reduced funding by $78 billion dollars. The challenge will be to keep
DOD spending within a 3% to 3.5% of GDP as per the close of the Clinton Administration.
In addition, a 2 year freeze on federal civilian salaries was put into place in the 2012 Budget.  
A 5- year freeze on discretionary spending was put into place ( not inclusive of security) .

More significant savings in Medicaid and other government health programs may be
achieved through medical wellness programs which reward health maintenance strategies
rather than cost savings from disease management. Other savings could be achieved
by placing excess consumption taxes on junk food to raise revenue and reduce queues
at medical facilities due to better dietary choices by informed citizens.
Many important chemical patents will expire.  As a result, generic drugs derived from these
patents will be far cheaper than the medicines under patent protection currently .

First Published on Blogcritics
To Raise or Not to Raise the Debt Ceiling and How to Stabilize Debt Over Time

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August 02, 2011
Plenty of information about an important matter. Thanks for sharing!
August 02, 2011
You are welcome.
About the reviewer
Dr Joseph S Maresca ()
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Dr. Joseph S. Maresca CPA, CISA      25 Amazon / KDP Books including:      http://www.amazon.com/Dr.Joseph-S.-Maresca/e...11866699&sr=1-2-ent      … more
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