If the Debt Ceiling Rises, Is the U.S. Off the Hook?

Will the U.S. debt ceiling be raised before the Aug. 2 deadline? Even if a compromise is approved in the nick of time, will China, Japan and other nations continue to bankroll American overspending?

Investors must have breathed a huge sigh of relief on Tuesday (July 19), as the Dow Jones Industrial Average jumped by almost 200 points (about 1.6 percent of total value) largely on news of progress in talks to raise the U.S. “debt ceiling.” The sudden uptick broke a mood of pessimism on Wall Street, and the president went on TV and stated, “I think it is a very significant step.”

Imagine a 40-percent pay cut

The United States is still on course to hit the debt ceiling of $14.3 trillion on Aug. 2, and if no deal is reached, that would mean the government surviving on just over 61 percent of its current spending level, since the money for some 38.8 percent of day-to-day expenditures has to be borrowed (2010 figures).

To get an idea of what this means, just imagine your family budget suddenly reduced by almost 40 percent. What would that mean? Foreclosure on your home? A poor man’s diet of potatoes and rice? The elimination of all entertainment and eating out? Being forced to sell one or more cars?

Perhaps even bankruptcy? Could you survive such a cut?

No wonder then that some have been warning of the possibility of Social Security checks not being sent out after Aug. 2, if there is no agreement on raising the debt ceiling.

If the nightmare scenario were to take place, decisions would immediately have to be made concerning which commitments would be honored—and which not. Social Security checks? Interest payments to overseas and domestic Treasury bond holders? Defense spending? Libraries, parks, national monuments?

And how much higher interest rates would the U.S. have to pay to attract lenders after such a blow to the U.S. reputation?

Enter the “Gang of Six”

So when it suddenly appeared that compromise was in the air, spirits lifted. The so-called “Gang of Six,” a bipartisan group of lawmakers, put forward a modified proposal designed to satisfy most (though not all). The proposal calls for raising the debt ceiling, so the government may continue to function, along with a combination of “revenue enhancements” (shhh … don’t say “tax increases”) and spending cuts.

The package is designed to reduce the growth of the nation’s deficit by about $3.7 trillion over the coming 10 years. It includes modifications of the tax code, closing of certain loopholes and reform of social programs such as Medicare and Social Security.

“Start talking turkey”

President Obama called on Congress to “start talking turkey” and warned that America is now in “the 11th hour” ahead of the Aug. 2 deadline. Doubts were expressed about the practicality of preparing and receiving approval for all the legislation needed to effect the deal. Yet the president urged, “My hope is that we can start gathering everybody over the next couple of days to choose a clear direction and get this issue resolved.”

Yet, a couple of days later, the compromise plan seemed to be losing bipartisan support.

U.S. still spending much more than it takes in

Even if the necessary bills pass in Congress (by no means a sure thing), the cuts don’t really begin to address total long-term deficit spending. Consider: The deficit is calculated to have been some $1.56 trillion in 2010, and estimates for 2011 range between $1.27 trillion up to $1.48 trillion (Congressional Budget Office estimate)! Total debt is expected to rise to $15.1 trillion by the end of 2011. (We’re using the U.S. definition of “trillion,” as 1,000 billion.)

Applying the proposed deficit-reduction proposal, prorated at $370 billion per year, has the effect of reducing the amount of overspending some 25 to 29 percent a year.

That still leaves the country with a huge and growing deficit, albeit one accumulating somewhat more slowly than without the reforms. This is not about paying down the debt but just slowing its growth.

Will China and Japan keep bankrolling U.S. overspending?

With or without the reforms, that huge debt has to be financed. Economists recognize that the U.S. is now heavily dependent on both Japan and China for purchasing its Treasury bonds to finance the debt. China is now giving indications of wishing to diversify its overseas investments and moving away from U.S. bonds, while Japan still professes unstinting loyalty to the American debt.

But how long, one wonders, will this last? With numbers this big, the very thought should give us pause.

Disobedience to God leads to financial curses

“The borrower is servant to the lender,” we read from the divine wisdom (Proverbs 22:7). Does this augur servitude for a nation so hugely indebted to foreigners? When the U.S. is heavily in debt to other powers, they can begin to exert undue influence (read “blackmail”) to get the nation to go along with their desires instead of U.S. national interests.

How far we are from the blessing God promised His people, contingent on their obedience to Him, that “you shall lend to many nations, but you shall not borrow” (Deuteronomy 28:12). Disobedience produces the opposite result of indebtedness and subservience (verse 44).

These cause-and-effect principles were given many centuries ago, but they still carry force today. How long can Americans flagrantly disobey God’s laws and not expect to reap the terrible consequences?

Isn’t it time for the United States to begin to look not just at numbers, but also at its spiritual and moral condition, for solutions to its economic problems? As we highlight in these blogs, the answers are spiritual. May they be found—and acted on—before it’s too late.

For related previous blog posts, see "The U.S. Deficit: Can We Have Our Cake—and Eat It Too?" and "With All These Taxes, Why Is the U.S. Getting Deeper in Debt?"

Ralph Levy is a minister of the Church of God, a Worldwide Association, who grew up in England and now lives in the United States. Dr. Levy enjoys serving the Church, reading, travel and foreign languages. He has a Ph.D. in biblical studies and has worked in foreign language and religious education for much of his professional life.