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Debt ceiling “default” is a myth

August 2, 2011

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We’ve all heard the news over the past week; Members of congress and the worlds largest news organizations have been hammering the claim that “if the debt ceiling isn’t raised, the federal government will go into default and our credit rating will drop, resulting in through-the-roof taxes and economic armageddon throughout the world!”. Is this true or a myth? The answer is: it’s a myth. And its obvious right on it’s face.

Let’s look at what the “debt ceiling” really is. In the early 1900’s, if the federal government needed to borrow some money to get things done, congress would have to approve these borrowings through the voting process. If the legislators approved through vote, the treasury would then borrow dollars from the federal reserve and begin the process of giving that money to the executives for their needs.

Then, in 1917, World War 1 was declared. Suddenly, the executive branch needed a lot of money very quickly. They needed guns, ammunition, equipment, food and money to fund the entire process. So, instead of approving all these debts individually, congress passed a law that would bypass this process, and in its stead created the “debt ceiling”.

The debt ceiling is nothing more than a limit on how much the federal government can borrow. That means that the government can essentially borrow money for whatever it wants, when it wants, at a limit set by legislators. Basically the purpose is to be able to spend money not accumulated by taxes.

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According to the chart above, the debt limit was $50 billion in 1940. Since then, has been raised 74 times and in 2010 debt limit was $14.29 TRILLION. The debt ceiling has never been lowered, and in fact, the increases have gotten consistently steeper over time. Thus, it can be successfully observed that the growth of government has not staggered, nor has inflation been slowed throughout the entire history of government borrowing.

Back to the original point at hand. Why is the default a myth? It’s simple. If the debt limit is simply a credit card limit, how could we possibly “default” by legislatively lowering the limit? It’s a simple equation that simply does not equal default. Think of your credit card. If you tell yourself “I am not going to spend more than $500 on this card”, does the bank call you and threaten to close your account? The answer is no.

The reason why financial advisers are now “warning” congress to keep spending more is because THE BANKS PROFIT FROM OUR DEBT. Of course they want us to spend. The federal reserve is a monopolized banking structure which prints dollars from thin air and purchases real assets with the profits. The whole myth that our credit rating would go down if we borrow less is completely absurd. This is a classic tactic by a monopoly to scare its “customers” (congress) into purchasing more product. This is the nature of private monopolies.

Moreover, there are plenty of assets owned by the treasury to sell and pay off its “obligations” and entitlements. The treasury also has the power to balance and prioritize its spending. So once again, the notion of a “debt ceiling deadline” is just an arbitrary hustling tactic manufactured by our corporate debt masters in the Federal Reserve and other International monopoly banks.

For more information on this these myths, please refer to the following references.

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