Debt Ceiling 101

If you don't know what the debt ceiling is then you're probably like most people. If you don't know what the debt ceiling is and think the way to address our current debt is spend less next year you're probably a Republican.

One of my friends provided an analogy for me illustrating how he understands the debt ceiling...
My wife likes to buy a lot of shoes. She spends a ton of money each year on shoes. I told her we don't have the money and she can no longer go shopping for shoes until we can afford it.

That is a wonderful plan to address his particular debt problem in the future, however it doesn't address the tab from the previous year. There are really only two solutions to this problem: skip out on the bill or pay the tab. What he and his family spend next year has nothing to do with the bill from last year.

Here is a brief history of when our nation accrued the largest debt according to Wikipedia...

The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. From 1796 to 1811 there were 14 surpluses and only 2 deficits. The first dramatic growth spurt of the debt occurred because of the War of 1812. In the first 20 years following the War of 1812, 18 surpluses were experienced and the US paid off 99.97% of its debt.

The second dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. In the following 47 years America returned to the practice of running surpluses during times of peace experiencing 36 surpluses and only 11 deficits. During this period 55% of the US national debt was paid off.

The next period of major growth in debt came during WWI reaching $25.5 billion at its conclusion. It was followed by 11 straight surpluses and saw the debt reduced by 36%.

Social programs enacted during the Great Depression and the buildup and involvement in World War II during the F.D. Roosevelt and Truman presidencies in the 1930s and '40s caused the largest increase - a sixteenfold increase in thegross public debt from $16 billion in 1930 to $260 billion in 1950. When Roosevelt took office in 1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic product (GDP). During its first term, the Roosevelt administration ran large annual deficits between 2 and 5 percent of GDP. By 1936, the national debt had increased to $33.7 billion or approximately 40 percent of GDP.

After this period, the growth of the gross public debt closely matched the rate of inflation where it tripled in size from $260 billion in 1950 to around $909 billion in 1980. Gross debt in nominal dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992. The net public debt quintupled in nominal terms.

In nominal dollars the net public debt rose and then fell between 1992 and 2000 from $3T in 1992 to $3.4T in 2000. During the administration of President George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008. Under President Barack Obama, the debt increased from $10.7 trillion to $14.2 trillion by February 2011

Let's review this section and focus on some of the highlights...

"The United States has had public debt since its inception."
"The first dramatic growth spurt of debt occurred because of the War of 1812."
"The second dramatic growth spurt of the debt occurred because of the Civil War."
"In the following 47 years America returned to the practice of running surpluses during times of peace..."
"The next period of major growth in debt came during WWI."
"...the Great Depression and the buildup to WWII...caused the largest increase..."

Is it possible that our involvement in TWO wars, that have lasted nearly a decade each, have had any effect on our current debt?

What if I came to you and your wife (who loves shoes) and said, "Hey, let's pay your tab from your wasteful spending and try not to let this happen again. Next year I think you should spend 87% of your energy cutting from your unnecessary spending habits and focus 13% of your energy on bringing in more money. Does that sound reasonable?"

To which you reply, "No, I don't want to generate more revenue. By me not bringing in more revenue it creates jobs."

It's amazing we are so ignorant that we can't even understand pictures anymore. For an entire decade we shrunk our job creation levels to ZERO. And now we are told the solution is more of the same. It's borderline insanity.