Wednesday, May 11, 2011

Ebeling: Don't Raise the Debt Ceiling!

Professor Richard Ebeling testified today on "Monetary Policy, the Federal Reserve, and the National Debt Problem,"  before Ron Paul's Congressional Subcommittee on Domestic Monetary Policy and Technology.

Prof. Ebeling emailed me:
I argue that our deficit spending and resulting cumulative debt of over $14.3 trillion has gotten out-of-control. It is imposing, like revenues from taxes, a huge social cost on the American economy in terms of forgone private sector investment, capital formation, consumer spending that has helped slow down our general economy recovery and improvement in our standard of living.

Deficit spending may be a "path of least resistance" because politicians can create the illusion of giving something for nothing -- government largess in the present, while seeming to defer its cost under some uncertain future -- but finally there is a "reality" that cannot be put off forever. Default risk premiums are not only for countries like Greece. It can happen here in American, too.

Nor is "monetizing the debt" through money creation by the Federal Reserve a workable alternative. Already America's central bank has been doing this, first in creating the unsustainable "boom" that turned into a bust, and since 2008 creating a further huge expansion in the money supply that is already pushing the value of the dollar down on the foreign exchange markets, and threatening significant price inflation at home.

I argue that Americans need a "wake-up" call that government does not have the financial means to cover all the "entitlement" and other promised expenditures, both now and in the future -- without dramatically damaging America's economic viability in the years and decades to come.

Thus, it is better to "bit the bullet" and not increase the federal government's debt ceiling. Washington, to preserve its international credit worthiness, can meet its debtor obligations by fulfilling interest and principle payments on debt coming due, and start cutting government spending down to a size and scope more consistent with the vision of the Founding Fathers in the Declaration of Independence and the original U.S. Constitution.

As for the Federal Reserve, its discretionary policy-making powers should be limited, if not stopped, by anchoring the American dollar on a gold basis again, as a transition to a privatized monetary system free of government control, regulation, and influence.

If we do not start following some such course, the United States is facing dangerous, destabilizing, and damaging monetary and fiscal times ahead.
His full prepared testimomny can be found here.

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