If approved, latest budget ceiling increase will push U.S. debt to GDP ratio over 100%

U.S. about to cross critical "red alert" threshold - but will there be a way back?

Last summer I wrote an editorial for The Yucatan Times entitled At the Edge of the Precipice. I wrote the piece in late August, shortly after the U.S. Congress and the White House had arrived at a last minute - correction, last second - deal, which saved the United States from potentially defaulting on its sovereign debt for the first time in history. According to some experts, the accord just might have also saved the world from imminent financial Armageddon.

In that article, I noted the following:

"Every country has a gross domestic product, or GDP (in Mexico it’s PIB, or Producto Interno Bruto). The U.S. is a $15.2 trillion dollar economy – that’s our GDP. But our national debt is over $14.3 trillion and growing, so we’re closing in fast on the 100% ratio mark. These are not just idle stats intended for classroom discussion. Not too long ago, a couple of U.S. economics professors, both Ph.D.s and highly respected in their fields, carefully studied the economies of many nations over an eight century period – including failed and collapsed states. Their 2009 published results clearly demonstrate that once a nation‘s debt is at or above 90% of GDP, economic growth slows noticeably. When the ratio reaches 100%, the sluggishness becomes more pronounced. As it crosses the 100% “red alert” threshold, things keep getting worse until eventually the entire economic engine seizes up and most growth stops. By way of comparison, at the beginning of 2010 Mexico had a respectable debt to GDP ratio of 37%, Greece (where people rioted recently) had 143%, with Zimbabwe topping off the charts at 235%. Are you ready to invest in Greek bonds? How much confidence do you have in the Zimbabwean dollar?"

The package agreed to last August raised the national debt ceiling - the total amount of money the U.S. government is allowed to owe to everybody, including itself - to some $14.2 trillion dollars. But that was not enough, according to the Treasury Dept., which says that the U.S. is within "only" about $100 billion of the ceiling. Now, just 120 days later, we need more. So this week the White House must ask Congress for a further increase which, if approved, will raise the aggregate national debt to about $16.4 trillion - well over the "red alert" mark. Congress has 15 days to respond, but there is little doubt that the increase will be approved. Given the political gridlock in Washington, which will extend at least through the November elections, there is no other real choice. Treasury promises that the latest increase should last until late 2012, as if that will instill public confidence.

I read the Washington Post this morning, as I often do, as well as numerous English language news sources, but I found no mention of this story. Instead, I located it in Mexico City's El Universal, in Spanish. Perhaps I've missed other reports, but I wonder where the U.S. media is on such a critical event. Ignorance may be bliss, but it can lead to disaster.

Nov. 19, 2012 - U.S. debt ceiling may collide with fiscal cliff