Political Marketing and the “Debt Ceiling”

The phrase “Debt Ceiling” brings to mind phrases like “War on Terror”, “Abortion on Demand”, “Flip-Flop” – or some of the pejoratives used to criticize those wanting to depart from the Vietnam war: nervous nellies, special pleaders and politicians opposing the war were ready to “cut and run”.

The reality is that there is no hard ceiling that is going to be reached this Tuesday. Instead the Federal Government will be forced to make progressively harder and more irresponsible decisions. Creditors and expenses will be put in a long queue and those with the lowest priority and least impact will go delinquent first.

This has already started happening. For example, Geithner has declared a debt suspension period and is currently not putting money in the Civil Service Retirement Fund. They’re deferring payment. [Source: Hennessey’s interview on Econtalk]

Come August 2nd with no decision, we will continue to pay back the interest and principal on government debt but Geithner will have to make progressively harder decisions about which payments to defer. At some point the lawyers in the treasury department are going to tell him he’s overstepping the bounds of what he’s able to do. But that will probably be some time after August 2nd.

The Federal Government, the same organization that is asking the American people for more money and for permission to go into more debt, is the one who came up with the date August 2nd and the description of the political stalemate’s impact. They have branded it the “Debt Ceiling”.

I think the date August 2nd is a useful forcing mechanism to inspire political debate and decision making. Movement is always good when it comes to Washington. But one wonders if the phrase “debt ceiling” is Barack Obama’s “War on Terror”.