The Debt Ceiling and its Effect in Cape May County

COURT HOUSE – It was Alexander Hamilton’s idea for the United States to have a national debt. Why would anyone want to burden a country with a debt? Hamilton, who is credited with designing the financial system of the nation, realized how fragile the young country was. The Revolutionaries had defeated the greatest military and economic power on earth, the British Empire. Revolution was expensive. The country had incurred massive debts.
Hamilton knew there were lots of countries betting against the survival of the baby nation. To insure support he devised a way to motivate creditors to lend money and support the survival of the new country. He did this by tying the repayment of debt to the rule of law and stability. Bottom line: if you want to get repaid support the United States.
Fast-forward a century to the addition of the 16th Amendment. That created both the income tax and the Federal Reserve. The Federal Reserve is “an independent governmental entity created by Congress in 1913 to serve as the central bank of the United States,” according to the Federal Reserve Bank of New York’s website. It consists of 12 regional reserve banks. The Fed formulates and executes monetary policy, supervises and regulates depository institutions, provides elastic currency, assists the federal government’s financing operation, and serves as the U.S. government banker.
The present debt of the United States is approximately $17 trillion. To watch it grow before one’s eyes go to www.usdebtclock.org
The Constitution gives Congress the exclusive authority to permit the U.S. Treasury to borrow money by selling bonds. When the nation spends more than it takes in there is a deficit created and the debt grows.
Oct. 17 is the date the Treasury says that the nation will run out of money. Secretary of the Treasury Jack Lew, states the government will need to borrow more. Congress must approve.
Members of Congress want the government to stop spending so much and have asked for concessions on spending before giving permission. If they do not raise the debt ceiling the government will have to pay all of its bills with the money that is coming in. That’s about $250 billlion a month. But remember it spends 30 percent more than that.
Things should be okay until Nov. 1 when the Treasury must write a check for $25 billion to cover Social Security checks. On Nov. 15, Treasury has to write another big check for $30 billion to pay the bond holders the interest on their loan.
The president will have to decide who gets paid first. Should it be the interest on the loans to the creditors or pensioners receiving Social Security, or doctors getting Medicare and Medicaid payments or veterans? The president could also choose to pay no one until the matter is resolved. However it is clear there is not enough money to pay everyone, without an increase in the debt borrowing limit.
This would affect state and local governments because some local programs are funded with federal monies. The Herald reached out to local government officials to find out if a failure to raise the debt limit would specifically affect them. The vast majority said they had not considered the question before or, as one administrator who asked to remain anonymous said, “I don’t know if it would. We are pretty self-sustaining and we’d like to keep it that way. Good question though.”
Freeholder Director Gerald Thornton shared his thoughts. He observed that because money comes to the county from the federal government via the state in the form of specific grants, at some point in time it will have “some impact.” Thornton was especially concerned with the effect of a debt debacle on the Older Americans Act. “The support that comes from this act is significant because of the high percentage of seniors who live here.” Thornton also observed that the Affordable Care Act (aka Obamacare) was already negatively impacting seniors.
“The ACA took billions from Medicare. This will hurt our people,” Thornton said. He expressed amazement at President Obama’s refusal to negotiate. “In this political realm if you can get 70 percent of what you want, you take it. But you have to negotiate. If you don’t, then you have stalemate like we have now.”
Thornton also stated that he thought the federal government should set a legal cap on spending. “At the county and state levels we limit ourselves. If the federal government did the same we wouldn’t be in the situation we are in now.” Thornton promised to do all he could to make sure the citizens of the county did not suffer from any federal shortfalls, adding, “Let’s hope it doesn’t come to that.”
The administrator of North Wildwood, Kevin Yecco said, “We rely principally on property taxes to support city services.” He could not recall a single funding stream that came directly from the federal government. “We operate separately from the state,” said the administrator. But he added that public servants in all branches of government should observe two main tenets.
“Accountability and availability are the words I operate under. All government workers should remember they are to be good stewards of the wealth and well being of the citizens. I am here to serve the public. If you are a government employee, any government, and you’re not here for that then you shouldn’t be here.”
The other public official who weighed in was Connie Mahon of Middle Township. “Very rarely do we deal with the federal government in any direct way.” She also observed that those county agencies which work with dependent populations such as the disabled or the elderly would more than likely have direct contact with federal agencies because of mandates and grant programs
While direct impacts from federal payments to local government entities have been noted and appear minimal, loss of federal payments to individuals, should the president choose to pay the bond holders first, may reasonably increase demands on local government programs and services. This would be to make up the lost income to local households
Meanwhile the National Debt Clock is still ticking away.