Debt is the problem, not the debt ceiling

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So it seems our politicos in the nation's capital have been getting a little bothered lately, because there's this thing called "the debt ceiling" that limits how much money the federal government is legally authorized to borrow, and the folks in the White House are saying it has to be raised by Tuesday, Aug. 2.

As I write, it's still unclear what kind of political deal (if any) will be arranged to resolve the feds' latest fiscal foul-up.

President Barack Obama and his administration have been warning of dire consequences unless Congress raises the debt ceiling, including a partial or total government shutdown, Social Security checks not being mailed out, a default on the federal debt, and loss of the government's AAA credit rating.

Everyone in D.C. seems to agree that the debt ceiling will be raised. However, the Republicans controlling the House of Representatives want to couple a debt ceiling increase with significant spending cuts. The Democrats controlling the Senate have agreed in principle to some spending cuts, but also want a deal to include a provision that puts off the next debt ceiling increase until 2013, safely after the 2012 presidential and Congressional elections. But Obama insists that he will shut down the government and risk default by vetoing any debt ceiling deal that doesn't include even more tax increases.

The Senate Democrats, of course, still remember the serious drubbing their party took in 2010 and won't even consider any tax increases with the 2012 elections looming. That's why the leaders of both houses of Congress have decided to more or less ignore the White House and try to come up with a deal on their own. What sort of deal is hard to predict - especially when a large bloc of the House GOP want far more budget cuts than the Democrats or Obama would ever agree to, while fantasists among the Democrats are urging Obama to commit the high crime of usurping Congress' exclusive constitutional authority and simply raise the debt ceiling via royal decree, er, executive order.

Though the shape of a resolution of this crisis in unclear, several other things have become very clear.

First of all, the debt ceiling question has nothing to do with the chief credit agencies, Standard & Poor, Moody's and Fitch, threatening to lower the U.S. credit rating. The agencies say our AAA rating is in jeopardy not because of limits on the federal government's ability to go even deeper into cosmic-sized debt, but because of the absence of controls on federal spending and the unlikelihood of budget reforms being passed any time soon. S&P has also said it might lower our credit rating regardless of what Congress does about the debt ceiling.

Second, other agencies have already downgraded our credit rating - the Egan-Jones Ratings Company lowered us from AAA to AA+, while Weiss Ratings dropped us to the S&P equivalent of one step above 'junk' status. Egan-Jones and Weiss said the resolution of the debt ceiling debate wouldn't have any bearing on their decision.

"Our downgrade today," Weiss announced, "is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses . . . the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets."

In other words, it's because the federal debt is so huge, and because the federal government has promised to spend more than it could ever pay for - not because the government does not currently have permission to borrow even more money than it could ever repay.

Agencies around the world also are seriously considering reducing our credit rating even if we avoid default next month. That's the kind of thing that happens when you spend $10 billion a day. We can't raise taxes high enough to escape the spend-borrow-spend death spiral. Painful fiscal austerity is the only way to avert disaster.

Meanwhile, the president is playing petty political games, proposing no plans, playing chicken with the real likelihood of complete collapse, for the sake of his own reelection.

Leading from behind, I think that's called.