Breaking down the sequester: Can Congress avert financial crisis?

Breaking down the sequester: Can Congress avert financial crisis?

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by Mark Johnson

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KTVB.COM

Posted on February 17, 2013 at 11:53 PM

Updated Monday, Feb 18 at 2:45 PM

BOISE -- When asked how much faith he has that Congress will figure out the nation's debt crisis, one Boise State senior replied, "In my lifetime? Maybe. Anytime soon? Not so much faith."

The Boise State senior class cannot be faulted for lack of faith in a dysfunctional U.S. Congress that has yet to work out a passable option for solving the national budget and debt crisis.

Because of that dysfunctionality, it mandated in 2011 that if the three bodies could not agree on a budget an automatic "trigger" would kick in known as the sequester to cut $1.2 trillion in government spending -- deep cuts to defense and domestic programs over the next decade.

Neither party wants the sequester to take effect but, after agreeing in December to delay it to avoid the fiscal cliff, it is now set to take effect on March 1st.

One bargaining chip both sides will use to get a deal done is the Debt Ceiling. The program was enacted during World War I to allow the U.S. Treasury to borrow money to pay bills without approval.

Congress has agreed to raise the maximum borrowing amount over a hundred times. And now, once again, we have hit the ceiling at $16.4 trillion -- debt mostly owned by Japan and China, which charge interest.

The debt ceiling is a "carrot" used in the budget debate because if Republicans refuse to allow an increase without the Democrats agreeing to make drastic spending cuts there is a good chance the nation will default on loans.

Here's another way of thinking about it: If you stop paying your credit card bill, your credit rating will go down. The next time you try to get a loan the interest rate will be high (if you can get one at all) and all kinds of credit issues with your other accounts are triggered.

The same goes with the county. The only difference is the country wouldn't be able to make payments to its own people for entitlements, services and military.

That, according to many financial experts, would throw the country deeper into the recession, making it even more difficult for those college grads to move into the job market.

Dr. Don Holley is a longtime economics professor at Boise State and says the solution is getting Congress to recognize that these are not two separate issues.

"It's not solving the sequester problem and then the debt ceiling," said Holley. "They really go together, so if somehow they can deal with the sequester, I think they will automatically deal with the ceiling as well."

Even though the country's debt has more than doubled in a very short amount of time, Holley says its not necessarily a bad thing if the country is borrowing for economic boosting purchases for infrastructure and industry.

"Like a business, if you are borrowing to throw a Christmas party, there's no return," said Holley. "But if you borrow to buy some new equipment then its going to generate the revenue to pay off the loan."

Solving this crisis is job number one for Congress right now. But given lawmaker’s past inabilities to reach compromise during budget talks, some think the issue could get postponed once again.

So, the professor says best thing for us to do is keep our own budgets in order for more rough roads ahead.

"Promise your kids a college education, but not at Stanford. They're going to come to Boise State. It's not going to be as extravagant as you thought it was going to be 10 years ago."

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