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Debt Ceiling Worries Are Overblown: Opinion

But beyond that, this theoretical $1 trillion platinum coin (and why must we use platinum, by the way?) is merely another arbitrary measure on top of the already arbitrary debt ceiling -- a Band-Aid on top of a Band-Aid.

Imagine for a moment that the Treasury does authorize creating and stashing a $1 trillion coin at the Fed. Failing a congressional debt ceiling lift, the government would issue new checks against the coin ad nausem until ... it reached the $1 trillion limit. But then perhaps Treasury would add another $1 trillion coin, and so forth and so on.

This merely would create a temporary bypass to the debt ceiling that likely would need to be revisited as the economy continues growing (as it always has, in fits and starts). Make no mistake: We're not fans of ever-increasing relative debt (mostly because we prefer smaller government relative to the private sector). But the absolute amount of debt pretty much has always grown and likely will continue to do so. (The government never repaid all the WW II-related borrowings after the war ended, yet a slower debt growth rate combined with economic growth reduced the size of debt relative to GDP).

We just think a debt ceiling serves little purpose outside of creating a periodic opportunity for political posturing. And remember, since 1921, Congress has been required to develop and pass a budget that ultimately determines what the nation spends in a given fiscal year. The Treasury merely issues debt to cover differences between government expenses and revenue.

Our bet is pols fold like they have 11 times in the last decade and find compromises to raise the debt ceiling again. But we'd be remiss if we didn't address the economic consequences if the government doesn't lift the ceiling before borrowings hit the $16.4 trillion debt ceiling as projected in February 2013. Those consequences, at least in the near term, aren't catastrophic.

The government need only delay some nonessential spending or shut down some services, such as national parks or passport issuance. At only 1.4% of GDP (as of 2011), debt service costs are tiny and likely easily paid by revenues (only 9.9% of total tax revenue in 2011, according to the White House Office of Management and Budget.) So the likelihood of default is also exceedingly low. And of course, it's probably also likely that the government finds some extra cash in the sofa cushions or a $20 bill in the laundry, buying further time for Congress to find resolution.

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