U.S. debt ceiling: It's all Greek to the public

The United States and Greece are both in crisis over the size of their national debts. In each country, people are furious at the government for financial mismanagement, which throws additional burdens on the middle and working classes.

In Greece, demonstrators are protesting austerity measures enacted to secure emergency funding from Greece's European Union partners. No one believes such measures or emergency funding will solve the country's chronic national debt, which exceeds 155 percent of gross domestic product and is projected to increase next year to 170 percent.

Because Europe's politicians cannot agree on who should assume Greece's debt burden - the banks or Europe's overtaxed taxpayers - Greece's default still appears inevitable.

The current U.S. debt ceiling of $14.3 trillion is nearly 100 percent of GDP, which was $14.7 trillion in 2010. The political impasse over raising the ceiling concerns whether, and under what circumstances, we should allow the national debt to exceed GDP, moving the country closer to the economic status of Greece. On April 18, Standard & Poor's cited the rising national debt and annual budget deficit when it downgraded the United States' credit outlook to negative.

President Obama warned on Thursday that Congress' failure to raise the debt ceiling by Aug. 2 would have a "significant and unpredictable" impact on capital markets and the economy. But polls by Gallup, the Associated Press, and the Wall Street Journal indicate that most Americans do not share his alarm.

Strengthened by those polls, Republicans in Congress have insisted on spending cuts rather than tax increases. Democrats want to tie cuts to a closing of tax loopholes and an increase in tax rates on high-income taxpayers. The party sees raising revenue as crucial, but that idea is going nowhere.

U.S. Rep. Michele Bachmann (R., Minn.), who is running for the White House, accuses Obama of "scare tactics" and says she will vote against raising the debt ceiling without a big spending cut and no tax increases. She and other Republicans believe that limiting U.S. debt to the $14.3 trillion ceiling will not stop government payments or cause a default, which the administration suggests could happen. Instead, these politicians believe the government can prioritize its obligations, like any family in financial difficulty, and make those payments necessary to maintain its credit rating while deferring others.

The political deadlock can be traced to three failures of the Obama administration. First, it hasn't clearly explained what happens if the ceiling is not raised. Officials may honestly not know. Obama's description of the consequences as "unpredictable" leaves open the possibility that the results could be positive. "Good news! Americans are going to spend and borrow less and live within their existing debt limit after all!"

Second, the administration has failed even to suggest that its proposed raising of the debt ceiling will be the last one, instead of just the most recent of many authorizations on the financial road Greece has already traveled.

Third, and perhaps most important, the administration has failed to address the fear of middle-class taxpayers that they will be stuck with the consequences of more national debt, either as higher taxes, inflation, or recession and more unemployment. Americans have learned from the financial crash that the rich and powerful always get paid, and that government is their collection agent - even if the moneylenders cause the financial crisis.

AIG's foolish credit default swaps were paid in full. Goldman Sachs profited from the securitization of real estate debt and went merrily on its way. No one on Wall Street went to jail, and bonuses are at record highs. The credit-rating agencies are still in business and paying bonuses despite their horrendous calls on securitized real estate debt. The middle and working classes end up paying the price for everything that goes wrong.

The burden of proof always lies with the proponent of any action. Obama hasn't satisfied that burden on raising the debt ceiling.

His administration has also been unpersuasive in denying there is any alternative. Maybe Bachmann is right that we can live within the existing debt limit by prioritizing our obligations. Maybe we can cut spending by ending our wars in Iraq, Afghanistan, and Libya, which we pay for now with borrowed money.

Soon Greece will illustrate yet another alternative, simply defaulting on its debt, refusing to pay the foreign moneylenders, and learning to live within its means without any future foreign borrowing, as Argentina had to do after its 2002 default. That's what happens when a nation's debt becomes too large.