Government Shutdown 2013: Debt Ceiling And Obamacare History Explained

Government shutdown threats in 2013 have people wondering how Congress got us here in the first place.

As previously reported by The Inquisitr, Nancy Pelosi says government shutdown threats over Obamacare amounts to legislative arson.

The last time a government shutdown went all the way was back in 1995. Like the 2013 government shutdown, in 1995 Republicans led by Newt Gingrich were facing off against President Clinton against the rising national debt. Those problems almost seem quiant in comparison to the problems facing Congress now. Government spending was less than one-fourth what it is now at $ 6.4 trillion. The Federal debt was also only around $5 trillion compared to the almost $17 trillion we're facing now.

American Debt: How We Got Here

In the 1990's the US trade deficit start to grow to the point that Americans were consuming way more than they were producing.

Warren Buffet delivered a warning in 2003, saying, "Our country's net worth is now being transferred abroad at an alarming rate. A perpetuation of this transfer will lead to major trouble.... The rest of the world owns a staggering $2.5 trillion more of the U.S. than we own of other countries. To put the $2.5 trillion of net foreign ownership in perspective, contrast it with the $12 trillion value of publicly owned U.S. stocks."

That amount has since grown to $4.2 trillion. All types of government debt including states and counties are topping $20 trillion. Student debt has doubled since 2007 to over $1 trillion. The total amount of debt owed by all Americans is now over $60 trillion. The combined economies of Brazil, Russia, India, and China used to be roughly 29 percent of the US economy but today they equal 91 percent and China is expected to outgrow us within several years.

To make matters worse, a combination of Federal and mortage debt led to the mortage boom that then went bust, starting the Great Recession we're now in. So government spending increased in an attempt to compensate, leading to yet more debt.

Debt Ceiling Explained

The Democrat-controlled Senate hasn't passed a Federal budget in many years but the debt ceiling has kept the government spending somewhat in check. The debt ceiling is essentially an artificial barrier created in 1917 that limits the Federal government in issuing new bonds, which is the principle way the Federal government borrows money. The debt ceiling does not control or limit the ability of the federal government to run deficits or incur further debt. Rather, it is a limit on the ability to pay back obligations on debts already incurred. Because of this, if the debt ceiling is not raised the United States credit rating could fall and devalue the US dollar.

Government Shutdown: The Automatic Sequester

Threats of a government shutdown began once again over the last several years as the Federal deficit grew out of control, reaching a maximum of around $1.3 trillion. The Federal deficit is essentially the amount of overspending Congress allows beyond the income provided through tax revenues. Because the Federal deficit grew so large the Federal debt grew at an alarming rate, almost doubling in size since 2008.

So each year now the debt ceiling becomes a political football instead of being an automatic renewal as it had been for years. Congress could not come to an agreement so they designed the automatic sequester as a "poison pill" that would force them all to work together. They didn't, so it happened. But the Federal deficit has gone down due to a dramatic increase in taxes in 2013 combined with the automatic sequester slowing the growth of spending. That's right, the sequester only slowed the increases in Federal spending, it did not actually cut spending despite politicians talking about spending cuts.

Government Shutdown 2013: Obamacare

On October 1, both the implementation of Obamacare and the debt ceiling renewal happen to coincide on the same date. The only reason Obamacare becomes relevant to the debt ceiling is not because it's highly politicized but because of its cost. Yep, Obamacare isn't free healthcare. In 2010, the CBO projected Obamacare would cost $944 billion over ten years, but as of 2013 the CBO is guessing Obamacare will cost about $1.76 trillion. This estimate keeps growing because Congress keeps rewriting the healthcare law as it's being implemented. As such, some Republicans feel Obamacare should be defunded, others believes that's a waste of time.

Government Shutdown: Would Could Happen

Republicans fear the history of the 1995 government shutdown because Democrats successfully blamed them for the short term woes caused by the government shutdown. During the 1995 government shutdown hundreds of thousands of government employees simply chose to not show up for work when their salaries were put on hold. A 2013 government shutdown would result in the same thing, although critical services would remain functioning. Still, many Republicans oppose a government shutdown because they believe their party will shoulder the blame for the debt ceiling crisis. Also, unlike in 1995, Americans are ill-prepared to deal with a government shutdown because of high unemployment, high personal debt, and a lowering in average income, with 13 percent less Americans in the workforce since 2007. Yet, during the same time period, government employment has risen 10 percent, not including the 200,000 plus NSA/CIA not being counted.

For an example of government debt could affect you, Social Security disability benefits are running out of money by 2016. Social Security disability claims rose rapidly and 14.5 million Americans are receiving benefits, which means the Social Security program is now running out a deficit instead of being self-sustaining as originally designed. The Congressional Budget Office projects Social Security to cost over one trillion in 2018, which is over one-third of the entire budget.

At the same time, Congress needs to balance the budget and deal with the debt ceiling in a reasonable manner. Assuming an average five percent Federal interest rate, just the debt payments toward interest will quickly be reaching unsustainable levels, going over $1 trillion, and becoming a problem that could choke the life out of the American economy.

What do you think should be done about the government shutdown in 2013?