Some thoughts on the matter of the deficit ceiling:
This past week, House Republicans staged a mock vote on raising the nation’s debt ceiling. The House voted 318-97 to reject a $2.4 trillion increase in America’s ability to borrow.
This was a sham, and a lot of people saw through it even before the vote was held. This was led by the same group of lawmakers who voted several times—twice in 2008 alone—to raise the debt ceiling under George W. Bush, the same people who embraced Dick Cheney’s position that “deficits don’t matter,” the same bunch who pushed through huge tax cuts—mostly for the wealthy—put two wars on the nation’s credit card, and strong-armed through a Medicare “reform” bill that specifically forbade the government from negotiating drug prices, sending costs soaring.
Experts from all sides of the political spectrum, particularly the business sector, are warning of the dire consequences of not raising the debt ceiling. Late this past week, Moody’s warned that Treasury bonds, which we sell to finance government operations, could lose their Aaa rating if an agreement to raise the ceiling isn’t reached. Standard and Poor’s has already downgraded its outlook for Treasury securities from “stable” to “negative.”
Nonetheless, Capitol Hill Republicans appear to be adamant. I say “appear;” because while they have been thumping their chests on raising the debt, they have been quietly reassuring Wall Street, which is getting increasing nervous about their brinkmanship, that the ceiling will be raised, never fear.
So why the charade?
Because this “debate” is not about the debt, the deficit, fiscal responsibility, or anything remotely resembling it. Republicans are using the debt ceiling increase as a lever to try to realize their long-cherished goals of gutting social spending, particularly Social Security, Medicare (given how their Medicare “reform” package added to the deficit, the irony meter runs off the scale), and Medicaid. They are demanding cuts from these programs as the price for their votes to increase the debt limit, counting on the recent tendency of Hill Democrats and the Obama administration to cave under pressure.
Will they get their way? We’ll find out sometime between now and August 2nd, the current estimate of the day America defaults.
Between now and then, consider:
How we got here—Not because of social spending. In 2001, after years of bipartisan fiscal discipline, the United States had a balanced federal budget, even a small budget surplus, and the prospect of long-term financial health. But the events I note above, beginning with the 2001 tax cuts, completely obliterated that. Bruce Bartlett, a policy advisor to Ronald Reagan who later worked in the Treasury under the elder George Bush, recently wrote in the policy magazine Tax Notes that, “People intuitively know that the Bush administration deserves most of the blame for squandering the Clinton-era surpluses . . . . Simple common sense tells anyone who examines the data that tax cuts are responsible for a substantial portion of the budget deficit and the increase in debt since 2001.”
This, by the way, is not to let compliant Dems who supported the tax cuts and the war spending off the hook. The Republicans may have been in the driver’s seat all those years, but Democrats did not try very hard to put on the brakes.
What would happen if we don’t raise the ceiling—A lot, all bad. For example, the federal government “borrows” by selling Treasury bonds either to the public—mainly large investors here and abroad—or to the Social Security, Medicare, or Transportation trust funds (more irony). About $9 trillion of the total $14.3 trillion in current debt is owed to investors; the other $5 trillion is owed to those trust funds.
If we default, one of the immediate results will be a rise in interest rates; because investors will no longer trust our bonds as much. This, in turn, will trigger a rise in consumer interest rates, as those follow Treasury bond rates. In other words, individuals and businesses are going to pay more for credit. When interest rates rise, that slows the economy, stalling our fragile recovery. Guess what happens then?
If you want a reminder of how sensitive the financial markets can be, look no further than the original vote on the Troubled Asset Relief Program, or TARP, in 2008. House Republicans by and large did not support TARP, and it failed in their chamber. The Dow crashed 778 points. People wised up the next day and passed the bill.
The impact of failing to raise the debt ceiling will be far, far larger.
The games have to stop. Insisting on slashing social programs coupled with refusing to raise taxes to prior levels ignores the reasons for the current mess, but that debate needs to go on outside this one. The debt ceiling needs to be raised so we can avoid a financial train wreck worse than the one we have now.