In recent weeks, Republican politicians have repeatedly threat of fiscal and financial chaos — a fiscal bloodbath, if you will — by hijacking the debt ceiling. House Minority Leader Kevin McCarthy (R-Calif.), the likely speaker if Republicans win a midterm majority, said said he will use the debt limit as leverage to impose spending cuts and perhaps limit funding for Ukraine.
Several Republican lawmakers vying for chairman of the House Budget Committee have also declared their willingness to cause a financial crisis if Democrats do not agree to cut Medicare and Social Security.
Democrats have complained about these threats. Yet they foolishly ruled out the obvious steps needed to stop this horror movie from happening.
For those unfamiliar with the term, the debt ceiling is the statutory limit on how much the federal government can borrow to pay the bills it has already incurred, due to past expenditures and tax policy decisions. Republicans often say their regular refusals to raise the debt ceiling are tied to fiscal prudence and the restraint of spending Democrats.
There are a few problems with these claims. Among them: The national debt has also grown phenomenally under Republican leadership. In his first three years as president – that is, even before covid-19 – Donald Trump signed the law into law about 4 trillion dollars new debt, through both tax cuts and spending increases. Republicans then had no qualms about raising the debt ceiling.
Furthermore, the debt ceiling has no direct effect on tax or spending levels; again, past congresses have made these decisions. Since legislators almost always spend more than they expect to collect in taxes, borrowing is needed to make up the shortfall. Raising the debt limit should be roughly pro forma, similar to paying your credit card bills each month.
No matter objective the debt limit may have already been used, it is only a liability. Opportunistic, egocentric lawmakers have understood this to be a useful hostage to take in the face of outlandish demands, as the debt ceiling has to be raised. Our existing invoices to have to to be paid.
The consequences of not doing so would be catastrophic.
Failure to repay federal debt obligations would call into question the full faith and credit of the United States, which prohibited by the Constitution. It would also likely disrupt essential payments, such as Social Security benefits and military salaries.
Moreover, financial markets have long assumed that there is virtually no chance of the US government defaulting. That’s part of the reason why global investors lend us money on the cheap. If the US government instead turns out to be an unreliable borrower that sometimes stiffens its creditors, investors may demand higher returns in exchange for future loans.
It would increase U.S. borrowing costs — and ultimately increase federal debt. So much for fiscal responsibility.
Worst of all: The riskiness of virtually every other asset is compared to these supposedly safe US Treasury securities. If we jump on our bills for the funzies, it would challenge not only the risk of US debt, but almost every other asset investors are buying — and send shockwaves through financial markets.
This is how you end up in a global financial crisis, on top of any recession already be come our way.
Democrats could neutralize that threat by raising the debt ceiling now or after Election Day, before control of either house of Congress shifts. It’s a temporary fix, though.
It would be better to put an end to this recurring chicken game for good by completely remove the debt ceiling. Or, raising the limit so high it never binds. Give it patriotic branding – “The 1,776 Quadrillion Act” or “The 9/11 Act Never Forget” – and stop.
Instead, leading Democrats are stepping into the horror movie basement.
Senate Budget Committee Chairman Bernie Sanders (I-Vt.), who caucus with Democrats, recently excluded removal of the debt ceiling. A few days earlier, President Biden said abolishing it would be “irresponsible.” Presumably, they fear confused Americans might believe Republicans’ bogus claims about fiscal responsibility.
The best solution would be to explain to people why maintaining the current cycle is dangerous and foolish. Biden’s message could be something like: Congress passes a budget every year. This determines how much we borrow, end of story. This extra vote is worse than useless; it leads to frequent and unforced seizures. If Congress doesn’t want more debt, it should budget less or raise taxes.
In the meantime, will Congress find out what seems so painfully obvious? You’re in danger, girl.