In the coming days we will hear much discussion regarding raising the debt ceiling
In the coming days, we will hear much discussion regarding raising the debt ceiling, something that has been done 74 times in the past 50 years. Ten times since 2001. While economics can be esoteric, having a strong "huh?" factor, the principles applicable to raising the debt ceiling are fairly straight forward. Or should be. But then there are countless issues in Washington to which this admonitory statement might be applied.
But first the current context. For decades we have lived on borrowed money, primarily from the sale of our T-bills, purchased by, say, China ($755 billion) or Japan ($768 billion). We sell these IOUs because we spend more than we earn. As a result, the federal deficit, spurred by two wars and a no-tax policy, has ballooned to $14.3 trillion. We don't pay as we go. It is a staggering amount and most economists agree that if allowed to grow, a day will arrive when we will be paying an insupportable amount of our collected revenues servicing just the interest on those notes, not to mention the actual debt.
This is an enormous problem, one that requires serious discussion and serious solutions. The Republicans have made the deficit a cornerstone of any political debate, having suddenly become deficit hawks with all the conviction of the newly ordained. They have recently put out a budget called the Ryan Plan that will cut spending by eliminating or reducing safety net programs (or privatizing them, examples being Medicare, Medicaid and education). In fact, Ryan's ideological budget, according to The Washington Post, would give America a barebones government reminiscent of the years before the Great Depression.
The Republicans will not, however, consider cutting defense (which has all but doubled in the past 10 years), and they insist that the Bush tax cuts to the wealthiest Americans be made permanent. Nor will they approve the elimination of government subsidies to the oil companies (a projected $20 billion over the next 10 years), no matter that these corporations have recently earned breathtaking if not obscene profits. Deficit chicken hawks, perhaps.
But back to the debt ceiling. Our government must statutorily raise the ceiling on what we can borrow between the middle of May and the first week in August, or the federal government will run out of money. In other words, we already spent all that we've earned. If Congress votes to not raise the debt ceiling, most economists agree that the results will be catastrophic. Even the possibility of America defaulting on its obligations sends tremors through not only our own markets, but markets worldwide, beginning with China and Japan.
Here are some possible outcomes: Government workers would be sent home; we would default on maturing T-bills and bonds; we would fail to make interest payments on said T-bills; interest rates at home would skyrocket; and we would have to revert to our own cash in order to make said payments, meaning taxes would be doubled or the budget cut by half. The current anemic recovery would be stalled if not finished. Our stock market, as well as markets globally, would be damaged, and the ripples of uncertainty and lack of trust in America's financial institutions would linger for years. The word catastrophe is not hyperbole.
And yet, despite all of the above, the GOP has decided to play poker with the debt ceiling, assuming that now is the moment that they can push their deficit agenda to the fore while insisting that if they don't get the massive cuts they want (John Boehner, Speaker of the House, recently demanded cuts in the trillions), they will refuse to raise the debt ceiling and let the chips fall where they may.
They have their debt ceiling chit and, so they say, they're prepared to play it, unless the Democrats agree to their terms. Instead of poker, you can also call this a form of blackmail. Or the height of irresponsibility.
Of course, the newly elected tea party members of the House are pushing the GOP hard to the right. Tea party influence is being felt throughout the Republican Party and their hostility toward big, intrusive, overspending government, as they so often say, has infused the GOP. Again, reference the Ryan budget.
Tea baggers, angry and indignant, some filled with rage, would happily let America default on its obligations, no matter the economic consequences, a position now adopted by the GOP as well. Burning the house down to save it is a disturbing fantasy.
But then again, perhaps the Republicans are simply playing chicken with our economy. It's not the first time they have used the tactic, "my way or the highway."
But the chit they are playing this time may have unintended consequences and if carried to its final conclusion will be a Pyrrhic victory to be sure. Their tactics are shameless, their positions ideological. Party first, country second.
Chris Honoré lives in Ashland