Friday, January 14, 2011

Bad Ideas: Refusing to Raise the US Debt Ceiling

A poll just came out that shows that 71% of Americans don't understand basic economics. Put a different way, 71% of Americans are opposed to raising the debt ceiling. I can only assume that most Americans are against this because they do not understand the implications of failing to raise the debt ceiling: a partial government shutdown (including the suspension of Social Security payments and most military operations, including in Iraq and Afghanistan), interest rate spikes for both the U.S. government and U.S. consumers (together with a plunge in the stock market), job losses, and perhaps a double-dip recession.

Fortunately for the U.S., the U.S. is not ruled by the people directly, but rather by representatives, such as Congress and the U.S. President - people who are supposed to be smarter, more well-informed, big-picture thinkers and legislators who have the wisdom and courage to do what needs to be done.

In that vein, I wish that a select subset of Congressional Republicans would act smarter and stop pretending that refusing to raise the debt ceiling is even a remotely sane course of action, regardless of what Americans say they want on a poll. Senator Jim DeMint (R-S.C.), quoted in The Hill:
I think we should resist [raising the debt ceiling]. We need to have a showdown, at this point, that we're not going to increase our debt ceiling anymore. We are going to cut things necessary to stay within the current levels, which is over $14 trillion," DeMint told the conservative magazine Human Events in an interview released Monday. "So this needs to be a big showdown.
Several others of the usual suspects have said similar things lately: Michelle Bachmann, Ron PaulMichael Steele, and several other Republicans have said that they are against raising the debt ceiling.

In what may amount to a political miracle in these hyper-partisan times, these Republicans have managed to unite thoughtful liberals, conservatives, and neoconservatives in agreeing that these people are batsh*t crazy - though these Republicans have apparently managed to hoodwink much of the American populace. Even Senator Lindsey Graham (R-SC), hardly a left-leaner, admits that not raising the debt ceiling would be craziness: "Let me tell you what’s involved if we don’t lift the debt ceiling: financial collapse and calamity throughout the world."

What kind of collapse and calamity, you ask? Well, we can't be completely sure, since the US hasn't defaulted on its sovereign debt (at least not in modern times), but at the very least, we could expect a partial government shutdown (including the suspension of Social Security payments and most military operations, including in Iraq and Afghanistan), interest rate spikes for both the U.S. government and U.S. consumers (together with a plunge in the stock market), job losses, and perhaps a double-dip recession.

Meanwhile, the new Speaker of the House, John Boehner can't decide if he should act like an adult when it comes to raising the debt ceiling, or whether he should try to hold the debt ceiling vote hostage to extract concessions from the Obama Administration.

I hope Congress is wise enough not to listen to their uninformed constituents on this issue and do what's best for the country; if not, I hope everyone is prepared for a double-dip recession - I would expect for things to look much like they did from late 2008 to early 2010 again, if Congress fails to raise the debt ceiling.

Of course, we wouldn't go though this debt ceiling nonsense if Congress didn't separate the act of spending money from the act of borrowing the money needed to implement Congress's own spending plan. From an old but great piece by James Hamilton on the stupidity of the U.S. debt ceiling:
One of the peculiar embarrassments of the American political process is the fact that Congress votes separately on the deficit and debt, as if they were two different decisions. This bizarre arrangement allows Congress the luxury of instructing the Treasury to spend more than it takes in as revenue while at the same time voting to deny the authority to borrow the funds that would be necessary to implement the plan.
This seems like a simple thing to fix, but then Congress members would no longer be able to simultaneously 1) vote in favor of spending and tax cuts that create a deficit while 2) wrapping themselves in the Snuggie of "fiscal conservatism" by voting against borrowing the money needed to implement those same spending and tax cuts.

As a final thought in this vein, I find it hypocritical that Republicans have decided that they have to offset any new spending by cutting current spending and can't raise new revenue through new/increased taxes, but yet they don't have to pay for new tax cuts, and can continue to increase the deficit and national debt, as long as the increase is caused by tax cuts. So much for being deficit hawks ... ?

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