It’s one of the most reckless, one of the most irresponsible votes I’ve seen taken in the Senate, and it should send a signal to every family, small business, market watcher, about who in this chamber is in favor of endangering the economic stability of our country,” said Schumer on the Senate floor, following the vote.
Schumer is right. A procedural vote in the Senate failed by a vote of 50 to 48. It solved two critical problems: (1) Extension of short term funding for the government and (2) Raising the debt ceiling limit. We’ve experienced the consequences of a lack of funding, as we’ve had partial shutdowns in the past. It is bad, but nothing in comparison to a failure to raise the debt ceiling. That is catastrophic.
My credit card has a limit. The debt ceiling is NOT analogous to the credit card limit. The reason is, the debt ceiling does not limit government’s ability to spend money. Congress separately authorizes the expenditure of money. The debt ceiling allows government to borrow more money it needs to pay for ALREADY approved expenses including pay for the military salaries and social security.
From the Washington Post, “Treasury Secretary Janet L. Yellen said earlier this week that such a default would be unprecedented in U.S. history. Moody’s “best estimate” is that this date is Oct. 20, although Treasury has not given a more precise day.
At that point, Treasury officials would face excruciating choices, such as whether to fail to pay $20 billion owed to seniors on Social Security, or to fail to pay bondholders of U.S. debt — a decision that could undermine faith in U.S. credit and permanently drive federal borrowing costs higher.
Failure to raise the debt limit would have catastrophic impacts on global financial markets. Interest rates would spike as investors demand a higher rate of return for the risk of taking on U.S. debt given uncertainty about repayment. An increase in interest rates would ripple through the economy, raising costs not only for taxpayers but also for consumers and other borrowers. The value of the U.S. dollar would also decline long term as investors questioned the security of purchasing U.S. treasuries. The cost of auto and home loans would rise.”
I’ve written on this topic before. I suggested instead of calling it an increase in the debt ceiling, just refer to it as allowing the government to pay it’s bills when they come due.
Every single recent president has required Congress to increase the debt limit (see links). A new twist is simply to suspend the debt limit temporarily, allowing Republicans a way out of actually voting for a debt increase. It is a way to kick the can down the road.
It is estimated that the 2011 debt ceiling crisis cost the government 18.9 billion dollars in increase interest and credit downgrade which followed, resulted in the Dow Industrial Average dropping 2,000 points.
Yes, all Presidents including Reagan, Bush I, Clinton, Bush II, Obama and Trump, who proudly proclaim they were more fiscally responsible than Democrats (Bush GW was famous for “Read my lips, no new taxes”) all needed the debt ceiling raised to keep borrowing money. In fact, the one president who had to go to Congress the most, was Reagan.
My credit card has a payment date, and failure to make a minimum payment on that date, will affect my credit. That is the appropriate analogy. Failure to make payment of money the country owes on time will affect the faith and credit in the US government, something that can not be risked.
The political deadlocks on raising the debt ceiling are occurring more frequently, and it is very scary situation. I have no problem with Republicans who state that we should spend less on various programs, but this is all about money we have to pay. Full stop.
Moody’s Analytic report concludes, “The U.S. and global economies, which still have a long way to go to recover from the recession caused by the pandemic, will descend back into recession. In times past, lawmakers have taken strident warnings like these to heart, and acted. Let us hope they do so again. Soon.”
Put simply, we are making great progress recovering from the pandemic, despite some distractions from anti-vaxxers and it is a lousy time to shoot ourselves in the foot. It is pretty simple. We have no time for grandstanding or brinkmanship.
Stay tuned,
Dave
Links:
U.S. default this fall would cost 6 million jobs, wipe out $15 trillion in wealth, study says
Senate Republicans block bill to avert government shutdown and extend debt limit
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