One of the first things Republicans and Democrats will face off about when the 112th Congress convenes on Wednesday is the “debt ceiling,” which is the congressional limit set on federal borrowing. Since the debt ceiling is currently set at $14.3 trillion and recent expenditures have pushed the national debt to nearly $14 trillion, that ceiling is about to be reached. By law, it cannot be breached.
Republicans, many of them new members to Congress (some are tea party fiscal hard-liners as well), ran election campaigns during the recent 2010 midterms on platforms railing against government spending and for fiscal responsibility. They also recently pledged to trim the current 2011 Appropriations Omnibus Bill (the 2011 federal budget) by $100 billion for the fiscal year. But balancing the budget, cutting the budget and bringing in excess revenue — as opposed to spending more than is received — are easier to do in favorable economic times. Doing it while attempting to climb out of a recession and after instituting nearly a trillion dollars in tax cuts and breaks is more difficult. And borrowed money collects interest and adds to the national debt as well, so…
And yet, as the Huffington Post points out, some tea party Republicans and fiscal conservatives like Senator Jim DeMint, R-SC, are pushing for holding the line on the current debt ceiling. They maintain that undisciplined and profligate federal spending should end — period. The $14.3 trillion debt ceiling should remain in place, regardless of harsh consequences like shutting down selective parts of the government. Such anti-spenders believe that balancing the budget in addition to cutting government costs and wasteful spending will not only limit the scope of government (which is an ultimate conservative goal) but will also strengthen the economy.
Although it sounds good in theory, the national debt is fast approaching the debt ceiling and if the debt ceiling is reached without Congress moving to raise the limit, the government will legally be bound not to engage in securing loans upon which it operates. In so doing, the federal government, unable to secure loans with which to pay the accumulating debt (read: pay its bills), will default on at least part of its loans. The problem then becomes one of markets. Defaulting on loans devalues a nation’s currency, damages its trade standing. In effect, defaulting on loans would cause stocks to plummet, investor nations to lose confidence and call in loans, force nations to use other currencies other than the dollar as their backup currency, and generally wreck the American economy (and perhaps the world economy as well) and trade status.
Therefore, it will not happen. Sen. DeMint and tea partiers like Rep. Michelle Bachmann, R-Minn., might talk about maintaining a debt ceiling and potentially shutting down the government to teach politicians a lesson, but the truth is: They cannot afford to allow it. The world depends on the U.S. economy as a driving force. Letting the U.S. default on its loans would most likely start an economic chain reaction that would plunge the world into another Great Depression.
Still, trimming the budget would help slow the national debt, therefore hopefully curtailing the necessity for increasing the debt ceiling. Cutting programs or defunding them would also cut into the amount of money the federal government would ultimately owe, especially if the government could end the year in surplus and perhaps pay back down some of the deficit. But not raising the debt ceiling once the national debt begins to draw near the limit is something that should and will not be allowed. There are far too many uncertainties in a future if America were to default on its loans…
Besides, no government defaults on its loans purposely. Or, rather, they should not…
But cooler heads will prevail in all this. Veteran Republicans know that the government will need to be funded and that many programs already in place will push the national debt to and over the debt ceiling in the coming months, regardless of how quickly spending cuts are instituted and programs are defunded. Besides, it was one of the reasons the Republicans in the 111th Congress wanted to pass the Obama Compromise Bill before the lame-duck session ended — to avoid the internecine fight over the George W. Bush era tax cuts that the tea party Republicans would no doubt oppose (those tax cuts will add billions of dollars to the national debt in the coming years) as members of the 112th Congress.
Democrats are already supportive of raising the debt ceiling for the most part since many of the programs they’ve instituted and/or legislated for — like unemployment benefits extensions — are not offset with incoming revenue and add to the national debt.
Austan Goolsbee, the chairman of the Council of Economic Advisers, may have stated it best on ABC’s “This Week” when he said, ” Well, look, it pains me that we would even be talking about this. This is not a game. You know, the debt ceiling is not something to toy with. If we hit the debt ceiling, that’s essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic. That would be a worse financial economic crisis than anything we saw in 2008.”
Goolsbee continued, repeating that talking about not raising the debt ceiling wasn’t a political game. He told Jake Tapper, “I don’t see why anybody’s talking about playing chicken with the debt ceiling. If we get to the point where you’ve damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity. There would be no reason for us to default other than that would be some kind of game. We shouldn’t even be discussing that. People will get the wrong idea. The United States is not in danger of default. We do not have problems with that. This would be lumping us in with a series of countries throughout history that I don’t think we would want to be lumped in with.”
A debtor nation that does not honor its financial commitments? The United States? Despite all the tea party rhetoric, there is little doubt that the debt ceiling will be raised by the 112th Congress.
This time around.
But someday, the debt ceiling will need to remain fixed. America will need to begin paying off its enormous debt. Uncontrolled or runaway debt also has a long-term debilitating effect on a nation’s economy. So someday in the near future, that particular problem will need to be addressed. Just not immediately following an economically debilitating and far-reaching recession.
Saul Relative holds degrees in History and Secondary Education, and he taught school in West Virginia in the ’80s and Virginia during the ’90s. A student of politics and political movements, he began writing articles covering the political maneuverings of the Bush administration in 2004. Saul turned to writing full-time in 2008, dividing his time between reading and writing about politics and entertainment.