If you are worried about Speaker John Boehner and Congressional Republicans’ cavalier and reckless approach to the debt ceiling, you should be.
Catastrophic is the word used by most, if not all, economists. Even flirting with not raising the debt ceiling is enough to send markets into a shiver. Not raising the debt ceiling would send world markets reeling and the United States into another great recession.
But still, polls show that most Americans still don’t understand it. More worrying, recent polls show that most voters that identify as Republican (and the vast majority of those who identify as Tea Party Republicans) are fine with the country driving over the debt ceiling cliff. To them, not to raise it would essentially be no big deal. Some, like Congressman Joe Barton (R-Texas, again), think that with running past the debt ceiling, the United States can pick and choose what bills to pay, treating debt like a household budget, leaving some bills to the end of the month.
So, what is the debt ceiling?
To put it simply, it’s our nation’s credit card. Roughly, how much money we can borrow to pay our bills and meet our obligations. We are fast approaching “maxing out.” Effectively, this will happen on midnight, Oct. 17. To not raise the limit would be bad, very bad. But to call it our national credit card implies that raising the debt ceiling means adding to our national debt. It does not. Lifting the borrowing limit simply means the United States can continue to pay its bills.
It can’t be that bad?
Yes, yes it can. Simply, the country, unable to pay up, would default. While this sounds tame (who hasn’t been late on a bill before?) Bloomberg Business likened the effects of default to a “nuclear bomb.” The global stock market would be threatened with collapse as U.S. treasury bills, bought all over the world and seen as one of the most stable investments, would be deemed no longer trustworthy. This could send fragile, growing economies into a tailspin, taking their creditors (China, The European Union) along with them. It wouldn’t take long for this to trickle down to us all in the form of massive layoffs, hiring freezes and inflation.
Okay. Let’s raise it then? What are we waiting for?
Well, there are the issues. John Boehner, painted into a corner by the Tea Party-dominated House, is forced to use the debt ceiling as political leverage in attempt to get concessions from Senate Democrats and the White House.
Has this even been done before, using the debt ceiling as a weapon?
No. Never. And if Boehner was a more effective leader, it wouldn’t be. No president until Obama has ever had to negotiate with Congress over the debt ceiling. MSNBC’s Chris O’Donnell called the raising of the debt ceiling, prior to Boehner’s tenure, an unnoticed and noncontroversial measure. Since it was enacted in 1917, it has been raised numerous times, more than 40 since Ronald Reagan was president. Raising the debt ceiling, in a word, should be perfunctory.
Well, should we just scrap it then?
I would agree with this, and most economist would, too. We are the only nation that uses a debt ceiling (aside from Denmark, but there, like it was once here, it is a mere formality).
Boehner, limited in his power, is playing a very dangerous game here. But will he blink before it’s too late?