The United States Treasury hits the statutory national debt ceiling, that’s what happens!
WASHINGTON (Reuters) – The United States will reach the limits of its borrowing authority on Monday, but don’t expect to hear alarm bells in Washington or on Wall Street.
Rather, that ringing sound you hear is the opening bell in a fight that’s likely to last a full 15 rounds.
It’s a moment the Obama administration has warned about for months. Without congressional action, the Treasury Department will be shut out from the bond markets and the country could eventually default on its obligations, an event that would roil markets and economies across the globe.
There will be little immediate financial impact when the United States reaches its existing $14.294 trillion debt ceiling, as the Treasury Department says it can stave off a default until early August. Observers don’t expect Congress to swing into action until the last possible minute.
Bond markets have remained placid as traders calculate that despite the theatrics in Washington, the chances of default are extremely small.
“I don’t think this is a big story yet,” said Dan Ripp, an analyst with Bradley Woods, a securities firm in New York. . . . .
Unlike nearly every other developed country, the United States can’t increase its borrowing authority without legislative action.
This is a mixed blessing for Congress: The public is overwhelmingly opposed to a debt-limit increase, and the vote to raise the limit is always politically painful. But it gives lawmakers further leverage over federal spending.
“The beauty of the debt ceiling issue is it gets results,” Senate Republican Leader Mitch McConnell said on Thursday.
And leverage is what Republicans need. We won control of the House of Representatives in the last elections, but the Democrats still control the Senate, 53-47, and Barack Obama is still the President. The Republicans already caved in on the FY2011 budget: after laboring mightily, the Congress has produced a mouse, a budget deal which will cut a whopping $38 billion from FY2011 spending. This was the “compromise” reached between the original $100 billion cut proposed, before the Republicans compromised with themselves, and passed an omnibus spending bill which cut only $61 billion from the rest of FY2011, and then wound up having to compromise further with the Democrats, who had proposed huge, draconian, incredibly austere cuts of $6.5 billion.
The Republicans in the House, deathly afraid of the political blame for a looming government shutdown, despite the backing of the base that gave them the House majority in the first place, bought into a much smaller spending cut, and then, after the hoopla concerning this huge accomplishment, this monstrous spending cut, even that turned out to be virtually nothing:
Before we get too far in the new debate on spending, just a word about last week’s news – the so called “historic compromise” that prevented a government shutdown and cut an astounding $38 billion from this year’s budget.
Whether or not you thought the cuts came in the right programs, that’s a big deal. Thirty-eight billion dollars is a lot of money.
Or is it?
Well, thanks to the Congressional Budget Office and some great reporting by the Washington Post, it turns out the government won’t be cutting $38 billion in one year after all.
No, the real cuts will be more like $352 million!
You heard me right, $352 million, NOT $38 billion.
The rest? Mostly smoke, mirrors and accounting gimmicks.
Example: When projects like the Capitol Visitor Center came in under budget – it was supposed to cost $621 million and an actually cost less than $600 – auditors called the unspent, left over money a “spending cut.” The Washington Post found that in 98 cases where the government had allotted money to federal agencies that was never spent, in each case it was called a “spending cut.”
On big-ticket items like aircraft carriers whose full cost won’t come due for five or six years, the entire cost was deducted as a “cut” in this year’s budget.
We bemoan the fact that government can’t break its spending habits, can’t do what it needs to do, but what I find more disappointing — is appalling too strong a word? — is that try as they might, neither side can seem to find a way to tell the truth.
No, appalling is not too strong a word; it might be too mild a word in this case.
Well, while a government shutdown would (probably) have hurt the Republicans politically — though it should have hurt the Democrats even more — as the linked Reuters story notes, the public are “overwhelmingly opposed” to increasing the debt ceiling.
Thirty-four percent don’t know enough about the issue to sayby Dennis Jacobe, Chief Economist
PRINCETON, NJ — By a 47% to 19% margin, Americans say they would want their member of Congress to vote against raising the U.S. debt ceiling, while 34% don’t know enough to say. Republicans oppose raising the debt ceiling by 70% to 8% and independents by 46% to 15%. Democrats favor raising the ceiling by 33% to 26%.
Those are the results of a Gallup Poll, conducted May 5th through 8th, which asked for opinions about raising the debt ceiling but did not offer reasons for or against raising it.
To put it in simple language for the Republicans: Dudes! Your electoral base opposes raising the debt ceiling by a 70% to 8% margin!
There is a huge caveat in there, however. Not in what was asked, but in how questions were answered:
A majority of Americans (57%) say they are closely following the news about “discussions to raise the U.S. debt ceiling, the maximum amount of money the U.S. government can borrow by law.” Republicans are following the issue more closely than are Democrats and independents; upper-income Americans are following it more closely than lower-income Americans; and those with a postgraduate education more so than those with a high school education or less.
Americans are more likely to oppose than favor raising the debt ceiling, regardless of how closely they are following the news about the issue. Among the 23% who are following the debt ceiling discussion very closely, 62% are opposed and 25% are in favor of raising the current ceiling. Among those who are following the issue less closely, opposition outnumbers support by at least a 2-to-1 margin.
I, for one, don’t believe that 57% of Americans “are closely following the news about discussions to raise the U.S. debt ceiling.” While I can believe that Republicans are following it more closely than Democrats and independents, and that higher-producing and better educated Americans are following it more closely than their less educated and poorer brethren — since higher-producing and better educated are coterminous with being Republican — I’d bet a case of Mountain Dew that if you asked 100 adults what the current statutory debt ceiling is, you wouldn’t find more than 20 who’d know it to within a trillion dollars.
But the opening is there for Republicans: if they can educate the American people about what the debt ceiling is, why we’ve reached it, and what would happen if it was raised, the public have a natural inclination to side with the position of not raising it, unless there are real, substantial spending cuts linked to it, something that is secure and solid enough for the American people to say, OK, we can agree to a debt ceiling increase now, because we know that we are on a path to eventually cutting the debt. Without such an agreement, then the public would probably say, we’ll keep the debt limit where it is right now, and take whatever comes from not raising it.
The Republicans can win on this, if they show that they have the courage to fight for the right positions. If they don’t demonstrate that courage, the base will desert them, and they’ll be in the minority once again.