No Way to Govern
As the ongoing federal government shutdown nears a third week, it’s more than unfortunate that a second– and infinitely more severe– crisis is imminent.
With just days left until the United States runs out of money to service its debt obligations, Democrats and Republicans remain at an impasse in negotiations to advance a stopgap measure for both crises, in a situation that will require a degree of responsibility that neither party has yet demonstrated.
First created during World War I as a means for Congress to establish an upper limit on federal borrowing, the debt ceiling caps the amount of money that the federal government can borrow– through the issuance of sovereign debt by the Treasury Department– to fund spending obligations.
The current debt limit is just under $17 trillion, a figure that was actually exceeded earlier this year but which has been sustained through “extraordinary measures” by the Treasury Department. Those measures will be exhausted on or around Oct. 17, at which point the United States will no longer be able to honor existing debt obligations.
Historically, raising the debt ceiling has been a relatively routine matter– since 1960, Congress has increased the debt ceiling 78 times. The consequences of failing to do so this year would be catastrophic– discretionary spending, from defense to education, would stop, entitlement programs would face similar squeezes and resolving the gap between federal outlays and revenues would likely necessitate vast tax hikes.
Beyond the short-term– but still unprecedented– domestic economic shocks, the likely downgrade in the United States’ credit rating would prompt much higher borrowing costs for the foreseeable future and the fundamental devaluation of the global reserve currency, likely resulting in a severe worldwide recession.
Of course, putting aside petty partisan politics– or at least absurd notions that Congress’ failure to endorse a debt ceiling hike would have anything but severe consequences– in the debt ceiling debate would be a promising first step.
As desirable as a balanced budget– or fewer runaway deficits– may be, such an eventuality would take years to attain without crippling growth. Jeopardizing the United States’ fiscal future for an inconsistent and uncompromising political agenda in the interim is no way to govern, even as a party of opposition, and Republicans are still struggling to come to terms with that reality.
Extending the debt ceiling for a credible period would be a powerful statement in itself in the eyes of both the financial markets and the American people, and certainly the appropriate one.
That said, the GOP message– if not the tactics– isn’t without merit. The long-run outlook for the federal government’s finances is alarming, a reality driven largely by unsustainable projected growth in entitlement spending and debt servicing. Reforming critical programs like Social Security and Medicare to ensure their future credibility is a necessary step, and one that would be far more significant than further slanting a tax system that is already more progressive than most other Organisation for Economic Co-operation and Development (OECD) countries.
To get to that point of progress, however, President Barack Obama needs to demonstrate a renewed commitment to the nation’s long-term prospects by following through on a promise to engage in serious discussions with Republicans pending resolution of the shutdown and debt ceiling crisis.
Obama has been consistently unwilling to broach the subject of long-term spending and tax reform– at least not in a nonpartisan and balanced manner– and scuppered “grand bargain” negotiations in 2011 by caving to Democratic pressure at the 11th hour and stipulating further revenue increases that were far more than had been previously agreed.
Obama’s record to date, in other words, isn’t promising, and there may be little reason to hope for more from him in the weeks to come. It may not be easy for GOP representatives to bank on that faint hope, but it’s still the responsible– and the right– thing to do. The alternative simply doesn’t bear thinking about.
Contact Marshall Watkins at email@example.com.
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