The Debt Limit Deadfall

© Josh Sager – October 2013

If the right wing in the House of Representatives refuses to act responsibly and stop their hostage crisis, there is a very good chance that the United States is going into default for the first time in our history. This default would irreparably harm the United States’ reputation and would risk a global economic crisis.

debt-hostage

 On October 17th, the United States government will run out of appropriated funding for programs, thus will enter default if the debt limit is not increased before this time.

During such a default, the United States government would not pay its debts—either to bond-holders or employees—and many programs would have to be cut or shuttered until a resolution. Countries and individuals which have lent money to the USA would not continue to receive interest for their loans, thus global confidence in the USA as a safe investment would be shattered. Ultimately, any default by the government could be absolutely devastating to the world economy and would be a disaster to the United States.

Here are a few quotes from experts on the consequences of this default:

“If we miss an interest payment, that would blow [the collapse of] Lehman out of the water. Lehman was an isolated company, and now we are talking about the U.S. government.”

Ex-treasury Official Tim Bitsberger

“It [debt limit defaults] should be like nuclear bombs, basically too horrible to use,”

Warren Buffett

In addition to program cuts and possible delays in entitlement payouts, a default would result in a massive credit downgrade and increased interest rates for treasury bonds—these consequences would dramatically increase long-term costs for borrowing and could easily prevent treasury bonds from being used in certain economic transactions, thus sending damaging ripples through various economic markets.

The only reason that we are currently contemplating the economic equivalent to an apocalyptic event is that a small contingent in our legislature has decided that the debt limit is a great bargaining chip. Because no rational or responsible person would want to risk the consequences of a default, these politicians are attempting to force the majority to accept their policy demands.

While the imagery is bizarre, Rep Devin Nunes (R-CA) was entirely correct when he referred to his fellow Republicans as “lemmings with suicide vests.” Unfortunately, these “lemmings” are out of control and, unless Speaker Boehner is able to get them under control, they could easily cause the United States a gigantic amount of damage.

lemmings-in-suicide-vests-large1

The Debt Ceiling Isn’t Spending

Many people appear not to realize that the debt limit is simply a procedural motion which approves payment for all of the things that the legislature has already agreed to buy—it has nothing to do with spending more money and is in no way a blank check for the president.

Here is an easy way to look at the spending process: A group of people go to a restaurant and debate what they would like to order for dinner (policy debates and committees). Once everybody agrees on the food which will be ordered (a bill is drafted and voted on in both legislative chambers), a spokesperson for the group officially order the food (the president signs the bill into law). Once the food arrives people eat and the bill is delivered (the law is implemented and costs are accrued). Finally, the diners pay the bill for the food that they bought and happily leave the restaurant without any trouble (the debt limit is increased in order to allow funding for the new law).

The legislators in the House who are currently holding the debt limit hostage are like members of a dinner party who join the others in ordering a great deal of food, eat it, and then refuse to let the party pay for dinner unless their demands are met. In effect, these legislators are threatening to turn the United States into a deadbeat nation if they don’t get concessions from their partisan opponents.

Because of its no-brainer nature, no group of legislators have ever before threatened to hold the debt ceiling vote hostage—some politicians would vote against the measure in a purely symbolic manner (in fact, Obama voted in thus way while in the legislature), but they never actually tried to stop it from passing through the legislature.

Brinksmanship, Extremism and Ignorance

The fact that a portion of the GOP would dare attempt this extremely risky hostage stunt in service of their agenda is indicative that they are either the ideological equivalent to kamikaze pilots or are wholly ignorant about the effects of their actions—neither possibility is encouraging.

Personally, I think that the so-called “suicide caucus” which has taken over the House recently includes both kamikaze partisans and policy-ignorant politicians, as well as those who fall into both camps (politicians who are taking the debt hostage because they don’t know the full extent of the damage that they are threatening).

Those in the “suicide caucus” who are knowledgeable about the consequences of a default are being extremely irresponsible and are putting partisan politics over the good of the country. In effect, this portion of the suicide caucus is putting the entire country at risk in order to impose their extreme policy preferences on the country—what they can’t get by debate or voting, they will try to get through threatening to destroy the system if they are not appeased.

kamiCOLOR

Any politician to attempt such blackmail is manifestly unqualified for office, regardless of their partisan affiliation. If a politician threatens systemic damage to the economy unless they are given what they want—regardless of whether they are trying to force budget cuts or a single-payer healthcare program—they must be voted out of office.

The segments of the suicide caucus which simply lack an understanding of the consequences of their actions are just as unqualified as those who know what they are risking, but in a different way. Rather than being kamekazis, these politicians are like blind people who are playing chicken with no brakes—they are a danger to everybody around them, even if they can’t see where they are going.

debt-limit-crackpot

Personally, I think that the ignorant segment of the suicide caucus is well-represented by the following quote from Tom Coburn (R-OK):

“There’s no such thing as a debt ceiling in this country because it’s never been not increased, and that’s why we’re $17 trillion in debt. And I would dispel the rumor that’s going around that you hear on every newscast that if we don’t raise the debt ceiling, we’ll default on our debt — we won’t. We’ll continue to pay our interest, we’ll continue to redeem bonds, and we’ll issue new bonds to replace those.”

Coburn’s quote demonstrates the amazing ignorance of the debt ceiling that he shares with many of his fellow suicide caucus members:

First, he claims that, because nobody has been stupid enough to stop the debt ceiling, it does not exist. Yes, it is true that nobody in our past has attempted this type of recklessness but, apparently, there is always a first time.

debt-ceiling-history-jpg-new

Second, he connects the accrual of the debt with the debt limit. The budget process is the process where programs are voted into law, while the debt ceiling is simply an argument over whether the United States is going to pay for the things that we have already bought.

Third, you cannot stop a default simply by paying the interest on the debt—such a payment plan would still be a default, but we would just be paying a portion of our debts. After all, the money that we owe to seniors through entitlement programs is just as valid as the debt we owe to other bond-holders.

Conclusion

We must stop this foolishness before it becomes a precedent and demand that a clean debt limit increase be passed IMMEDIATELY. This last-minute fix may not repair the damage that the mere talk of a default has already wrought, but it is the only thing that we can do at this point.

After ensuring that we don’t go over a cliff in the next week, we must turn to the long-term fix in order to prevent a repeat of this insanity. The debt ceiling must be eliminated as a concept, and we should return to a system where a separate vote is required to fund the laws which have already been passed—this separation is, at best, a chance to grandstand, and, at worst, a threat to our economic security.

Finally, every politician to have brought us to this precipice must be voted out of office the next time that they face reelection. This isn’t to say that I am expecting these Republican districts to compulsively swing Democrat, merely that they elect a more responsible right wing candidate.

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3 thoughts on “The Debt Limit Deadfall

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