As printed here and elsewhere, the most efficient way to resolve the debt crisis would be to stop paying Congressional salaries when we approach the debt ceiling since they’re not doing their job. Unfortunately, most Americans don’t really know what’s going on, so not paying Congress would be even more confusing.
However, Americans have opinions. An Economist/YouGov Poll says that 77% of the public sees the debt limit issue as a crisis or major problem. And Roll Call says a Winston’s Poll finds 57% of voters fearing that the consequences of failing to raise the debt ceiling could be “catastrophic.”
Meanwhile, there’s disagreement about who’s to blame. A Washington Post/ABC survey says that only 28% think President Biden should agree to cut spending, while 59% say the debt ceiling and spending cuts should be separate issues. That’s opposed to an older Harvard/Harris survey which found that Republicans should agree to raise the limit if there are spending cuts.
Obviously, as things progress, the public is seeing a possible debt limit default as a crisis. And that Republicans are increasingly being blamed. As noted elsewhere here, to avoid being the villain, the GOP would look more responsible by simply voting for a temporary debt limit increase. After all, the new budget will come up for a vote in just a few months.
If Republicans wait until then, they will have more leverage, since the new budget and the limit could be considered one issue. Ironically, that would allow the minority party to undo programs that were passed by the majority, but could not be continued. And in that case, the GOP would look responsible, and not reckless, as they seem in the current fight. Remember that the debt limit increase is merely to pay for items already approved. By waiting for the new budget, it would not be reneging on the “full faith and credit” of the United States.
Another problem for the GOP is that they are not united on the issue. While House members want to stand firm, Senate Republicans want a deal. Ironically, it may be up to Democrats to save Kevin McCarthy. If he strikes a deal, and House fanatics vote to scuttle it, Democrats could come to McCarthy’s aid, pushing it through the House, to the Senate, where not only are Democrats in the majority, but GOP Senators are more fiscally sophisticated.
Risking a debt default is really playing with fire, and whoever is blamed, will face dire consequences. Maybe the worst long-term danger is risking America’s place as the most stable financial system. As noted in our recent article, China, Russia, South Africa, India, and even Brazil would love to take down the Dollar as the world’s reserve currency. And it would be immediately costly. The last time we even had a threat of a default, in 2011, the credit rating of the United States (yes, the United States) was downgraded.
What about the direct impact on the lives of Americans? Default could mean Federal workers are furloughed, Social Security checks get delayed for seniors, and soaring mortgage rates.
“It would be a lethal combination,” said Mark Zandi, chief economist at Moody’s. “You can see how this thing could really metastasize and take down the entire financial system, which would ultimately take out the economy.”. . .
Some estimates suggest that more than 8 million jobs could be wiped out. Mortgage rates might soar by more than 20 percent, according to some projections, and the economy would contract by as much as it did during the 2008 Great Recession. . . Stocks would likely plummet on the expectation of a wider economic downturn, as interest rates rise and investors pull funds out of the market to preserve their access to short-term cash. A banking sector already wary of making new loans could tighten up further. . .
Moody’s Analytics has estimated that stock prices could fall by roughly one-fifth, wiping out $10 trillion in household wealth and devastating the retirement accounts of millions of Americans. The White House has estimated that the decline could be closer to 45 percent.
Again, this could all be avoided by simply kicking the can with a temporary limit. After all, it just covers what we already “bought.”
By tying the debt limit to the upcoming budget, in just a few months, not only would the GOP be the heroes, but it would give up nothing in leverage, in fact, more, since it would not force Biden to kill what he already did. The new budget could be negotiated in the ensuing months, so it would be a done deal before it becomes a crisis.
Of course, it would show that the United States of America has a functioning government, and maybe more importantly, by being forced to work together, Congress could begin to be less partisan and more statesmanly.
The GOP has to decide what kind of GOAT they want to be: “Greatest of All Time,” or scapegoat.
