To raise or not to raise?
At the current rate at which the U.S. is spending money, experts predict that the country will exceed the $14.3 trillion debt ceiling currently approved by federal law by the end of March. Government officials from both political parties agree that under no circumstances would it be acceptable for the U.S. to default on its debt. A debt default would throw markets into turmoil and dramatically increase the government’s borrowing costs. Treasury Secretary Timothy Geithner has warned that the government may hit the ceiling by March 31 and has urged Congress to act before that date.
Not only is there an ovious moral obligation to honor our debts, but the U.S. benefits from the current universal belief that those who lend to us will always be repaid, on time and in full. Even in a national government that is deeply divided on so many issues, both parties seem to have come to the conclusion that we should never undermine that belief in the full faith and credit of the U.S. government. There seems to be little question that the debt ceiling will be raised.
That having been said, there is a strong movement by some Republican members of Congress to hold up the legislation which will raise the debt ceiling, unless it is accompanied with spending cuts that would return spending to 2008 levels or even 2006 levels. These Republicans, some of them part of the newly-elected, fiscally conservative class of 2011, are willing, however, to cut a deal whereby the Democrats would agree to major spending cuts in exchange for Republican agreement to fund the government (i.e., pass a budget) and raise the debt ceiling.
For this deal to gain Republican assent, the Democrats presumably would have to agree to massive cuts, something they have been unwilling to consider previously. The only stumbling block for the Republican plan is that for it to work, the Democrats would have to believe (1) that the Republicans are willing to shut the government down and see the U.S. default on its debt and (2) that if the Republicans carried out their theat, they would benefit politically in light of the general mood of the country as evidenced from last November’s election.
This is the ultimate game of governmental chicken between the Republicans and the Democrats. Imagine the scenario from the James Dean classic, “Rebel Without a Cause.” Now imagine instead of James Stark (Dean) and the bully Buzz Gunderson, racing stolen cars towards an abyss, the Republicans and the Democrats are racing their muscle cars towards a cliff. If they careen over the cliff, it will destroy the “full faith and credit” for others who hold U.S. debt. Which side will blink? We’ll know the answer in March.
Should Congress enact spending cuts for the U.S. budget, reducing spending to 2008 levels, before agreeing to raise the national debt ceiling beyond its present level of $14.3 trillion?