U.S. debt ceiling raised; financial Armageddon averted
Two days after the new Congress took up business last January, the leadership of both parties was informed by Treasury Secretary Geitner that unless the U.S. debt ceiling was raised, that sometime in August the U.S. would run out of money and face default. A dire picture was portrayed of an economic Armageddon, which would likely occur if the U.S. defaulted on payments to holders of U.S. debt. Concern was raised that such a default would jeopardize the “full-faith and credit” of the United States’ credit standing. For the past seven months, the issue of raising the debt ceiling has been the major issue of debate between the Obama administration and the divided Congress.
As a result of the threats of a downgrade from international bond rating agencies like Moody’s, the U.S. government began to push Congress for legislation authorizing an increase to the U.S. debt ceiling. Perhaps of equal concern to foreign investors, who hold U.S. bonds, are the mounting U.S. debt and the need it has created for deficit spending. The U.S. has reached a point where it now borrows 40 cents of every dollar it is spending. Polls would seem to indicate the American public wants Congress to rein in the rate of spending. Some would argue the midterm elections of 2010 were an expression of the public’s desire to curb the appetite of the federal government.
As the debate over the debt ceiling developed, the newly elected Republican House majority saw an opportunity to tie the vote of increasing the debt ceiling to an effort to reduce government spending. In order to pass the higher debt ceiling, the Republican caucus was demanding spending cuts. The House passed two versions of spending cuts that also required a balanced budget amendment to the U.S. Constitution to be submitted to the American voters. Both Republican plans failed to get any support in the Democrat-controlled Senate. The sticking point for most Democrats was that the Republican plan didn’t include any tax increases.
The Obama administration has for months urged the passage of what it termed a “balanced approach” to solving the issue. In conjunction with the Senate Democrats, the administration wanted tax increases for those making over $200,000 and for the tax code to be amended to close numerous corporate loopholes that allow some corporations to avoid taxes. This approach, they argued, would avoid saddling the middle class and the poor with the brunt of the spending cuts.
Enter the Tea Party members of the Republican House caucus. Many of the newly elected Republican members of the House belong to the Tea Party wing of the GOP. They made it clear to Speaker of the House John Boehner that, among other things, they would not support any deal to increase the public debt ceiling that included increasing any taxes. The two separate bills forged by the conservative wing of the Republican Party and passed by the House never saw the light of day in the Democrat-controlled Senate.
In the end it was a compromise between Speaker Boehner and President Obama that carried the day. No one is particularly happy with the legislation, but each side got something that they wanted. The President got enough of an increase in the debt ceiling that it will not be an issue again until after the next Presidential election. The Republicans got a start to the spending cuts they wanted and no tax increases.
Forum Question of the Week:
Regarding the recently passed legislation which raised the U.S. debt ceiling limits, who are the winners and who are the losers?