Step by step, inch by inch, the passionless play proceeds: the House speaker proposes a new combination budget-cutting and debt ceiling-raising plan, then stands back when independent analysis shows it won’t generate the savings he promised, before the Congressional Budget Office gives good grades to the Senate majority leader’s plan (which saves little more than the speaker’s proposal). Democrats are offering more than anyone would have expected, while some Republicans are revolting against their leadership for even thinking about going along with them, for not demanding more and more. Who will be standing when the music stops next?
While I still expect that sanity will prevail and an agreement will be reached to prevent a crisis, nobody in Washington is doing anything about anything else and we look like a bunch of doofuses to the rest of the world as our nation moves closer to default. So what, you ask—what the hell happens to you and me if they don’t raise the debt ceiling?
Q: Won’t refusing to raise the debt limit cut the deficit?
Q: Do you mean that Congress can pass a budget that requires borrowing, and then argue later about whether to approve that borrowing?
A. That’s right.
Q. So, what happens to government spending if the debt limit is not raised? Will the United States default?
A. The United States will not have enough money to pay all of its bills… The possibilities range from “prioritizing” some payments and paying them first to paying bills in the order in which they were received.
The Bipartisan Policy Center analysis notes that if the government were to choose to pay the interest on its debt, Social Security benefits, Medicaid and Medicare payments, defense contractors and unemployment benefits, it could not have enough left to pay for the salaries of federal workers and members of the military, Pell grants for college, highway construction or tax refunds, among other things.
It doesn’t stop there: a default means some combination of government bondholders don’t get paid, government contractors and vendors don’t get paid, government employees don’t get paid, government benefits recipients don’t get paid, and people who don’t get paid have less money to spend so the economy slows down; government creditors demand higher interest rates on future loans and that leads to higher interest rates for we consumers on credit cards and mortgages; cities and states don’t get federal program payments and their own cash flow problems become worse. Just the threat of default is starting to make the markets nervous.
Our country’s government spends way more than it takes in, and that needs to be corrected. But as hard as it seems right now to make the choices that will lead to a stronger economy in the long term—and this isn’t going to be all fixed in your first six months in Washington, Mr. and Mrs. first-term Congressmember—it will only be harder if all the problems caused by a default are dumped on top of the ones we already face. And even if there’s no default, the political playacting that both parties are consumed with right now may make financial markets skittish enough about the future that the credit rating of our country’s debt might be lowered anyway, leading to higher interest rates, etc., etc.
I’ve said this before: first, Congress needs to live up to its responsibility to prevent this totally preventable problem of potential default, then it and the administration can turn full focus on the screwed up federal budget mess that threatens our long-term financial health and security. By the way, there’s a special tactical unit now on its way to the Capitol to help with that.
Places, please, for the big finish!