Nevertheless, our time has come. As we write this early during the week of Oct. 14, the debt ceiling limit deadline is only days away, and while there have been some hopeful noises made from time to time over the past few days, the White House and Congress are still at odds over a budget deal that would break the impasse. Damage has already been done both on the government shutdown and debt ceiling sides. People have been furloughed and not bringing home paychecks, and important government services are not being performed. And once again, the credibility of the U.S. government's role as the guardians of the world's reserve currency, and the perception that we are a reliable safe haven, has taken another needless hit.
As we write this there is still time for the members of Congress to come to their senses and at least get the debt ceiling raised, once a routine piece of business. The last time this was turned into a political football, in 2011, an 11th hour settlement avoided what would have been a crippling blow to a national economy that was just beginning to sustain a recovery from the financial collapse of 2008. Such a failure two years ago would also have sent shockwaves through the international economy, and did result in a downgrading of the nation's credit rating.
The debt ceiling pertains to the U.S. government - that's us - paying its bills on time. When you're the world's reserve currency - a position that allows the U.S. much more flexibility on how it manages its budget and spending habits than any other country and is not a status to be discarded without consequences - and when you are carrying $16 trillion in national debt, defaulting on those obligations is not the same as a family or a business opting not to pay the mortgage or some suppliers this month. It's not an option to default. Borrowing costs in the future, currently at low and affordable levels, because the U.S., for the moment at least, is still seen as a safe haven for investors, could rise sharply, making interest payments on that $16 trillion unaffordable, or crowd out spending on other things, like defense, education, healthcare and the myriad of things the government spends tax revenue on. That scenario may be approaching anyway, as we'll discuss in a minute, but failing to raise the debt ceiling now would complicate that problem enormously and could make it unmanageable. The debt ceiling needs to be raised because of spending Congress and the President have already agreed to. That any elected politician could even contemplate not raising it is breathtakingly irresponsible and those politicians should be voted out of office.
The reason for the continued upward pressure on the debt ceiling arises from a federal budget process that is dysfunctional and out-of-control. It's been years since Congress actually passed a formal budget as opposed to a continuing series of resolutions that funded things for the short term and kicked the can down the road, as the expression goes. Instead of taking a long term view and looking down the road 10 or 20 or more years and making informed decisions on taxing and spending that reflect the nation's priorities, the result is a mash up of politically popular pork barrel items, programs that may have outlived their usefulness, and vital, essential spending.
It was extremely unfortunate that hard-line conservatives in the House of Representatives chose to lead with defunding the Affordable Care Act (aka Obamacare) instead of focusing initially on the big picture of federal spending. Left unchecked, the U.S. is likely to experience a sharp increase in expenditures due to an ever-increasing number of senior citizens eligible for Medicare, Social Security and other "entitlements." Additionally, we have structural changes underway in our economy that are making it harder for low-skilled workers to compete for jobs, and they will need more and more state and federal assistance. The U.S. economy is not growing at remotely close to the rate it would need to in order to spin off enough revenue to pay for all of that. As we are seeing with the pension benefits issues that many municipalities and states - Vermont included - are grappling with, we are simply running out of money to pay for all the things we would like to have. A day of reckoning is fast approaching. Some combination of smarter taxes, like fewer loopholes and a smaller base rate, and lower or no-growth spending levels, will be necessary. But with Washington mired in gridlock, the "grand compromise" is stuck in neutral.
The wrong way to go about it was to engineer a shutdown of the government. Much blame should fall on the "Tea Party" faction of the House of Representatives, but some blame should attach to President Obama, who blew his best chance to get on the right track by failing to back the budget reforming Bowles -Simpson commission three years ago, and being clueless when it comes to dealing with Congress in general.
Had House Republicans made budgetary responsibility their main message, and not Obamacare (which ironically went on being funded even as "non-essential" pieces of the government were not), that would have been closer to the real debate the nation needs to have. Additionally, the focus would have been on how poorly most of the online health exchanges functioned, or failed to function, when they opened for business on October 1. But that too was buried underneath meaningless rhetoric about defunding Obamacare, which was never going to happen.
Hopefully by the time most readers are seeing this, agreements will have been struck on both the debt ceiling and the shutdown impasse. If not, we're going on a journey into uncharted and, we fear, perilous waters. Congress and the President should both be ashamed if that is where things stand come Friday, Oct. 18.
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