Wall Street never believed the U.S. would default; Congress isn’t that crazy. But somebody could miscalculate.
The 2023 debt ceiling crisis will be a squeaker. The House passed the compromise that Speaker McCarthy and President Biden spent weeks negotiating; the Senate still must do so. It probably will, but time is running short.
There are really only two things to know about debt ceiling cliffhangers. One, they’re not real, just political theater. Two, Republicans create them; Democrats never do.
As CNN noted here, they only happen when a Democrat is president. CNN points out, “Remember, the debt increased by $7 trillion under President Donald Trump – and the debt ceiling was raised three times during his tenure” without any fuss. The last debt ceiling standoff was in 2011, when Obama was president.
Republicans use these standoffs to extract concessions from Democrats. It has nothing to do with fiscal responsibility. There is no deficit crisis; as CNN notes (in the article linked above), “The budget deficit, which was at 15.6 percent of GDP at the end of the Trump presidency, has dropped to 5.5 percent of GDP at the end of last year.”
Nor is spending out of control; if someone wants to argue it is, just point out that Republicans voted for the spending, too (see story here).
As for the federal debt, the sign below is a lie. Your family’s share of the debt is zero. The debt isn’t a legal obligation of your family. Rhetoric that our “children and grandchildren” will have to pay the debt we’re adding also is a lie. This implies the debt has to be repaid; it doesn’t. When Treasury bonds expire, the government simply reissues them.
The debt does affect the federal budget, because interest is paid on it; and it can affect the economy, because heavy government borrowing sucks cash out of the financial system, leaving less for corporate or consumer borrowing. But the debt also plays a positive role in the U.S. and global economies, by providing a safe place to stash money, which is important for banks, insurance companies, pension funds, and other institutions.
But that also means toying with the safety of Treasury bonds is playing with fire. The game of chicken Republicans play to win at politics comes at a high risk for all Americans, because of an accident happens, the consequences will be severe (read details here).
It’s time to end these charades. The Biden administration should challenge the debt ceiling law in court. If the 14th Amendment means what it appears to say, i.e. that the full faith and credit of the U.S. government “shall not be questioned,” then that law is unconstitutional. Striking it down would make this the last time Republicans are able to play this risky game of political chicken, and push spending and taxation issues into budget negotiations, where they belong.
