We Hit The Debt Ceiling Today
In the meantime, the hostage strategy will continue to play out — Republicans are threatening to create a recession, on purpose, unless Democrats give them a whole lot of unspecified spending cuts. If Dems fail to comply with the demands, the GOP will refuse to act and on August 2, we’ll reach the next phase.
And then what happens? Paul Krugman explains that Americans can expect “seriously bad consequences.”
For if we hit the debt ceiling, the government will be forced to stop paying roughly a third of its bills, because that’s the share of spending currently financed by borrowing. So will it stop sending out Social Security checks? Will it stop paying doctors and hospitals that treat Medicare patients? Will it stop paying the contractors supplying fuel and munitions to our military? Or will it stop paying interest on the debt?
Don’t say “none of the above.” As I’ve written before, the federal government is basically an insurance company with an army, so I’ve just described all the major components of federal spending. At least one, and probably several, of these components will face payment stoppages if federal borrowing is cut off.
And what would such payment stops do to the economy? Nothing good. Consumer spending would probably crash, as nervous seniors started wondering how to pay for rent and food. Businesses that depend on government purchases would slash payrolls and cancel investments.
Furthermore, markets might well panic, especially if interest payments are missed. And the consequences of undermining faith in U.S. debt might be especially severe because that debt plays a crucial role in many financial transactions.
I get that selling a complicated procedure with the word “debt” in it was going to be difficult when it came to the Republican base of Einsteins, but… but… but… I got nothing.
Tags: Debt Ceiling, Republicans
They are idiots.
It’s a dangerous game with a self-fulfilling prophecy.
The thing is, I don’t think that they will create another recession. Not only are they having a hard time living down the one that they created under BushCo, but their real constituents (the business community) won’t Be At All Happy. The US Chamber has already been out writing public letters telling them to put down the matches.
The real question to me is why Dems just don’t sit still and wait for Boehner to rust a little more and agree to a clean vote on this thing. It is as close to a sure win as this Administration is going to get, really.
I agree, Cassandra. Republican Congress people are torn between business and the Tea Party. Their money lies with business and Wall Street, but their primaries lie with the Tea Party. They are in big trouble.
…unless Democrats give them a whole lot of unspecified spending cuts.
Putting the Ryan budget up for a Senate vote would reel in the grandstanders and clarify everybody’s thinking on demands for more spending cuts.
Dems might as well negotiate directly with the Koch bros on this one. Then let the Kochs sell it to the congress they bought.
Great point.
The United State’s debt has always been considered to be the “gold standard” when it comes to measuring the riskiness of soveriegn debt. We are what it means to be 850 on the credit rating scale. We are the point of comparison when it comes to handing out AAA or A+ by bond rating agencies (S&P, Moodys, Fitch, etc). If we hit miss an interest payment and therefore default (technically speaking), who then becomes the measuring stick for credit worthiness in the global political system? China? Japan? France? The Swiss? “Après moi, le deluge.”
I was clicking around this morning and somehow came across a couple of talking-heads sponsored by ScottTrade and claiming to know what is going on with the debt ceiling. So they agreed that the Republicans are in a risky spot BUT they went on to ‘splain that this isn’t really a crisis because Geitner is making it up, the Treasury has plenty of money and he’s just playing brinksmanship.
How dumb would you have to be to believe that? Yet, I’m betting there are a bunch of Congressional types that do. And they’ll vote accordingly. We are in very dangerous hands folks.
The Republican line is kill the middle class and recovery or the economy gets it. Talk about your suicide pact.
@UI Bomb shelters! Get ’em now before they’re all gone!
Thats fine, though. Let them be the tools the fill the box because it’ll be so much easier to bury.