People are making comparisons between the current debt crisis – in which the US is going to tell the world it will no longer be paying its bills – with the ones in 1995 and 1996, in which then President Bill Clinton and Speaker of the House Newt Gingrich were involved in a stalemate over the budget. In the earlier cases we had a scenario in which the federal government had a forced “shutdown” in which all but “essential” government programs were brought to a temporary halt. It was bad PR for both sides, but had little long term impact on the ability of the government to conduct its business. That is NOT the case in 2011.
Early this year Speaker Boehner and his Republican majority in Congress had their opportunity. The 112th Congress, which the GOP majority was propelled to power because of untold numbers of Tea Party activists, was only able to obtain $80 billion in cuts in the most recent budget. In the opinion of this writer, the Republicans who voted for that budget have morally obligated themselves to support the debt ceiling. After all, that budget package is what raised the debt to such high levels. The power was in the House. Speaker Boehner should have then applied the tactics of Speaker Gingrich to get what his caucus – and the American people – clearly wanted. It would have been uncomfortable for days, but not apocalyptic for months and possibly years. It is the epitome of hypocrisy to be opposed to the debt ceiling increase, yet to have added to the debt that created our current crisis. That is exactly what the GOP caucus did with their Democrat colleagues. The Republicans are not victims of the debt crisis, they are co-conspirators and their poor handling of the situation has us on the brink of financial ruin.
The Economist magazine notes that even a technical default can be damaging and uses history to create understanding, noting “America’s only known instance of outright default (other than refusing to repay debts in gold in 1933) occurred in 1979 when the Treasury failed to redeem $122m of Treasury bills on time. It blamed unprecedentedly high interest from small investors, a delay in raising the debt ceiling and a word-processing-equipment failure. Although it repaid the money and a penalty to boot, a later study by Terry Zivney, now of Ball State University, and Richard Marcus of the University of Wisconsin-Milwaukee found it caused a 60-basis-point interest-rate premium on some federal debt. Today that would cost $86 billion a year or 0.6% of GDP, a hefty penalty for something so avoidable” (emphasis added).
Recently I was on the nationally syndicated show, “News and Views” discussing this situation and tried to explain what this crisis could mean to the American people. The public display of lack of confidence – or competence — by those in government to the debt crisis would be the equivalent of having a crediting agency living in the home of a family and learning in advance that every income earner lost their job and they have no collateral to draw on to borrow more money through a difficult time. That family would begin to see an immediate challenge in getting loans and (at least) would have to pay higher interest.
It is time for both parties to stop this dangerous course and get the debt ceiling raised and to do it without tax increases. For Republicans who are acting particularly injured by a crisis they created by not holding the budget line before, I hope they learned the lesson. I would also admonish them to “Go and sin no more!” We cannot expect the Democrats, who have made their intentions perfectly clear, which is widespread socialism, to protect the taxpayers.