Playing Chicken With the Debt Ceiling

Early August is the latest estimate for when the U.S. government will max out its credit cards and reach its $14.3 trillion debt limit.  Specifically, Treasury Secretary Tim Geithner says the limit will be reached on August 2, which reminds me of a sure-fire gag line.  Next time a pregnant woman tells you her baby is due August 2, or any specific date, ask her “what time?”

Treasury Secretary Timothy Geithner

The Obama Administration and Fed Chairman Ben Bernanke both say it is essential to raise the debt limit, and various partisans raise the specter of calamity if the U.S. defaults on its debt payments.  Yesterday’s Washington Post reminds us that both sides are capable of resorting to such talk, quoting Ronald Reagan in 1973:

“The full consequences of a default – or even the serious prospect of default – by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar.”

The “serious prospect of default” is a nice touch, recognizing the reality that an actual default is extremely unlikely.  On the Wall Street Journal‘s always-worthwhile (and free) “Opinion Journal Live” podcast at the top of this post, editorial board member Mary Kissel notes,

“There’s nobody serious in Washington, either on the Republican side or on the Democratic side, who’s going to let the U.S. default on its debt.  It would be simply far too catastrophic, not just for the U.S. markets but for global markets.”

As Kissel goes on to describe, House Speaker John Boehner and top Republicans are insisting that deep spending cuts will be the price for GOP support for raising the debt ceiling.  The Republicans are playing a strong hand, as polls show that Americans who say they have enough information to understand the issue oppose raising the ceiling by more than 2 to 1.  That gap will narrow as more people focus on the dangers of a default, which truly would be horrific.

But here’s an official “All That Is Necessary” prediction:  Between now and August 2, the administration will announce that it has found ways to push that deadline back.  In the meantime, the center of gravity of the debate on spending cuts and taxes will continue to move to the right.