Yes Mr. President, Raising the Debt Ceiling DOES Raise Our Debt

I grow weary of hearing Democrats intone that the debt ceiling — the first word of which is “debt” and the second word of which is “ceiling” — has nothing to do with the level of the debt.*  The President just said it again on TV:

“And because it’s called ‘raising the debt ceiling’ I think a lot of Americans think it’s raising our debt. It is not raising our debt. This does not add a dime to our debt.”

In a Clintonian “what the meaning of is, is” kind of way, I suppose you can justify the statement that raising the debt ceiling doesn’t increase the country’s debt.  It “merely” gives the Treasury Department permission to increase the country’s debt — and of course the Treasury will promptly do so.

Yes, raising the debt ceiling means that the government would be able to continue to pay obligations that already exist.  But it doesn’t just mean that — it also means we’ll be deeper in debt.  More debt is not the only option the government has for paying its existing obligations. Unfortunately, the alternatives are far too cumbersome to put in place by October 17, and some are arguably more harmful: raise taxes, print more money, reduce spending going forward and use those funds to service existing obligations.

I do not favor the current Tea Party strategy of tying first the continuing resolution and now the debt ceiling to the demand for defunding Obamacare.  First, as a pragmatic matter, it will not work. Second, the prospect of defaulting on Treasury bonds is scary. I examined the risks back in January, and discussed why it’s unrealistic to think the Treasury could stave off default for long by prioritizing debt payments.

A default might not be apocalyptic — damage from the 2011 credit rating reduction was tempered by the fact that everyone knew the United States still had the world’s strongest economy.  But default can’t be good, and Republicans will get the majority of the blame.

The debt ceiling law was passed in 1917, and probably should be changed.  I’m all in favor of workable mechanisms to reduce spending and indebtedness, but the debt ceiling process as it currently exists is too blunt an instrument.

The fight to reverse Obamacare can and should continue, but I expect enough Republicans will back raising the debt ceiling in time to avoid default. However, in the words of Kevin D. Williamson, “one should never underestimate the Republicans’ ability to screw up being on the right side of an issue.”

(Public domain chart via Wikipedia.  Yes, I know it only goes up to 2011 — it still shows a trend.)

* Apologies to Maureen Dowd, whose 1998 punchline was more elegant: President Clinton, she wrote, “denies that oral sex (the second word of which is sex) is sex.”

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.