The Great Debt Ceiling Non-Debate

Many Republicans, especially the Tea Party types, are unworried about the potential consequences of not raising the debt ceiling. One line of argument takes the line that monthly government income is more than enough to pay for essential services, such as servicing the debt loan, paying for the military, veteran’s pensions and even the social programs that they hate most – Social Security, Medicare and Medicaid.

What they appear to be deliberately overlooking is that it isn’t clear that the Treasury can actually pick and choose who it pays first without serious and long term consequences. They’re already paying things in order of priority to the maximum of their legal ability. A stop-gap bill that tries to make sure that seniors, veterans, loan payments and so on are paid first won’t avoid the long term damage.

Perhaps the most important is the potential effect on the credit status of the USA. The country has always been regarded as a rock solid credit risk, but that’s probably going to change now whether or not the debt ceiling is raised in time to avoid the obvious consequences. The nation currently borrows money at an interest rate of approximately 3.29% per annum. We pay about $800 billion a year in interest charges on the national debt. If the interest rate goes up by 1% (and some analysts in the City of London are talking about at least 2%) we’ll be paying an extra $8 billion a year. That’s hardly a fiscally conservative move, Conservatives! If the government is paying an extra 1% we can expect credit card and mortgage interest rates to increase by at least as much.

The real risk of another Great Depression
If the Federal Reserver raises interest rates by as little as 0.25% the stock market suffers immediately. If the rate stays at a higher level for long, which it would have to, the economy will probably go into a deep recession. That will cost more jobs, lowering government revenues and potentially raising the debt even higher. I’m sick of hearing the GOP refer to Obama’s trillion Dollar deficit. President George W. Bush created the deficit and President Obama has had to spend money to help the economy recover. Arguably, if the Republicans had let him spend more at the start of the recession, we’d be out of it by now. They don’t want that, of course. Forcing the middle classes into submission and making the President look bad are a part of their standard political agenda.

You might wonder why none of this happened during or after the two government shutdowns that occurred during the Clinton administration. We didn’t go into recession back then because the economy was in very good shape, largely fueled by the “Dot Com” World Wide Web revolution. Nobody raised interest rates on us because they could see the upswing in the economy and weren’t worried about our ability, or willingness, to pay our debts. President Clinton raised taxes and paid off the deficit, leaving a surplus for President Bush to squander away, in exactly the same way that all Republican presidents have in the past century or so.

What happened last time the government shut down?
The most significant shutdown was the second 1996 one. Here’s an overview of the immediate consequences:

• Federal employees furloughed: All federal employees other than those providing essential services (vital to national defense, public health and safety, or other crucial operations) were furloughed immediately. This saved money short term, but they were eventually paid, so we wasted money. Not paying them would be a breach of contract and could lead to additional legal costs and penalties.
• Health:There were multiple immediate effects, including:
  • Not accepting new patients into clinical research at the National Institutes of Health (NIH) Clinical Center.
  • The Centers for Disease Control and Prevention ceased disease surveillance, so information about the spread of diseases, such as AIDS and flu, was unavailable.
  • Hotline calls to the NIH concerning diseases were not answered.
  • Toxic waste clean-up work at 609 sites stopped, resulting in 2,400 “Superfund” workers being sent home.
• Law Enforcement/Public Safety: Essential services continued, but:
• The Bureau of Alcohol, Tobacco, and Firearms ceased processing of alcohol, tobacco, firearms, and explosives applications. Although this seems trivial it halted work on mining and construction projects. A similar halt in Minnesota is currently causing the shutdown of bars and liquor outlets.
• Work on more than 3,500 bankruptcy cases was suspended.
• Cancellation of the recruitment and testing of federal law-enforcement officials occurred, including the hiring of 400 border patrol agents.
• Delinquent child-support cases were suspended, causing increased hardship to vulnerable single parent families.
• Parks/Museums/Monuments: Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with local communities near national parks losing an estimated $14.2 million per day in tourism revenues; and closure of national museums and monuments (an estimated loss of 2 million visitors) occurred.
• Visas/Passports: 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines sustained millions of dollars in losses.
• American Indian/other Native Americans: All 13,500 Department of Interior Bureau of Indian Affairs (BIA) employees were furloughed; general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and an estimated 25,000 American Indians did not receive timely payment of oil and gas royalties, causing local economic recessions and hardship.
• American Veterans: There were major curtailment in services, ranging from health and welfare to finance and travel problems.
• Federal Contractors: This is a major portion of the service segment, as private companies have offshored everything they can. The main effects were:
• Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse.
• The National Institute of Standards, was unable to issue a new standard for lights and lamps, scheduled to be effective January 1, 1996. Although this seems trivial, it delayed energy savings essential to the nation’s economic health.
• Employees of federal contractors were furloughed without pay.

The Tea Party wants to eliminate the Department of Education, the Environmental Protection Agency and many other government services that annoy their corporate and excessively wealthy masters, so shutting down those services seems like a good idea to them. How long will it take for your favorite local polluter, such as Koch Industries, to poison your water supply? Although the Tea Party morons think that only “the government” will be affected by inaction, the reality is that private companies and vulnerable individuals suffer most.

A debate that should never have happened
This debate should never have happened. The Tea Party is strong-arming the Republican leadership into turning a routine piece of government accounting into a nightmare for their own political ends, which aren’t in the interests in the vast majority of voters. None of the proposals on the table has a hope of making it through both houses before the deadline of August 2. Senate Majority Leader Harry Reid even proposed a bill that was exactly the set of provisions that the Republicans had first asked for. He even left out increasing taxes on the rich and closing corporate tax loopholes. The Republicans turned it down! They turned down their own proposal!

I think that the deadline will be upon us when both houses vote on a single line bill that simply increases the debt ceiling, with no other embellishments at all, just as they always have in the past. Then perhaps we can get back to talking about job creation, fixing our infrastructure and putting changes in place to preserve Medicare and Medicaid. Social Security is in good shape, despite what the GOP and Faux News would have you believe. However, if we can’t compete as a nation and pay off our debts, we’ll soon be the fifth most powerful nation in the World, behind China, Brazil, India and Russia. Maybe we should get it over with and outsource Congress to the lowest bidder right now.