Today, October 16, is the last day the United States Congress has to raise the so-called debt ceiling. International financial institutions, both public-sector and for-profit, have warned that failure to raise the debt ceiling would result in a credit downgrade for the most influential “borrower” in the world. Virtually every economy on Earth is tied to US Treasury bonds; failure to meet any debt obligation can have significant destabilizing impact on the global economy.
So far, radicals in the US Congress have held to two very dangerous misimpressions: 1) that whatever they cause to happen, they can undo by making a deal; 2) that there is really nothing to worry about, in terms of widespread economic impact from shutting down the US government or provoking a sovereign debt default. Let’s look at those myths, for a minute:
1) Once the US defaults, if it were to come to that, there will be ripple effects. Radicals in the House seem to think that they can pull back any ill effects once they get around to making arrangements with Democrats. You cannot reverse the ripples flowing out from the splash in the proverbial pond. If a default causes one bank, or government, to have difficulties, it will drive the ripples to accelerate across the world economy.
2) The World Bank and IMF issued a statement saying that a US default would plunge the entire global economy into recession. Borrowing across the US, including business loans of all varieties, would become more expensive, and the resulting US downturn would solidify the new pattern of economic hardship, building recession economics into the wider marketplace.
There is a fundamental logical contradiction at the heart of the radicals’ view: they claim to be obsessing to the point of budgetary brinkmanship over issues of “fiscal responsibility”, but every plan they have put forward would make the deficit, and so the debt problem, worse. The House Republican caucus has been fraying and splitting apart, as more of the public becomes aware of this contradiction and loses faith in the legitimacy of the “budget hawks”.
There are questions, at this hour, of whether Speaker of the House John Boehner can rally enough votes from his party to pass a deal today, and analysts from both parties, as well as non-partisan mainstream journalists, are openly wondering if Boehner will remain Speaker of the House after this debacle. Others say that having weathered the storm, he might be even more secure in his position, at least until a new election.
A bipartisan team of 14 senators—7 Republicans and 7 Democrats, including the leadership—has cobbled together a plan that would reopen the United States government and raise the debt ceiling enough to get us to February, before the next vote needs to be taken. Cable news networks are reporting this morning that the House Republican leadership might not have the votes to pass a plan agreed to by Senate Republicans.
It is unfathomable that enough members of the House and Senate would let this day go by without a compromise to keep the lights on, given the potentially historic fallout from a bad decision. But as of 10:00 am, on the last day to make a deal, all that we know is that the leadership have been expressing optimism, and there are fears Ted Cruz might try to filibuster any deal for reasons no one can explain anymore.
As New Jersey holds its special election to fill the Senate seat left open by Sen. Lautenberg’s passing, citizens around the nation are reaching out to Congress to plead for rationality. The question, at this moment is: will we get it?
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Originally published Oct. 16, 2013, at CafeSentido.com
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UPDATE, Oct. 17, 2013, 12:12 am ET: As midnight approached, and so the calendar deadline for the US Treasury running out of extra cash and policy manipulations to continue paying its bills (it actually went through the debt ceiling last spring), the United States Senate reached a deal, and passed a bipartisan compromise proposal to raise the debt ceiling and temporarily fund the government. The CR (continuing resolution) will provide enough funding to re-open government agencies through mid-February 2014.
There were conflicting reports about whether the House of Representatives would be able to pass the bill. Speaker of the House John Boehner reversed his previous stance and allowed the bill to come to a vote of the full House, despite the likelihood it would not garner a majority of votes from his own caucus. It did not. The House passed the bill, however, with a minority of Republicans and all Democrats voting for passage. The president will sign the CR within the hour, and the government will immediately begin closing the furlough of “nonessential” staff.
What worries many observers is the 18 Republican senators and vast number of House Republicans who effectively voted to push the United States into default on its sovereign debt—a choice that not only violates the Constitution but which economists and world leaders projected would lead to a catastrophic global economic downturn.
Estimates to date suggest the shutdown cost the US economy at least $24 billion in foregone transactions. That value is said to be equal to 461,000 average American household annual incomes.