I'm alarmed by the prolific spending that has taken place in Washington, D.C. for the last several years. This bipartisan created problem of "transferring the wealth" of future generations at the rate of $17 trillion in debt to voters today, is arguably mob rule at its worst. With that, I understand why many Republicans would favor allowing a period for the government to shut down in order to make a point. People are talking about our fiscal situation in a way they would never do if we were living in a time of "business as usual." The last time the government shut down in the 1990s, the U.S. soon found itself enjoying balanced budgets for the first time in decades. However, there is now talk among some House Republicans of digging in their heels when it comes to raising the debt ceiling.
The GOP House of Representatives that was elected in the last two cycles were placed there to put America's fiscal house back in order. That is a major theme of the Tea Party movement. The current strategy of potentially opposing the raising of the debt ceiling is not what the country needs. It is irresponsible on so many levels.
Many in the Congress who are saying they are opposed to raising the debt ceiling added to that same debt. In fact, with the exception of very few members, all of them added to the debt through huge spending programs and "small" earmarks that definitely add up. All of these have led us to a point where the ceiling needs to be raised, or else. Many Americans hear such language and they respond with "or else, what?"
The people in Europe have largely woken up to the consequences of delaying tough decisions until "later." The Economist magazine reported two years ago that "Portugal's parliament voted against a package of austerity measures that would have been necessary to avoid a European Union bail-out. Immediately, the country's costs of borrowing went through the roof... Portugal auctioned 1 billion euros of 12-month bonds at a yield of 5.902 percent; at the previous auction of 1 billion Euros on March 16, the yield was 4.331 percent. Now Portugal will end up having to adopt basically the same package of austerity measures, or something worse, as a condition to receive the European Union bail-out. So their parliament's rejection of the austerity measures cost Portuguese taxpayers 15.71 million euros on that bond issue alone, in return for which they got exactly nothing." The U.S. may not be that far from such dire circumstances.
The Economist also noted that the United States is facing a similar dilemma. The current Congress, which the GOP majority was propelled to power because of untold numbers of Tea Party activists, was only able to secure the most modest of budget cuts in the last budget. Even the 112th Congress only secured around $80 billion in cuts. In the opinion of this writer, the Republicans who voted for these budgets (or contributed to the earmarks and voted "no" later), have morally obligated themselves to support the debt ceiling. After all, these budget packages are what raised the debt to such high levels. 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.
By mid October the situation better change or the consequences could be huge. The last time the Congress and the White House played "chicken" with the debt ceiling, the U.S. took a hit in its credit rating. This is a prospect that the U.S. simply cannot afford again. The Economist magazine asks the chilling question, "What happens if the world's most trustworthy borrower reneges on its debt?" It answers the question by drawing on the lessons of the past, noting "Yet history suggests that even a technical default can be costly. 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 $122 million 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 percent of GDP, a hefty penalty for something so avoidable."
Today, however, this would not be a minor incident or computer glitch. It has been watched closely by the markets and the results will be most profound. Some economists estimate that it could lead to an additional ten percent of the budget being required to pay the interest on the debt if they fail to raise the debt ceiling. Many others believe that may be a conservative estimate.
The vast majority of Republicans that are now risking a dramatic increase in the cost for the country to borrow money, voted for the spending that led to the need to increase this ceiling. They are playing politics with our financial future and are trying to have it both ways. Crying "fiscal responsibility" by opposing the ceiling increase, while voting for the spending that requires it to happen. The answer will not be in raising taxes, which will further hurt the economy's ability to rebound and generate revenue, but in cutting spending. They must say "no" to tax increases and "yes" to spending cuts, but they must get the ceiling increase passed and then, change their ways by voting against harmful spending increases in the future.
Kevin Price is publisher and editor in chief of U.S. Daily Review and Host of the Price of Business on 1110 AM KTEK in Houston, Texas. He is the author of Empowerment to the People and has twice received the George Washington Honor Medal in Communications from the Freedom Foundation at Valley Forge. His column is nationally syndicated and he is a frequent guest on major media around the country, being found on Fox News, Fox Business, and other networks. For more see KevinPriceCentral.com.