Following months of debate in Washington over health care and free trade, we aren’t hearing much from Congress about a key deadline that could have far-reaching consequences on the U.S. and global economies. And now, the House and Senate have left for August recess.
The Treasury Department projects that the U.S. government will reach its debt limit as early as September 29. If that happens, the government won’t be able to borrow money to pay the bills for expenses it approved in last year’s budget.
When a small business owner fails to honor the checks he writes, his credit rating drops and his borrowing costs rise. It’s no different for the U.S. government.
The problem? Our government’s “debt ceiling,” which is established by Congress, has become a political football. There are certain things that should not be messed with, and the “full faith and credit” of the Federal government is one of them.
Raising the debt ceiling is a must-pass scenario.
This isn’t about federal spending levels. Those are set in the budget. This isn’t about government waste. There are better ways to fix that.
When a Member of Congress tries to shut down the government over the debt ceiling, he or she is basically refusing to pay for the goods and services Congress just bought. You can’t refuse to pay the check you just wrote. If you do, you're in default. When you don't have enough cash on hand to meet your obligations, you borrow money. Our government is going to run short on cash, so we need to borrow the money to pay the bills. We're better off borrowing more to pay today's bills than not paying them at all.
Not raising the debt limit is the same thing as thinking that if you stop spending money now, you don't have to pay your existing credit card bill. If an individual did this, the creditors would be knocking down their door. If a business did this, it might have to file bankruptcy. But this isn’t just an individual or a business – this would have the entire U.S. government defaulting on its debts.
And who loses when that happens? Everyone.
A default could force homebuyers to pay more on their mortgages. When Congress threatened default in 2011, mortgage rates went up nearly three-quarters of a percent. This would increase the mortgage paid on a house in the mid-$200,000s about $35,000 over the life of a 30-year loan. Social Security checks and disabled veterans’ benefit payments could be delayed. Students could see their loans payments increase by 10 percent. Doctors and hospitals who treat Medicare patients might have to go without compensation. And if a default shocks the stock market, that could drain funds from workers’ retirement accounts.
If the full faith and credit of the United States is cast in doubt, it could send global investors fleeing from once iron-clad Treasury bonds, further hindering our government’s ability to meet its obligations in the future.
Nobody is exactly sure what will happen if our government defaults on its debts, but all signs point to potential catastrophe.
Whenever you’re dealing with a complicated public policy, you’re going to have winners and losers. If you look at fixing Social Security, for example, it is certain that a number of people will be affected one way or the other – a sub-section of our population will not get the benefits they get now. That is an unfortunate but necessary reality.
But if we fail to raise the debt ceiling – everyone will suffer, and nobody will benefit. It’s that simple.
We've seen this game before, and it resulted in the U.S. breaching the debt limit in 2011, forcing the U.S. Treasury to use “extraordinary measures” to push back default while Congress worked out a deal to raise the limit. As a result, financial markets had their most volatile week since the 2008 financial crisis, and S&P downgraded our nation’s rating because of the “political brinksmanship” over that year’s debt ceiling debate. They were right to do it: it was an important reality check. But we shouldn’t have needed it, and we shouldn’t have let it happen again.
But it did happen again. In 2013 and again in 2015, Congress neglected its responsibilities and allowed the federal government to breach the debt ceiling, forcing the Treasury to invoke the same extraordinary measures to extend the nation’s borrowing capacity while Congress bickered. Something that was once perfunctory paperwork has become a political football.
This issue should not come up every six months or even every year. It is a waste of energy, time, resources and political capital.
To be clear, we should have a healthy debate over our budget priorities. But these important discussions cannot be tied to something so time-sensitive and potentially devastating as failure to lift the debt ceiling. The United States must service and pay its debts, period.
There have been plenty of events over the past six months to make any American feel like they’re living in a banana republic, but we’re approaching a tipping point: if Congress fails to act and the United States defaults on its debts, it could prove disastrous for our country and for the global economy. We cannot let that happen.
Our government needs to function for the people, not for politicians’ own political power. For the benefit of our nation’s credibility, and for the millions of Americans who rely on government services, Congress must pass a clean extension of the debt ceiling well in advance of the October deadline.