I think there is little chance that Congress will pass a debt limit bill in time, and we will probably experience a default on U.S. debt that will drive up interest rates, cripple the housing market, and kill our nascent economic recovery.
It is way past time for all of us to get serious about the upcoming vote in Congress to raise the debt limit and avoid an unprecedented default on the sovereign debt of the United States.
Not just members of Congress. Sure, some of them are grandstanding with take-no-prisoner stands. But they are also often reflecting the will of their constituents. Isn't that what Congress is supposed to do?
Members of Congress read polls. No poll is perfect, but the results of the recent one from AP-Gfk leave little room for doubt about the current unpopularity of raising the debt limit. Not many more than one in three Americans (38%) say they are in favor of raising it. Yet half (53%) believe that if the debt limit is not raised the U.S. would face a major economic crisis. And -- an even more amazing number -- 37% of those believe that the limit should not be raised even if that does result in a crisis!
What's going on? I think a lot of people are just venting their frustrations while being lulled into a false sense of security by media pundits who tell them not to worry. They say, of course the debt limit will eventually be raised; all that is required is to get the president and the leaders of the Congress together in a room to work out a deal. The consequences of inaction are just too dire. It is inconceivable, they say, that a deal won't be reached.
Tell that to the people who are intimately involved in the process. They know better. With so little support in the country at large, even if the leadership does finally negotiate a deal, they still must round up 218 votes in the House and 60 in the Senate, if Senators Rand Paul and Jim DeMint come with their promised filibuster. That will be difficult and will require a compromise between Democrats in the Senate, who want some revenue increases to reduce the need for draconian cuts to programs for the poor and middle class, and Republicans in the House who refuse to consider any increases in revenue.
It is ironic that the primary group arguing for voting against raising the debt limit claims to be fiscally responsible. Using this one vote to force the government to radically reduce the deficit, they say, will make America more economically sound. Yet it is clear that not passing the debt limit bill would result in higher interest rates, an increased cost of the federal debt, and an additional burden on all Americans.
The Congressional Budget Office estimates that adding a point to interest rates on the federal debt increases the deficit over the next ten years by $1.3 trillion. That one point could easily be three or five or six points -- nobody knows. But leave it at one, surely the most optimistic scenario. This means that a significant number of "fiscally responsible" Americans are supporting action which would increase the debt by an amount at least equal to the entire $1.3 trillion 2010 deficit.
What needs to be done was clearly laid out in the plan developed by the National Commission on Fiscal Responsibility, co-chaired by former Clinton Chief of Staff Erskine Bowles and Senator Alan Simpson. They forged a bipartisan agreement that calls for a mix of spending cuts and revenue increases to bring the federal budget into balance over a period of years.
Will that sort of compromise finally be achieved on the debt limit issue? I don't know. I do know that a sizable number of Americans and some members of Congress are playing with fire. If we fail to raise the debt limit on time, every one of us is going to get badly burned.