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Could a Debt Limit Increase Get Held Hostage By Republicans?

Paul Krugman takes on the debt moralizers today, those who demand – in the middle of a recession – that everyone “sacrifices” and lives within their means, when that is in fact the wrong prescription for a government during this time to boost the economy. If everyone globally pays down debt at the same time, everyone loses, and the world gets mired in stagnation.

But the moralizers will have none of it. They denounce deficit spending, declaring that you can’t solve debt problems with more debt. They denounce debt relief, calling it a reward for the undeserving.

And if you point out that their arguments don’t add up, they fly into a rage. Try to explain that when debtors spend less, the economy will be depressed unless somebody else spends more, and they call you a socialist. Try to explain why mortgage relief is better for America than foreclosing on homes that must be sold at a huge loss, and they start ranting like Mr. Santelli. No question about it: the moralizers are filled with a passionate intensity.

And those who should know better lack all conviction.

Right now, the results of such debt-moralizing come in the form of prolonged suffering, higher unemployment, lower economic growth. But before long, the result of this moralizing could be really catastrophic. What if Republicans block an increase in the debt ceiling?

The most powerful IED on the road ahead is timed to explode some time this spring. Last February, Congress raised the ceiling on the national debt from $12.4 trillion to $14.2 trillion. Since then, the debt has risen to $13.7 trillion — which means Congress will have to raise it yet again within a few months.

A failure to approve one would, technically, bar the government from borrowing more money. In other words, we would not have the cash to pay our bills.

And yet Tea Party candidates and their fellow travelers in the GOP have vowed to oppose further increases in the legal debt ceiling.

This formally looks about the same as a government shutdown, only on a global scale. As international investors and banks don’t get repaid, the result could trigger a global financial crisis. Just the loss of confidence in the US temporarily defaulting could set off the animal spirits and lead to a crash. The tea partiers would cast around for somebody to blame, but we’d have far more pressing concerns.

David Waldman considers that Democrats might move this one up to the lame duck, to clear it out before more Republicans come to Washington. But surely they wouldn’t have the political chops to extend it to the level we’d need for the next two years. At some point, the next Congress will have to vote on this. And there’s a non-trivial segment of the Republican caucus who will want to trigger a catastrophic event, as if they can bathe the nation in the fire and come out of it with some kind of 18th-century American ideal.

Maybe “cooler heads will prevail,” but that debt limit bill is a giant bargaining chip, and you can bet that Republicans will try to cash it, at least by forcing some unpalatable option on the Democrats as a condition for their vote.

Waldman thinks this is a good time to make use of filibuster reform, so that things like raising the debt limit aren’t left to a super-majority. That can be accomplished with 51 Democrats at the start of the next Congress.

UPDATE: I didn’t realize that GOP mascot Michael Steele said this weekend that Republicans wouldn’t “compromise” on raising the debt ceiling.

I just got a little bit scared.

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David Dayen

David Dayen