With all of the focus on the killing of Osama bin Laden over the last few days it is easy to get distracted from some serious issues that are running on their own clock and don’t look like they are getting resolved, at least not yet. Specifically there is the issue of the debt ceiling that the Untied States will reach in another 12 days.
On May 15th we are going to be statutorily unable to borrow any more money as a nation. This is more than a bit of a problem in that we have just passed a budget that spends more than we will receive for the rest of this fiscal year and we are going to do the same next year, no matter if we adopt the Ryan budget or the Presidents budget or the one we should really be talking about the Peoples budget.
However there is a small ray of sunshine in all this gloom. Yesterday the Treasury Department announced that there had been higher than expected tax revenues recently, which means that the real “drop dead” date for the US government is now set at August 2nd.
Why is there a buffer zone between the day we hit all the money we can barrow and the day that we start to default on our debts and cause a world wide depression? It is because like any large organization the United States can move money around for a while. Which is not the same as saying that we can do this indefinitely or that there will not be affects from doing so, just that we don’t run our finances on a completely ragged edge.
From the New York Time article:
Federal borrowing is still likely to hit the legal limit on May 16, the Treasury said, so this week it will begin to take emergency steps to buy additional time under the cap. Those steps, plus the increase in tax receipts, which have reduced the need for borrowing, will delay a crisis by about a month — to August from July.
“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” the Treasury secretary, Timothy F. Geithner, wrote Monday to lawmakers.
Mr. Geithner has warned repeatedly that failing to raise the ceiling would force the government to default on its debts and obligations. That, he wrote, “would have a catastrophic economic impact that would be felt by every American.”
The steps the Sec. Geithner is talking about will start with suspending a program by which the Federal government borrows money from State and local governments which helps them meet a requirement for tax-free investments that many municipalities have. That is not such a big deal but it will require that they find different investments and will cost some money that cash strapped governments don’t really have at this point.
Of course we would not be in this place if the Republicans were not playing chicken with the debt ceiling. There insistence of tying major spending cuts to the raising of the debt ceiling is unprecedented. One of the things that make me nuts on this issue is that there seems to be no cost for the Republicans recklessness.
Try this thought experiment. Imagine if there were a Republican President and a Republican controlled Senate and House Democrats were insisting that there would be no increase in the debt ceiling unless there were a two tax rates added above the current top and that all estates were going to be taxed at 50%, no exceptions.
You would quite literally have people like Glenn Beck and Neil Cavuto foaming at the mouth about the damage Democrats were inflicting on the nation and braying about their total lack of love for this country. Yet we have a roughly equivalent situation with the Republicans and there is very little notice of it, let alone a political price to pay for them.
It gets worse. The Republicans, having found that they like the hostage situation where they dole one hostage at a time out for cuts they want think that the best way for them to go forward is to offer short term extensions of the debt ceiling and try to get cuts each time.
To say this is insane (from a fiscal stability stand point) is an understatement on the order of saying that the ten year siege of Troy and the eventual destruction of the city was a minor property dispute. While the Republicans may be able to get the Dems to cave once or even twice with this method, they are not the only people involved.
The world markets are not going to put up with this hostage situation. They are going to see, as any reasonable person can, that the Republicans do not understand the fire they are playing with and are to demented to be trusted to do the right thing when it comes to preserving the (for now) largest economy in the world.
If the Republicans do take the “short form” route it is going to constantly and consistently undermine confidence in US bonds. That alone can make things more expensive and create problems that our economy does not need at this point. All this will be done to score political points and advance an agenda that the people of the United States don’t want anyway.
If it were not so gob-smacking it would be mildly funny that the political party that spent the last year bellowing that we had to keep tax rates for millionaires and billionaires low to give the markets “stability” is doing everything they can to make those very markets unstable and unpredictable. I guess it is not that surprising from a party that told Senior Citizens that they had to be in office because the Democrats were cutting Medicare and then turns around and tries to end the program altogether.
Still you would think that they would listen to their banker funders. Firm after firm on Wall St. is telling the Republican leadership that they should not play with matches right now. It does not seem to have a whole lot of affect on their thinking up to now.
There is a final bit of good news in this extension of our dead line to destruction. The deadline is August 2nd. That means it is right on top of the August recess. This will hopefully keep them from playing brinksmanship to the very last minute, since we know the Republicans lover their time off and won’t want anything to interfere with going home for August.
The floor is yours.