Three Crises Coming to Washington
12:00 AM, Aug 24, 2013 • By IRWIN M. STELZER
There is a way out of this crisis, however. Both sides can agree to keep spending at current levels until the debt ceiling is reached, and have their fight-to-the finish over spending then. Or they can agree to increased spending levels for the balance of this calendar year, with the proviso that if the total exceeds the current level a new across-the-board sequester will cut in for the remainder of the fiscal year, bringing spending down to about where it is now. That puts off a final showdown until sometime in October or November if the battle is to be fought when the debt ceiling is reached, or January 1, 2014 if a new sequester date is reached. For can-kicking politicians, anything that postpones a decision, even for a few months, is light-years away.
Which brings us to crisis #3—the debt ceiling. Sometime in the next few months, the exact date depending on the Treasury’s skill in moving money around from account to account, the government will reach the legal limit on the amount it may borrow. Republicans say they are willing to raise the ceiling only if the Democrats agree to cut spending by an amount equal to the increase in that debt ceiling. The president says he won’t even negotiate—for two reasons. First, no president wants to be remembered as the one who sat in the White House while his country’s debt, already having lost its triple-A rating during his tenure, is further down-rated. Second, he is convinced that the threat that he will accuse them of defaulting on our obligations will force Republicans to blink. Never mind that a government that annually takes in about ten times the interest payments on its debt need never default. If pressed on that point, Obama can warn that recalcitrant Republicans are spooking bond markets already nervously preparing for a tapering of Fed bond purchases, and cause interest rates to rocket up, tightening monetary policy just as these same Republicans are tightening fiscal policy.
There is more than one way out of this crisis. The Republicans could refuse to agree to an increase in the debt ceiling, but vote not to enforce it. Or Democrats could agree to savings in programs that are not as politically toxic as social security and Medicare, and the Republicans to generate additional funds for the Treasury by charging “user fees” for some government services. No cuts in entitlements, no new taxes. Still, since the debt ceiling would be raised by more than spending would be cut, the Republicans would have a bit of explaining to do.
When you start hearing about these three crises keep two things in mind. Despite past crises, the federal deficit has shrunk from about 7 percent of GDP to 4 percent. And one respected expert, Gordon Gray, director of fiscal policy at the American Action Forum, a Washington think tank, tells me, “One thing is certain. Come January 1 the government will be funded and the debt ceiling will be raised.” Somehow.
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