off the charts
BEYOND THE NUMBERS
BEYOND THE NUMBERS
Update, September 26: Although described as a “debt prioritization” measure, the provision in the continuing resolution that the House approved on September 20 really isn’t. It would actually allow the Treasury to borrow funds that would not count toward the debt limit to pay interest and Social Security benefits. While that would still leave the Treasury short of funds to pay other government obligations, it would not — contrary to what we originally wrote — leave less cash available for these purposes. Our conclusion, however, remains: by appearing to make default legitimate and manageable, the proposal would heighten the risk that a default will actually occur.
****This fall’s debate over raising the debt limit to avert a government default may seem like just another in a long line of battles by some lawmakers to attach unrelated items to this must-pass legislation — see, for instance, Glenn Kessler’s “Fact Checker” item in yesterday’s Washington Post — but that perspective misses a fundamental point. Yes, Congress on occasion in recent decades has attached both fiscal and non-fiscal items to debt limit legislation. But, on all of those occasions, the parties in question generally agreed that defaulting on the debt was not the desired outcome if they didn’t get their way. They sought to attach their proposals to what they probably regarded as must-pass legislation — sometimes they succeeded, sometimes they failed — and Congress then raised the debt limit to avoid a default. To be sure, the very same thing could ultimately happen this year. But, increasingly, this year’s unfolding drama seems fundamentally different — all too many House Republicans are threatening to withhold their votes to raise the debt limit at all unless the legislation includes a delay or repeal of health reform — even if that means that the United States defaults, sending the economy into a tailspin. This tactic isn’t just about trying to attach favored legislative items to a bill that’s certain to pass anyway; it’s about holding the debt limit bill hostage and actually defaulting unless Congress adds policy changes that otherwise cannot be enacted on their own. In fact, House Republicans now seem to be preparing for a default. They have proposed, as part of a short-term continuing resolution for fiscal year 2014 that they will consider today, to direct the Treasury to pay bondholders and Social Security recipients first if the government defaults. Paying bondholders and Social Security recipients first won’t change the fact that the government has defaulted, and it would actually make things even worse for everyone else who’s owed money by the government — for instance, soldiers and veterans, doctors and hospitals that treat Medicare patients, state and local governments, and low-income Americans who receive Supplementary Security Income, SNAP (food stamps), and unemployment benefits. But, the “prioritization” process seems designed to make default more palatable for the politicians doing the hostage taking. But here’s the bottom line: We should never get to the point of default — or even consider getting to it. We should not legitimize the idea of a default. We should consider the possibility beyond the pale. The potential costs to the economy, to U.S. and global markets, and to America’s standing in the world are simply too great. Ideally, policymakers would abolish the debt limit, eliminating all risk that the government won’t pay its bills on time. The United States is virtually the only major industrialized nation with such an arcane requirement. But, failing that, Congress should raise the debt limit in a timely way and for an extended period of time. What it should not do is hold the debt limit hostage to some Members’ desires to get their way at all costs, even if that means a default.
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