The Debt Ceiling: Who’s Holding Who Hostage?
In the summer of 2011, after trying and failing to get a decrease in government spending so as to help our country balance its books, Republicans “did the right thing” and increased the debt ceiling on August 2, 2011 as long as there was a promise by the White House to cut spending and get our fiscal house in order. On that day the Budget Control Act of 2011 was signed into law by President Obama. The law involved the creation of the Congressional Joint Select Committee on Deficit Reduction (sometimes called the “super committee”), options for a balanced budget amendment, and automatic budget sequestration (if for any reason the super committee recommendations got rejected).
Republicans were harshly criticized for their desire to balance the books. They publically stated they wanted to cut spending. They did not want to blindly raise the debt ceiling so those-who-spend-crazily could continue unsustainable spending. They were finger-pointed as the ones who were risking the country’s sacrosanct credit rating. Specifically, in July 2011, the president singled out House Republicans for intransigence and said the political showdown is “no way to run the greatest country on Earth.” They were warned that if we don’t get the debt ceiling raised, our country’s credit rating could go down. In essence, stop your reasoning, stop trying to curtail spending, vote to raise the debt ceiling, and then we can all go back to living in AAA credit rating land.
So they went along and raised the debt ceiling - and 3 days later the US Credit Rating was downgraded by two rating agencies (one domestic and one foreign). Hey, that wasn’t supposed to happen, was it?
More specifically, on August 5, 2011, just three days after getting everything the Democrats wanted and nothing the Republicans wanted in terms of spending cuts, Standard & Poor’s said:
“We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating. We have also removed both the short- and long-term ratings from CreditWatch negative…
The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”
Even earlier (on August 3, 2011), China’s top credit rating agency, The Dagong Global Credit Rating Company, downgraded U.S. debt as well. It said “the U.S. debt deal failed to correct the country’s budget issues, and the $2.4 trillion debt-ceiling increase will further erode the country’s ability to reduce debt in coming years.”
Obviously it’s clear to more than one credit ratings agency that our country has a spending problem. Hey, they said it, I didn’t.
On a side note, soon after the debt ceiling was raised, the super committee failed to come up with a plan for deficit reduction (part of the Budget Control Act of 2011). They said “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.” Because of their failure, the Budget Control Act of 2011 mandates that automatic, across-the-board cuts to discretionary spending — commonly called “sequestration” – is scheduled to go into effect on March 1, 2013 (it was supposed to go into effect on Jan. 2, but the fiscal cliff deal delayed its implementation by two months). The projected cuts include caps on discretionary programs that will reduce their funding by more than $1 trillion over the ten years from 2012 through 2021.
So here we are again. Today we are faced with pressure from those-who-spend-oh-so-much to raise the debt ceiling. And, President Obama stated during his January 14 press conference that “I will not allow the United States’ credit rating be held hostage by hard-liners demanding budget cuts.”
Wait, didn’t we just learn that our credit rating went DOWN after the Democrats got the debt ceiling raised without budget cuts? And it went down precisely because there were no budget cuts? Isn’t that what the credit ratings agencies said? Then who is holding who hostage?
If the administration wanted to solve the problem in a rational, logical, bi-partisan way, it had a full year and a half to do so. There is no reason for last minute theatrics. But that would require a leader be involved. All attempts at leadership in this area by the Republicans have been ignored. The Republican House follows the law and comes up with a yearly budget. The Democratic-led Senate has broken the law for the last 3 years and not come up with a budget. This coupled with unsustainable spending has put us squarely in the theater of the absurd today.
Today, January 18, 2013, Republicans are offering an olive branch. House Majority Leader Eric Cantor said next week they will take up a bill to extend the U.S. debt ceiling by three months, contingent on Congress passing a budget that makes cuts in federal spending. By doing so, they just hit the ball into their spend-spend-spend compatriot’s court.
They are taking leadership on our fiscal problems, and should be commended for doing so. Lord knows, someone has to.