Wednesday, June 1, 2011

Debt Ceiling Shenanigans

As you've probably noticed, the GOP is holding the US treasury bonds hostage. 

Oh, you haven't? Well, that's because it's cleverly called "raising the debt ceiling", a phrase which probably makes most voters roll their eyes on change the channel. For background, the debt ceiling is the amount of money the federal government is allowed to be in debt at any given time. We assure our ability to continue paying our debts by raising the debt ceiling periodically when it is deemed necessary. If we don't raise the debt ceiling we default on our debt.

You see, federal deficits are covered with the issuance of treasury bonds, which people buy thanks to their AAA rating and the fact that the USA has never, ever defaulted on its sovereign debt. The government always pays the interest and then always pays off the principal when the bond comes due. That's how it's been since 1812 and how it should be for as long as we exist.

But a curious thing has happened. The National Debt went from $5.9 trillion in President George W. Bush's first year in office (a Clinton budget) to $10.8 trillion in Barack Obama's first year in office (a GWB budget).  So in 8 year our National Debt increased by 83% ... under Republican leadership. Remember, the GOP held both houses of Congress and the Presidency from 2003-2007. You can see the trend in the graph below, which plots national debt (top, black line) by administration. There is a massive increase in national debt in both the 12 years of Reagan-Bush and the 8 years of GWB. Bill Clinton's era is nearly debt neutral thanks to his balanced budget years.

The causes of the massive increase in debt under the previous administration are simple - an unpaid for war, an unpaid for tax cut, an unpaid for Medicare prescription drug plan, and an economy that tanked in late 2007 thanks to a wide variety of reasons I've discussed elsewhere. 

So President Obama was handled an economic shambles and a massive debt. He's now being blamed for an economic shambles and massive debt. My, what short memories we have. 

So what's interesting in all of this is that Republicans claim to be the fiscally repsonsible members of our government, and yet under their last 2 presidential eras, we've accumulated nearly all of our National Debt. And now the Republicans in Congress are making hay over this debt in order to get their way. 

What way is that? They're demanding spending cuts equivalent to the amount the debt ceiling is raised. In principle, this is a reasonable request. That's where the reasonableness ends.We're in the middle of a jobless recovery. Unemployment is still 9% (5% is considered "full employment") and this ignores the additional millions of our workforce who have simply stopped looking for work. We're still fighting the war in Afghanistan. We're fighting shadow wars in Yemen and Pakistan. While President Obama's health care reform law eliminated the Medicare prescription drug debacle, we're also still funding the unpaid for tax cut. 

Ending the wars and raising the tax rates back to Clinton era levels would be all that needs to be done in order to vastly reduce our deficits and eliminate the need for future debt limit increases (we're already over our current debt limit so the horse is already out of the barn this time) - yes Republicans have already stated that they refuse to raise taxes and we all know how they feel about the military. 

So where else could we cut? Well, social programs, of course. Government oversight capabilities too. All the things that are popular with voters and unpopular with conservatives. I'll be curious to see how this plays out, because the public has shown very little concern over the national debt in the middle of our economic crisis. I suspect the GOP is overplaying their hand just as they did with the Ryan budget and that if the Democrats can control the message on this, the GOP will face big losses in November 2012. 

Of course, they don't control the message very often and when the message is "Republicans want to cap the debt limit!" it comes across as a good thing ... the real message is "Republicans are willing to let the government default on its national debt for the first time in history!" 

Because that's what they'll do if they actually do not raise the debt limit. Funny that they're willing to do that all for a tax break for their wealthy donors and continued funding of their military industrial monster. Not funny-ha-ha, of course, but funny-sad.