I am frequently asked if there will be any adverse financial impact if the debt ceiling is not raised. The inference here is that the ceiling should be raised to avoid any negative repercussions (higher interest rates, lowered credit rating, etc.).
I expect there to be some negatives if the ceiling is not raised, but nothing catastrophic. Prudent choices pertaining to the allocation of the limited government funds could address such problems. Besides, even if no “deal” is reached in time, there’s nothing to keep Congress from addressing the issue shortly after the August 2 “deadline.” But this is not the point.
Washington is addicted to spending and debt, and this addiction must be controlled. The fallout over the intermediate and long terms from not addressing it now would be much greater than what we would experience if we refuse to address the problem head-on.
Drug addicts experience harsh withdrawal when they stop injecting the substance. This is no reason to continue with the abuse. The federal government’s addiction to liberal spending and fiscal irresponsibility is no different. Now is the time to act. I must admit that I expect the Republicans to cave on this issue. I hope I’m pleasantly surprised.
Why do the Democrats fear what might happen if the debt celing is not raised but don’t fear what will eventually happen if Congress keeps raising it?
Cong. Jordan’s proposal is dead on. Cut, cap and balance is the only reasonable way to proceed.
Dr. Parnell,
Although I agree with you fundamentally, long term addicts who go cold turkey often die. There would be a significant reaction to a default, both by the financial markets and in the cost of borrowing. A study after the technical default in the 70s reported the default caused a premium on some US debt of 0.6%, and that default was due to an error. Imagine what the premium would be if a default occurred due to the ineffectiveness of our legislators.
It is the trend of brinksmanship politics and lack of compromise that perpetuates the perception of instability and hinders healthy growth and economic recovery.
Hey Sean, not raising the debt limit wouldn’t really be like going cold turkey. There would still be plenty to spend, just not more that we get in revenue.
Hey Parnell, would you accept a compromise?
Barry–I’d be open to compromise, but the deal has to be better than not raising the limit at all. Trading a very modest increase in the debt limit for substantial, real and immediate cuts (not just cuts in future projections, etc.) might be OK given political realities. In my view, the gang of six proposal is not acceptable. Most of the cuts are undefined and would probably never materialize. We need REAL SPENDING CUTS NOW. If we have to “pass the bill to see what’s in it,” then we’d be better off holding firm and NOT raising the limit.
I am concerned about the politics and the fallout. If we don’t raise the limit, the Repubs will take the blame if anything bad happens as a result. Remember who has the media in their camp? The President.