An article yesterday in the New York Times describes the preparations that banks, mutual funds, and others are taking in case the current debt ceiling impasse cannot be broken. It seems clear that even if a solution is reached, the gridlock in Washington is damaging confidence in the U.S. as a financial safe haven. If we have to have another debate like this every time the treasury needs to spend more money, how can investors trust that we won’t someday fail to resolve it?
The more I read about the debate, the more it seems that people are making a mistake I’ve mentioned here before: that raising the “debt ceiling” or “debt limit” is the same thing as agreeing to increase the national debt. We already DID increase the national debt, though, when we agreed to these financial obligations. Maybe we shouldn’t have spent so much money, but now that’s water under the bridge. The only question is, having run up the credit cards, are we going to pay them off or not? And we cannot afford to say no. If I say no to my creditors, I end up paying more in interest or penalties, and this is roughly what will happen to the nation as a whole if we even flirt with default!
Should we stop spending so much, though? Absolutely! I agree with the critics of our out-of-control debt who argue that we cannot sustain this course. We need to make difficult, belt-tightening decisions, and doubtless lawmakers will disagree about where to make cuts. But the debt ceiling is a separate issue. Playing political games with the deadline will hurt ALL of us, including those of us who want a more austere budget. I’m starting to become a little amazed that so many people don’t get this. I had assumed that a deal would be reached because it’s so obvious why it’s needed, but now I’m wondering if Congress might truly be short-sighted enough to hurt our economy with this fight.
I wonder if some Republicans think they can blame Obama for any resulting economic crisis, so they think default is politically valuable and therefore worth risking. Is it possible that they actually believe this? Talk about cutting off your own nose to spite your face…