Night of the Living Debt Ceiling: The Fiscal Horror That Is to Come
Last week's fiscal cliff compromise did much to resolve the dark specter of economic uncertainty that has occupied America's collective conscience since the presidential election.
However, that was only the first of three terrifying fiscal crises set to hit the country before March. Sequestration -- the brutal (one may even argue suicidal) across-the-board budget cutting that Congress and the president agreed to in 2011 -- will rear its ugly head again at the end of February. At roughly the same time, Congress will need to raise America's debt ceiling -- the amount of money that the government can borrow to fund its programs. If the debt ceiling isn't increased, roughly 40% of government programs will run out of money, leading to a massive scale-back in government spending, and plunging the country back into a recession.
Right now, the debt ceiling is the most pressing problem. The U.S. hit its borrowing limit at the end of 2012, and is now running on "extraordinary measures" -- a combination of emergency borrowing and clever accounting that will make it possible to keep government running, hopefully until the problem is resolved. Meanwhile, President Obama has stated that he will not engage in a political battle with Republicans in the House of Representatives over the debt ceiling.
Obama's refusal to engage in a debate over the debt ceiling has lead to even more heated speculation about how, exactly, he will accomplish that trick. Some have suggested are that the government could mint a platinum $1 trillion coin, which would give the government enough "currency" to keep going. Another option, recently proposed by 21 Democratic Congressmen in a letter to the president, would be for Obama to invoke the 14th Amendment, which states that "the validity of the public debt of the United States ... shall not be questioned." Based on that line in the Constitution, they say, the "debt ceiling" law is moot. The government has to met its obligations to its creditors, whether Congress acts or not.
So far, the White House doesn't sound like it favors either of those options.
On the other side of the aisle, GOP congressional leaders seem to be at odds with each other. Some Republicans have signaled that they are willing to shut down the government if they don't get their way on steep cuts to social programs. Others -- including Speaker of the House John Boehner -- seem to be seeking out more reasonable solutions.
The Bipartisan Policy Center estimates that the "X Date" -- the point at which all extraordinary measures will run out and the government will shut down -- will arrive between Feb. 15 and March 1. They argue that, if we hit the debt ceiling, the government will have just two choices: Either it can shut down most of its programs immediately, or it can try to cover as many programs as possible on a day-by-day basis.
Neither choice is attractive. Whether the government immediately slashes its programs or makes short-term decisions on which items get funded, a few things are certain: Even if the country avoids default -- and another lowering of its credit rating -- it will create confusion and reduce confidence in the government. The markets would take a beating, likely driving the nation toward another recession, raising the interest on loans, and causing a massive public outcry.
(Here's the BPC's full analysis.)
Debt Limit Analysis
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at email@example.com, or follow him on Twitter at @bruce1971.