JONATHAN CHAIT JULY 18, 2011
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[Guest post by Kara Brandeisky]
Today, Moody’s rating agency came out and said what Hill observers have been privately muttering for weeks: Just get rid of the debt limit! Moody’s analyst Steven Hess wrote in a recent report that, since the debt ceiling causes “periodic uncertainty,” Moody’s “would reduce [its] assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty.” As Dylan Matthews pointed out this morning, only Denmark has a similar limit. From a policy point of view, the debt ceiling seems unnecessary.
Jonathan Tobin of Commentary was less thrilled in his reply to Moody’s, entitled “There’s a Reason We Have a Debt Ceiling”:
It is also true that up until now forcing a vote on the debt ceiling has not impeded the growth of the government’s arrears since the Congress has always dutifully voted an increase to avoid trouble. The threat of default may be more theoretical than anything else, but even the hint that such a thing may be possible has brought the Democrats to the negotiating table and forced them to concede spending cuts that were heretofore unimaginable.
Right, and then what happened? Republicans still didn’t take the $4 trillion deal. Instead, they’re posed to pick the deal that inflicts maximum political pain on the Democrats with the fewest policy sacrifices for themselves. Ezra Klein predicted this morning that Republicans will eventually agree to a revised McConnell deal: The debt ceiling will be raised in three parts, with three “resolutions of disapproval,” $1.5 trillion in cuts, and no new revenues.
But what if, after all this, congressional leaders (Republicans and Democrats) can’t even scrounge up enough votes to get that deal through? We default, ratings agencies downgrade Treasury bonds to AA, interest rates skyrocket—and that, in turn, increases the deficit, since higher interest rates would force the government to pay more interest on its existing debt. In the words of Ben Bernanke, defaulting would be a “self-inflicted wound.”
Simply put, if conservatives are really concerned about the size of the debt, they shouldn’t be playing this game of chicken. Then again, even without a debt limit, given their track reord, I’m sure Republicans can find something else to hold for ransom.
7 comments
malahat: good analogy. Acting completely irresponsibly and threatening the welfare of the nation is simply in the nature of today's Republicans. It's what they have to do to be true to their "principles," even if it brings down the roof on their own heads as well. Of course, they don't think it will. The Middle Class might be destroyed and the government turned into a complete shambles, but the Republicans and their rich enablers will be fine. A society that resembles that of Dickensian England would be fine with them.
- DAVIDDREIER@EARTHLINK.NET-old
July 18, 2011 at 3:50pm
Are you kidding? In December, they held America hostage to get the Bush Tax-Cuts extended (thereby increasing the Debt) by refusing to extend unemployment benefits. Then in April they held America hostage by threatening to shut down the Government by not voting on Spending Bills (thereby increasign the Debt) unless they got 100 billion in cuts (they "settled" for 34 billion at the 11th hour). Now they're holding America hostage over the Debt-Ceiling. But guess what -- in October we have to pass new Spending Bills AND decide whether to extend unemployment again! And in April we have NEW spending bills! Why, there's just no end of things to hold America hostage over, if you're irresponsible enough to do that.
- AllanL5
July 18, 2011 at 3:58pm
Why isn't this treason? I'm serious, isn't this behavior, which threatens the very welfare of the nation, unAmerican? I never thought I'd use those words; they smack of McCarthyism. But that was for far less reason, calling Americans unAmerican because they weren't capitalists, unless you think that America = Capitalism and there's no room for argument or a two-tier system, ie capitalistic free markets combined with socialism, like Medicare, as in "get your hands off it," so forth. This is different, it is literally threatening the health, security and welfare of our citizenry.
- Sophia
July 18, 2011 at 4:06pm
This IS McCarthyism. The Republicans are immersed in a philosophy that the New Deal programs of bank regulation and Social Security are SO damaging to America, that threatening to kill the patient in order to destroy these threats to the patient are justified. "The ends justifies the means" in their eyes, even as the rest of us look on in horror.
- AllanL5
July 18, 2011 at 4:18pm
Sort of a technical point, but it's not clear that we'd even be AA. Fitch said today that our rating would go from AAA to B+ (nowhere near investment grade, BBB-). For Fitch, the B+ "rating is the highest it confers on defaulted securities where investors can reasonably expect to ultimately get paid all or most of what they’re owed." Which would make us Zambia...or Greece. http://online.wsj.com/article/BT-CO-20110718-708963.html
- ClumsyMohel
July 18, 2011 at 6:57pm
Let's cut the treason talk. The establishment Republicans would cut a deal in no time but they have the Tea party to deal with. The Tea Partiers are in the grip of ideology and they are not well versed in economics, to put it mildly. But idiocy is not treason.
- liberalref
July 18, 2011 at 9:09pm
Libref, calling the GOP treasonous is admittedly going too far (but not by much). The fact is, though, the Republicans had become a bunch of unreasonable right wingers long before the Tea Party arose. The Tea Party lunatics are simply pulling the party even farther to the right. Somewhere, this has to break down.
- DAVIDDREIER@EARTHLINK.NET-old
July 19, 2011 at 8:31am