House Refuses to Raise the Debt Ceiling
Tuesday (5/31/2011), House Republicans gave President Obama and the Democrats the House vote they had requested some months ago – a clean vote on raising the federal debt ceiling. The results were predictable, in that the bill to raise the debt ceiling was overwhelmingly defeated. Not a single Republican voted to raise the debt ceiling and they were joined by 82 Democrats who also voted against the bill.
Even though Democrats were pleading for this vote two months ago, this time their leadership, from President Obama on down referred to the vote as unnecessary. Democrats called the vote a “stunt” and even a “demagogic vote” according to House Minority Whip Steny Hoyer (D-MD). Why did so many Democrats change their position on this vote so completely? Because they knew that they were on the wrong side of this issue with the American voters and they did not want to be targeted in political ads as appearing to be against reducing the size of the federal deficit.
Democrats would like to minimize any spending cuts and maximize any tax increases as we go forward with next year’s budget. They are having a very hard time accepting that American voters want their government made smaller, while President Obama and the left wing of his party are totally focused on increasing the size and power of the federal government. This debt ceiling situation has now become a classic battle between right and left in America, and the Republicans cannot afford to lose this battle.
According to our esteemed Treasury Secretary, Timothy Geithner, if the federal debt ceiling is not raised by Aug. 2, 2011 the United States will be facing a financial catastrophe. According to the Secretary, America will not be able to pay its bills and may even have to default on its public debt obligations (Treasury Bonds, etc.), which will lead to a worldwide financial depression and catastrophe. In this, he is backed up by many economists and left wing politicians.
Good Policy or Catastrophe?
Is raising the debt ceiling good policy or not? Will not raising the debt ceiling by Aug. 2 lead to a financial catastrophe?
I do not share the views of those who say that we have no choice but to raise the debt ceiling and to raise it by a significant amount. I think the bigger catastrophe lies ahead by just kicking this can down the road and continuing to have the federal government spend in excess of 40% more than it takes in every year for the foreseeable future. The outcome of that policy means that the USA must continue to borrow money on the international markets or continue to have the Federal Reserve fund the debt by buying Treasuries, or to perform a combination of both activities. This will ultimately lead to inflation on a large scale and much higher interest rates. So far we are seeing inflation everywhere, in the form of higher food and gas prices but have not yet experienced higher interest rates. Those will be coming shortly.
I believe that our Republican House leadership should extract the maximum possible budget deal from Obama and the Democrats. To do that, they will need to hold out for meaningful budget cuts in all areas of the federal government even if that means we do not pass a debt increase bill by the fabled doomsday of Aug. 2, 2011. Unfortunately, John Boehner and the Republican leadership in the Congress are too quick to agree with Secretary Geithner that we must pass a debt ceiling increase. They are weakening the very strong hand they have in these debt ceiling negotiations.
Speaker Boehner proposed budget cuts and a debt ceiling increase on a dollar for dollar basis. That means that if the debt ceiling is raised by $1 Trillion dollars, then we need to cut the budget by $1 Trillion going forward. I sincerely hope that Boehner sees this through to the end, and insists upon this kind of deal before agreeing to pass the next debt ceiling increase.
Time limit on the Debt Ceiling Bill is Critical
As a final point, I would urge the House Republicans to insist on a debt ceiling bill which minimizes the time limit on any debt ceiling increase. The Administration has been asking for a $2.4 Trillion debt increase, from $14.3 to $16.7 Trillion dollars. Whatever number is finally agreed to by House Republicans, they must make sure that the increase is for only one year or less. It would be to the Republicans advantage to have this debt ceiling argument once again in 2012, preferably a couple of months prior to the presidential election. Republicans can use this debt ceiling to embarrass President Obama and to demonstrate his desire to grow the federal government.
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