During a recent lunch meeting at the White House, Speaker of the House John Boehner reportedly told President Barack Obama that “as long as I’m around here, I’m not going to allow a debt ceiling increase without doing something serious about the debt.” White House Press Secretary Jay Carney soon responded, saying, “It is simply not acceptable to hold the American and global economy hostage to one party’s political ideology.”
Ah yes, the debt ceiling debate. Default. Armageddon. Naked partisanship. It’s got it all. But before panic sets in, here are a few things to remember:
There is no debt ceiling. Not really. The debt ceiling is very much like the speed limit on an interstate highway—a theoretical limit, at best. And every time Washington sets a new cap, it does so knowing full well that another hike will be needed soon enough. Since 1962, the debt ceiling has been raised 75 times—11 times since 2001. If the ceiling is not adjusted, the U.S. would be unable to pay the debt it already owes to the public and many other obligations. The United States will not default no matter who is in charge.
Despite conventional wisdom, the debate is not necessarily a losing political proposition for Republicans. According to polls, Republicans took the brunt of the blame for “instigating” an argument that brought the country to the brink of default last year. This time, the dispute would almost certainly help shift the focus from Mitt Romney’s pets, Ann Romney’s expensive T-shirts, or whatever distractions the media is chasing down, to government spending (and a president who claims to care about debt but offers a budget that would add $6.4 trillion to it).
If U.S. credit rating is downgraded it’s not because of a debate over the debt—it’s because of the debt. Nearly every article on Standard & Poor’s downgrade of government’s bonds blames the political noise surrounding the debt debate. But the rating agency’s reasoning was far simpler: the agreement reached by Obama and Republicans to raise the limit “fell short” and, looking forward, the prospects of a political solution were slim. Standard & Poor’s was right. The Budget Control Act increased the debt ceiling in exchange for $2.1 trillion in supposed debt reduction over 10 years. Today, politicians scramble to avoid the automatic cuts agreed to in the deal. And as Senator Tom Coburn (R-Okla.) told CBS recently, “We’re going to get another downgrade. I can tell you right now. You can have a great legal case for suing the rating agencies for not downgrading us again because we have not demonstrated the political will to solve the problems.”
Washington may not even hit the limit before the election. The debt limit is currently set at $16.394 trillion and the accrued debt may not reach the limit before Election Day, Nov. 6. Actually, Treasury Secretary Timothy Geithner has promised that he will use creative “policy tools” to insure that the U.S. won’t reach the debt ceiling until the early part of 2013—letting Obama avoid any uncomfortable decision making on the matter.
There won’t be any significant deal. Without tax and entitlement reform, all of this is political posturing. And, regrettably, no one will undertake those tasks before a major election. Folks like Democratic Rep. Chris Van Hollen (D-Md.), ranking member on the House Budget Committee, have called Boehner’s approach “reckless.” Surely Republicans can argue that there are few things more reckless than hiking spending caps endlessly. Yet, even if they attain corresponding (very modest) budget cuts in a new deal, it doesn’t seem they have the leverage to attain significant concessions from Obama—a man who once called the debt limit hike not only “irresponsible” but “unpatriotic”—even if they were serious.