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Posted at 10:12 AM ET, 03/23/2011

Raise the debt ceiling: Then what?


In my previous post, I established pretty clearly why the national debt ceiling must be raised. If the United States were to default on its obligations — for the first time in its history — it would unleash a hell on the American people and the economy that would make the financial meltdown of 2008 look mild. But what to do about the red-ink-stained trajectory of the national debt? While it demands action, linking said action to a vote raising the debt ceiling isn't wise.

Doing so made sense back in January when Treasury Secretary Timothy F. Geithner sent a letter to Senate Majority Leader Harry Reid (D-Nev.) calling for Congress to move quickly to raise the debt ceiling. Perhaps a reasoned debate could have followed that would have allowed for the bill to be passed with measures to force the federal government to get serious about the debt. Not now. The clock is ticking towards default with no time for Congress to do anything but raise the debt ceiling.

According to Treasury, the limit on the nation's borrowing could be reached between April 15 and May 31. That's one week after the continuing resolution on the 2011 budget expires on April 8. And both the House and the Senate will be in recess from April 18 to May 1. As if not having adequate time weren’t enough of a problem, getting passage of raising the debt ceiling alone is not assured, considering Speaker Boehner's tenuous control of the Tea Party-fueled Republican caucus.

When there was more time on the clock, the Committee for a Responsible Federal Budget presented "Responsible Approaches to Increasing the Debt Limit" that were worthy of consideration. "An increase in the debt ceiling should be accompanied by a plan to bring the deficit under control or a credible process to move us in that direction," the report states.

"We have to raise [the debt ceiling]," CRFB President Maya MacGuiness told me. "But while doing so, it is the perfect opportunity to make some hard choices and use the increase as a way to push real reforms forward." When I asked whether the limit increase should be held hostage to getting those hard choices made, she said, "No...but there will not be enough votes without...something responsible to attach." Statutory debt targets was one thought. So was "lifting the ceiling for six months or so." This would give Congress and the president time to fill in the details of real reform and get it passed by the end of the year.

Ryan McConaghy, director of the Economic Program at Third Way, a centrist think tank, likes the idea of statutory debt targets. "[They] would be an interesting way to create that kind of pressure [to forge a deal on dealing with the debt]," he said. "They would certainly be better than a Balanced Budget Amendment, which would be highly unworkable and would fail to account for the fact that we need to think of reducing the deficit in terms of several years and not just in one."

McConaghy is not keen on a short-term debt ceiling rise. "With the recovery fragile and the global system unstable, I would just be a little wary of putting the markets on a political roller coaster every few months," he said. "A short-term extension may end up being what’s politically feasible, but if Congress goes that route, it needs to send some other strong signals to the markets that it’s serious about tackling the debt and avoiding default."

Bob Greenstein and Jim Horney at the Center on Budget and Policy Priorities weren't high on the short-term extension idea for the same reason when I talked to them on Monday. "Should an increase in the debt limit be the occasion to adopt policies that would put us on a more sustainable course," asked Horney, vice president for federal fiscal policy at CBPP? "Yes." But Horney and Greenstein are worried that a failure to agree on those policies will lead to default. For them it's a two-step process: 1) Raise the debt ceiling; and 2) Begin to deal with the long-term deficit problem and take action. Agreed.

Remember, raising the debt ceiling does not increase spending. It ensures that the United States will pay for what Congress has already authorized. In short, it guarantees that the federal government will pay its bills. Once that's done, or even before, lawmakers must step up to the plate to take specific steps to get the debt and deficits under control.

The momentum is there to start taking the second step. No matter what you think of it, that letter from the Senate 64 is but one example of a desire to begin making tough decisions. I know. I know. I’m crazy to believe that this time things will be different. But as much as we can’t play chicken with the debt limit, we can no longer kick the can down the road on bringing the debt and deficits under control. We’ve run out of road.

By  |  10:12 AM ET, 03/23/2011

 
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