Let me interrupt the fear over the looming government shutdown to convince you that if you’re not freaked out about having to wait for Speaker John Boehner to choose between his caucus and our country in the fight to raise the debt ceiling, you ought to be. The impending battle over the full faith and credit of the United States is exponentially worse than the 2011 debacle that led to the first-ever credit rating downgrade.
I thought it was just me, but it turns out the absolute confidence that the White House and Congress would work things out before the deadline in 2011 is absolutely gone now. “In 2011, despite the histrionics, all signs pointed to a messy but stable conclusion to the debt ceiling. The situation now is far more dire,” Jim Kessler, senior vice president for policy at the centrist think tank Third Way, told me Friday. “There’s a one in four chance that we crack the debt ceiling. It may be fixed 24 hours later when the markets swoon, but the short- and long-term damage it would do to the economy is anyone’s guess. We’ve never been here before.”
Steve Bell, senior director of the economic policy project at the Bipartisan Policy Center, was equally dire. “I believed there was virtually no chance, nil, that we would default in any form in 2011, because so many legislative gimmicks remained — special committee, expedited process, et al. Those have been exhausted,” he said. “At this point, I believe that somewhere between a 15-25 percent chance of the United States defaulting on some of its bills/debts owed, exists.”
Remember, raising the debt ceiling would not result in new spending. Doing so would not be the equivalent of giving President Obama a blank check, as far too many tea partyers erroneously believe. Increasing the legal borrowing limit of the U.S. would allow the Treasury to pay for things already bought by Congress. To do otherwise would open the U.S. economy and the global economy to unimaginable risks.
“We don’t fully understand what might happen, the dangers involved, because no Congress has ever actually threatened default,” the president said Friday. Or as Derek Thompson wrote in the Atlantic last week, “The truly scary thing is that we actually have no idea what will happen.” That’s because, from the time the Constitution went into effect in 1789 until 2011, it was unthinkable that the United States would not meet its financial obligations.
As The Post noted yesterday, when the nation flirted with default two years ago, consumer confidence fell, hiring stalled and markets fell. The constant flirtation with default might have numbed folks to potential negative market reaction if the national borrowing limit isn’t raised by Oct. 17. But this much we do know will happen if the debt ceiling isn’t raised in 18 days: The White House and the Treasury will have the politically explosive task of picking winners and losers as it decides which bills to pay. So, as bad as a government shutdown tomorrow might be, your worries should be off the charts if the Treasury doesn’t pay its bills on time and in full.
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