“My advice to this Democratic government, the president, the House and Senate: Don’t play Russian roulette with our economy,” Senate Minority Leader Mitch McConnell (R-Ky.) said Wednesday. “Step up and raise the debt ceiling and cover all that you’ve been engaged in all year long.”
That’s not how any of this works. As House Speaker Nancy Pelosi (D-Calif.) wrote to House Democrats last weekend, “The debt limit is a shared responsibility, and I urge Congress to come together, in that spirit, on a bipartisan basis as it has in the past to protect the full faith and credit of the United States.”
Also contrary to McConnell’s irresponsible natterings, raising the debt ceiling is not giving Congress a blank check for future spending. It is an increase in the legal limit on how much the federal government can borrow to pay for what it has already bought.
Think of it like this: You and a group of friends have stuffed yourselves silly at swank restaurants all month. You plunk down your credit card every time the check comes. Your treat. But when your statement arrives, you’re informed that you’ve gone over your spending limit, and you must pay the balance by the due date. You ask for an increase in your limit to cover the expense. The bank says no. Now you’re delaying payment on other bills and rummaging in couches and coat pockets for whatever money you might have to cover the expense.
The BPC estimates that between Oct. 15 and Nov. 15, the Treasury Department would have $666 billion in bills to pay but only $401 billion on hand to pay them. As the chart above shows, if the United States paid the interest on Treasury securities, federal salaries, Social Security benefits, etc., it could end up leaving unemployment insurance, military retirement benefits and pandemic relief for state and local governments unpaid (see chart below).
To put a finer point on the hell that awaits: If Oct. 15 is indeed the day borrowing authority runs out, the U.S. government could have only $27 billion to pay $43 billion in bills due that day. That $16 billion running cash deficit would balloon to $277 billion by Nov. 15 if action isn’t taken.
“Realistically, on a day-to-day basis, fulfilling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, defense, military active duty pay) would quickly become impossible,” the BPC warns in its analysis.
The full faith and credit of the United States to fulfill its financial obligations has made it the underpinning of financial markets and the global economy. For the country to miss even one payment would put everything at risk. Interest rates could spike. Financial markets could crash. The impact on your pension or retirement accounts could be serious — not to mention all the delayed or unsent checks to veterans, the elderly and federal employees.
Notice I’m using the conditional tense. That’s because what we’re talking about is so unprecedented, no one can predict how bad things could get. All everyone knows for sure is it would be bad. “The bottom line is that it’s really hard to tell, because we’ve never been there before,” the BPC’s director of economic policy, Shai Akabas, said when I asked him just how bad the shock waves could be for the American people.
To visualize how bad it could be, just imagine what would happen if you skipped out on even one mortgage, student loan or credit card payment. When we went through this nonsense in 2011, our credit rating was downgraded and it cost the treasury $1.3 billion in higher borrowing costs. Remember, we are the treasury.
In Washington, everything’s a game. The battles seem remote, the consequences nonexistent. But McConnell is right about one thing. Not raising the debt ceiling is a dangerous game of Russian roulette with our economy. But by withholding Republican votes to raise it, he’s the one holding the gun.
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