“The real tension [in the debt limit debate] won’t be between Republicans and Democrats. It’ll be between Republicans and Republicans.”
That was the prescient prediction of Stan Collender, a former staffer for the House and Senate Budget committees and founder of the blog Capital Gains and Games.
Indeed, an intra-party debate is already forming about the wisdom of once-again raising the debt limit. It is lamentable that this has happened.
The reason we are facing the prospect of crashing through yet another debt ceiling is years of fiscal ineptitude from both the President and Congress. We’ve promised well beyond what we can deliver and we’ve spent well more than we can afford.
This spending irresponsibility has put the new Republican majority in the unenviable position of voting to raise the debt limit, or vote against it and risk a default of the national debt.
Some conservative commentators have taken to the blogosphere to ask, well, is a default really that bad? After all, it would absolutely force us to get our books in order.
But to be intellectually honest, it is a terrible idea. When the United States borrows money it uses a variety of debt instruments (for the sake of ease I will generalize all of these instruments by the term “bond”). In general, three types of entities purchase these bonds. On a small scale, individuals own the bonds because they are a safe way to spread out the risk of their investment portfolio or mutual fund. If the federal government doesn’t increase its debt limit, and thus defaults, these government bonds would be worthless. People’s savings, hedge funds, and retirements would be flushed down the drain. Americans, who sense themselves to be immeasurably poorer than they were before a default would immediately save rather than spend. A fall in consumer demand of this scale would make our current economic issues look downright juvenile.
More importantly, in terms of scale, banks and other corporations are the largest investor in government bonds. A default would mean the loss of life insurance policies, pension funds, for workers, and a destabilization of the asset base of many corporations and all banks.
The United States financial markets wouldn’t be the only to suffer. Trillions of dollars in debt is owned by foreign governments. Foreign nations would soon be looking to us to recoup, one way or another, the billions in losses they face from a political decision not to live up to our debts. Of course, as we saw with the recent financial crisis, a United States problem, quickly grows into a world problem. Global financial markets would be rocked and a worldwide credit crunch could take hold.
Our nation must get its fiscal books in order, but as I hope I’ve shown, defaulting on our debt is too high of a cost.
So rather than fighting amongst ourselves over whether we should vote on a debt limit increase we should explain why we must vote for the debt increase – because Democrats’ wasteful spending is essentially holding a gun to our head.
Instead of infighting we should use the debate as a public relations lever to achieve the spending cuts that are necessary to reduce our debt over the medium-term. New Speaker of the House John Boehner has already staked his claim on this position saying ,
“The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending and end the job-killing spending binge in Washington. While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren.”
We cannot default, but that doesn’t mean we can’t change our spending habits. In fact, that is exactly what we must do. The vote on the debt limit has put Republicans in a very difficult spot, but it also affords them a wonderful opportunity. We can hold Democrats feet to the fire on spending, but only if we don't argue amongst ourselves.
by Brandon Greife, Political Director of the College Republican National Committee