After weeks of deadlock,Republicans and Democrats may be approaching an agreement to raise the $16.7 trillion federal debt ceiling before Thursday, when Treasury Secretary Jacob Lew has said the government will exhaust its authority to borrow more money. Robert L. Bixby, one of the nation's best-known advocates for fiscal responsibility in Washington, D.C., argued in an email interview with Sentinel Opinions Editor Paul Owens that it could be "disastrous" not to raise the limit by the deadline. Bixby is the executive director of the nonpartisan Concord Coalition. Excerpts of the interview follow.
Q: What is the federal debt limit?
A: It is actually a case of mistaken identity. While you would think that a "debt limit" would exert control over the nation's fiscal policies, it does not. It only limits the government's ability to pay bills it has already incurred. But the tax and spending decisions that require more borrowing have already been made.
Q: Why does Congress need to raise the limit now?
A: Although the federal deficit dropped this year, it is still adding to the government's accumulated debt. As the debt neared the current limit earlier this year, theTreasury Department began relying on what it calls "extraordinary measures" to avoid breaching the limit. However, the Treasury says it will exhaust those measures by Thursday with only a relatively small amount of money left and large expenses approaching.
Q: Is there a credible set of policies that could prevent a breach of the current limit?
A: No. No one in either party has suggested such a plan. The House Republican budget would require the government to borrow in excess of the current limit, as would the president's budget and the latest bipartisan Simpson-Bowles plan. Under all of these proposals, the debt would continue to increase for years to come.
Q: How important is it for Congress to act before Thursday?
A: It is essential that the debt limit is raised as soon as possible. The Treasury says it could run out of extraordinary measures even before Thursday. Treasury and market analysts have suggested that the government could hit an actual inability to pay some bills at any point after that date, and it could happen with no warning. The government's short-term borrowing costs have already gone up as investors have become increasingly concerned about congressional inaction. And the standoff over the debt limit in August of 2011 demonstrated that we could see significant economic harm as the debt approaches the limit, even if Congress eventually prevents a default.
Q: What if Congress doesn't act in time?
A: Estimates from credible economists and other experts have ranged from bad to disastrous, not just for the United States but for the rest of the world. That's because the global economy relies on the security and stability of our system of government and its uninterrupted willingness to pay its bills when they are due. A Treasury report warns that a default "would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."
Q: What about the idea of paying some bills but not others?
A: This idea, known as "debt prioritization," is not the answer. Washington's fiscal hole would still be getting deeper, and those who are doing business with and lending to the U.S. government would not be fooled. Regardless of how it is dressed up, the government would be defaulting on some of its obligations.
Q: Should Congress insist on conditions before raising the ceiling?
A: Many members of Congress who now resist raising the debt limit have approved the fiscal policies that made it necessary to do so. And the problem with using a potential default to make partisan demands is the implicit assumption that your opponent won't be as irresponsible as you. House Speaker Boehner has demonstrated this dilemma by promising a "whale of a fight" over the limit while giving private assurances that he won't allow a default. Negotiations should take place over fiscal policy, but conditions should not be set on raising the debt limit.
Q: Is a "grand bargain" between Democrats and Republicans on the budget still possible?
A: Yes, if responsible leaders in both parties commit themselves to that goal. The cycle of fiscal policy lurching from crisis to crisis is awful and unbecoming of a great nation like ours. The only way to break the cycle is to reach an accord on spending and revenue levels. And the only way to do that is for both sides to negotiate with the understanding that they will each have to give up something. A comprehensive deal would provide greater economic stability and finally address some of the nation's long-term fiscal and economic challenges.