May 30, 2023 5 min read

The debt ceiling limit crisis is completely self-inflicted. It has been created by the most radical Republican members of the U.S. House of Representatives to try to achieve political goals they can’t reach through the normal political process.

Congress authorizes spending through the budget process; if Congress authorizes more spending than the government receives in revenue, the U.S. Treasury has to borrow, by selling Treasurys, to pay the bills. Congress used to authorize each bond issue individually, but the costs of fighting World War I led to the 1917 law that pre-approved debt to a set limit, or ceiling, to allow the government to raise money more efficiently. Now the Republicans are refusing to raise the debt ceiling unless Biden and the Democrats cave in to their demands.

The U.S. hit the $31.4 trillion debt ceiling on Jan 19; Janet Yellen, the Treasury secretary, has used creative money management to pay the bills since then, but she says her ability to do that will run out in early June. The U.S. government has never before failed to pay its bills. One of the earliest controversies in our history was how, after having just fought a long revolutionary war, our young republic would deal with the crippling debts we had incurred in our victory. Repudiation was tempting, but Alexander Hamilton, our first Treasury secretary, committed us to repaying our debt in full, which established us as a financially responsible nation and definitely benefited us in the long run.

Republican political games threaten that legacy.

If the Republicans in Congress refuse to raise the debt ceiling, we will be in uncharted territory. It is likely that the stock market will crash, interest rates will rise, and the economy will go into a recession or worse. Social Security checks will not go out, threatening not only the recipients who depend on them, but also the businesses they patronize. Soldiers and other government employees will be in the same situation. A failure to pay bondholders will drive up borrowing costs for the foreseeable future.

A more subtle but no less damaging impact will be that other nations will no longer see the U.S. as a financial rock, and start to use other currencies as their reserve currency. According to the Council on Foreign Relations, 60% of foreign exchange takes place in U.S. dollars. U.S. Treasurys are seen as the safest investment on the planet, so when people, governments and businesses abroad need to save money in a safe place, they buy U.S. Treasurys. This has allowed us to borrow money more cheaply than any other country, and allowed us to carry budget deficits with much lower inflation.

U.S. default would also diminish our power internationally. Because other nations rely on U.S. dollars, U.S. boycotts have power. For people concerned about China displacing the U.S. as the world’s premier power, our choice to default would create a vacuum that China would gladly fill.

Let’s be clear: the Republican attempt to use the debt ceiling as a lever to cut spending is not a principled stand about fiscal responsibility. It is about political power. The Republicans could have cut expenses when they had control of Congress under President Trump. Instead, they cut taxes for the wealthy, making the deficit worse. Republicans only care about deficits when there’s a Democratic president.

Even the proposals they want the Democrats to accept are a sham. They refuse to consider raising taxes, cutting Medicare or Social Security, or the military, which are the biggest contributors to the deficit. They even demand cuts to the IRS, which will make the deficit worse by allowing the wealthy to more easily avoid paying the taxes they owe. They want to reduce the deficit, but only by making Democratic constituencies pay.

Republicans have tried this tactic in the past. In 2011, Obama succumbed to pressure to negotiate a “grand bargain” with John Boehner, the Republican House speaker; much to his party’s dismay, Obama accepted an agreement in which Republicans accepted higher taxes but the Democrats accepted four times as much in spending cuts. But Boehner could not get the Tea Party Republicans to agree to the deal. Describing his inability to get the extreme members of his party behind him, he pointed out that “a leader without followers is just a man taking a walk.”

Eventually, the passage of the Budget Control Act resolved that crisis. Even without defaulting on our debt in 2011, we came close enough that credit agencies downgraded U.S. debt for the first time, which led to the U.S. paying $1.3 billion in additional costs in 2011 alone. And that doesn’t include the time wasted on dealing with this manufactured crisis. Responsible political parties don’t force the government to pay higher interest rates just to score political points.

In 2013, the Republicans again tried to use the debt ceiling to force Obama to abandon the Affordable Care Act, but the Democrats held firm and forced the Republicans to back down.

The problem with giving in to hostage-taking is that it encourages more of it. The Democrats raised the debt ceiling three times during Trump’s presidency, without using it to extract concessions. If you care about governing, you don’t use the threat of economic Armageddon as a bargaining tool.

Not blowing up the economy should not be a concession to the Democrats. Both parties should want an efficient government and a thriving economy. The Senate has passed a bill to raise the debt ceiling without conditions; passage in the House would solve this manufactured crisis, so we can get back to solving real problems instead of manufactured ones.

Kent James is an East Washington resident and a member of borough council.