Custer’s Last Stand?: The National Debt Ceiling

The debt ceiling, which is at $12.4 trillion, is near its limits and the Senate will consider whether to add $1.9 trillion to the cap. Dow Jones estimates that the increase will only be good through early next year when Congress will have to consider the matter again.

It would have been foolish to think there would be any real challenge to the increase, a week ago. The “Tea Party” victory in Massachusetts may have changed that. Americans seem as ready to approve spending in the name of improving the economy and unemployment as much as they were a few months ago. Part of that is probably due to an improvement in GDP and the rate at which joblessness is rising. That would be cause to dial back spending to revitalize the economy. Americans also simply don’t think that federal government spending is working.

The Administration asked for and got a $787 billion stimulus package. It was supposed to help add new jobs. It was supposed to help the housing market and people who want to stay in their homes. It was supposed to keep people off food stamps and off unemployment lines. It was supposed to move the overall economy sharply back into a period of prosperity. The assumptions about GDP and employment in the Obama budget package issued a year ago turned out to be too optimistic and that was obvious within a few weeks of the ink on the budget being dry.

So, the vote on the ceiling for the national debt comes in an environment that is completely different from where it was before Thanksgiving. The national mood has changed that quickly.

The Senate can hardly refuse to increase the cap. That would, at least in theory, make it difficult for the government to raise money and, eventually, operate. Congress and the Treasury certainly have the wherewithal to work around a flat cap for a while, but the President’s ambitious spending plans would be under pressure right away.
What the political mood may cause is a plan by Congress to hand out new caps a quarter at a time. This will cause tremendous tension in Washington. It will restrict the Administration’s ability to maneuver. It may be, in short, exactly what is needed to cut back the growth in spending until after the mid-term elections.

It is unlikely that the Senate will cut the increases to the cap into little pieces, unless Senators think voting to allow additions to the federal debt will damage their chances to be re-elected. But, the Democrats may have too many votes in favor of raising the cap to $14.3 trillion today. That will put off the big battle over national spending until after the elections when the make-up of Congress may have changed a great deal. In the meantime, the odds of paying all the money the government is borrowing back will become more risky as the economy flails.

Douglas A. McIntyre