Daily Austerity Watch: The Pointless Debate Over The Debt Ceiling

Here at The Daily Austerity Watch, we greeted the budget deal with a mixture of relief and dread.   While we are delighted that pointless government shutdown was averted thanks to an unprecedented $38.5 trillion in spending cuts, the prospects of a new fight over the debt ceiling sends a shiver up and down our spine.

In the old days — until 2010 —  the U.S. Congress routinely hiked the amount of money Uncle Sam could borrow regardless of whether Republicans or Democrats were in control.     In 1981, President Ronald Reagan, the hero of the Tea Party, boosted America’s ability to borrow above the $1 trillion level for the first time.   Under his watch. which included the $749 billion supply side tax cuts, the debt tripled. The spending binge did not stop there.   There was a stand-off between the Republican-controlled Congress and President Bill Clinton in the 1990s over the issue.

“Treasury Secretary Rubin artfully avoided default by borrowing money from at least two federal pension funds,” as Fox Business.com notes. “The debt ceiling was later raised after a brief government shutdown amid warnings from Clinton that the government might temporarily stop mailing Social Security checks. But that didn’t happen.”

Since 1996, Congress has raised the debt ceiling 11 times. Under President George W. Bush  the national debt grew by more than $4 trillion.   It was the largest increase in U.S. history.     The federal government is expect to hit the $14.3 trillion debt ceiling by the end of May.

Of that, there is no doubt, so Congress is going to have to yet again raise the nation’s borrowing capacity.  Unfortunately for investors, many Tea Party supporters on Capital Hill are balking at passing the legislation needed to avoid sending the financial markets careening into a black hole.    For instance, Sen. Marco Rubio (R-FL) said recently that he couldn’t back the debt ceiling bill unless “Congress agrees to his proposals to fix almost every major budget issue,” according to the conservative Newsmax.com site.

Rubio’s views might strike many liberals as extreme or self-serving.   But they represent a sizable portion of the Republican party, which is deathly afraid of offending Tea Party supporters such as Rubio ahead of the 2012 election.  Even Speaker John Boehner has to appease these activists.  He told reporters over the weekend that there was no chance that an amendment-free debt ceiling bill would pass the House even though that’s what President Obama had requested.  Many Republicans ran for Congress vowing to oppose any increases in the debt ceiling.

What politicians often forget is that the majority of Americans do not care about the deficit because they are far more worried about their own financial situation than the nation’s.   Only 12% of Americans polled by Gallup in January considered it to the most important problem facing the country today, trailing unemployment/jobs (29%) and the economy in general (26%).  Most Americans also were against the idea of shutting down the government.

It will all come down to how much Congress wants to shrink the size of the federal government at a time when the U.S. is starting to climb out of its worst economic slowdown since the Great Recession.    House Budget Committee Chairman Paul Ryan’s budget plan for 2012 slashes spending by as much as $6 trillion over 10 years, reforms entitlements and overhauls the tax code.  Democrats argue that Ryan’s plan would rob from the poor and give to the rich.  The problem is that the Senate rejected the findings of the President’s Deficit Commission.  Democrats risk becoming the party of “no unless they come up with bold, creative ideas.  President Obama is due to release his plan Wednesday.

Now, the time for talk is over and the time for legislating has begun.   The question remains is if this ideologically divided  Congress up to the challenge.

–Jonathan Berr