Eight months ago many Republicans ran for office on a platform of jobs, jobs, jobs. Of course, the principle tool the government has for creating jobs is stimulus spending. Republicans do not do stimulus spending so once they were elected they had to come up with an alternative to the jobs crisis.
Just a few months ago, there was no debt crisis and there was no debt ceiling crisis. No one was talking about refusing to raise the debt ceiling. No one was talking about lowering the countries credit rating.
But the Republicans had run through all the symbolic votes they could think of (none of which had anything to do with jobs) and were suddenly faced with the prospect that the country might start asking about jobs.
So they decided that the debt was a crisis. It wasn’t. By historical standards, the debt is still well below its historical high. The country still has (for a bit longer) top grades from the rating agencies. United States bonds are still considered the safest investment on the planet and buyers were still lining up to buy them at very low interest rates.
But the Republicans decided the debt was a crisis, and they found a way to make their beliefs reality: refuse to raise the debt ceiling!
Three days ago, Reuters reported that
Ratings agency Moody’s on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.
The United States is one of the few countries where Congress sets a ceiling on government debt, which creates “periodic uncertainty” over the government’s ability to meet its obligations, Moody’s said in a report.
“We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,” Moody’s analyst Steven Hess wrote in the report.
Standard & Poor’s reiterated on Thursday it sees a real risk that future U.S. government deficits may meaningfully miss discussed targets and that there is a 50 – 50 chance the U.S. AAA credit rating could be cut within three months, perhaps as soon as August.
The deficit reduction debate is coming up against an August 2 deadline when the $14.3 trillion limit on America’s borrowing capacity is exhausted, putting in jeopardy payments on U.S. Treasury debt as well as paychecks for federal employees and soldiers.
If an agreement is reached to raise the debt ceiling but nothing meaningful is done in terms of deficit reduction, the U.S. would likely have its rating cut to the AA category, S&P said.
So, there was no debt crisis until the Republicans needed to distract the electorate from their non-interest in jobs. Today there is a real debt crisis. The only thing that has changed is that now no one can be certain that the US will not someday, if not next week, refuse to meet its obligations.
At this point, if the Republicans are sincere in their concern for federal spending and debt, then they have no choice but to eliminate the statutory limit on government debt. Otherwise, the interest the US pays on its debt is going to go up. It will be expensive.
Hat tips to TPM and to The New Republic.