Need a Crisis? Create One!

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.

And today:

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.

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