This is the first thing you need to know before you hear anything else about the debt ceiling: it has to go up and everyone knows it. Before you listen to any of the political rhetoric or watch any of the media coverage, commit that truth to mind and remember it.
Why does it have to go up? For two reasons.
1. The debt ceiling doesn’t authorize new spending. It covers spending that Congress has already appropriated. Congress sets revenue levels and spending levels, and the administration has to obey those levels—that’s how it’s laid out in the Constitution. The debt ceiling only refers to Congress allowing the administration to borrow in order to meet the spending levels Congress appropriated.
2. If you breach the debt ceiling, it’s really, really bad. The exact extent to which it’s really bad is somewhat unpredictable, because we’ve never breached it before, but it’s guaranteed to have a big negative effect on the economy.
In his press conference yesterday, President Obama said—correctly—that the debt ceiling has to be raised to cover spending Congress already passed. Contrary to what the Washington Post’s Aaron Blake says, that’s not exactly a “semantic” difference or a “trick”—that’s how things actually work.
Nevertheless, Republicans in Congress continue to claim that this is an “opportunity” for them to force through unpopular policy changes they couldn’t otherwise carry out. In their public rhetoric, they’re claiming that raising the debt ceiling is something that President Obama wants, rather than a basic requirement of governing that everybody needs to happen. Put simply, they are lying.
So what happens if Congress doesn’t raise the debt ceiling? A few descriptions from folks who have looked at it closely:
• “Unprecedented legal and economic chaos.”
• “The greatest smash in world financial history.”
• “Havoc would ensue.”
• “The markets will go haywire.”
• “We’d default on 40 percent of our obligations, over and over again…It would be pandemonium.”
Breaching the debt ceiling is essentially the same as tearing up your credit card bill and refusing to pay after the bank tells you that you hit your limit. It’s a declaration that we’re not good for the promises we’ve made, and that we won’t actually carry out the laws we’ve passed. Investors have been happy to put their money into the U.S.—refusing to raise the debt ceiling would hurt our national credit-worthiness far more than any deficit ever could. It would have spiraling consequences for the economy and could actually increase the deficit.
Who actually gets the checks when the government spends? A third of what the government spends is Social Security and Medicare benefits. Another fifth is taken up by military spending, including pay for active duty soldiers. Smaller portions are made up by veterans’ benefits, unemployment compensation, and Medicaid. That doesn’t even get into things like food safety inspectors, federal highway maintenance, air traffic controllers and college grants and loans. That’s real money that matters to real people—people who have house payments, kids to feed, medical needs.
The biggest problem we have in the economy right now is weak purchasing power—not enough people are employed and wages aren’t growing fast enough. We’re still trying to recover from a recession that devastated Americans’ purchasing power. A hit to purchasing power on the scale of a debt-ceiling breach would pull us back into recession.
Some officials are claiming that the government could pick and choose which bills it pays, so there wouldn’t be any “default,” just a “partial shutdown” of some government services. At the moment, that’s not true at all; the administration has no legal or constitutional power to pick and choose what to implement among the many kinds of spending Congress has mandated.
Republicans in Congress who understand how things work know that we have to raise the debt ceiling, but they’re hoping you don’t. The more confusing the argument over the debt ceiling is, the better off they’ll be. In reality, though, they’re threatening to intentionally tank the economy—to put us back into recession—unless they get policy changes that they couldn’t get through the normal democratic process. The word for that is “extortion.”