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A last minute deal between “Democrats” and Republicans on April 8 avoided a government shutdown. As details emerged last week, it became apparent why nobody was happy with the result.
The “Democrats” didn’t want any cuts at all. A lot of Republicans aren’t happy because a lot of cuts appear to be not real cuts at all. Furthermore funding for the EPA, and a few other things that many Republicans are not happy with, didn’t get cut as deeply as they would have liked.
On the whole, however, it looks like Republicans got more of what they wanted than “Democrats” did. I think a compromise happened because both parties were afraid of a government shutdown as neither party was sure who the voters would actually blame. “Democrats,” in particular, were worried as the battle was over the 2011 budget, the budget that was supposed to be passed last fall, the budget that “Democrats” were unable to pass even though they controlled both houses of Congress.
Now get ready for the big one. That comes in May when the government bumps its head against its debt ceiling.
Do you remember the little earthquake we had about a decade ago? I bet some of us didn’t even know what it was until the rumbling sound stopped. Well, comparing a government shut down with what would happen if an increase in the debt ceiling is not enacted would be like comparing that little quake with what happened in Japan on March 11.
Failure to raise the debt ceiling by May 16 wouldn’t bring about an immediate disaster. An article in the April 14 Wall Street Journal stated that accounting gimmicks could postpone a default on America’s sovereign debt to July 8. The problem is, according to a financial expert quoted in an article earlier last week, is how investors will view the situation. Interest rates for U. S. sovereign debt could begin soaring by early June, over fears of a default, if the debt ceiling is not raised by then. Greece is an example of what happens when investors get spooked about a possible sovereign debt default. Greece has to pay a 15 percent interest rate on its short term paper. Fallout from this is also hitting Greece’s banks and investors are spooked at doing investing in them as well.
I’m deeply concerned about what sort of financial chaos this could unleash on the country, and I hope the political elites are every bit as concerned as I am. This means that, while Republicans certainly need to make sure that they don’t get rolled by the “Democrats,” they’ll need to realize that the debt ceiling will have to be raised. This also means that “Democrats” are going to have to agree to spending cuts, whether they like it or not.
Everybody needs to appreciate the gravity of this. People who want deep cuts need to realize that using the debt ceiling to force this is like using a match to look for a gas leak. Others, on both sides of the aisle, need to realize that this is not a time for a game of partisan chicken.
At a time like this it would be great if we had some leadership from the president, but that isn’t likely to happen. President Obama, who has never displayed much willingness to exercise leadership, has already gone into campaign mode. A speech he made last week, which was supposed to present his version of a 2012 budget, has been described as highly partisan and toxic — as well as being short on specifics.
In 222 years under the Constitution, the United States has never defaulted, never even came close to defaulting, on its sovereign debt. I don’t know what will happen if we get too close to the edge of that abyss, and I really don’t want to find out.