Take It to the Limit
Like the 1970’s Eagles song “Take It to the Limit,” our political leaders are about to take it to the limit one more time.
The national debt sits just a hairsbreadth from the statutory ceiling of $14.3 trillion. Unless Congress votes to raise the debt limit again, as it has done a number of times, the government could default on its obligations within the next couple of months. If that happens, the full faith and credit of the United States of America will never mean the same again.
The true impact of such an event is conjecture, because it has never happened before. The Democrats and Republicans have postured with different scenarios if the law is not changed. Democrats say it could cause another global credit meltdown. Republicans counter that even if the debt ceiling is not raised, we could continue to make interest payments to our creditors. We just wouldn’t be able to borrow any more money. Since current spending exceeds tax revenues by a wide margin, though, without the ability to borrow there would have to be immediate massive cuts which would affect nearly everyone. Even so, I’m not worried, because I don’t think Congress will let it go that far.
Do you remember the recent debate to extent the budget? The parties negotiated to the eleventh hour with the threat of a federal government shut down hanging over our heads. Our leadership in Washington pushed it to the limit that time as well, but they eventually compromised on spending cuts to keep the government open at least for a few more months. The debt ceiling debate will no doubt be another battle to the last minute, but I don’t think that either party will risk the unimaginable.
Standard & Poor just issued a report warning that it will downgrade the credit rating of U.S. securities from “stable” to “negative,” if the country does not get its fiscal house in order within the next couple of years. This pronouncement by a major credit rating agency, of threatening to knock the country from its preeminent position in the global credit market, has to have a sobering effect on our leaders in Washington. Losing our AAA status would likely increase the interest rates that the Treasury would have to pay and make balancing the budget and debt reduction an even greater challenge. The stock market only paused briefly upon the news, because it really wasn’t news at all. Everybody knows about our fiscal problems and that something must be done to stop this reckless behavior.
I’m an optimist by nature, but the lack of discipline and accountability of our policy makers over the last decade has been troubling to say the least. My concerns have been tempered by the belief that when things go too far the wrong way, our political and economic systems are dynamic enough to self-correct. I’m hoping this current situation is such a case. I’ve been encouraged lately, because I sense that something might actually be done to rein in runaway spending and deal with long-term structural problems. Both political parties have at least started to talk about the issues and seem to agree on the magnitude of the problems.
Even though there is huge disagreement about the best ways to deal with this debt crisis, I’ve noticed some common ground, such as the need to eliminate tax loopholes to create a more efficient and fair tax system. There is also a general agreement of the steps needed to ensure the future viability of social security without adversely affecting people 55 and older. For the first time in my memory, there is bipartisan dialogue about changes to Medicare and Medicaid, as well as an acknowledgement that defense spending must be on the table.
I’m not sure how quickly workable solutions can be implemented to address these problems. It could be as early as this year or it could take another election. Either way, I think some major reforms are coming soon to keep the United States the most vibrant economy in the world. The American people understand that we have already taken our fiscal irresponsibility to the limit and that we are now ready to demand change. I think that change might be on the way.