What will happen with the debt limit?

[Leaper]

I mentioned this in my previous thread "Could/would Rand Paul really singlehandedly bring on a depression?" (http://boards.straightdope.com/sdmb/showthread.php?t=584096).

New thread more zeroed in on the subject of refusing to raise the debt limit, because of a new quote from Alan Simpson. (http://tpmdc.talkingpointsmemo.com/2010/11/alan-simpson-deficit-plan-can-pass-after-debt-limit-blood-bath.php)

"I can't wait for the blood bath in April," said Alan Simpson at a Christian Science Monitor breakfast roundtable with reporters this morning. "It won't matter whether two of us have signed this or 14 or 18. When debt limit time comes, they're going to look around and say, 'What in the hell do we do now? We've got guys who will not approve the debt limit extension unless we give 'em a piece of meat, real meat, off of this package.' And boy the bloodbath will be extraordinary."

What do you think will happen when this comes before Congress? What're the chances the US will default? Will Obama HAVE to blink on whatever they want just to keep this from happening? Or will there be a huge game of chicken whose outcome is impossible to predict? Whatever happens, will the gamesmanship cause more economic damage?

[sevenwood]

I predict that there will be a huge game of chicken (perhaps even to the point of the federal government essentially shutting down for a couple of days, with non-essential employees being furloughed and essential employees being "paid" with IOUs) - and then the debt ceiling will be raised like it always is.

There really isn't any other choice.

[Ravenman]

I predict a lot of posturing, and the debate on the debt limit will end not with a bang, but a whimper. No political party wants to get the blame for doing the single most disastrous thing in our economic history.

[Leaper]

Then I guess the question becomes "which side is more likely to blink?" IOW, will the limit be raised because the Republicans get nervous, or because Obama gives them part of what they want so everyone can declare victory? (I should've included it in my OP; it's a good question. Oh well.)

[Simplicio]

In '95, the GOP controlled all of Congress, so the government shutdown was a showdown between Congress and the President. Today, they only have the House, so even if they get Obama to agree to something, they'll still need to convince Senate Dems. This makes a shutdown look less like a contest of chicken between two equals and more like a tantrum by the GOP because they can't get their way.

Also, in '95 the GOP had a concrete set of proposals for cutting the budget that they wanted passed in return for raising the debt ceiling. Its pretty hard to see the current GOP coming up with anything similar. Their two main priorities, extending Bush tax cuts and getting rid of the Health Care act, would increase the projected deficit.

So in '95, the GOP had a much stronger hand, and the Shutdown thing still blew up in their face. I suspect whats left in the way of adult supervision in the Republican leadership will realize this and prevent the party from making the same mistake twice.

[Leaper]

Update: Paul Krugman thinks there won't be any blinking by the Republicans. (http://www.nytimes.com/2010/11/22/opinion/22krugman.html?_r=1&src=me&ref=general)

Thoughts?

[Jas09]

Update: Paul Krugman thinks there won't be any blinking by the Republicans. (http://www.nytimes.com/2010/11/22/opinion/22krugman.html?_r=1&src=me&ref=general)

Thoughts?I was firmly in the "they will come around" camp. But in light of GOP behavior re: the START treaty I'm beginning to doubt myself...

[Fear Itself]

I would rather shut down the government than kowtow to the rightards. No matter what concessions they ask for, they won't compromise. There is no point in reaching across the aisle if all you pull back is a bloody stump.

Bring it on.

[China Guy]

As an independent voter, I'm with Fear Itself. I hope a significant number of independents share my sheer disgust for blatantly putting party before country. The party of "no" can just get out of the process. Let the Republicans shut down the country and take the heat.

[Susanann]

Could/would Rand Paul really singlehandedly bring on a depression?

NO!................mostly because we already ARE!!! in a Depression, long before Rand Paul is even 1 day in office. The U6 unemployment rate is 17.1%, American manufacturing is in a nosedive, we have a record number of mortgages underwater and we also have a record number of home foreclosures, our combined federal budgets and balance of payments deficts are now running trillions of dollars in debt each year, we already 40 million Americans in bread lines(i.e. food stamps), millions of college grads cant find jobs, our unemployment benefit checks are extended endlessly, etc.

Dont blame Rand Paul for the Depression that we are already in, Rand did not do any of this.

[Fear Itself]

Dont blame Rand Paul for the Depression that we are already in, Rand did not do any of this.Let me guess.. "It's all Nobama's fault!"

[Peanut Gallery]

Will Obama HAVE to blink on whatever they want just to keep this from happening?


I'm putting all my money on "Obama caves to GOP demands for ____ in order to get them to simply do their jobs* (and for bonus points... gives a sappy speech about the value of compromise)". Dopers seem to be under-estimating his ability to roll over and take it from the Rs. The fun part is that the ____ will inevitably be filled by something that adds to the debt/deficit (tax cuts, repeal of HCR, etc).


*Yes teabaggers, I know it shouldn't be part of their jobs to increase debt, but no reasonable person is proposing any other way around it, so it is as good as the only choice, and as such their job role goes from "debate the debt ceiling" to "sign off on the only option so we can get back to trying to actually fix the long term plans".

[Apollo]

There Will Be Blood (http://www.nytimes.com/2010/11/22/opinion/22krugman.html)

[Leaper]

Gee, if only someone had brought that up earlier. :D

(Psst, post 6. :))

[Saint Cad]

Hey I have a wacky idea.
How about spending within our budget?

[Ravenman]

Hey I have a wacky idea.
How about spending within our budget?So, would you like to raise taxes or eliminate government jobs while we're in the middle of this recession?

Sure, laying off half a million people might balance the budget, but you don't see that would have a teeny-weeny effect on the economy>

[Squink]

Republicans will shut the place down.
Obama should make sure no one gets their SS checks, tax refunds, medicare or other such items, and then gently suggest that concerned citizens contact their grandstanding congresscritters regarding the proper role of the legislative branch.

[Saint Cad]

So, would you like to raise taxes or eliminate government jobs while we're in the middle of this recession?

Sure, laying off half a million people might balance the budget, but you don't see that would have a teeny-weeny effect on the economy>

So you're ok with not budgeting for that stuff to begin with? Why is it that every year the govenment does a budget, it comes up short every year and we need to spend more. Why even make a budget if the gov't doesnt have to stick to it?

[Ravenman]

So you're ok with not budgeting for that stuff to begin with? Why is it that every year the govenment does a budget, it comes up short every year and we need to spend more. Why even make a budget if the gov't doesnt have to stick to it?The government has to make a budget. It's required by law and the Constitution. Neither one requires that the budget be balanced, but it is a very good idea.

What I'm getting at is that the budget cannot be balanced in one year. Or two, or even three or so. Doing so would require either very, very large spending cuts and hundreds of thousands of layoffs, or very, very steep tax increases. There are consequences to either course. In any case, driving by and saying the government should balance the budget without an apparent appreciation of the tough choices involved is like thinking it's a brilliant idea to tell a disabled, alcoholic bum to go get a job: doing it is much harder than saying it ought to be done.

[Simplicio]

What I'm getting at is that the budget cannot be balanced in one year. Or two, or even three or so. Doing so would require either very, very large spending cuts and hundreds of thousands of layoffs, or very, very steep tax increases.

Assuming post-recession spending and revenues goes back to more or less what it was under Bush II, the gap between the two is about one part in 20 of their total sizes. So a cut in spending of 2.5% and an increase in taxes of 2.5% would balance the budget, at least in the short term. Not that thats trivial, as you say its certainly not something you can just do in a year, and certainly not something that would be smart to try while unemployment is at 9%, but I'm not sure it qualifies as "very very large".

Just mentioning the numbers, because I think sometimes people have an over-blown idea of how large the problem is. IIRC, simply returning to the level of taxation we had in the late 90's closes almost the entire gap.

[TheMightyAtlas]

Assuming post-recession spending and revenues goes back to more or less what it was under Bush II, the gap between the two is about one part in 20 of their total sizes. So a cut in spending of 2.5% and an increase in taxes of 2.5% would balance the budget, at least in the short term. Not that thats trivial, as you say its certainly not something you can just do in a year, and certainly not something that would be smart to try while unemployment is at 9%, but I'm not sure it qualifies as "very very large".

Just mentioning the numbers, because I think sometimes people have an over-blown idea of how large the problem is. IIRC, simply returning to the level of taxation we had in the late 90's closes almost the entire gap.

Except of course that your starting point is the situation we are in now, not the once we had before Bush II. The economic figures for the late 2000s were inflated by the real estate bubble creating paper profits, just like the late 1990s when we balanced the budget on the back of largely illusory dot-com profits. In 1998 and 1999 I paid tens of thousands of dollars in capital gains taxes as I exited positions in the technology sector. ALL those gains, and then some, turned into losses for the people who I sold the stock to in the 2000-2001 meltdown.

The CBOs estimate for 2010 is that revenues will be $2,143 Billion and outlays will be $3,485 Billion. Revenues would need to increase by 25% AND expenditures cut by 25% in order to make that happen.

Just mentioning the numbers because people don't seem to appreciate how precarious our situation is. The CBO report I got these figures from projects that the debt will grow from 36% of GCP to 69% of GDP from 2010 to 2020, even if we assume some (to me) pretty impressive growth numbers in the 2012-2014 period.

I don't have an easy solution, but this is a hard problem. You can never find a solution if you are denying the nature and extent of the problem.

[Simplicio]

Except of course that your starting point is the situation we are in now, not the once we had before Bush II.

I was taking the one we had during Bush II, not before. I think it makes a lot more sense to take those numbers then the ones from the Recession years. Certainly if spending doesn't drop and revenues don't recover and we get stuck in some sort of permenant recession, then we're screwed. But in that case, deficit spending will be the least of our worries.

But they will recover, revenues already have largely back to what they were in '07, and this is (unfortunately) the last year of the Stimulus spending, which was driving a large chunk in the increase in spending over '07.

[Simplicio]

The CBOs estimate for 2010 is that revenues will be $2,143 Billion and outlays will be $3,485 Billion. Revenues would need to increase by 25% AND expenditures cut by 25% in order to make that happen.

And they will grow/be cut by almost that amount over the next few years, not by legislative changes but by the ending of stimulus spending and revenues returning to their previous levels. CBO projections for 2012 are a deficit deficit of 4% GDP, compared to something like 10% this year. Which also underscores how minor likely changes in spending and revenue due to changes in law are compared to those due to the changes in the overall economy.

[TheMightyAtlas]

And they will grow/be cut by almost that amount over the next few years, not by legislative changes but by the ending of stimulus spending and revenues returning to their previous levels. CBO projections for 2012 are a deficit deficit of 4% GDP, compared to something like 10% this year. Which also underscores how minor likely changes in spending and revenue due to changes in law are compared to those due to the changes in the overall economy.

Er, not quite.

The big drop in spending is due to the ending of the stimulus spending and the expiration of the Bush II tax cuts, right? Both of those are changes in fiscal policy (the only definition of "the law" that make sense in the current context) not the performance of the economy. While both of those are "automatic" in the sense that absent any congressional action, both will happen, does anyone actually believe this will happen?

I would love to see both the expiration of ALL the Bush II tax cuts and the end of the stimulus happen, but I am not optimistic.

The quick way to solve the fiscal issue is with another asset bubble, but we are being viewed with some suspicion in the air, water and soap markets at the moment.

[Leaper]

Bumping this for this story (http://thehill.com/blogs/blog-briefing-room/news/135645-demint-wants-big-showdown-over-increasing-debt-ceiling) that shows that the Republicans certainly intend to SAY they'll hold the debt ceiling "hostage." But how far will they actually take it? How far will the opposition?

[LouisB]

IF the government is forced to shut down due to congressional failure to raise the debt limit and IF it is necessary to furlough government employees, how about congressional pay and benefits are stopped until an alternate plan is reached? I have yet to hear any sort of reasonable plan to reduce the deficit; I think my idea is as reasonable as any I've heard put forward. For that matter, we might consider reducing their pay and benefits without actually stopping them. It seems that more and more, "their" solutions involve penalizing "us", with no sacrifices on "their" part.

[Really Not All That Bright]

I'm fine with that, although we'd have to stop paying the President too.

[Northern Piper]

I'm fine with that, although we'd have to stop paying the President too.

No, that would be unconstitutional, contrary to Article II, s. 1, clause 7 of the Constitution: (http://en.wikipedia.org/wiki/Article_Two_of_the_United_States_Constitution#Clause_7:_Salary)

The President shall, at stated Times, receive for his Services, a Compensation, which shall neither be increased nor diminished during the Period for which he shall have been elected, and he shall not receive within that Period any other Emolument from the United States, or any of them.

[Northern Piper]

how about congressional pay and benefits are stopped until an alternate plan is reached?

That too would be unconstitutional, contrary to the 27th Amendment (http://en.wikipedia.org/wiki/Twenty-seventh_Amendment_to_the_United_States_Constitution):

No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.

[Duckster]

IF the government is forced to shut down due to congressional failure to raise the debt limit and IF it is necessary to furlough government employees, how about congressional pay and benefits are stopped until an alternate plan is reached? I have yet to hear any sort of reasonable plan to reduce the deficit; I think my idea is as reasonable as any I've heard put forward. For that matter, we might consider reducing their pay and benefits without actually stopping them. It seems that more and more, "their" solutions involve penalizing "us", with no sacrifices on "their" part.

There are two issues at work here that confuse people.



Most, if not all of the federal government, does not have a final budget with which to operate. Congress is required to pass about a dozen appropriation bills every fiscal year for the government to function. That has not happened for this fiscal year (FY2011 - 01 Oct 2010 to 30 Sept 2011). Instead Congress has passed several continuing resolutions (CRs) to keep the government operating at FY2010 budget levels and requirements. The latest CR expires in March. If Congress fails to pass a final budget or another CR by the March deadline, government agencies are required to shut down (except for essential military and public safety areas). This is what happened back in 1995. In 1995 federal employees were furloughed. Federal employees were later paid for their furloughs. However, this may not be the case. There are reports if there is another government shutdown, furloughed employees will not be paid after the fact. At the same time, furloughed federal employees may be non-contiguously be furloughed to prevent them from being qualified to receive unemployment insurance. The hit on the economy could be pretty bad, we will probably get through it but it could drive us into a "recession" greater that what we recently endured.
At the same time, Congress still has to pass a bill to raise the debt ceiling. Regardless of whether the government operates under a CR or final budget, the government cannot borrow money beyond its legal authority. If Congress fails to raise the debt ceiling, the government effectively defaults on its obligations, and that includes paying foreign governments who service our debt. Defaulting on the debt might very well be a paper exercise and some headaches. However, defaulting on the debt will instill a psychological problem that the US Government is longer seen as a stable political and economic force. In turn that can affect the holders of our debt to take some real economic action. And that can be catastrophic and lead to a world wide economic mess the modern world has never seen. We are not talking a game changing event. It's more like a game ending event for this country as we know it.


Full disclosure. I am a federal employee. I've seen some of the budget spending cut scenarios coming out of DC because we've had to prepare budget/work forecasts based various benchmarks. In the past, with similar issues we prepared two percent, five percent up to ten percent across the board budget scenarios. This time we are being asked to prepare budget impacts using unbelievable budget cutting numbers. Even with the lowest spending cut scenarios we cannot sustain basic life support essential government operations government-wide. If people think these two budget issues are like 1995 all over again, you will be sadly mistaken.

[Leaper]

Given that refusal to raise the debt ceiling would cause all those consequences in the previous post, why would noises about doing so NOT have the same effect? Has there ever been such a threat before? Do the Republicans think they can refuse, and successfully blame Obama for whatever negative consequences may follow, or is this a bluff?

[Duckster]

Given that refusal to raise the debt ceiling would cause all those consequences in the previous post, why would noises about doing so NOT have the same effect? Has there ever been such a threat before? Do the Republicans think they can refuse, and successfully blame Obama for whatever negative consequences may follow, or is this a bluff?

I believe real Republicans appreciate the gravity of this. On the other hand, I believe the Tea Party Republicans have no honest grasp of reality but are driven by their ideological dogma. The TPs are pushing their Pubbie leadership into a corner akin to are you with us or against us. It would not be the first time that pragmatic thinking is beaten down and the extremists drown them out.

[Leaper]

One article agreeing with what was said above. (http://www.salon.com/technology/how_the_world_works/2011/01/05/bruce_bartlett_on_tea_party_monumental_insanity/index.html)

And another. (http://thinkprogress.org/2011/01/05/mulvaney-debt-ceiling-doesnt/)

I'm getting a little concerned now. Are we completely screwed?

[Dick Dastardly]

The GOP aren't serious about defaulting. They may pretend to be but come on, the consequences of default would screw them electorally for some time. They'll threaten to do it and create a whole circus around it and try and put the entire blame for raising the debt ceiling (when it is eventually raised) on the Dems, they'll basically play it for as much political advantage as they can get, but they won't actually force a default.

[Leaper]

Why couldn't a faction of the GOP defy everyone else (even within their own party) and do it anyway? Why can't they all do it in the confident assumption they can blame Obama for any consequences, especially given that some conservatives think that default could be a good thing, especially if it draws attention to spending and the deficit? That's certainly what others are concerned about.

[RitterSport]

The new senator from Utah has said he would support expanding the debt limit as long as everyone agreed to enacting a balanced budget amendment to the Constitution this very year. Seems reasonable....

[Really Not All That Bright]

No it doesn't.

[Ravenman]

Yeah, it's a horrible idea. The government has to be able to react to emergencies and maintain basic services, even when the economy is bad. A balanced budget amendment would merely mean that when there are recessions, the government would make the problems worse by being forced to shed tens to hundreds of thousands of good jobs -- to say nothing of going without the benefits to society that those jobs create -- when employment is what the economy really needs.

The senator from Utah should be ignored on this point. If he wants to play a game of political chicken and risk the good credit of the United States, he has nothing useful to add to the adults working to solve the problem.

[RitterSport]

No it doesn't.

Yeah, it's a horrible idea. The government has to be able to react to emergencies and maintain basic services, even when the economy is bad. A balanced budget amendment would merely mean that when there are recessions, the government would make the problems worse by being forced to shed tens to hundreds of thousands of good jobs -- to say nothing of going without the benefits to society that those jobs create -- when employment is what the economy really needs.

The senator from Utah should be ignored on this point. If he wants to play a game of political chicken and risk the good credit of the United States, he has nothing useful to add to the adults working to solve the problem.

Sorry, I thought it was really obvious that (1) it would be practically impossible to pass an amendment of this type in one year, or ever really, and (2) the guy from Utah is an idiot. I'll try to snark it up more next time.

A more serious question -- do both the House and the Senate have to agree to a rise in the debt limit? I think the House would be fine (assuming, say, all the Democrats agree, then you only need a handful of Republicans), but I can't figure out how it plays out in the Senate.

[Really Not All That Bright]

Yes. It would be passed just like any other bill.