Monday, April 11, 2011

No Dealing On The Debt Ceiling

That's what Obama needs to do this week:  make it clear that Republicans threatening to destroy America's economy overnight and throw us back into another financial crisis is not acceptable, Republicans like House Majority Leader Eric Cantor, who threatened to do just that on Sunday:

CANTOR: Just as we saw happened this week in Washington, there comes a time leverage moment here, a time in which the White House and the president will actually capitulate to what the American people want right now. They don’t want to raise taxes. They don’t want spending to continue to spiral out of control. Those are the kind of things and mechanisms — whether it’s spending caps, entitlement reforms, budget process reforms — these are the kinds of things that we’re going to have to have to go along with the debt limit increase.

Really? So Rep. Cantor's okay with holding the economy hostage or else?  We're seeing Democrats go on the attack on this, like Sen. Schumer:

"I would urge both sides to take the threat of not renewing the debt ceiling off the table," he said. "It is highly irresponsible... It shows a lack of knowledge as to how our government works."

According to projections by the Treasury, the U.S. government is expected to hit its $14.3 trillion debt ceiling by the end of May. If Congress does not approve an increase to the limit, the federal government could default on its bonds for the first time in history, and Social Security and Medicare checks would likely see delays as a result of the government's inability to make payments to agencies.

It would be much worse than that.  Interest rates would skyrocket on a US debt default.  We'd find ourselves in another massive liquidity crisis, just like in 2008.  The banking system would face another meltdown.  But Republicans are confident they can continue to hold the country hostage because of polls like this:

As we mentioned on Friday, the American public doesn’t support it. In our NBC/WSJ poll, only 16% said that Congress should raise the debt ceiling, versus 46% who said it shouldn’t. What's worse for those stuck with trying to sell the need to raise it: When respondents were told that the U.S. would default on its debt payments if the debt ceiling WASN’T raised, that 16% increased to just 32%, while the anti-number jumped a tad higher, to 62%.
Matt Yglesias correctly parses what that poll means and what the Democrats should do about it:

The second prong, important for credibility, is to move to thinking about what happens as we reach the ceiling.

This isn’t a sudden “shutdown.” Nor is is true that we have to default on obligations to our bondholders. Rather, it means that government outlays are now limited by the quantity of inbound tax revenue. But for a while, the people administering the federal government (to wit Barack Obama and Timothy Geithner) will be able to selectively stiff people. So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich.

Make the American people, and the Republicans, painfully aware of what refusing the raise the debt ceiling means.  Make the Republicans want to take it off the table.  Defuse the hostage crisis long before the Republicans put a gun to the head of our economy.

And the time to start on this is now.

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