The Debate Over the Debt Ceiling
If you regard Congressional debate as a form of theater, you are no doubt looking forward to the debate over raising the national government's debt ceiling. I certainly am.
There is no question that Republicans in the House of Representatives will capitulate on the question of raising the debt ceiling by another trillion dollars or so for the fiscal year. They always do. We have not had a real threat of closing down the government since the mid-1990s. The political fallout against any Republicans who want to force shutting off payments to Social Security and Medicare will be so great as to place most of them in a pressure cooker.
The important thing about the debate is that it reminds the public, once again, that there is no solution to the problem in Washington. There is no politically acceptable compromise which would enable the federal government to stop increasing its annual deficit ceiling. When the deficit is $1 trillion, year after year, and the markets have adjusted to this, there is no direct economic pressure on Congress to stop raising the deficit ceiling each year. It becomes a kind of annual event, something like the Oscars.
The important thing is that the public is reminded every year that there is no solution forthcoming out of Washington. A solution to the federal debt would be like a solution to the expansion of the monetary base by the Federal Reserve System. It sounds good in theory, but the practical implications of such a reversal are such that we know it will not be done. There is no exit strategy for the Federal Reserve, and there is no strategy to balance the budget, let alone pay off the national debt, in Congress.
Bernanke has repeatedly told Congress that it has to get its financial house in order, but not immediately. He keeps telling them that it is imperative that the budget deficit be reduced, but then he also tells them that the economy is so fragile, that some kind of Keynesian stimulus is necessary to keep it going. This means that he is willing to tolerate a $1 trillion annual stimulus, extracted from lenders, on the promise that the government will forever maintain its interest payments, which everybody on Capitol Hill knows is not possible.
The public needs to be reminded annually that there are no viable solutions being offered by anybody in Washington. The public needs to know that Congress knows little or nothing. The voters will not allow budget cuts to be made in their favorite programs. The Republicans will not allow significant new tax increases, which I think is a good policy. Therefore, the government is in stalemate. As part of this stalemate, lenders keep putting up money to invest in federal debt, despite the fact that there is no possibility that the debt will ever be paid off, and virtually no possibility that the budget will be balanced. In other words, they are playing musical chairs with their money. They know that the music will stop at some point, the way it has stopped in Greece, but until that event takes place, everyone is happy to participate in the giant deception that Washington politics has become.
Everybody knows it is a deception, and yet virtually nobody in the body politic really believes that the government ought to take steps necessary to balance the budget. That would mean abandoning Medicare and Social Security. So, the charade goes on.
I am all in favor of the charade going on. Since I know that it is not politically possible to balance the budget, at least I get some entertainment value out of the contrived performances that we call the national debate over the deficit.
There will come a day when the government will default. It will probably default in a series of days of reckoning. Retirement age will be raised. The age of eligibility for Medicare will be raised. There will be means-testing, so that rich people who have paid into both programs are not paid off. But what there will not be is a solution to the problem of the unfunded liabilities of the federal government.
The debate will give local activists a chance to see politicians squirm. They will buckle. But it will be enlightening to see their justifications for kicking the can one more time.