It was a close call, but in the small hours this past Wednesday morning, amidst the disturbed rantings of a House stenographer over the Free Masons, the United States Government stared deep into the abyss of financial ruin and took a small step back.
While already in the midst of a selective Federal Government shutdown, the U.S. Treasury would have reached its limit to borrow funds on 17th October (according to estimates by Secretary Jack Lew). This limit is known as the “debt ceiling”.
Regardless of the subjective outcome, one thing is certain: the Government would have certainly defaulted on a number of its debt obligations for the first time since the limit was established by congress during the First World War. Which was a while ago now.
A good deal has changed since the Congress decided the Treasury should be limited in its debt issuing authority. The most noticeable change is in the sheer numbers being discussed. The current amount of money owed to its creditors by the Federal Government (separate from the municipal and state budgets) is $16 Trillion (£9.9 Trillion) – slightly $1 Trillion more than our annual GDP.
President Obama has introduced a plan to pay down the debt by 2020, but without a single White House budget being passed since he took office, the odds of it being adopted is slim.
To explain the root cause of how we arrived at this point of idiocy wouldn’t be sensible. In the interest of brevity, I’ll instead focus on the last few, dysfunctional years.
Since taking office in January 2009, President Obama has been unable to pass a single comprehensive budget for the functioning of the United States Government. Several factors contribute to his record; from political grandstanding on the part of the Congress, to a genuine and justified need to curtail growth of the public sector.
In the meantime, the United States has gotten by using stop-gap measures to pass spending bills. Every 2-3 months. For the last 5 years. No traditional annual Budget Box photo ops in front of the treasury on this side of the pond. We find ourselves frantically struggling just to keep the lights on 3 to 4 times a year at this point.
The New York Times’ David Brooks summarised it succinctly, saying “This is no way to run a government”. It contributes to uncertainty in the markets – and is just plain bonkers. The most recent stop-gap bill was tethered, by Congressional Republicans, to an amendment to defund the Affordable Care Act (“Obamacare”). When the bill failed to pass it resulted in a partial government shutdown, closing National Parks and furloughing hundreds of thousands of Federal employees.
To make matters worse, previous financial obligations – already approved by congress – were coming due. These are bills for goods and services already purchased by the federal government (procurement, interest on debt, etc…). Without the authority to borrow the requisite funds needed to honor those obligations, the United States Government would default just like any fledgling newly-independent nation, or Greece.
The Chamber of Commerce – a non-partisan lobbying and advocacy group dedicated to free enterprise and limited government regulation of business – has said that breaching the debt ceiling would be catastrophic to the economic interests of the United States. In the wake of the crisis, senior policy makers at the Chamber have stated they will “play an active role in the coming months to ensure the elections of responsible, conservative politicians so this never happens again”. Translation: “We’re backing establishment Republicans the only way we know how…with cash. So sorry, Tea Party”.
That’s the Chamber of Commerce – an organization which accused Ronald Reagan of harmful economic policies in the form of protectionism back in the early 80’s. They tend to be thought of as the standard bearer for the Free-Market soul of America. That same organization called Congressional Republicans “silly” in an article in Bloomberg Business this Thursday. And while a majority of the Congressional Republican Caucus are anything but “silly”, some of them fit the bill, and then some.
Some Republican Congressmen had argued the debt ceiling estimates were incorrect – that come the 17th the Treasury would simply prioritize its payments to its creditors; paying those who carry the highest penalty first. These people maintain a fundamental misunderstanding of the government’s appropriation process.
Neither the Secretary of the Treasury, nor the President of the United States has the authority to prioritize payments to its creditors. This duty falls to the House of Representatives Appropriations Committee. A committee which had fallen silent in light of the current dysfunction. Rather than take action, Congressional leaders had decided to play a game of chicken with the full faith and credit of the United States Government. If we had defaulted on our debts the consequences would have been dire. Bond rates would have jumped as a result to cover the shortfall, making future obligations more expensive, and the United States would risk losing its status as the global reserve currency.
What is needed is a rules change: a revolution of the manner in which this government operates. That and a division of the Republican party. The Tea Party needs to establish itself as a separate political force, one that will likely caucus with the GOP in much the same way coalition governments form in the parliamentary system. If they remain in GOP, the Tea Party will never be able to claim legitimacy as a political movement and the GOP will remain fraught with in-fighting.
Joseph Bono is an American Conservative by birth, an Independent by choice. He’s recently worked aside Roger Helmer MEP as his Policy Advisor, and is currently living with his wife in Washington DC. He prefers his home town, New York City. He tweets at @JoeBonoDC