Welcome Guest | Register | Login

The 2011 Debt Ceiling Debate: Why It's About 2012 For President Obama

"Bookmark



Debt Ceiling Debate: Why it is all about 2012 and Six Other Things You Need To Know.

Any cursory glance at the news this week reveals the importance of August 2, the day of reckoning, the day that the debt ceiling must be raised or we face economic catastrophe.

This is a very complicated issue to most Americans, but it is extremely important.

Here are seven things you need to know about the debt ceiling discussion.


1. What is the Federal Debt Ceiling?

In 1917, as the United States entered World War I, Congress authorized the Treasury to issue long-term bonds to finance the war. But it placed apresident obama & john boehner limit on the amount of debt that the government could issue. That limit, known as the debt ceiling, has been raised repeatedly — and lowered a few times — since then. The limit now is $14.3 trillion — a ceiling already reached in May.

2. How Often Has the Federal Debt Ceiling Been Raised?

The debt ceiling was raised repeatedly during World War II, once every year from 1941 to 1945. In the years immediately following the war, the ceiling was actually lowered.

However, according to the CRS report, since 1962, Congress voted through 74 separate measures to raise the debt ceiling. Of those 74, 10 occurred in the past decade according to National Journal reports.

3. Why Is the Debt Increasing So Rapidly In Recent Years?

Several factors have driven up the size of the deficit recently. Among the largest: the costs of the Iraq and Afghanistan wars, which were financed with borrowed money; the aging of the population, which has increased the cost of programs for senior citizens; the rising cost of health care, which drives up the cost of Medicare and Medicaid; and the recession, which pushed down federal revenue and increased spending on economic stimulus and programs such as unemployment benefits.

4. If the Debt Ceiling is Not Raised, What Will Happen?

The government has been able to borrow money at very low interest rates because investors around the world look at U.S. government securities as a very safe place to put their money. If the ceiling is not raised, many fear the federal government will be unable to pay debt obligations in full and on time to our creditors; in other words, the government may default of some of loans.

This is vital because, if the government’s ability to pay its bills came into question, the people who buy bonds almost certainly would demand a higher interest rate. That would ripple quickly through the economy. Already, Moody’s has warned that the United States AAA credit rating is in jeopardy.

Such a loss in our credit rating has dire consequences for everybody -- mortgages, car loans, government -- will spike, resulting in a renewed credit crunch. Borrowing will come to a halt. Business will come to a halt.  Defaulting on debt could also result in massive job losses as companies slash expenses to conserve cash.

5. Why Is This Debt Ceiling Fight happening Now and Not During the Dozens of Other Times It Was Raised?

America’s ever-growing debt has become a more prevalent issue due to two events—the debt crisis in Europe (particularly Greece) and the 2010 Midterm elections.

The political fight centers on not so much whether Congress should extend the debt limit, but whether this action should be tied to deficit-reduction measures as well.

As the Washington Post reports, thanks to the emergence of the Tea Party, federal spending and debt are under renewed public scrutiny. Added to that is a new class of Republican legislators who rode into Washington on pledges to cut the government’s bloated spending and debt. “Many congressional Republicans, under the watchful eye of tea party activists, have been loath to do anything that even appears like it could lead to more spending,” The Post reports.


6. What Has Been Accomplished During Last Week’s Debt Talks Between Speaker of the House Boehner and President Obama?

Both sides have proposed a series of plans. Democrats favor tax increases and closing tax loopholes to accompany any proposed spending cuts and do not want to touch Medicare or Social Security. Republicans oppose any tax increases and are willing to modify entitlements and federal workers pensions. They also differed on a short-term versus a long-term solution, resulting in a spat between House Majority Leader Eric Cantor and President Obama, who abruptly left the session on Wednesday.

On Friday, a GOP measure called “Cap, Cut, and Balance” was introduced, which aims to reduce federal spending, impose spending caps over the next decade and require the eventual passage of a balanced-budget amendment to raise the debt ceiling

However, Senate Minority Leader Mitch McConnell has offered a compromise that will most likely be the blueprint for the resolution of the debt crisis.  His plan, which is supported by many Democrats, would lift the debt ceiling in three increments unless Congress stops an increase with a two-thirds majority – allowing Republicans to vote against raising the debt ceiling without risking default.

Sarah Palin, Newt Gingrich, House Republicans, and Tea party supporters are not happy with McConnell’s plan, saying it gives Barack Obama too much power and does not adequately focus on necessary spending cuts.

McConnell’s compromise will win the day, despite the complaints from the GOP and the Tea Party. But McConnell’s plan – or something very similar – is the only way out. Obama can’t agree to a budget plan lacking tax increases, especially on the wealthy. Republicans can’t agree to one including them. In Washington, when an immovable object meets an irresistible force, something’s got to give. A compromise that allows both sides to save face is the easiest give of all.


7. Why this is all about 2012.

Let’s assume that Sen. McConnell’s deal is enacted, what does that mean politically for Democrats and the President? Some see McConnell setting an elaborate trap for the President and his fellow Democrats.

Some time late this year the President would have to once again raise the debt ceiling. Then Democrats in both Houses of Congress would have to vote in favor of him being able to do it. There would be a lot of posturing and pontificating about how his proposed cuts were not good and how there should not be an increase in the debt ceiling.

Republicans can go on the record being budget hawks by voting against any debt ceiling increases, but the ceiling will be raised anyway, since one needs 2/3 of both houses of Congress to block the increase. So the economic disaster of default will be averted and the Republicans can save face, too.

Right now the idea of raising the debt ceiling is still unpopular with a majority of the public.  A new CBS News/New York Times poll finds that Americans oppose increasing the debt ceiling, by a 69 to 24 percent margin.

That is not going to change in time for the 2012 election. All voters will see, three times before the 2012 elections is that President Obama and the Democrats raised the debt ceiling and didn’t cut spending while doing it.

This repetition of raising the debt ceiling and the fact that the Republican-controlled House will spend lots of time on this issue and then vote against it, will help to solidify the impression of big spending Democrats in the minds of many voters while giving the Republicans a chance to prove to the voters that they are fiscal conservatives.

It will also provide fodder for campaign ads claiming, “Representative John Doe voted three times to borrow more money from your grandchildren to continue to fund the bloated federal bureaucracy. Now their future will be dark as night, buried in a mountain of debt. Will you really let him stay in power?”

So if my prediction is correct, and the McConnell plan becomes the basis of the debt compromise, get ready for lots of debt talks on TV ads in 2012.

And a one term President.

Photo Credit: AP

Contact Erik Uliasz at euliasz@philly2philly.com

Register NOW with Philly2Philly!  

And, don't forget to "like" Philly2Philly on our Facebook page!

Follow us on Twitter