Cruz-ing into Default

By: Sonia Torrico

If you turn on the TV, pick up the newspaper, or check out your Facebook feed, it seems there is little talk of anything besides the government shutdown.  In Washington, DC, there are countless food and drink specials for furloughed federal employees and even free yoga.  The mood in the nation’s capital seems to fall somewhere between snowmageddon and mild amusement at Congress’ apparent ineptitude.  For those that are focused on the more serious aspects of the federal government shutdown, the conversation seems to center on whether the GOP, led by Representative Ted Cruz (R-TX), will abandon their attack on the Affordable Care Act (ACA) and let the government get back to work.  From Jon Stewart to CBS News polls, the focus of the shutdown seems to be on the GOP’s disapproval of, and vehement opposition to, the ACA.  The importance of the ACA is undisputed; however, the larger issue up for consideration is whether the GOP will raise the nation’s debt ceiling by the upcoming October 17, 2013 deadline.

Many news outlets have been comparing the current government shutdown to the last government shutdown in 1995.  However, a major difference between the two is the weaker state of the current economy.  One factor contributing to the current weak economy is that there was a serious debt ceiling debate just 2 years ago.  In 2011, the GOP refused to increase the debt ceiling without some serious concessions on spending by the Democratic Party and threatened to allow the nation to go into default.  The debt ceiling debate in 2011 resulted in the United States’ credit rating being downgraded from AAA to AA+.  This caused a dip in the recovering economy that had ripple effects on the world economy, even without the United States defaulting.  Despite some opinions that the United States’ credit rating would not suffer if the nation defaulted, the effects would still have international consequences on the markets and the nation’s position as a world leader.

Going into default would have global ramifications because the United States’ debt is currently US$17 trillion.  If the nation defaults on this debt, which would be the first time in history, the effects would be significant, immediate, and felt nationwide.  In a Washington Post op-ed, Frank Keating, President and CEO of the American Bankers Association and former Republican Governor of Oklahoma, calculated that the debt ceiling debate in 2011 cost taxpayers around US$20 billion.  This cost was based on investors demanding greater assurances on US Treasury bonds as a result of the potential default.  Similarly, the effects of the current debt ceiling debate, though overshadowed by the ACA and the federal government shutdown, are having no less of an impact.  Moreover, the debt ceiling debate once again jeopardizes the United States’ credibility in the world markets as being a country that can be relied on to meet its obligations.  The Treasury Department warned that a “prolonged debate over the debt ceiling would harm the economy by depressing business and consumer confidence, increasing stock market volatility, erasing household wealth, and increasing interest rates on mortgage and corporate loans.”  This could undo much of the hard work businesses, local legislators, and hardworking Americans have expended in improving the economy since the 2008 financial crisis.  It would also mean drastic cuts in federal spending and a delay in the issuance of Social Security Checks.  In short, a default would have dramatic effects on many Americans who depend on the government being able to meet its global and local obligations.

The GOP is currently supporting the passage of a one-year debt ceiling increase that would be strictly tied to a number of GOP conditions.  This is the same sort of tactic the GOP is currently using with the ACA; holding the country hostage by forcing a federal government shutdown in order to get what it wants.  In an eloquent response to the GOP’s tactics, Senator Elizabeth Warren (D-MA) stated that “in a democracy hostage tactics are a last resort for those who cannot win their fights . . . a last gasp for those who cannot cope for the realities of our democracy.”  This writer hopes that more American people see the reality of both the causes and effects of the current federal government shutdown and urge their representatives to turn away from these tactics to focus on what will continue to help the economic recovery; a reasonable raise in the debt limit ceiling that will not put the nation in this same precarious debate in one or two years’ time.

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