WASHINGTON – Republicans know that holding the nation’s debt limit hostage in a standoff with Democrats over spending carries major risks to the economy, but they say they will do it anyway.
With the fight over funding the government still evolving, the GOP-led House fastened on a new showdown Thursday, announcing they will demand major concessions in spending in exchange for raising America’s borrowing cap.
The debt limit, currently $16.7 trillion, is the maximum amount that Congress has authorized the Treasury Department to borrow in order to pay for the spending that Congress has authorized. Treasury Secretary Jack Lew warned recently that the limit will be reached on Oct. 17, leaving the federal government unable to pay all of its bills and risking a default.
When Congress allowed the government to reach that point for several months in 2011, it sparked a 2,000-point stock market slide and a downgrade of the United States’ credit rating. Economists warn that if the limit is reached again, the consequences will be exponentially worse.
Yet Republicans who are aware of the downsides are pursuing a debt limit strategy anyway.
Asked bluntly if using the limit for leverage risked blowing up the economy, Rep. Blake Farenthold (R-Texas) paused for a second and then offered a drawn-out “Yes” that suggested the answer was obvious.
“That’s why we’re paid the big bucks — to figure these problems out,” Farenthold added.
Rep. Blaine Luetkemeyer (R-Mo.) argued that although the House GOP conference wants to use the debt limit as leverage, there will not be a default simply because the consequences are so severe. “I think we’ll reach an agreement on that. Everybody realizes we can’t default on our debt, so we’ll be fine,” Luetkemeyer told several reporters.
But reminded of the costs of the last showdown, he shrugged and allowed that the outcome was not entirely predictable. “Every situation is different,” Luetkemeyer said. “We’re going to see what happens this time.”
Rep. Mo Brooks (R-Ala.) admitted that a default would be harmful, but he argued that even if the debt limit were not raised in time, a default would be President Barack Obama’s fault.
“There is a scenario where the president could be irresponsible and force a default,” Brooks told reporters. He said the U.S. government, with about $2.5 trillion in annual revenue, could easily pay the $250 billion a year required to satisfy its debt-holders.
“We’ve got ten times as much money as is necessary to make our payment obligations to our creditors,” Brooks said.
However, the federal government’s annual expenses are about $3.7 trillion, meaning about one-third of those expenses would have to go unpaid should the debt limit not be raised. The Treasury Department has warned that trying to pick and choose which bills to pay first is “unworkable.” Such a scheme “would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments,” the Treasury Department said in 2011 during the last debt crisis.
Brooks argued that the risk was worth it, however, because if the U.S. government doesn’t reduce its spending, someday it will face bankruptcy. He favored risking that now.
“Personally, I prefer uncertainty and perhaps some success over a known bankruptcy, which is where we’re headed,” he said.
Asked if he was really willing to risk the consequences of another debt showdown to secure a list of cherished GOP concessions, House Speaker John Boehner (R-Ohio) dodged on Thursday, saying that America has to control its spending.
“Listen, the problem is not what’s happening or not happening here,” he told reporters. “The fact is that we’ve got $17 trillion of debt. This year the federal government will bring in more revenue than any year in the history of our country, and yet we’ll have a nearly $700 billion budget deficit. We have a spending problem that has to be addressed.”
Economists have warned that showdowns over raising the debt limit and funding the government are likely to worsen the annual deficit.
The debt limit does not work like a credit card, whose limit most be boosted to make new purchases. The issue is not future spending or purchasing that Congress might want. Raising the debt limit merely lets the government pay bills that have already been rung up based on spending that Congress has already voted into law. For that reason, at least some Republicans did not seem entirely happy about the possibility of failing to raise the limit.
“I’ve always supported that once you’ve written the purchase order, taken delivery of the goods, written the check, you should cover the check,” said Rep. Darrell Issa (R-Calif.). He did not say whether he backed the new GOP strategy, but he predicted the House would.
Luetkemeyer explained why Republicans were shifting their focus from holding funds for the government hostage to a standoff over the debt.
“All you have to do is look at the polling on it. The American public agrees with us on that,” Luetkemeyer said. “The American public believes that they do not want to shut the government down over Obamacare funding. They would be willing to do the fight with regards to the debt limit. That’s where I think public opinion is. I think that’s where our constituents are. That’s where we ought to be.”