Like most powers of the federal government, the power to borrow money belongs to Congress, but is exercised through delegation to the executive branch. In this case, Congress has delegated this power with an important condition: that no more than a specified amount can be borrowed. This amound is known as the “debt ceiling.”
The problem, of course, is that the federal budget is at least a little bit in deficit every year, and every deficit, no matter how small or large, adds to the total of the national debt — as a result, the debt ceiling is reached from time to time, usually at fairly short intervals. Thus, it is frequently necessary to raise the ceiling to allow more borrowing – in order to make it possible to carry out the activities Congress and the Presdient have already approved. If you want the government to spend less, the way to do it is to cut the budget – not to prohibit borrowing after the budget has been approved.
Almost everyone understands this, so usually the debt ceiling is increased with little controversy. This time, though, two things make it different. First, there are a number of new members of Congress, elected with Tea Party support, who don’t believe that the ceiling should be increased at all, and so will vote against it no matter what. Second, the Republican party, which now controls 1/3 of the policy-making organs of government, wants to use the ceiling as leverage to get its way on important policy issues. The Democrats, who control two of those policy-making organs, are naturally unwilling to give in: hence the standoff.
What to do? I want to make two basic points:
1. The eventual solution has to pass Congress, but it does not have to pass with strong support from the Republican Party. Last December, during the lame-duck session, the budget compromise passed the House with a lot of Republican opposition, but with Democratic support. This is bound to be the way it happens on the debt ceiling vote. Even as I write, Speaker Boehnert is unable to pass his Republican plan with Republican votes – so ultimately he is going to have to rely on a substantial number of Democratic votes.
2. Various compromises are being mooted, but the issues are tricky. Therefore, I’d suggest a simpler compromise: both parties should drop ALL of their policy goals. There should be no spending cuts in this bill, and no tax increases either. Instead, Congress should simply raise (or, better, eliminate!) the debt ceiling, let the government go on functioning, and find another venue for debating their budget preferences. Such a bill could pass in one hour or less, if Speaker Boehner would let it come to a vote.
The consequences of failure are enormous, much greater than a simple government shutdown. The whole banking system relies for its stability on buying and selling federal notes, commonly thought of as the most secure and stable of all possible investments. If the value of those notes is suddenly in question, the resulting chaos may well bring the economy to a complete halt. It is time for Congress and the President to act – and a simple, clean debt-ceiling increase is the easiest, least controversial way to end the crisis.