Financial markets are finally catching on to the possibility that the United States will soon default on its debts. Interest rates on short-term debt and the cost of insuring against bad debt have soared, reflecting fears that US debt will not be paid on time.
Few things about the threat of crisis should come as a surprise. Anyone who hopes that a Trumpian MAGA-line Republican Party whose supporters don’t believe Joe Biden’s election was legitimate won’t weaponize the deficit cap — an odd feature of the US budget that allows Congress to pass budget bills. expenses and then refuses to pay them – he was delusional.
I am also not surprised that the Biden administration has yet to adopt any of the possible strategies through which the debt ceiling could be circumvented. Many of the economic objections to such strategies are wrong. But there are legal and political risks to a debt drain that could erode markets, and I understand the government’s reluctance to play its game until the last minute.
One thing that did surprise, however, was the cowardice of the self-appointed guardians of fiscal responsibility.
I’m talking about the various groups—business organizations like the Chamber of Commerce and the Business Roundtable, supposedly nonpartisan think tanks like the Committee on a Responsible Federal Budget—that played a very prominent role in the Obama years, successfully convincing much of the from the media and the political milieu that the debt, and not the delay in recovery, was the biggest economic problem facing the US. The debt obsession, in turn, helped keep unemployment much higher for much longer than necessary, costing the country millions of jobs.
Now, I used to mock these groups as being Very Serious People and deficit cranks, suggesting that their real agenda had more to do with reducing social programs—and taxes!—than real concerns about the debt.
Still, one would expect even these groups to recoil from the idea of fiscal policy through extortion, which, in addition to violating any notion of an orderly budget process, could seriously aggravate America’s fiscal situation, destroying our credibility. and therefore raising our borrowing costs.
Indeed, some reports suggest that Biden administration officials hoped these groups would put pressure on Republicans to avoid politicizing the debt. But the debt cranks’ real response was to urge the government to give in to blackmail.
Perhaps the most shocking behavior came from the Committee for a Responsible Federal Budget (CRFB), an organization that usually commands some respect, even from those who disagree with its priorities, for its technical competence.
Given that reputation, the committee’s response to the debt impasse was simply astounding. Not only did he urge Biden to negotiate with the hijackers, he declared that “the House has passed a reasonable bill” to reduce the deficit.
The committee, which knows its numbers, must know more than that. No, the House did not pass a “reasonable” deficit reduction plan; she didn’t even approve a plan, just scribbled some numbers with no explanation on how to achieve them.
Most of the alleged debt reduction comes from the imposition of a ten-year limit on discretionary spending; by 2033, that would mean cutting spending 24% below current projections. Which programs would be cut? If some things like veterans’ benefits were excluded, would the huge cuts demanded elsewhere be possible? Republicans will not respond.
Another big item in the Republican proposal is to cut funding for the Income Tax Service. The Congressional Budget Office, like most independent analysts, says that would increase the deficit, hampering the government’s ability to prosecute wealthy tax evaders.
There’s more, and almost all of it is bad. No one who knows anything about the federal budget could honestly call this proposal “reasonable.”
So what’s going on here? There are two possibilities, not mutually exclusive.
One is cowardice. Organizations like the CRFB have built their brand on posing as nonpartisan, which is difficult when parties are as asymmetrical as they are today — when an imperfect but sane Democratic Party confronts Marjorie Taylor Greene’s party. The easy way out is to pretend the Republicans are being reasonable, even when they clearly aren’t.
The other possibility is that the nonpartisan pose was always a fraud. Consider the fact that in July 2019, when Donald Trump was president but Democrats controlled the House, the debt ceiling was lifted for two years. Do you really think the CRFB would have described Nancy Pelosi’s position as “reasonable” if she had threatened to cause a financial crisis unless Trump reversed his 2017 tax cut?
Anyway, one small benefit if we get past this confusion – at this point, my guess is that Biden will eventually invoke the argument that the debt ceiling is unconstitutional, but who knows? – might be to discredit the debt cranks who never earned their former political influence.
Translated by Luiz Roberto M. Gonçalves
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