It's Time To Exploit The Debt Ceiling

Sometime between May and June, our government will breach the federal debt ceiling. We have three choices: raise the debt ceiling, cut spending, or default. The third choice would be a disaster, but I’m thinking that it might be the right time to oppose raising the debt ceiling. Jim DeMint thinks so. Interestingly, the same Democrats who voted against raising the debt ceiling before are now attacking Republicans for toying with the same idea.

Let’s start by explaining why we can’t default. If the US doesn't cut spending or raise the debt ceiling, it will literally (legally) run out of money. That means entitlements won’t be paid, government workers will be sent home (not just the essential ones), government contracts will stop, and repayment on the debt will stop. The biggest of these consequences might be the defaulting on the repayment of our debt. This would tank our credit rating and raise interest rates. Right now we pay approximately $160 billion per year on interest to service the national debt. Much of that has been at incredibly low rates obtained during the financial crisis of 2008. If we default, we could expect our interest rates to double pretty easily. That would mean spending almost as much on payment of interest as we currently spend on Medicare. Moreover, the higher interest rates would hit home mortgages, consumer loans, credit card rates, and crush the stock market. So default would begin a horrible economic spiral that would lead to an economic depression.

This means we must not default. It also means that anyone playing with a possible default better be sure they are right, because the consequences could be very severe and could be fairly easy to explain to every American, as they would be personally hit by this.

But default won’t happen until at least June or more likely July. So at this point, as far as the public is concerned, default is just theoretical. Thus, now is actually the perfect time to use the threat of default to extract goodies from the Democrats. Why? Because it’s too early for the public to get too upset about the idea of the interest on their ARM or their credit cards doubling. But at the same time, anyone worried about the consequences of not raising the debt limit (i.e. Obama and Senate Democrats seeking re-election) will be getting increasingly nervous.

Thus, now would be the time for Tea Party Republicans to make serious demands in exchange for agreeing to raise the debt limit. I say Tea Party Republicans rather than the party leadership because (1) it will be harder for the Democrats to attack Republicans generally if this was seen as just a subset of Republicans, (2) the Democrats think these people are crazy and thus are much more likely to believe this threat than they would if it came from Boehner, (3) Jim DeMint doesn’t have to reveal how much support he has, which will prevent the Democrats from judging how credible the threat is, and (4) this allows Boehner to play the mediator, which is an ideal position for an advocate -- it's essentially the good cop/bad cop routine.

I would also suggest that the demand be substantial and consequential, and it should not be anything that can be characterized as being done in the name of a small group of people like “the rich” or “corporations.” Thus, I would say, don’t ask for a few more billion dollars or tax cuts, but ask for a reformation of Medicare along the lines of that proposed by Paul Ryan, i.e. a de facto privatization. Or demand statutory spending caps fixing the maximum percentage of GNP that can be spent by the federal government.

Finally, start running ads right now pointing out the hypocrisy of the Democrats on this issue. President Obama, House Minority Whip Steny Hoyer and Harry Reid each voted against raising the debt ceiling when Bush was President. They are claiming their prior votes were mistakes. But others aren’t being as "genuine." Sen. “Air” Claire McCaskill claims it would be “profoundly irresponsible” for the Republicans to vote against raising the debt ceiling, without ever mentioning that she did the same thing when Bush was President. To hide the contradictions in their own votes against it under Bush and for it under Obama, John Kerry and Joe Lieberman are trying to blame Bush for each of their votes -- then and now. Nancy Pelosi and Caucus Chairman John Larson are simply refusing to comment on their flip flops. And Assistant Democratic Leader James Clyburn actually said that his vote against raising the debt ceiling (something the Democrats now describe as “profoundly irresponsible”) was just a “protest” of Bush’s tax cuts, i.e. he did something profoundly irresponsible just to register his anger at Bush?

The point here is simple. It will be very hard for the Democrats to defend this issue. Either they were horrifically irresponsible under Bush or they are playing politics now. Either makes for great ads and should help defuse any idea that the Republicans are about to destroy the country. So long as Obama is simultaneously afraid that not getting the ceiling raised will destroy the country (and it would), the Republicans should be able to extract something significant for the public.

Fortunately, this may be in the cards. Even Eric Cantor has said: “Let me give notice to the White House that blindly raising the debt limit without implementing real reforms is irresponsible and will simply burden our children with more debt. We Republicans are not going to go along with it.”

Ok. . . go for it.