The coming fight over raising the debt ceiling from its current level of $14 trillion is going to be one of the more interesting tugs of war between the White House and the GOP Congress.
In summary, the GOP will insist on deep cuts in the budget as well as probably some kind of budget reform. There may be an effort by Republicans to freeze spending at 2008 levels which would necessarily entail massive budget cuts to departments like Education and the EPA.
The White House wants the GOP to shut up, sit down, and just vote, as Austin Goolsbee, the president's economic advisor, made clear yesterday. From The Hill:
Top White House economic advisor Austan Goolsbee warned Sunday that a congressional failure to rise the nation's debt limit early this year would be "catastrophic.""It pains me that we would even be talking about this," Goolsbee told ABC's "This Week."
"This is not a game. You know, the debt ceiling is not something to toy with. ... If we hit the debt ceiling, that's essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic. I mean, that would be a worse financial economic crisis than anything we saw in 2008."
The current debt limit is $14.3 trillion, which Washington is expected to hit in February. A failure to raise the ceiling would prevent Congress from borrowing funds to pay the country's obligations. Some conservatives - notably many in the incoming class of Tea Party-backed Republicans - are threatening to vote against raising the cap, arguing that the U.S. simply can't afford to rely so heavily on borrowing.
Goolsbee argued Sunday the country can't afford not to.
"If we get to the point where you've damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity," he said.
If that's their strategy, they are in for a very rude surprise. The GOP was elected, at least in part, to hold the Obama administration accountable for their wild spending. Since the president won't offer up a budget that would include any significant cuts in domestic spending, the GOP will do it for them - and hold the prospect of a government shut down over their heads to accomplish it.
There is risk, of course, in this strategy - both economically and politically. Goolsbee is theoretically correct about the effect on the economy, although the Treasury Department has some gimmicky accounting they can use to stave off the worst of effects of not raising the debt ceiling. And, as in 1994, it is difficult to predict who the public would blame for the impasse.
But we are in a fiscal crisis of epic proportion with a White House that refuses to acknowledge responsibility for our current predicament. Someone has to act responsibly and the House Republicans would seem to be the only hope in that regard.
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