We’re going to see a lot of political posturing and maneuvering in the next few weeks as both parties position themselves for either Armageddon or the biggest fizzle since Comet Kohoutek.
It’s the debt ceiling vote and everyone is wondering what would happen if it wasn’t raised. The administration (and many others) are predicting catastrophe. Other economists say that Geithner and co. are crying wolf.
Who to believe?
It would be nice if we could have a non-partisan answer to this question. In fact, we do. Most street-wise investors are, if not unconcerned, at least they’re not panicking about the potential failure to raise the limit. In other words, people whose livelihoods depend on predicting the future do not see what Geithner and the administration are seeing.
Should this comfort us as the GOP moves reluctantly – with a few Democrats – toward a no vote for raising the debt ceiling?
Sarah Palin thinks so:
Former Alaska Gov. Sarah Palin (R) on Friday doubled down on her opposition to raising the nation’s debt ceiling.
“Hells no. I would not vote to increase that debt ceiling,” she said during an interview on Fox News, where she is a paid contributor.
Palin, a potential GOP presidential candidate, has long been opposed to raising the nation’s $14.3 trillion debt limit.
But she indicated Friday she is willing to go further than Republican leaders in Congress and some other GOP presidential candidates, who are demanding that spending reforms be attached to a vote to raise the debt ceiling.
“It turns my stomach to hear this assumption articulated that we have to, despite the fact that we are raking in the federal government $6 billion a day,” she said. “Take that money and service our debt first and pay down some of that debt. Make sure that we are showing the international financial markets and our lenders that we’re serious about getting our debt and our deficit problems under control.”
This view is echoed by some conservative economists:
Here’s a paper from Reason columnist and Mercatus Center economist Veronique de Rugy and her colleague Jason Fichtner that lays out some plain facts on the matter:
The United States should not consider defaulting on its debt, nor should it put itself in a position where it has to postpone payment to contractors or “manage” other non-debt obligations. Neither, however, should Congress be forced to raise the debt ceiling under false pretenses. By our calculations, the United States has enough expected cash flow (tax revenue) and assets on hand to avoid either of these unattractive options until at least the end of the current fiscal year in September, perhaps even longer….
In fact, write de Rugy and Fichtner, the U.S. has about $2.4 trillion in assets it can part with to cover any shortfalls (they give a rundown of them in the paper). Better yet would be the sorts of institutional reforms, ranging from constitutional amendments to limit spending to BRAC-style actions to cut spending. They detail those too.
In fact, what you will be hearing from Republicans over the next few weeks is that if catastrophe occurs, the fault will lie squarely with Geithner who has it within his power to act on financing our debt in the manner suggested by Palin and others. If the markets blow up, it will be Geithner’s deliberate choice that they do.
So the question is: How irresponsible is the Obama administration willing to be on the debt ceiling issue? Given that Obama is already running hard for re-election, the answer is; as irresponsible as he can get away with.