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| "I told you so" |
The very idea of a debt ceiling for government makes perfect sense. It's a cap (the ceiling bit) on the amount of money the government can borrow. This in theory reduces the ability of a government to act irresponsibly and charge up the national credit card on irrelevant, pricey policies. Though in this circumstance, the US debt ceiling is acting as anything but a protection measure for the US government and economy. It has become a mere obstruction to the ability for the US government to make both timely policy, but also not to default and loose its AAA credit rating.
To take the view of the "Tea Party", Barack Obama - being as fiscally and politically irresponsible as he is - is trying to ruin the US economy. In this situation, the debt ceiling wouldn't stop an economic disaster. As soon as the government over borrowed, either the government would have cease from acting on anything that cost or the US would loose its AAA credit rating and economic strife would ensure. The President could also ignore the ceiling and open up the possibility for impeachment, thus economically and politically disabling the economy. In no way does the US debt ceiling manage to avoid or mitigate bad political and economic decisions in relation to debt. It acts more as a guideline, a point of reference to which governments would not like to reach because of what it symbolises; bad economic management.
Though for Barack Obama, who is trying to stimulate the struggling US economy and also push through major yet costly healthcare reform, the debt ceiling acts only as a blockade to action. It prohibits the President from using his executive power to make decisive action where Congress dithers and dawdles. Though the closer the US gets to hitting the $USD14.3 trillion ceiling, the more pressure is placed on him to take decisive action.
On the current course, if no action is taken, the US will break through the ceiling on August 2nd, requiring Congress to limit government expenditure, resulting in the US defaulting on some of its loans. The impact of this would not only likely plunge the US back into recession, but it would trigger a wave of instability over financial markets around the world. With the already unstable Eurozone, a US default would only worsen their situation. The other option is that the President ignores the ceiling (and continues spending) or priorities some payments so as to avoid default. Though this would cause a political/constitutional crisis with the President using his powers in the manner, creating even more uncertainty and instability. Hence the only real option that remains is negotiation and deal making with the Republicans. As the Republicans hold the majority in the House of Representatives, and could realistically pass their own policy of heavy spending cuts through with a filibuster, politics in Congresses is getting very terse, tense and nasty.
It's 11th hour of Capital Hill with the 2nd August fast approaching. It is unknown whether it will be the Democrats or Republicans who become victims of circumstance by agreeing to a last minute deal in Congress. The one unknown variable in this political equation is the markets knowledge that the US economy is at its most fragile state since the 2008 GFC (Global Financial Crisis). This may be the hour for bold decision making and strong leadership; or a drawn out filibuster, political backstabbing and a solution that no one is really confident in.
Links
Talks resume as Senate kills off debt bill - ABC news