The Debt Ceiling Consequences of the Shutdown

The current government shutdown is an embarrassing and deeply unfortunate byproduct of the Republican Party’s calcified rejection of Obamacare.  It’s one thing for Republicans to continue to question the efficacy of the health care law, as Ramesh Ponnuru points out.  But it’s entirely another matter when they refuse to pass a budget bill that does not include funding for Obamacare, even though the Senate and the President have made it clear that these bills will not be passed.  Rod Dreher’s thoughts on this extremely frustrating and irrational position are ringing quite true.

More problematic is that the largest potential consequences of the shutdown are still yet to come.  It’s possible that the budget battle will have spillover effects for this month’s upcoming debt ceiling vote, a critical legislative process that could have global financial consequences if not handled responsibly.  James Surowiecki:

The ceiling is the legal limit on the amount of money that the government is allowed to borrow, and raising it is necessary not just to keep the government running in the future but to allow it to pay for obligations it’s already incurred. As Justin Wolfers and Betsey Stevenson convincingly showed last year, the 2011 imbroglio over the debt ceiling put a significant dent in both business and consumer confidence, held back hiring, and further weakened the recovery. It also sent the stock market tumbling—even though a debt-ceiling deal was eventually reached, the Dow fell almost fourteen per cent in less than a month during the crisis, in part because it made people realize that a U.S. default was no longer unthinkable. (It also led to the first downgrade of the U.S.’s credit rating in history.) So it’s hardly surprising that the standoff in Washington is spooking—if not yet terrifying—investors. Markets dislike uncertainty, and what the Republican hard-liners in the House of Representatives have done, most significantly, is to make the future look uncertain by suggesting that, if they do not get the concessions they want (above all, the repeal of Obamacare) they are willing to let the U.S. default.

Martin Wolf looks at the consequences of a debt ceiling debacle:

At best, a failure to raise the debt ceiling would necessitate a sharp cut in spending. At worst, the US would default. Analysts at Bank of America Merrill Lynch argue that hitting the ceiling would require the US to balance its budget at once, cutting spending by about 20 per cent, or 4 per cent of GDP. That would push the US into another recession – even if there were no default. The consequences of an actual default, particularly one that lasted for some time, are beyond prediction. Unlike a shutdown, there is no precedent, for good reason. The notion is suicidal.

Michael Mackenzie, also of the Financial Times, has more information on the consequences of hitting the ceiling.

Right now, the government shutdown is more of an inconvenience than a minor cataclysm.  But each passing day makes the situation increasingly worse for more and more people.  Brad Plumer recaps the nine most harmful effects of the current closure, including cuts in nutrition and health programs, potentially delayed benefit remittance to veterans, and a hit to fourth-quarter GDP growth.

With the debt showdown looming as an ominous potential climax, it would behoove the Republican Party to resolve this situation as quickly as possible.  The Democrats in the Senate should be open to small negotiations on non-Obamacare policies to facilitate this process, but the onus is on the GOP to face the reality of the situation.  Its best bet was to allow the implementation of Obamacare and then emphasize the most inefficient parts of the plan throughout 2014 while simultaneously offering counterproposals for a new system.  That the public currently opposes the health care law 47% to 45% suggests demonstrated failures in the system would have lent credible evidence to buttress the Republicans’ case against the law.  Now, they’ve gone all in without any road map to extricate themselves from the reality that Obamacare will not be defunded, despite the fact that 72% of Americans oppose their shutdown strategy.  The faster the Tea Party wing of the House acknowledges this mistake, the more smoothly the next two weeks will go.

Enough of the spitfire histrionics that are engulfing the House.  It is unconscionable that veterans stand to lose access to benefits over an unnecessary fight that the Republicans cannot win, and it is obscene that this risk could extend to policy that affects the health of the global economy.

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2 thoughts on “The Debt Ceiling Consequences of the Shutdown

  1. Pingback: Wednesday Blog Roundup – 10-2-2013 | The Fifth Column

  2. Pingback: Steven Allen Adams | The Great Shutdown of 2013 – Day 2

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