While Congress has never before refused to raise the debt ceiling, it has in fact frequently taken its time about doing so. In 1985, for example, Congress waited nearly three months after the debt limit was reached before it authorized a permanent increase. In 1995, four and a half months passed between the time that the government hit its statutory limit and the time Congress acted. And in 2002, Congress delayed raising the debt ceiling for three months. It took three months to raise the debt limit back in 1985 as well. In none of those cases did the world end.
More important, what will be the consequences if the U.S. government fails to reduce government spending? What happens if we raise the debt ceiling then continue merrily on our way spending more and running up ever more debt?
Already Moody’s and Standard & Poor’s have warned that our credit rating might be reduced unless we get a handle on our national debt. We’ve heard a lot recently about the European debt crisis, but, as one senior Chinese banking official recently noted, in some ways the U.S. financial position is more perilous than Europe’s. “We should be clear in our minds that the fiscal situation in the United States is much worse than in Europe,” he recently told reporters. “In one or two years, when the European debt situation stabilizes, [the] attention of financial markets will definitely shift to the United States. At that time, U.S. Treasury bonds and the dollar will experience considerable declines.”
Moreover, unless we do something, federal spending is on course to consume 43 percent of GDP by the middle of the century. Throw in state and local spending, and government at all levels will take 60 cents out of every dollar produced in this country. Our economy will not long survive government spending at those levels.
If the debt ceiling is not increased, the Treasury can prioritize interest and debt payment to avoid a default and essentially put the government on a stringent pay‐as‐you‐go basis. Would that involve extreme cuts in government spending? Certainly. But it could be done, if it had to.
If Republicans hold tough on the debt limit, they will have the public strongly on their side. According to the most recent Ipsos/Reuters poll, fully 71 percent of Americans oppose raising the debt ceiling. In fact, that number didn’t change even after people were told that “not raising the debt limit would damage the U.S. sovereign debt rating, which is like our credit rating: it would seriously damage our credibility abroad, would make it much more difficult for us to borrow in the future, and would likely push up interest rates.”
In the long‐run, a limited increase in the debt ceiling might be negotiated in exchange for significant structural budgetary reforms designed to limit future government spending. But there is no reason for Republicans to surrender preemptively.