Debt Limit Lunacy Goes Mainstream

Debt Limit Lunacy Goes Mainstream

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As they say in the world of communications, “if you have to explain, you’ve already lost the argument.” Well, the responsible parties in Washington have not lost the argument over raising the federal debt limit quite yet, but the fact that policymakers are even debating whether to do so shows that we are now in unchartered, and dangerous, territory.

The facts are straightforward. The federal government sets a legal limit on its debt and, to meet its obligations on time, has to raise the limit on occasion as annual deficits drive up total debt.

The federal government will bump up against the current $14.3 trillion debt limit next month. Treasury Secretary Timothy Geithner will then begin moving money among accounts so that the government can operate normally until early July. If, by then, the White House and Congress haven’t enacted legislation to raise the debt limit, the government will begin defaulting on its obligations.

That, most experts believe, will cause interest rates to spike and the stock market to shake, depress the dollar, possibly cause a financial crisis at least as serious as the recent one, and maybe send the economy into a recession that might make the Great Recession of 2007-2009 seem mild by comparison.

Speaking to the Council on Foreign Relations yesterday, Geithner called the notion of not raising the debt limit “ridiculous.”

Meanwhile, as Politico reported this morning, Wall Street leaders and business groups such as the U.S. Chamber of Commerce, National Association of Manufacturers, and Financial Services Forum are meeting privately with lawmakers, particularly freshmen Republicans affiliated with the Tea Party, to explain what’s at stake. “We tell them how catastrophic this would be to even come close and break faith with global investors,” one financial executive told Politico.

You’d think that would end this lunacy, right? Apparently not.

As the executive said about the meetings, “some totally get it and have candidly told us they won’t allow a default. Others say they won’t and don’t buy the argument that if we don’t raise the limit we default.”

Worse, House Speaker John Boehner – in line for the presidency after the Vice President, by the way – separately told Politico that he won’t even promise that the House will vote to raise the debt limit.

Of course, this could all be bluster. Presumably, Boehner and his colleagues will come along, working with Democrats to find the requisite votes to raise the debt limit. But the debate makes clear that the unfathomable – a default – has become an ever-more acceptable notion.

And that is not a good thing.

Lawrence J. Haas is former Communications Director to Vice President Gore and, before that, to the White House Office of Management and Budget. He's now a public affairs consultant who writes widely about foreign and domestic affairs, including fiscal policy.

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Lawrence Haas
is former senior White House official and award-winning journalist, writes widely on foreign and domestic affairs. His articles have appeared in The New York Times, USA Today, Los Angeles Times, Baltimore Sun, Miami Herald, San Diego Union-Tribune