Here's why refusing to raise the debt ceiling is really, really bad
Kevin McCarthy (AFP)

The debt ceiling problem wasn't always something that mattered. The country wasn't always crippled by partisan rancor and demands to cap any further debt no matter how close the budget is to balance. Both sides have raised the debt ceiling without an issue, but when Congress is held by one party and the White House by another, it can lead to government shutdowns .

Every time that happens, it ends up costing the country more money than if we just paid our bills to begin with. Think about being issued a fee if you don't pay your credit card bill.

As the New York Times explained on Tuesday, the impending debate over the debt ceiling is fast approaching and the Republicans have made it clear that they're not going to raise it, even if it means destroying the U.S. economy. The alternative is simply breaching the debt ceiling and ignoring Congress altogether. While it might be tempting for foes of the GOP, the Times analysts explain that it's just as bad.

"For years, Republicans have sought to tie spending cuts or other concessions from Democrats to their votes to lift the borrowing cap, even if it means eroding the world’s faith that the United States will always pay its bills," said the Times. "The fight over the debt limit is renewing debates about what the actual consequences would be if the United States were unable to borrow money to pay its bills, including what it owes to the bondholders who own U.S. Treasury debt and essentially provide a line of credit to the government."

Republicans have argued that breaking the debt ceiling isn't all that bad, while Democrats and the White House follow the advice of economists and economic forecasters.

“One of the greatest threats we have to this nation is our debt,” McCarthy told the Fox network on Tuesday. “We don’t want to just have this runaway spending.”

President Joe Biden has made it clear that he will not accept a deal from Congress with any strings attached. So, the likelihood of a breach is increasing.

“Fiscal deadlines will pose a greater risk this year than they have for a decade,” the Times cited one Goldman Sachs economist.

The last date set by Congress before it changed hands was Sept. 2023, so by August, things will start to get tight.

Goldman's estimations warn that the exact date could be "thrown into flux by uncertainty over the Treasury Department’s cash flow, which could change depending on the trajectory of the economy and the fate of certain policies."

The Bipartisan Policy Center's director of economic policy, Shai Akabas, explained “the situation has deteriorated somewhat” from last June and that the actual X-date could now be “sometime around the middle of the year.”

In 2011, for example, when Republicans shut down the government refusing to cooperate with former President Barack Obama. Luckily it was resolved just in time, but it certainly hit Wall Street hard and other consequences followed.

"Stock prices plunged — and volatility in the market spiked — as lawmakers approached a debt limit breach," the Times explained. "They did not recover for half a year. The cost of borrowing for corporations, which fluctuates with the level of risk that investors perceive in the economy, jumped dramatically. That made it more expensive for companies to borrow to make new investments. Mortgage rates spiked similarly, hampering prospective home buyers. The credit agency S&P downgraded America’s credit rating for the first time."

This was just a few years after the economy experienced one of the worst depressions since the 1929 crash.

"An actual breach would be far worse, economists warn," said the Times. And it would come just as the U.S. is finally coming back from the COVID-19 crash of 2020 that saw significant drops in the markets, jobs, business stability and the global economy along with the U.S. one.

"Such a scenario would add dramatically to the government’s interest payments, which the White House projects will cost the equivalent of 2.6 percent of the total American economy over the next decade, further squeezing the federal budget," the Times explained. "It would also threaten to destabilize bond markets globally because U.S. Treasury bonds are largely seen as one of the safest investments in the world."

The conservative, sometimes Democratic, think tank Third Way posted a report last month detailing that a debt limit breach would kill 3 million jobs and add $130,000 to the cost of an average 30-year mortgage and balloon the national debt by $850 billion.

So, when Republicans claim they want to "save" money for Americans, the facts simply aren't there.