As the federal government reached the end of the fiscal year on September 30, and approaches its statutory borrowing limit on October 17, Republicans in Congress decided now would be the perfect time to demand policy concessions from President Obama and congressional Democrats. Actually, Republicans decided this quite a while ago, according to a recent New York Times story titled 'A Federal Budget Crisis Months in the Planning.' Conservative activists funded with hundreds of millions of dollars from brothers Charles and David Koch have long planned to cut off funding for the entire federal government unless Democrats agreed to defund the Affordable Care Act (a.k.a. Obamacare, which happens to be funded primarily through capital gains taxes on incomes over $200,000). And our fabricated budget crisis has not been much of a surprise to anyone watching as Republicans deliberately blocked traditional forms of budget negotiations for the last six months.
Republicans have presented a laundry list of demands, ranging from permitting the Keystone pipeline extension to defunding Obamacare. But what are Republicans offering in return for such concessions from Democrats? Apparently nothing, except the continued operation of government services and the avoidance of the economic chaos that would result if our government can no longer borrow the money it needs to cover its legal obligations. These obligations include everything from paying for veteran and elder care, to financing government agencies, to satisfying previous bond issuances that come due on a regular basis. Failing to meet any of these obligations would have far-reaching impacts on families, businesses, and worldwide markets. Billionaire investor Warren Buffett likened the potential fallout to that of a nuclear bomb.
As stock markets begin fluctuating in response to government dysfunction, portfolio managers at Boston-based Fidelity Investments have already dumped short-term government bonds. Interest rates on those obligations have begun to spike, while small businesses, government workers, and citizens across the country are experiencing the ill effects of a government shutdown entering its third week. Perhaps thinking that bluster can minimize the real impact of their threats, some Republicans claim that the Treasury can pay bondholders from its revenue stream, and merely neglect to pay other, presumably less important people, if the debt ceiling is not raised. But there are a few problems with this scenario.
First, it forces the President and Treasury Department to choose which law to break. The Constitution requires that the President spend what Congress has instructed him to spend, collect only the taxes Congress has authorized, and borrow up to a limit also set by Congress. Which of those imperatives should the President disobey? Is it possible that Republicans in Congress are intentionally forcing such a choice in order to facilitate an impeachment?
Second, since tax revenues fluctuate on a daily, weekly, and monthly basis, there is no guarantee that at any given moment the Treasury would have enough cash on hand to meet whatever particular obligations our leaders chose to satisfy.
Finally, since the government is currently borrowing about 35% of its expenditures (down from 50% during the depths of the recession), a 35% reduction in government spending would be a significant blow to the economy. According to a recent Goldman Sachs estimate, failing to raise the debt ceiling would reduce GDP by 4.2%; enough to throw the country back into recession.
So this is what Republicans are using to threaten the President and Democrats. In order to extract policy concessions that cannot be won through legitimate votes in Congress, Republicans seem to be relying on the natural instinct of Democrats to protect our country's citizens and economy. Do Republicans know the difference between good faith negotiations and extortion? Offering fresh-baked cookies in exchange for some home-grown tomatoes is a good faith negotiation. Threatening to burn down your neighbors' house or destroy the economy unless they give you whatever you want is extortion.
Are Republicans intentionally instigating a Constitutional crisis in order to derail the presidency of Barack Obama? Are they intentionally sowing the seeds of economic destruction in order to erase the stain of the George W. Bush presidency? Is it pure malice that causes some Americans to threaten their own country? Some might claim that it is out of concern for "our children and grandchildren" that Republicans threaten government default. But any default increases interest rates and borrowing costs, creating an even greater burden on current and future generations.
If Republicans sincerely wanted to address our debt, they would have worked calmly and deliberately with Democrats over the last six months using the traditional budgetary process, all while protecting our economic recovery. But for their own reasons, they chose not to do that. Sometimes it is hard to understand the darkness in other people's hearts. And the hearts of these Republican saboteurs and arsonists are so dark as to be invisible.