Chinese creditors would get paid before Social Security recipients.
Thursday's proposal by House Republicans to let America borrow money for six more weeks was a welcome sign that, despite all their bluster, GOP leaders now believe that allowing the nation to hit the debt ceiling would court economic — and political — disaster.
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Just the hint of rationality sent the Dow Jones average up more than 300 points. But while the proposal is a useful door-opener, it is not a solution in itself. It wouldn't reopen the government. And it would merely kick the debt-limit can down the road to Nov. 22, when Congress and the president could presumably have the same hair-raising fight all over again. Not surprisingly, President Obama continues, rightly in our view, to insist on an end to tactics that threaten economic harm to attain political ends.
Talks were continuing, but whatever happens to the six-week offer, or a three-month offer that was emerging from Senate Republicans, the fight over the debt limit has exposed the recklessness of lawmakers who deny there's real danger in hitting the ceiling. When Treasury Secretary Jack Lew warned senators Thursday that failing to act before Oct. 17 would have grave consequences, Sen. Mike Enzi, R-Wyo., brushed him off. "I think this is the 11th time I've been through this discussion about the sky is falling and the earth will erupt," Enzi said.
Yup. The sky hasn't fallen because every time default has gotten close, responsible members of Congress have made a deal to stave it off. Even the possibility of default rattles credit markets, raises borrowing costs and endangers the nation's credit rating.
The important point is this: The debt limit merely allows the government to borrow money it needs to pay the bills for things it has already bought. The time to get fiscally righteous is when you're in the store buying that 60-inch flat-screen TV, not when the credit card bill comes due.
Both parties have shamelessly demagogued this issue at various times, but no one should be confused about the very real danger here, which an overwhelming majority of economists, business leaders and world leaders have desperately tried to warn Congress about.
Famed investor Warren Buffett told Fortune that refusing to raise the debt limit is so dangerous that it should be "banned as a weapon ... like nuclear bombs, basically too horrible to use."
The U.S. Treasury securities that fund the nation's public debt are the safest in the world because investors are confident they'll be paid. If default undermines that confidence, they will demand higher interest rates, driving up the deficit as well as the cost of mortgages, car loans and business borrowing. At worst, it could freeze up credit markets, as happened in the 2008 financial crisis.
Also dangerous is the notion among the "debt ceiling deniers" that the government's bills could be prioritized if Treasury could no longer borrow enough to pay all its obligations. This would mean slashing government expenditures and putting foreign bondholders in line before Americans. In other words, Chinese creditors would get paid before Social Security recipients. Does anyone seriously believe that would be politically sustainable?
A debt limit crisis, now or later, would be a self-inflicted wound. There are plenty of tax and spending issues to talk about, but debt limits should be off-limits.
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