If Congress doesn’t act soon, interest rates could spike–maybe for a long time. Then you’ll care.
The White House and Republican congressional leaders insist the debt ceiling will be raised well before the United States has to default, which would cause massive economic disruption. But a resolution seems less than assured. In the last few days, Republican presidential candidates Michele Bachmann and Tim Pawlentyhave joined a growing conservative chorus loudly denouncing a deal, and antagonism among the various parties appears to be growing, not diminishing.
Still, nobody in Washington or on Wall Street seems very alarmed. The Treasury says it can hold out until Aug. 2. But a look at the current politics and the recent history of debt-ceiling showdowns suggests that alarm might soon become warranted.
There are two reasons why. The first has to do with how difficult it will be to settle on something that can get through Congress in time to stave off any damage. This struggle has been largely misportrayed and crudely simplified as a tug-of-war between Republicans set on spending cuts and Democrats who want tax increases to accompany them. It’s actually a three-way struggle, because Republicans themselves don’t agree on their ransom demands to permit a larger debt.
House Republicans want to cut $2 trillion without raising any taxes or closing any loopholes. They’re focused strictly on spending. But Mitch McConnell, the Republican Senate leader, wants any deal to include Medicare reform. He’s focused on politics. McConnell worries that the House Republican budget passed in April, which takes the deeply unpopular step of privatizing Medicare, presents a mortal threat to Republican candidates in next fall’s elections. A debt-limit deal on Medicare that drew the support of President Obama and Democrats would inoculate the GOP against this danger.
The trouble is, House Republicans don’t share McConnell’s concern, so an agreement among Republicans seems nearly as remote as one between Republicans and Democrats.
That gets to the second reason for alarm: the United States need not default on its debt in order to incur costly and potentially lasting damage. A February report by the Government Accountability Officeexamining the recent history of “debt-ceiling events” — none nearly so serious as the current one — showed that government borrowing costs began to rise well in advance of default. Call it a taxpayer premium for congressional squabbling: the disruption of Treasury auctions and the threatened loss of liquidity among Treasury notes and bills caused billions in additional borrowing costs in the form of higher interest rates.
One reason why the debt showdown isn’t causing more alarm is that interest rates have been falling. But that’s due mostly to declining economic forecasts in the United States and fear of a Greek default — currently more powerful influences, but also ones that would mask worries about a US default.
At some point, perhaps as soon as in a few weeks, the fight in Congress could eclipse those factors and drive interest rates higher. That’s been the historical pattern, and it is already causing worry about what might trigger such a rise. “The nervousness on our end is that the markets will misperceive what’s going on,” an aide to a conservative House Republican told me. “If something fails on the House floor, people might react as if all life is about to end — just like they did when the TARP vote failed.”
That could cost taxpayers dearly, even if a default is ultimately avoided. One reason why US borrowing costs are so low is the universal belief that the government will always make good on its debts in a timely manner. But if that faith is shaken — and a good scare could do the trick — investors might decide that government debt is a riskier investment than they had imagined and demand a better return.
That will hurt. The Office of Management and Budget determined that a mere 1 percent rise in interest rates would cost taxpayers $973 billion over the next decade [pdf, pg. 23]. So a fight purportedly about cutting the deficit could actually cause it to grow much larger. That’s worth worrying about now — especially as Republicans threaten a default and claim there’s no cause for alarm.
By: Joshua Green, Senior Editor, The Atlantic, June 30, 2011
On the same day that Gov. Scott Walker’s anti-public employee law takes effect in Wisconsin, public workers in Ohio can celebrate a victory in the battle for democracy.
We Are Ohio, the group leading the effort to repeal Ohio Senate Bill 5, the anti-collective bargaining bill, delivered a record number of nearly 1.3 million signatures to the Ohio Secretary of State today, backed by a “Million Signature March” parade of more than 6,000 people, retired fire trucks, motorcycles, a drum line and bagpipes.
“This is the people’s parade,” said We Are Ohio spokesperson Melissa Fazekas in a news conference after the parade. “You are truly one in a million.”
Ohio’s Veto Referendum
Both Ohio and Wisconsin have had union-busting legislation forced on them by Governors John Kasich and Scott Walker in the name of fiscal austerity, and both states saw massive protests in response to the attacks on workers’ rights and public services. The electoral methods of recourse, however, differ between the states.
Ohio is one of 21 states that allow for veto referendums. A veto referendum is a unique mechanism that allows a new law to be placed on a ballot for voters to either ratify or reject if enough signatures are collected within the statutory timeframe.
About 231,000 valid signatures are required to put the collective bargaining law on the November ballot as a referendum. The 1,298,301 signatures were delivered in 1,502 boxes carried by a 48-foot semi-truck. The Ohio Secretary of State’s office must now sort the signatures by county, count them and distribute them to county boards of elections for validation.
According to the Toledo Blade, “Just the filing of the petitions Wednesday will keep Senate Bill 5 from taking effect on Friday as scheduled. If at least 231,149 of the signatures are determined to be valid, the law will remain on hold until the results of the election are known. If voters reject the law, it will never take effect.”
Wisconsin’s Recall Elections
In Wisconsin, six Republican state senators face recall elections over their vote to abolish public employees’ collective bargaining rights. Three Democratic state senators have also been targeted for recall, in response to their decision to leave the state during the battle that ensued over the controversial legislation. Primary elections for the recalls will take place July 12 for the Republicans and July 19 for the Democrats, with general elections following in August. If the Democrats hold onto their seats and three of the six Republicans are recalled, the state Senate will flip to a Democratic majority, loosening the Republican stronghold on the state.
While papers cannot be filed to recall Walker until January 2012, United Wisconsin, the grassroots organization behind the gubernatorial recall movement in Wisconsin currently lists 189,321 pledges for recall. To prompt a recall election, 540,206 signatures would be required.
“What we saw today in Ohio was a response of millions of people saying ‘no’ to Gov. Kasich’s agenda and standing up for bargaining rights and workers’ rights, because we don’t have the ability to remove him,” said Kris Harsh, spokesperson for Stand Up for Ohio.
Both Mechanisms from the Progressive Era
Ohio does not have a recall provision, thus the referendum drive. But both referendums and recalls are progressive tools that date back to the early 1900s. According to the Ohio Historical Society, “Progressives argued that the referendum made the American political system more democratic.” Referendums were approved as an amendment to the Ohio Constitution in 1912, and the Wisconsin Constitution was amended to allow for the recall of elected officials just one year after Robert “Fighting Bob” La Follette’s death, in 1926.
La Follette fought for progressive ideals — such as recalls and open primaries — to empower average people at a time when corporate bosses ruled the political scene. La Follette’s fight was against railroad barons and agricultural monopolies, while Ohio battled the Standard Oil Trust.
The overwhelming outpouring of people standing up for their rights and for their communities in Wisconsin and Ohio today indicate that the progressive tools given to Americans by fighters like La Follette are just as relevant and necessary now as they were more than 100 years ago.
By: Jessica Opoien, Center for Media and Democracy, June 29, 2011