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The Debt Ceiling Is a Red Herring

With congressional Republicans planning to use the debt ceiling to extract spending cuts and other concessions from the Democrats, everyone seems to agree that another political crisis is in the making. Once again, an easily avoided outcome over a fake issue could become a self-fulfilling prophecy.

AUSTIN – In his bid to become Speaker of the US House of Representatives, Kevin McCarthy apparently agreed to a demand, voiced by Representative Ralph Norman of South Carolina, that he commit to “shut down the government rather than raise the debt ceiling.” There is firm bipartisan agreement on what this would mean. Crisis looms. For the Republican extremists, the impending crisis is their chance to remake America. For Democrats (and a few surviving mainstream Republicans), the threat of catastrophe justifies a politically dangerous vote to raise the ceiling. For the media – left, right, and center – it’s the drama, stupid.

What is the crisis? Paul Van de Water of the Center on Budget and Policy Priorities puts it this way:

“If the government couldn’t borrow, it would need to impose sharp, massive reductions in spending, which would have devastating economy-wide consequences. Some households, businesses, and nonprofits would be unable to pay their bills while they waited for payments the government legally owed them. Cuts in grants-in-aid would strain the budgets of state and local governments. Such a large drop in spending would plunge the nation into recession and drive up unemployment. … Moreover, the government’s inability to pay all its bills would shake financial markets around the world. It would raise serious doubts about the nation’s creditworthiness, sap the confidence of lenders, call into question the dollar’s place as a reserve currency, and increase federal borrowing costs.”

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