"The only scenario in which I can imagine not using the filibuster is if the leadership of both parties agree that as a condition of that they would first pass out a balanced-budget amendment." These are the words of new Tea Party Senator Mike Lee (R-UT). A key debt ceiling vote is coming sometime in the near future. The current debt ceiling stands at $14.3 trillion. In order for the government to keep running and avoid going into what would essentially be default, the debt ceiling must be raised. An easy task in the past but times have changed, and so has the sentiment of the country as a whole.
There is a new group in congress; they are deficit hawks, and many of them ran on cutting federal spending in significant ways. New Tea Party representatives in both the House and Senate ran on platforms that often involved preventing this debt ceiling from being raised, and a majority of them are still speaking out on the subject.
The Republicans won a mid-term election in 1994, and part of their platform involved shutting down the government by refusing to pass a bill to raise the debt ceiling. Newt Gingrich, Speaker of the House, led the charge in a move that ultimately proved costly two years later when Bill Clinton was re-elected to a second term. Republicans are no longer championing a shutdown of the government in hopes the outcome will be different. The most significant and immediate event that would occur from not raising the debt ceiling (essentially defaulting) would be the failure to send out the first round of Social Security checks. Retirees who normally rely on those checks will have to dive into personal savings in order to pay their living costs. One thing is for sure, if a government shutdown occurs, the people will likely just be mad at the whole Congress as a whole, and not segment their distaste along party lines.
It seems Senate trio of Jim DeMint, Rand Paul, and the above mentioned Mike Lee have the best chance of preventing the debt ceiling from being raised. They are a solid coalition of unwavering staunch fiscal conservatives, who also are the founding members of the Tea Party Caucus in the Senate. It seems the only way the debt ceiling will get raised is if these men abandon their principles (which is unlikely given their track record), or they get their way and make a deal for a bill involving large cuts in the budget, or even better, a balanced budget amendment. The establishment Republicans and Democrats can delay the vote, by making minor cuts, and by extending the current ceiling, but this only delays the inevitable.
I personally believe there will be fireworks as Tea Party candidates will make lots of noise about the vote, and they might even convince some representatives to come to their side. The Tea Party just gave the Republicans the biggest victory in the House by one party since the 1930’s. Any individual who goes against them risks their job.
Our current debt to GDP level has been increasing at an exponential pace over the last few years and currently sits at 97%. Some economists believe once the public debt to GDP ratio reaches 73% of GDP or 239% of exports, the result is default, hyperinflation, or both.
And this is where we stand. Default would be seen as bad, but hyperinflation would be even worse. Over the past few years the government has been running huge deficits, which is not a problem in theory. The problem lies in who buys these securities. Over the past few years the Federal Reserve has been buying them, by printing money and purchasing assets. As these extra dollars creep into the system, the value of our dollar goes down, and it turn, prices begin to rise. Now, I do not believe the United States will ever find itself in a situation such as Egypt and Libya, but remember both these countries have had massive riots due to rising food prices. Rising prices are just a symptom of the 2008 crash. With commodities at record highs and only going higher it appears the symptom will hitter sooner rather than latter.
We need to cut spending, and for the sake of our viability as the world’s largest economy it needs to happen soon. Raising the debt ceiling would be a terrible idea, unless there are some extreme cuts attached, or a balanced budget amendment. We cannot keep raising the debt ceiling, promising it will never happen again. Even in 2006, then Senator, Barack Obama voted against raising the debt ceiling stating, “the fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.” What a huge difference a few years makes.
About the Author: Thomas Long is a student at University of Wisconsin-Madison majoring in Economics and Math. He is a supporter of the Austrian School of Economics and the Hayekian Business Cycle. Tom plans on pursuing his Phd in Economics after graduating from Madison in the Spring on 2012.