Posted by The largest political battle, barring something really stupid coming along, in the next few months will be over the attempt to raise the federal debt limit. While it sounds boring, it’s critical to every budget item, including science funding. Without increasing the federal debt limit, the U.S. would default on its debt (as well as be unable to pay for all of the allocated federal spending). Keep in mind this federal debt limit is absolutely artificial: since the U.S. has a sovereign and fiat currency, this is a self-imposed constraint. We could set the debt limit to any amount or even get rid of it entirely if we wanted.
Republicans plan on using the federal debt limit as an excuse to screw over working Americans by slashing Social Security and Medicare. But Dean Baker lays out why this, if Obama and the Democrats play their cards right (and that’s a big if), could completely blow up in the Republicans’ faces (italics mine):
In order to avoid this train wreck, supporters of Social Security and Medicare have to restructure the options. They have to push President Obama to announce in advance that he will never sign a debt ceiling bill that includes cuts to Social Security and Medicare, the country’s two most important social programs….
This would be a hugely popular position since not only Democrats, but also independents and even Tea Party Republicans overwhelming support Social Security and Medicare. Furthermore, the gun, in the form of a potential debt default, is actually pointed at the Wall Street banks, not the public.
A debt default would be a very bad situation and one that we absolutely should try to avoid. But the day after the default, the country would still have the same capital stock and infrastructure, the same skilled labor force and the same technical knowledge as it did the day before the default. In other words, the ability of our economy to produce more than $15 trillion in goods and services each year will not have been affected.
One thing that would not be around the day after a default is Wall Street. The default would wipe out the value the assets of the Wall Street banks, sending Goldman Sachs, Citigroup and the rest into bankruptcy. The recovery for the economy from such a situation will be difficult, but the shareholders of the Wall Street banks would be wiped out and their top executives unemployed.
For this reason, the threat of a default is a gun pointed most directly at Wall Street. Given the power of Wall Street over Congress, is inconceivable that they would ever let the Republicans pull the trigger.
This means that if President Obama is prepared to take the right and popular position of supporting Social Security and Medicare, he will win.
Keanu Reeves movies notwithstanding, shooting the hostage is a bad idea, especially when he’s your guy.
Very Serious Pundits and their progressive enablers will howl like the bane sidhe. They’ll claim taking such a stand is ‘irresponsible’–screwing over middle class people however, is, of course not irresponsible. Ignore them (usually a good idea). For once, call the Republicans’ bluff. Unlike healthcare, where the Democrats had to pass something, they can just sit on their hands, since the Republicans have so much more to lose here.
Besides, making Republicans act like the grownups for once instead of petulant sociopathic children wouldn’t be such a bad thing either…
January 1, 2011
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