In a recent New York Times magazine article, Adam Davidson (of NPR’s Planet Money podcast and blog) provided an excellent analysis of the current debate over raising the debt ceiling – and what’s at stake if it’s not increased. It’s one of the best articles I’ve seen on the problem.
Traditionally, raising the ceiling was not a political issue. That changed in 2011 when a significant faction of Tea Party Republicans entered the House of Representatives. Now it seems every few months we face another rancorous debate over whether to increase the debt limit. Davidson says no wealthy country has ever voluntarily defaulted on its debt and that playing chicken with the debt ceiling could have disastrous global consequences.
“At some point, the government won’t be able to pay interest on its bonds and will enter what’s known as sovereign default, the ultimate national financial disaster achieved by countries like Zimbabwe, Ecuador and Argentina (and now Greece). In the case of the United States, though, it won’t be an isolated national crisis. If the American government can’t stand behind the dollar, the world’s benchmark currency, then the global financial system will very likely enter a new era in which there is much less trade and much less economic growth. It would be, by most accounts, the largest self-imposed financial disaster in history.”
As we face another possible government shutdown, it will be an interesting week to look under the political rocks Democrats and Republicans are hurling at each other and see what exactly is going on in Washington.
On Monday’s edition of Kentucky Tonight, we got some insights into the debate over the deficit, the debt ceiling, and ongoing efforts by Republicans to defund Obamacare. Here’s a sampling of that conversation with Louisville Metro Councilman David Tandy; KC Crosbie, national committeewoman for the Republican Party of Kentucky; Somerset Community College political scientist James Taylor; and Brian Strow, economics professor at Western Kentucky University.