Advertisement

Opinion

Opinion

Blackmail acceptable to curb federal spending

June 4, 2011

Advertisement

— As the sun rises in the east, the debt ceiling will be raised. Getting there, however, will be harrowing. Which is a good thing.

Treasury Secretary Tim Geithner warns that failure to raise the limit would be disastrous. In that he is correct. But he is disingenuous when he suggests that we must do so by Aug. 2 or the sky falls.

There is no drop-dead date. There is no overnight default. Debt service amounts to about 6 percent of the federal budget and only about 10 percent of federal revenues. This means that for every $1 of interest payments, there are roughly $9 of revenue the government spends elsewhere.

Move money around — and you’ve covered the debt service. Cover the debt service — and there is no default. What scares Geithner is not that we won’t be able to pay our creditors but that his Treasury won’t be able to continue spending the obscene amounts of money (about $120 billion a month) it doesn’t have and will (temporarily) be unable to borrow.

Good. The government will (temporarily) be forced to establish priorities. A salutary exercise.

Equally salutary is the air of crisis that will be generated by the fear of default. We shall have a preview of what happens when we hit the real debt ceiling several years from now, i.e., face real default. That’s our current fiscal trajectory. Under President Obama’s budgets, debt service, now $214 billion a year, climbs to $931 billion in a decade.

The current debt-ceiling showdown, therefore, is an instructive dry run of an actual Greek-like default, which awaits if we don’t solve our debt problem.

With one difference, of course. During today’s debt-ceiling fight, if the markets start to get jittery, interest rates on U.S. debt spike and the economy begins to teeter, the whole thing can be called off with a push of a button — an act of Congress hiking the debt ceiling. When the real crisis comes, however, there is no button. There is no flight-simulator reset. We default and the economy really does crash.

Which is why the current debt-ceiling showdown is to be welcomed. It creates leverage to force fiscal sanity.

But it can be a dangerous game. Republican demands must therefore be well-crafted. Fortunately, they are. Senate Minority Leader Mitch McConnell is pushing for budget cuts in the next two years. The effect would be real and multiplicative — when you cut the baseline budget, the savings get repeated year after year.

Spending caps are more problematic. They have a baleful history. Experience shows that Congress can padlock the refrigerator door but as long as Congress can still access the key, the gorging never stops.

I would suggest, therefore, enacting spending caps that could be overturned in future years only by supermajority — say, two-thirds of both houses. Now, of course, a future Congress could undo this whole scheme by repealing the caps through legislation that would require only a simple majority in both houses. But as long as Republicans maintain the House, they could block this maneuver. The caps would be essentially unrepealable.

In this spending-cut tug of war, it is of paramount importance to frame your demands in a way that the public sees as reasonable. The side that can command public opinion will prevail — the other side will ultimately cave for fear of being blamed for whatever dislocation occurs. Republicans should not be asking for, say, repeal of Obamacare as the quid pro quo for raising the debt limit. These are bridges much too far for these negotiations.

Which is why House Speaker John Boehner’s offer of a dollar-for-dollar deal — raise the debt ceiling to match corresponding spending cuts — is a thing of beauty. It is eminently logical and easy to understand. In a country with a huge 47 percent to 19 percent plurality opposed to raising the debt ceiling, the Boehner offer is difficult for the president to refuse.

After all, it invites Obama to choose how much to cut. For example, $500 billion buys him a $500 billion debt-limit hike — and only a short-term extension. Not wanting to go through this process again, Obama would like a $2 trillion debt-limit hike to get him past Election Day 2012. For that, he’ll have to come up with $2 trillion in spending cuts.

It may be blackmail. But it is progress.

Charles Krauthammer is a columnist for Washington Post Writers Group.

Comments

jayhawklawrence 2 years, 10 months ago

It seemed to me that the Democrats looked at the economy and said the problem was related to two unfunded wars and the unnecessary Bush tax cuts.

The political parties chose to tap dance around the issue of who was to blame for the banking crisis but both fought hard to use it to justify their economic strategies.

One strategy was to increase government spending as a stimulus to the economy which most of the world's economies did. A reasonable strategy, but probably unmanageable on the scale in which it was executed.

The Republican strategy was and is to do something completely different and that is to give rich people a tax holiday. Make rich people even richer and hope they buy something they don't need so the little guys can catch some coins on the way down.

It cannot be proven that either strategy will create jobs.

The big elephant in the room is our global trade issue and our willingness to start competing in the world's economy.

We are just going to have to educate the American people on how to buy American again and we are going to have to create or promote government programs that help American manufacturers and companies who believe in keeping jobs in the United States.

We are going to have to admit that our foreign trade partners are often times taking advantage or our greed and ignorance.

As long as politicians keep demagoging and scaring people to get votes and avoiding the real and large issue of world trade and competitiveness, we are just spinning our wheels and most Americans are just going to get broke that much quicker.

0

Liberty_One 2 years, 10 months ago

Crazy_Larry (anonymous) replies…

"Without the government spending to create the internet, youtube would not exist"

So ridiculous I thought everyone would like to share.

0

Godot 2 years, 10 months ago

Obama and Geithner have already played their cards: they have announced that they will default on the US debt, even though it is not necessary, even though there will be revenue to cover the interest payments. They will default and destroy our economy before they will cut a single dime of spending. They have announced, to all who will hear, that they are traitors.

0

Jimo 2 years, 10 months ago

So, if you can't convince the public of the merits of your position, just take hostages.

0

Bob_Keeshan 2 years, 10 months ago

The federal debt and deficit are driven primarily by spending on Iraq and Afghanistan and tax cuts that do not benefit 95% of the population.

I'm guessing Kraut doesn't want to get either of those under control, nor would he approve of blackmail.

0

just_another_bozo_on_this_bus 2 years, 10 months ago

Republicans don't want a balanced budget. They just want to redistribute as much wealth and power to the already wealthy and powerful as they can.

They won't be making any cuts, or raising any taxes, that aren't directly precisely at the most vulnerable in this society.

But they'll play chicken with the debt ceiling. They trashed the economy under Bush. Why wouldn't they do it again?

0

PaladKik 2 years, 10 months ago

Even if you arent a fan of the NFL or the NBA this is interesting!

36 have been accused of spousal abuse

7 have been arrested for fraud

19 have been accused of writing bad checks

117 have directly or indirectlybankrupted at least 2 businesses

3 have done time for assault 71 repeat 71 cannot get a credit card due to bad credit 14 have been arrested on drug-related charges 8 have been arrested for shoplifting

21 currently are defendants in lawsuits, and 84 have been arrested for drunk driving in the last year

Can you guess which organization this is? Is it the NBA or NFL ?

Neither, it's the 535 members of the United States Congress

0

commuter 2 years, 10 months ago

Merrill- maybe if you and your buddies would work more, pay more taxes and receive less government assistance, we would be able to help reduce the deficit.

0

Richard Heckler 2 years, 10 months ago

The fewer federal tax dollars in the economy the more jobs are lost

The fewer tax dollars available = higher local taxes without those federal and state tax dollars coming home.

There is no win win win!

Where are mu special tax dollar refund checks?

What are the state legislators doing with those tax dollars they so rudely eliminated from the economy?

0

Liberty_One 2 years, 10 months ago

You know if they just balanced the budget they wouldn't have to worry about raising the debt ceiling at all.

0

Commenting has been disabled for this item.