The federal government will default on its debt only if President Obama wills it. House Republicans, by refusing to raise the debt ceiling until they obtain budget reforms, may be the country’s last hope to avoid a financial ruin.
Each month, the government collects $250 billion in taxes, and pays $23 billion in interest to public bondholders. If Washington can’t borrow more money, it will not be able to spend all that it has planned. It comes down to who gets paid and what doesn’t get bought.
Americans are not deadbeats. Families without enough money to do all they like pay their mortgages and credit cards, and cut back elsewhere. So must Washington.
Treasury Secretary Lew says he can’t set those priorities. In an emergency, as the government’s Chief Financial Officer, that is exactly what he is paid to do. However, cutting back entails postponing, for example, the expansion of Medicaid as required by the Affordable Care Act and grants to universities for faculty summer money.
By not raising the debt ceiling, congress is not reneging on bills already racked up. The existing debt—which can be serviced by paying the interest due—covers those obligations.
Raising the debt ceiling simply permits Congress to run up new bills. And abandoning that debt ceiling discipline, as many in the financial community suggest, to let Congress to spend as it pleases would be the peak of folly.
Studies by the Congressional Budget Office and Medicare and Medicaid actuaries plainly indicate if the government continues taxing, spending and borrowing as current law requires, then all Americans, and not just the wealthy, will be paying greater shares of their income on taxes and private health insurance. Federal spending on Social Security and health care will rocket and squeeze out spending on roads, education and other worthwhile activities.
Over the next several decades, budget deficits and the national debt will jump to unbearable levels.
The interest rates investors demand to purchase government bonds and resulting debt service will cripple Washington much as those did Greece and Italy in the years before their crises.
Economic growth will slow to a snail’s pace and working Americans will become much poorer. In the end, Uncle Sam will default on its bonds and pension obligations to the elderly, and many Americans will again be deprived of decent health care.
The president says lift the debt ceiling and he will negotiate on those issues. However, any solution requires raising the Social Security retirement age from 66 to about 70 to accommodate Americans living longer, and finally doing something about the prices of health care services and drugs.
Yet, Obama has repeatedly stated he will not raise the Social Security and Medicare eligibility ages. During the fiscal cliff talks, he refused to consider with Speaker Boehner entitlement reforms to address escalating health care costs.
In the United States, the average cost of an Angiogram is $914 but in Canada $35, the price tag for an MRI is $1121 but only $319 in Holland, and the painful list goes on.
Neither Democrats nor Republicans are willing to address those discrepancies in the implementation of the ACA or proposals to replacing it.
Only taking the money away will force politicians to deal with the painful truth: the price of health care, not access, is the real problem, and America’s health care system is likely the most inefficient and bureaucratically corrupt on the planet.
When a board of directors considers whether to permit a CEO to take on more debt, it asks whether the business will spend the money wisely.
Americans would be nuts to want Congress to lift the debt ceiling so that the Washington establishment can continue profligate policies that will eventually bankrupt the nation.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland.