On Monday, the U.S. reached the debt limit previously set by Washington lawmakers. The Treasury Department is buying time by temporarily borrowing from federal employees pension funds to continue making interest payments on our debt. This measure, among others, will only carry the government until August 2nd.
The threat of reaching the debt ceiling has become a political football in Washington over the last few decades. Traditionally, the party in power talks about the need to honor our obligations and the minority party talks about the need to make responsible decisions to limit overspending. Inevitably, a debt limit increase is approved – usually in conjunction with other legislation.
That the U.S. has a debt ceiling at all is unusual. Most countries routinely increase debt levels without requiring lawmakers to approve an increase in the overall amount being borrowed.
The debt ceiling is typically explained as a sort of credit limit. Except, unlike your credit card limit, this one is set by the borrower – not the lender. Nevertheless, exceeding the limit puts the country in a dangerous financial situation, decreasing investor confidence in our ability to repay and likely driving interest rates on Treasury bonds up, which in turn reduces the availability of capitol for private borrowers.
Virginia Senate candidates have reacted strongly to the prospect of another increase in the debt limit.
Following House Speaker John Boehner, George Allen argued that Republicans should use the debt limit increase to obtain significant real cuts in federal spending. Boehner wants the cuts to be one-for-one: in other words, for every dollar the debt ceiling is increased, one dollar of federal spending would have to be cut over the next five years.
Tim Kaine has challenged Allen’s current position, arguing that Allen routinely voted to raise the debt ceiling when he was a Senator and never sought to tie those increases to commensurate reductions in spending.
Jaime Radtke says that Virginians she’s talking to don’t trust Washington to actually reduce spending and that the debt ceiling shouldn’t be raised. “When you are in a hole… stop digging,” she said in a press release yesterday.
E.W. Jackson, Chesapeake conservative and recently announced Senate candidate pledged never to vote to increase the debt ceiling and challenged his fellow Republican senate candidates to take the same pledge.
Simply opposing the debt ceiling increase, however, leaves serious questions unanswered. Candidates who categorically oppose the increase must provide a plan for how the U.S. should handle a situation where we are unable to borrow further and yet 40% of the budget relies on borrowed dollars. If we are unable to meet our obligations, where will we default first and what impact will that have on the economy. Some legislation has been introduced in the House, such as H.R. 1908, which attempts to govern how the Treasury would allocate funds in the event that Congress fails to pass an increase in the debt limit. Likewise, candidates who support increasing the debt limit should give voters real answers as to how their position deviates from business as usual in Washington and what they would do differently to ensure real long-term reductions in the overall federal debt burden.