On Monday, the United States officially hit its debt limit, meaning that the government is no longer legally able to borrow. However, Treasury Secretary Tim Geithner has tools at his disposal to delay the U.S. defaulting on its obligations until about August 2.
House Republicans, for months, have been saying that they are willing to raise the debt ceiling, with Speaker of the House John Boehner (R-OH) admitting that failure to do so would be “irresponsible,” while House Budget Committee Chairman Paul Ryan (R-WI) said that not raising the debt ceiling is “unworkable.” But Rep. Devin Nunes (R-CA) this week let the cat out of the bag, outright calling for the U.S. to default. “By defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions” on major policies that affect the budget,” he said.
Actually allowing the U.S. to default on its debt would have widespread consequences for the U.S. and world economies, including potentially pushing the U.S. back into a recession or, in the words of Princeton Professor Alan Blinder, “reignit[ing] the world financial crisis.” And as the Wall Street Journal noted today, failure to raise the debt ceiling would force draconian spending cuts that would wipe out all of the anticipated 2011 economic growth in just 95 days:
Treasury Secretary Timothy Geithner has warned that if the debt limit isn’t increased by August 2, the government will no longer be able to spend more than it collects in revenue. That means it will have to cut spending by about 35%, probably choosing among such items as payments to contractors, soldiers’ salaries, social security and Medicare. On average, the cuts would amount to about $3.8 billion a day, according to our own estimates based on projections from the Congressional Budget Office. At that rate, over a period of only 95 days, the cuts would add up to 2.9% of gross domestic product, adjusted for inflation. That’s just enough to negate all the economic growth forecasters expect in 2011.
Back in 1983, conservative icon Ronald Reagan warned of “incalculable damage” if the debt ceiling were not raised. Today’s Republicans would do well to take heed.