The radio came blaring on when I started my car, the voice of a politician hitting me in the face as I settled in. His message amounted to “Default is a bargaining point. We’re not going to get all the way there, but we need it on the table to force the other side to compromise.”
I didn’t hear the guy’s name. I don’t know his political party affiliation. What I do know is that any politician, regardless of their party, who is willing to use a U.S. Treasury default as a bargaining tool has lost my vote, because they stopped representing their constituency.
I don’t venture down the rabbit hole of politics often in my columns, so I should disclose here that I’m an unenrolled voter, registered, but not a member of any political party. I’m a centrist, crossing party lines based on platforms and positions more than personalities.
In these times, that makes me a swing voter. I have always tried to make my voting decisions based on my vision of smart governing which, frankly, makes it hard to like either side.
But failing to raise or suspend the debt ceiling and putting the Treasury on the brink of default is about as dumb as politics gets, directly opposed to the interests of every American investor, consumer and taxpayer. It’s not a political chip to be played with, and anyone using it to achieve political goals — regardless of the side they represent — has lost sight of your interests.
You should remember that come re-election time.
I’m not finger-pointing; I’m not even using the names of political parties here. There’s a history of bad actions on both sides, no one has clean hands, so the issue is about what’s next.
One thing both sides agree on is that no one wants a default, so let’s focus on that.
According to U.S. Treasury Secretary Janet Yellen, the United States could run out of money to pay its bills by June 1 if Congress does not either raise or suspend the debt limit.
The debt ceiling itself is all about politics. It’s an artificial limit placed on how much the United States can borrow to pay for its existing obligations. Congress has always had the ability to do away with the debt ceiling but never has because politicians find it useful in driving short-term agendas.
Read: The Fed and other central banks face a reckoning for the damage they’ve caused
Before 2006 — when the debt ceiling first got kicked around as a political football — raising the limit was a regular bipartisan event. Since then, it’s been a part of no-holds-barred politics, even though it is the financial chokehold that should never be allowed.
The debt ceiling has never been a true check on spending — its original intent — as proven by the fact that this problem repeats itself every few years. Every time it comes up, politicians race toward the abyss, only to reach agreement at the last second and pat themselves on the back for a job well done.
This is no way to run a country, and your votes on this kind of pocketbook issue should tell our leaders as much.
“ Its hard to imagine the full impact of a default because we’ve never seen one, but it would create real hardships for real people. ”
Americans are still paying the price, literally, for nearing default in 2011, when credit-rating agencies removed the United States from the list of risk-free borrowers. Mind you, there was no default and the government paid all of its bills, but we’ve been stuck with a reduced credit rating for over a decade now at a cost of billions of dollars annually.
With some $30 trillion in debt in today’s much higher interest-rate environment, another ratings cut would raise borrowing costs astronomically. The nonpartisan Congressional Budget Office has predicted that an actual default would create “distress in credit markets, disruptions in economic activity and rapid increases in borrowing rates for the Treasury.”
Read: War rooms and bailouts: How banks and the Fed are preparing for a U.S. default and the chaos expected to follow
Frankly, it’s hard to imagine the full impact of a default because we’ve never seen one, but it would create real hardships for real people, and fast. Default would pause Social Security payments and funding for Medicaid and food stamps, as well as Medicare payments to doctors, hospitals and health insurers. It would delay paychecks for federal workers and active-duty military personnel, certain veterans’ benefits, and more.
And it will tank the U.S. stock market.
When a default was being debated in 2011, the stock market dropped by about 15%; if that happens again, it kicks about $6 trillion of market value — roughly $20,000 per American household — out the window. All for the sake of trying to win an argument over the right way to reach the same conclusion, eventually raising the debt limit.
That’s the one thing both sides generally agree on: the United States can’t and won’t default.
Because they’ve stopped at the edge before, it’s easy to believe our leaders will find a way to avoid a true default — that bondholders will get their money back and the interest they are owed (most likely on time) and citizens will get their Social Security payments and workers their paychecks (less likely to be on time) — letting the country move on until the next time this comes up.
“ The proper response to politicians who threaten you is to remember their actions and to find better representation in the future. ”
Meanwhile, we all are caught in the middle of a very real threat, and the proper response to politicians who threaten you is to remember their actions and to find better representation in the future.
We have real fiscal issues in the United States; no one disputes that. There will and should be arguments over evaluating, prioritizing and solving those issues to make progress towards a better future. But hijacking the financial credibility of the United States to make political points has no part in that process. Don’t terrorize the electorate and tell us it’s what we need. At least not if you expect to get our votes.
More: Ray Dalio says debt-ceiling debate sets stage for ‘disastrous financial collapse’
Also read: U.S. taxpayers are paying for yet another manufactured debt-ceiling crisis — and not for the last time
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