This article first appeared in the St. Louis Beacon, Jan. 7, 2011 - Earlier this week, Treasury Secretary Timothy Geithner issued a stern warning to the new Congress that failure to raise the nation's debt limit by March 31 would jeopardize the fragile economic recovery by pushing the country into default and effectively cut off the country's ability to borrow.
Even though many members of Congress admit that the debt limit will have to be raised, some, especially in the GOP, cannot resist the temptation to turn the situation into an opportunity for grandstanding, playing to the Tea Party's desires to cut spending and government.
As even opponents of big government will admit, messing with the country's credit for partisan reasons is playing with fire. As Geithner wrote in a letter to Senate Majority Leader Harry Reid, D-Nev., even a limited-duration default would have catastrophic long-term results that our country's economy can ill afford.
Nevertheless, even as the new House Budget Committee Chairman Paul Ryan, R-Wis., admits that the debt limit will have to be raised, the new Republican majority is using this issue to try to extract big spending cuts from the Obama administration.
The Republicans are playing a dangerous game. Ezra Klein, blogging for the Washington Post captures the full extent of the GOP's brinkmanship. He writes that the new majority in Congress is willing to permanently cripple the U.S. economy to win a Pyrrhic victory of cutting spending.
Klein asserts that a federal government default would be like the financial meltdown on steroids. The reason for this is all the debt, public and private, issued in this country is pegged to the Treasury's debt. Until now, the Treasury debt has fetched good prices on the market because it is considered a risk-less investment owing to the fact that modern America has never defaulted.
However, all of this could change. Even if GOP brinksmanship results in just one day of default for the U.S. debt, enormous damage will be done.
As Gethner's letter to Reid explains: "default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale."
Surely it cannot be the Republicans' intention to cause such an economic disaster? The leadership of the GOP is betting that Obama and the Democrats will blink first. But this is a flawed strategy.
The new Republican majority in Congress is caught in a trap largely of its own making. To attract Tea Party voters, it promised that it would cut $100 billion of non-security spending from the budget. However, once in power, according to Erik Wasson, writing in The Hill, they have already started to back away from this pledge.
Now some Tea Party activists are becoming concerned that the GOP only used them to win the election and shows scant interest in enacting their agenda. These fears were exacerbated last month during the lame duck session of Congress, when Republicans helped Democrats pass an extension of unemployment benefits for 18 months and a new START treaty with the Russians, both huge wins for the Obama administration.
To placate the Tea Party, the Republican leadership has drawn a line in the sand: no debt limit increase without deep spending cuts. But raising the debt limit before March 31 is necessary to prevent the economic tsunami noted above.
Obama should stand firm and assert that the debt limit will not be used a bargaining chip. Just as with the START Treaty and national security, he could make the valid argument that the country's financial security should not be subject to partisan football. It is likely that the public would see through the GOP's tactics and support the president's position.
A vigorous debate over spending priorities is necessary. The Democrats must defend their positions on spending and so should the GOP. However, negotiating spending levels should be done as part of the annual budget process. Holding hostage the long-term economic well-being of the country to fulfill a campaign pledge is a short-sighted political strategy.