Congress returns next week and no doubt will provide fresh reasons for us to cry, "What fresh Hell is this?" They will take up Syria first, but then Republicans will try their damnedest to hold the continued operation of the government hostage over defunding Obamacare. Then comes the really high-value hostage: the debt ceiling. Even though austerity is discredited, the deficit is down more than half, and cut after cut is already costing jobs and growth, they plan to hold the debt ceiling hostage to a demand to cut government even more. How much damage will be done?
Republicans are expected to double down on their effort to sabotage jobs and economic growth. First used as an anti-Obama campaign tactic – keep the economy and job growth stagnant so they run against "Obama's bad economy" – economic sabotage is again their plan for the 2014 midterms.
But first, Syria. The President should be praised for saying he is "mindful that I'm the President of the world's oldest constitutional democracy" and that "our example as a government of the people, by the people, and for the people." He said he will "seek authorization for the use of force from the American people's representatives in Congress." It is refreshing to hear an American leader speak of the people's will in an age when plutocracy again and again overrules solid majorities of the public, and when the country's leadership engages in austerity and "grand bargains" to cut the things government does to make our lives better in order to preserve low tax rates for billionaires.
Congress' role in the war-making process only heightens the responsibility of its leaders to act responsibility – at home and abroad. But fat chance. (Apparently the one thing that could turn Republicans into antiwar peaceniks is Obama saying we need to bomb someone. What's next, beads and LSD?)
Republicans coming out against bombing someone? Someone call an exorcist – they are inhabited by something.
Once Syria is out of the way, Republicans will begin anew to obstruct jobs and growth measures, and mess up the economy. Desperate, jobless, hungry people don't ask for raises.
Republicans have spent years scaring their base about Obamacare. They say it will ruin the country, impose a communist dictatorship over the public, bankrupt the Treasury and possibly will bring forth Satan himself.
Naturally, the base, fooled into believing that Obamacare would mean the end of the country itself, is demanding that elected officials engage in an all-out battle to the death (of the country) to stop Obamacare from being implemented. They are joined by wealthy backers who are financing Tea Party primary opponents to run against any elected Republican who actually dares to try to govern rather than destroy government.
A number of tea-party legislators argue that Congress should not pass any bills that fund the government at all if this means the continuation of Obamacare. A "government shutdown" occurs when funding bills are not passed in time and authorization for new spending is not given. Unable to commit to spending new money, the government would have to begin closing offices, send employees home, and stop work on contracts.
People need government. In spite of Republican dogma that "government takes money out of the economy," the reality is that the economy exists and thrives because of government. Government recirculates trillions into the economy. The government hires contractors to maintain the infrastructure. The courts enforce contracts, which enables business to do business. The government runs the regulatory systems that make our lives safe, protect our environment and uphold order – and even ensures that money exists and is transferred as needed.
A government shutdown, even for a very short period, would disrupt the lives of our most vulnerable as payments for critical services are stopped. An extended shutdown would have terrible effects on people and on the economy.
In a short shutdown the government would likely find ways to prioritize paying the salaries of members of the military, as well as the military's operational needs, such as fuel. (They did in 1995.) They would pay Social Security out of the trust fund but the payments could be delayed by personnel problems. They would prioritize air traffic control, especially internationally (but passport and visa application processing would cease). National parks would certainly close. Tax refunds would certainly be delays with personnel not available to process returns. The Centers for Disease Control would be forced to halt disease surveillance. Federal mortgage and other government-involved loan processing would cease.
If the shutdown is extended, all bets are off. All functions of the government would eventually cease – except members of Congress would likely vote to continue their own pay.
In 1995 Republicans shut down the government over a demand to cut Medicare. Clinton refused to sign spending bills with these cuts, and Republicans refused to pass them. The standoff first went from November 14 through 19, but then again from December 16 through January 6 when public opinion forced the Republicans to back down. Republicans suffered politically. That shutdown cost the government more than $800 million, including $400 million that was paid later to 800,000 "non-essential" government workers who had been furloughed. There were lost revenues from national parks. An Office of Management and Budget (OMB) estimate puts the cost at $2 billion in today's dollars. There were economic costs of delays and backlogs in processing applications, payments, and more.
In spite of anti-government rhetoric, the Republican leadership understands that another such shutdown would be catastrophic for the country and a disaster politically. But with decades of anti-government slogans pounded into their heads and memories of the 1995 shutdown faded, "the base" no longer understands this. They hate government itself, and see leadership that tries to govern as sell-outs. So the coming shutdown fight is as much a battle between Republican leadership and the expectations of the Republican base as it is between parties.
Debt Ceiling Apocalypse
While a government shutdown occurs when spending bills are not passed and signed, so no new spending is authorized, raising the debt ceiling is about authorizing the government to raise money to pay bills that Congress has already authorized.
There are two different levels of economic damage from a debt-ceiling fight. First there is the cost of the fight itself, as the world worries over whether Republicans would actually pull the trigger. The fact that they would talk about this at all causes considerable damage to growth and confidence.
But the other level of damage – far more serious – comes if they actually do it. If the U.S. defaulted, the consequences to the country's and world's economic system are literally unimaginable.
In January, The Washington Post looked at reports of the economic damage caused by the last debt-ceiling fight – the one that led to the economic damage of the "sequester." The Post report summarized:
The protracted, unsettling nature of the negotiations between the White House and Republicans dramatically slowed the recovery, economists conclude, looking back at the episode. Consumer confidence collapsed, reaching its worst level since the depths of the financial crisis. Hiring stalled, with the private sector creating jobs at its slowest pace since the economy exited the recession. The stock market plunged, sending the Standard & Poor’s 500-stock index down more than 10 percent.
In the last debt-ceiling hostage battle, the government spent an extra $1.3 billion to borrow because of lender uncertainty over whether they would be paid back, according to the Government Accounting Office (GAO). Following the battle the Standard & Poor's credit agency "downgraded" the U.S. credit rating, saying that any country that would even discuss default does not deserve the top rating.
On top of that, the 10-year cost of higher interest rates from that fight is $18.9 billion. The unemployment rate increased as job growth was cut in half by the fight. Consumer confidence plunged "more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008."
The consequences of actually letting the country default would begin with a panic in the stock market. And there would likely be a "run" on money markets, because the safety of the U.S. dollar is the foundation of the entire financial system.
Next, many of the things the U.S. government must pay for would not be paid for. Because raising the debt ceiling is about allowing the government to get the money to pay for the things Congress has already spent money on, existing invoices would not be paid. So the government would default on paying for contracts, hospitals and doctors who had already performed services, fuel purchases, everything right up to payments to Social Security recipients and people trying to redeem their government bonds. The government would have to prioritize who to pay based on what is coming in from tax receipts, fees and market transactions, which would all drop dramatically as the world's economy exploded. In any event, the government doesn't have the computer systems in place to prioritize payments, and wouldn't have the time or funds to get those running.
There would be a dramatic rise in interest rates for borrowing. The United States would no longer be a "safe" borrower, so the price of loans – the interest rate – would go up. That would ripple out to the price of a loan to a business, a mortgage, a car loan and everything else that Americans finance.
No matter how fast a default of the country was resolved, the shock to the confidence of the entire economic system would not go away. If the United States was no longer a "safe haven," then a restructuring of the world's core understanding of debt and repayment would follow.
With the effect of the last fight now understood, any new fight has to be seen for what it is: "economic sabotage."
This is the Hell that is in store for us when Congress returns next week. Call your member of Congress and both senators and tell them to fund the government and raise the debt ceiling.