Global Courant 2023-05-13 11:01:40
There have been numerous fiscal crises in the United States, where Congress failed to pass a budget on time or there was doubt about whether the federal debt ceiling would be raised, which could result in the U.S. failing to pay its debts. could fulfill.
These two types of crises can sometimes occur simultaneously. For example, a federal budget was not approved on time and threats were made not to raise the debt ceiling.
I worked as the deputy director of the Congressional Budget Office and the executive director of the National Governors Association, and I witnessed much of the bickering in Congress during these crises.
There have been since 1976 22 federal government shutdowns due to lack of a federal budget.
While these were very disturbing and damaged the economy and employmentthey pale in comparison to the possible consequences of not lifting the debt ceiling, which could be catastrophic. It could topple the entire international financial system. This, in turn, could devastate global gross domestic product and cause mass unemployment.
Fortunately, the US has never experienced a default. The debt ceiling has been raised 78 times since 1917 and currently stands at $31.4 trillion.
Here are three debt-cap crises I’ve seen play out—that had not only economic ramifications, but political ones as well.
1995: A GOP revolution—and a blunder
Often a debt crisis is preceded by elections that bring about a major shift in who controls Congress.
In the 1994 midterm elections, during President Bill Clinton’s first term, the Republicans won eight Senate seats and 54 seats in the House, flipping both chambers. The election was seen as a Republican revolution. Bob Dole became the Senate Majority Leader and Newt Gingrich became the Speaker of the House.
GOP lawmakers promised to pass a balanced budget as part of what they called their “Contract with America.” House Republicans sent Clinton a budget that cut domestic programs, which he vetoed. This led to another five-day shutdown of the federal government.
Gingrich then threatened not to raise the debt limit. A story in the Washington Post described the actions of the House leader as “House Speaker Newt Gingrich (R-Ga) yesterday threatened to default the government for the first time in history unless President Clinton bows to Republican demands for a balanced budget.”
Clinton responded to the latest GOP budget offer with a second veto, leading to an extended 21-day administration shutdown.
Finally the Republicans approved a budget offered by Clinton and lifted the debt ceiling.
There were unique aspects to this impasse. Dole was not interested in continuing negotiations as he was running for president. Ginger made comments about being snubbed by the president while traveling with him on Air Force One, and the press had a field day with those comments, linking closure to stupidity.
Polls increasingly showed that the Republicans were blamed for closure – a 1995 ABC poll indicated that 46% blamed Republicans and only 27% blamed the Democrats.
The press and Democratic lawmakers scoffed at House Speaker Newt Gingrich’s pique over what he said was a presidential censure.
2011: Austerity and reform, with a side of financial chaos
As in 1995, the 2011 crisis came after elections and a major shift in power on Capitol Hill.
The 2010 electionin the middle of President Barack Obama’s first term, the Republicans saw seven Senate seats win, but not yet a majority, and a net gain of 63 House seats, giving the GOP the majority. The Chamber then demanded that Obama is negotiating a package to reduce the deficit in exchange for raising the debt ceiling.
As the deadline for raising the debt limit approached, both the domestic and international US financial markets became chaotic. The S&P 500 down 17% and bond yields rose. On August 5, 2011, the rating agency Standard and Poor’s lowered the rating for long-term US government debtwhich could result in higher interest rates on that debt.
On July 31, 2011, just two days before the US government ran out of money, an agreement was reached between Congress and Obama that, once passed, would Budget Control Act of 2011. It reduced spending by $917 billion over the next 10 years and authorized the debt ceiling to be raised to $2.1 trillion.
The law also included several budget reforms — a concession to Republicans by Obama and Democrats — including the creation of a joint congressional selection committee to make recommendations on how to reduce the budget deficit. It also included an automatic provision to cut the budget if Congress does nothing.
2013: ‘We have nothing’
The Speaker of the US House of Representatives, John Boehner, a Republican, on October 8, 2013, the eighth day of government shutdown due to the debt crisis. Photo: Saul Loeb/AFP via Getty Images / The conversation
In January 2013, the debt ceiling set in 2011 was reached and the Ministry of Finance initiated extraordinary measures to continue financing necessary expenditures.
This included not paying federal employee pension funds and borrowing from trust funds such as Social Security.
The Treasury Department told Congress that those extraordinary measures to prevent default would be exhausted by mid-October 2013, and then the debt limit would have been reachedmeaning the US could no longer borrow money to pay its bills.
At the same time, Republicans, who controlled the House, had demanded cuts as well as policy changes. They wanted Obama to do that abolish funding his Affordable Care Act, which was considered his most significant legislative achievement.
The government was shut down again, for 16 days. Again, public support for the Republican approach started to erode. That prompted the GOP to capitulate and pass a budget that did not include significant spending cuts, and raised the debt ceiling, all in a vote the day before the government was due to run out of money.
“We have nothingsaid conservative Republican Representative Thomas Massie of Kentucky.
Risks for both sides
It is difficult to predict how the potential 2023 debt limit crisis will be resolved – each crisis is unique and depends on the specific leaders on both sides and how the public reacts to the crisis.
History indicates that there are significant risks for both sides and their respective leaders as the nation heads toward confrontation in early June. The crisis of 1995 did not benefit the Republicansand some even argue it helped Clinton win re-election.
In 2011, I would say the Republicans got substantial cuts and budget reform concessions from the Democrats. But due to lack of support for the Republican position in 2013, they relented.
The 2023 crisis that unfolds is like 1995 and 2011 in that it was preceded by an election that flipped the House majority. But it differs significantly in the size of that majority. With only a four-seat majority, risks to the Republican leadership are high.
If this impasse lasts long and the financial markets react as they did in previous crises, then the stakes for the two sides and their respective two leaders are huge and will increase over time. This could well affect the re-election of President Joe Biden and the longevity of current House Speaker Kevin McCarthy.
Raymond Scheppach is Professor of Public Policy, University of Virginia
This article has been republished from The conversation under a Creative Commons license. Read the original article.
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