The real problem beyond the debt ceiling dilemma
GUESTWORK | J. Fred Giertz
J. Fred Giertz is a University of Illinois professor of economics and member of the Institute of Government and Public Affairs at Illinois. In an interview with News Bureau Business and Law editor Phil Ciciora, he discusses the economics of the debt ceiling debate.
How worried should we be about hitting the debt ceiling?
I would say don’t worry about the debt ceiling – worry about the real thing, which is how we get back to long-term economic stability. That doesn’t require reducing our debt to zero overnight. It just requires us not to grow it as fast as it has been growing recently.
How did we get to this point, and has raising the debt ceiling always been this contentious?
For many years, the federal government has had a rule whereby it has to approve increases in borrowing once it surpasses a certain level. Now we’re at the point where we’ve exhausted the amount of borrowing that has been authorized. To continue borrowing, we have to raise the debt ceiling.
Usually, that’s done more or less automatically with a little bit of complaining. But now, with the Republicans in control of the House, there’s a threat to actually not approve the debt ceiling.
So you have an odd situation where Congress has approved spending a trillion dollars more than it takes in and the only way to finance that is to borrow money. On the one hand, Congress has approved that money, but on the other it’s saying we’re not going to raise the debt ceiling to allow us to do that borrowing. It simply doesn’t make any sense.
Is it a good idea for Republicans to use the debt ceiling for political purposes, as a means of extracting some kind of deal?
It’s not a good strategy because it risks our credit rating, and it’s probably not going to be successful anyway because everyone thinks they’re bluffing.
It’s playing games with a serious situation and it could cause problems in terms of international financial markets.
To keep our current situation stable, we need people to keep buying our debt. Keeping people guessing as to whether we’ll be able to pay off our bonds is not a good strategy.
Do you think the Republicans will eventually fold in this game of brinksmanship?
I hope they will, because it certainly doesn’t accomplish anything in terms of addressing the real problem.
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