America officially hit the debt ceiling yesterday, 14 300 billion dollars, but we did not notice much. Everything feels pretty much the same as before, gasoline costs over four dollars a gallon, food and household products are more expensive, the stock market is a bit nervous and has declined, but there is no panic – the roof has not fallen in.
However, behind the scenes, warnings are being heard. Treasury Secretary Tim Geithner has talked about a catastrophe not only for the U.S. economy but for the whole world economy unless Congress decides to raise the debt ceiling. The deadline is August 2 – after that the U.S. would have to suspend all its payments.
Normally, an increase in the debt ceiling is pretty much routine. Congress has raised the debt ceiling of 78 times since 1960, according to the New York Times, as much as 18 times during Ronald Reagan’s eight years in the White House alone, and despite the fact that politics often entered into the decision. Such is the case this year – a lot of politics.
Republicans demand budget cuts – see Speaker John Boehner’s proposal of 2,000 billion dollars in cuts and no tax increases — if they are to approve raising the debt ceiling. Unacceptable, the Democrats have responded. That’s where we stand today even though everyone knows that there really is no choice – the debt ceiling must be raised.
Despite the warning signals there is confidence that some form of settlement will be reached. The question is whether it will be a comprehensive agreement, which includes an agreement on next year’s budget, or if it will be a narrower, perhaps even temporary, agreement. Tough negotiations await, perhaps all the way until just before the deadline on August 2.